UNITED STATES 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, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification
No.
1-10944 KU Energy Corporation 61-1141273
(A Kentucky Corporation)
One Quality Street
Lexington, Kentucky 40507-1428
(606) 255-2100
1-3464 Kentucky Utilities Company 61-0247570
(A Kentucky and Virginia Corporation)
One Quality Street
Lexington, Kentucky 40507-1428
(606) 255-2100
Indicate by check mark whether the Registrants (1) have 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 such Registrants were required to file such
reports) and (2) have been subject to such filing requirements for the
past 90 days.
Yes X No .
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of the latest practicable date:
KU Energy Corporation: Common stock, no par value, none
Kentucky Utilities Company: Common stock, no par value, 37,817,878
shares outstanding and held by LG&E
Energy Corp. at May 13, 1998
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KU ENERGY CORPORATION
AND
KENTUCKY UTILITIES COMPANY
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998*
CONTENTS
PART I. FINANCIAL INFORMATION Page No.
Item 1: Financial Statements
KU ENERGY CORPORATION
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 4
Consolidated Balance Sheets 5
KENTUCKY UTILITIES COMPANY
Statements of Income 6
Statements of Cash Flows 7
Balance Sheets 8
CONDENSED NOTES TO FINANCIAL STATEMENTS OF KU ENERGY
CORPORATION AND KENTUCKY UTILITIES COMPANY 9-13
Item 2: Managements Discussion and Analysis of
Financial Condition and Results of Operations
KU ENERGY CORPORATION AND KENTUCKY
UTILITIES COMPANY 14-21
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 22
Item 5: Other Information 22
Item 6: Exhibits and Reports on Form 8-K 28
Signatures 29
*Information included herein which relates solely to KU Energy Corporation
is provided solely by KU Energy Corporation and not by Kentucky Utilities
Company and shall be deemed not included in the Quarterly Report of
Kentucky Utilities Company.
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PART I. FINANCIAL INFORMATION
KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except for per share amounts)
For the Three
Months Ended
March 31,
1998 1997
Operating Revenues $183,210 $178,908
Operating Expenses:
Fuel, principally coal,
used in generation 48,347 44,713
Electric power purchased 17,989 17,603
Other operating expenses 30,400 31,156
Maintenance 13,335 12,013
Depreciation 21,533 20,882
Federal and state income taxes 14,738 15,334
Other taxes 4,172 4,071
Total Operating Expenses 150,514 145,772
Net Operating Income 32,696 33,136
Other Income and Deductions:
Interest and dividend income 628 612
Other income and deductions - net 2,351 1,555
Total Other Income and Deductions 2,979 2,167
Income Before Interest and Other Charges 35,675 35,303
Interest and Other Charges 10,270 10,440
Net Income $ 25,405 $ 24,863
Average Common Shares Outstanding 37,818 37,818
Basic Earnings Per Common Share $ .67 $ .66
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the
Three Months
Ended March 31,
1998 1997
Cash Flows from Operating Activities:
Net Income $ 25,405 $ 24,863
Items not requiring (providing) cash currently:
Depreciation 21,533 20,882
Deferred income taxes and investment tax credit 250 3,213
Changes in current assets and liabilities:
Change in fuel inventory 4,907 5,646
Change in accounts receivable (1,802) 7,476
Change in accounts payable (1,509) (3,506)
Change in accrued taxes 15,802 13,517
Change in accrued utility revenues 6,576 623
Change in other current assets and liabilities 3,865 4,333
Other--net 369 (4,706)
Net Cash Provided by Operating Activities 75,396 72,341
Cash Flows from Investing Activities:
Construction expenditures - utility (15,299) (18,127)
Investment in independent power projects (886) (4,995)
Proceeds from insurance reimbursements 8 4,046
Proceeds from independent power projects 1,356 30
Other 724 200
Net Cash Used by Investing Activities (14,097) (18,846)
Cash Flows from Financing Activities:
Short-term borrowings - net (33,600) (41,700)
Retirement of long-term debt, incl. premiums (21) (21)
Payment of common stock dividends (17,018) (16,640)
Net Cash Used by Financing Activities (50,639) (58,361)
Net Increase (Decrease) in Cash and Cash Equivalents 10,660 (4,866)
Cash and Cash Equivalents Beginning of Period 21,726 30,270
Cash and Cash Equivalents End of Period $ 32,386 $ 25,404
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
Supplemental Disclosures
Cash paid for:
Interest $ 6,476 $ 6,672
Income taxes 500 $ (320)
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
Mar. 31, Dec. 31,
ASSETS 1998 1997
Utility Plant:
Plant in service, at cost $ 2,561,149 $ 2,552,695
Less: Accumulated depreciation 1,149,284 1,128,282
1,411,865 1,424,413
Construction work in progress 64,079 58,939
1,475,944 1,483,352
Current Assets:
Cash and cash equivalents 32,386 21,726
Accounts receivable 47,071 45,269
Accrued utility revenues 23,092 29,668
Fuel, principally coal, at average cost 22,892 27,799
Plant materials and operating supplies,
at average cost 24,147 23,648
Other 6,360 5,769
155,948 153,879
Other Assets:
Investment in leveraged leases 28,477 28,152
Investment in independent power projects 9,079 8,730
Regulatory assets 15,291 14,773
Other 51,478 48,376
104,325 100,031
Total Assets $ 1,736,217 $ 1,737,262
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 672,509 $ 664,122
Preferred stock 40,000 40,000
Long-term debt 546,330 546,351
1,258,839 1,250,473
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings - 33,600
Accounts payable 28,052 29,561
Accrued interest 10,576 8,283
Accrued taxes 23,512 7,710
Customer deposits 9,754 9,841
Accrued payroll and vacations 12,256 10,407
Other 7,370 6,492
91,541 105,915
Other Liabilities:
Accumulated deferred income taxes 255,037 252,492
Accumulated deferred investment tax credits 25,163 26,131
Regulatory tax liability - net 49,598 50,904
Other 56,039 51,347
385,837 380,874
Total Capitalization and Liabilities $ 1,736,217 $ 1,737,262
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Three
Months Ended
March 31,
1998 1997
Operating Revenues $183,219 $178,914
Operating Expenses:
Fuel, principally coal,
used in generation 48,347 44,713
Electric power purchased 17,989 17,603
Other operating expenses 29,973 30,788
Maintenance 13,333 12,011
Depreciation 21,486 20,835
Federal and state income taxes 14,968 15,527
Other taxes 4,088 4,