SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3464
Kentucky Utilities Company
(Exact name of registrant as specified in its charter)
Kentucky and Virginia 61-0247570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Quality Street, Lexington, Kentucky 40507
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 606-255-2100
Not Applicable
Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No .
Number of shares of Common Stock outstanding at May 2, 1996:
37,817,878 shares (owned by the parent-KU Energy Corporation).
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PART I. FINANCIAL INFORMATION
KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Three
Months Ended
March 31,
1996 1995
Operating Revenues $190,996 $167,148
Operating Expenses:
Fuel, principally coal,
used in generation 54,025 45,706
Electric power purchased 17,504 15,777
Other operating expenses 29,688 30,598
Maintenance 14,202 14,856
Depreciation 20,018 18,701
Federal and state income taxes 16,336 10,634
Other taxes 4,235 4,314
Total Operating Expenses 156,008 140,586
Net Operating Income 34,988 26,562
Other Income and Deductions:
Interest and dividend income 613 633
Other income and deductions - net 2,100 1,480
Total Other Income and Deductions 2,713 2,113
Income Before Interest Charges 37,701 28,675
Interest Charges 10,198 9,747
Net Income 27,503 18,928
Preferred Stock Dividend Requirements 564 564
Net Income Applicable to Common Stock $ 26,939 $ 18,364
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the Three
Months Ended
March 31,
1996 1995
Cash Flows from Operating Activities:
Net Income $ 27,503 $ 18,928
Items not requiring (providing) cash currently:
Depreciation 20,018 18,701
Deferred income taxes
and investment tax credit (352) (630)
Changes in current assets and liabilities:
Change in fuel inventory 4,127 (254)
Change in accounts receivable 1,508 5,623
Change in accounts payable (2,455) (18,239)
Change in accrued taxes 15,300 10,725
Change in accrued utility revenues 2,704 2,493
Other--net 9,665 8,570
Net Cash Provided by Operating Activities 78,018 45,917
Cash Flows from Investing Activities:
Construction expenditures - utility (21,105) (28,035)
Other 201 10
Cash Used by Investing Activities (20,904) (28,025)
Cash Flows from Financing Activities:
Short-term borrowings - net (40,200) (7,100)
Issuance of long-term debt 35,710 (146)
Funds deposited with trustee - net 1,500 8,600
Retirement of long-term debt, incl. premiums (36,192) (21)
Payment of dividends (16,826) (16,353)
Net Cash Used by Financing Activities (56,008) (15,020)
Net Increase in Cash and Cash Equivalents 1,106 2,872
Cash and Cash Equivalents Beginning of Period 5,697 3,111
Cash and Cash Equivalents End of Period $ 6,803 $ 5,983
Supplemental Disclosures
Cash paid for:
Interest on short- and long-term debt $ 6,294 $ 6,475
Federal and state income taxes $ 2,753 $ -
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
March 31, Dec. 31,
1996 1995
ASSETS
Utility Plant:
Plant in service, at cost $2,401,414 $2,394,018
Less: Accumulated depreciation 1,015,733 997,366
1,385,681 1,396,652
Construction work in progress 72,775 61,410
1,458,456 1,458,062
Current Assets:
Cash and cash equivalents 6,803 5,697
Escrow funds - coal contract litigation 6,599 6,599
Construction funds held by trustee 2,270 3,743
Accounts receivable 47,963 49,471
Accrued utility revenues 25,196 27,900
Fuel, principally coal, at average cost 25,311 29,438
Materials and supplies, at average cost 23,547 23,064
Other 8,471 8,121
146,160 154,033
Investments, Deferred Charges and Other Assets:
Unamortized loss on reacquired debt 11,640 11,304
Other 37,615 36,589
49,255 47,893
Total Assets $1,653,871 $1,659,988
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 587,214 $ 576,537
Preferred stock 40,000 40,000
Long-term debt 546,373 545,980
1,173,587 1,162,517
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 15,400 55,600
Accounts payable 35,545 38,000
Accrued interest 10,695 7,556
Accrued taxes 20,501 5,201
Customers' deposits 7,245 6,876
Accrued payroll and vacations 11,177 8,706
Liab. to ratepayers - coal contract litigation 6,599 6,599
Other 8,697 6,752
115,880 135,311
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 233,158 231,717
Accumulated deferred investment tax credits 33,177 34,180
Regulatory tax liability 56,806 57,726
Other 41,263 38,537
364,404 362,160
Total Capitalization and Liabilities $1,653,871 $1,659,988
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. PRESENTATION OF CONDENSED INFORMATION
Pursuant to the rules and regulations of the Securities and
Exchange Commission, certain information has been condensed and
certain footnote disclosures have been omitted, which are normal-
ly included in financial statements prepared in accordance with
generally accepted accounting principles.
These financial statements should be read in conjunction
with the financial statements and notes thereto in the Kentucky
Utilities Company (KU) Annual Report on Form 10-K for the year
ended December 31, 1995.
In the opinion of management, the information furnished
herein reflects all adjustments, all of which are normal and
recurring, which are necessary to present fairly the results of
the periods shown and the disclosures which have been made are
adequate to make the information not misleading. Results of
interim periods are not necessarily indicative of results for any
twelve-month period due to the seasonal nature of KU's business.
2. ENVIRONMENTAL COST RECOVERY
Since August 1994, KU has been collecting an environmental
surcharge from its Kentucky retail customers under a Kentucky
statute which authorizes electric utilities (including KU) to
implement, beginning January 1, 1993, an environmental surcharge.
The surcharge is designed to recover certain operating and
capital costs of compliance with federal, state or local
environmental requirements associated with the production of
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<PAGE>
KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
energy from coal, including the Federal Clean Air Act as amended.
KU's environmental surcharge was approved by the Kentucky Public
Service Commission (PSC) in July 1994 and was implemented in
August 1994.
The constitutionality of the surcharge statute was
challenged in the Franklin County (Kentucky) Circuit Court in an
action brought against KU and the PSC by the Attorney General of
Kentucky and joined by representatives of consumer groups. In
July 1995, the Circuit Court entered a judgment upholding the
constitutionality of the statute, but vacating that part of the
PSC's July 1994 order which the judgment describes as allowing KU
to recover, under the surcharge, environmental expenditures
incurred before January 1, 1993, and ordering the case remanded
to the PSC for determination in accordance with the Circuit Court
judgment.
The Attorney General and other consumer representatives
appealed to the Kentucky Court of Appeals that part of the
Circuit Court judgment upholding the constitutionality of the
surcharge statute. The PSC and KU appealed that part of the
judgment denying recovery of environmental expenditures incurred
before January 1, 1993. On August 22, 1995, the PSC ordered all
surcharge revenues collected by KU from that date subject to
refund pending final determination of all appeals. In March 1996
in the semi-annual reconciliation review, the PSC ordered all
surcharge revenues collected during the six-month period then
under review (February 1, 1995 through July 31, 1995) subject to
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KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
refund pending final determination of all appeals. The total
surcharge collections from February 1, 1995 through March 31,
1996 were approximately $22 million.
KU believes the constitutionality of the surcharge statute
will be upheld, but it cannot predict the outcome of that part of
the Circuit Court judgment disallowing recovery of environmental
expenditures incurred before January 1, 1993. If the Circuit
Court judgment is ultimately upheld as entered, KU estimates that
the amount it would be required to refund (which is based solely
on costs associated with environmental expenditures incurred
before January 1, 1993) for surcharge collections through
March 31, 1996, from the implementation of the surcharge would be
approximately $7 million, and from February 1, 1995 would be
approximately $5 million. At this time, KU has not recorded any
reserve for refund.
3. FINANCING
In January 1996, KU issued $36 million of Series S First
Mortgage Bonds which will mature January 15, 2006 and bear
interest at 5.99%. The proceeds were used to redeem
$35.5 million of Series K First Mortgage Bonds. A redemption
premium of approximately $.7 million was recorded on the balance
sheet and will be amortized over the period to the scheduled
maturity of the new bonds.
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<PAGE>
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY & RESOURCES
At March 31, 1996, KU's short-term borrowings were
$15.4 million compared to $55.6 million at December 31, 1995.
The short-term borrowings have been used primarily to finance
ongoing construction expenditures and general corporate
requirements. The decrease is due primarily to planned
reductions in construction expenditures and additional cash
provided by operations during the first quarter of 1996.
Refer to Note 3 of the Notes to Financial Statements for a
discussion of KU's recent financing activities.
RESULTS OF OPERATIONS
Quarter ended March 31, 1996, compared
to the Quarter ended March 31, 1995
Net income applicable to common stock for the three-month
period ended March 31, 1996 was $26.9 million compared to
$18.4 million for the corresponding period of 1995. The increase
primarily reflects the positive effects of colder weather and
increased opportunity sales during the first quarter of 1996
compared to 1995. The positive effects of these factors were
somewhat offset by increases in fuel and purchased power expense
as discussed below.
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<PAGE>
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Increase (Decrease)
From Prior Year
Three Months
Ended March 31, 1996
kWh Revenues
(%) (000's)
Residential 13 $ 8,186
Commercial 5 2,018
Industrial 10 3,134
Mine Power & Public Authorities 3 907
Total Retail Sales 9 14,245
Wholesale 5 773
Opportunity 405 7,920
Total Other Electric Utilities 89 8,693
Miscellaneous Revenues & Other - 910
Total 19 $ 23,848
Operating revenues increased $23.8 million (14%). The
increase reflects a 19% increase in kilowatt-hour sales. The
increase in kilowatt-hour sales is primarily attributable to
increases in residential, industrial and opportunity sales. The
increase in opportunity sales (525,495 megawatt-hours versus
104,148 megawatt-hours) is primarily due to Non-Firm energy sales
agreements with two neighboring utilities for the year 1996. The
increase in industrial sales reflects continued economic growth
in the manufacturing sector of KU's service area evidenced primarily
by a 6% increase in the number of industrial customers over 1995.
The increase in residential sales was primarily due to colder weather
in the first quarter of 1996 compared to 1995. KU set an all-time
peak demand for electricity on February 5, 1996 of 3,391 megawatts.
Fuel expense increased $8.3 million (18%). The increase was
primarily due to a 20% increase in the tons of coal consumed,
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<PAGE>
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
which was primarily caused by a 19% increase in generation. The
increase in consumption resulted from the previously mentioned
increase in kilowatt-hour sales. Purchased power expense
increased $1.7 million (11%) due to an increase in energy charges
($2.0 million) offset slightly by a decrease in demand charges
($.3 million). The increase in energy costs reflects a 10%
increase in kilowatt-hour purchases.
Federal and state income taxes increased $5.7 million (54%).
The increase was primarily due to increased pre-tax income.
UTILITY ISSUES - COMPETITION
Refer to Management's Discussion and Analysis in the 1995
Annual Report on Form 10-K under the heading "Utility Issues -
Competition" for a discussion of the Federal Energy Regulatory
Commission's (FERC) proposed rules addressing open access trans-
mission service and the collection of charges for the recovery of
stranded costs. In late April 1996, the FERC issued two final rules
and a Notice of Proposed Rulemaking (NOPR). FERC Order No. 888
addresses both open access and stranded cost issues. FERC Order
No. 889 requires utilities to establish electronic systems to share
information about available transmission capacity. It also establishes
standards of conduct. The NOPR proposes to establish a new system for
utilities to use in reserving capacity on their own and other's
transmission lines. KU is currently evaluating the impacts of the
final rules and the NOPR.
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<PAGE>
PART II. OTHER INFORMATION
KENTUCKY UTILITIES COMPANY
ITEM 1. LEGAL PROCEEDINGS
See Note 2 of the Notes to Financial Statements,
Environmental Cost Recovery, for a discussion of the
environmental surcharge.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibit is filed as part of this report:
Exhibit
Number Description
27 Financial Data Schedule (required for electronic
filing only in accordance with Item 601(c)(1) of
Regulation S-K.)
(b) Reports on Form 8-K.
(1) KU filed a Form 8-K dated January 18, 1996 to report
certain financial information included in the
Prospectus dated January 18, 1996 for its Series S
First Mortgage Bonds.
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<PAGE>
KENTUCKY UTILITIES COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
KENTUCKY UTILITIES COMPANY
(Registrant)
Date May 2, 1996 /s/ Michael R. Whitley
Michael R. Whitley
Chairman and President
Date May 2, 1996 /s/ Michael D. Robinson
Michael D. Robinson
Controller
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<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1996 AND THE STATEMENTS OF INCOME AND CASH FLOWS FOR THE
PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q QUARTERLY REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,458,456
<OTHER-PROPERTY-AND-INVEST> 12,131
<TOTAL-CURRENT-ASSETS> 146,160
<TOTAL-DEFERRED-CHARGES> 37,124
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,653,871
<COMMON> 308,140
<CAPITAL-SURPLUS-PAID-IN> (594)
<RETAINED-EARNINGS> 279,668
<TOTAL-COMMON-STOCKHOLDERS-EQ> 587,214
0
40,000
<LONG-TERM-DEBT-NET> 546,373
<SHORT-TERM-NOTES> 15,400
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 464,863
<TOT-CAPITALIZATION-AND-LIAB> 1,653,871
<GROSS-OPERATING-REVENUE> 190,996
<INCOME-TAX-EXPENSE> 16,336
<OTHER-OPERATING-EXPENSES> 139,672
<TOTAL-OPERATING-EXPENSES> 156,008
<OPERATING-INCOME-LOSS> 34,988
<OTHER-INCOME-NET> 2,713
<INCOME-BEFORE-INTEREST-EXPEN> 37,701
<TOTAL-INTEREST-EXPENSE> 10,198
<NET-INCOME> 27,503
564
<EARNINGS-AVAILABLE-FOR-COMM> 26,939
<COMMON-STOCK-DIVIDENDS> 16,262
<TOTAL-INTEREST-ON-BONDS> 9,588
<CASH-FLOW-OPERATIONS> 78,018
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>ALL OUTSTANDING COMMON STOCK OF KENTUCKY UTILITIES COMPANY IS HELD BY ITS
PARENT COMPANY, KU ENERGY CORPORATION. THEREFORE, EARNINGS PER SHARE IS NOT
APPLICABLE.
</FN>
</TABLE>
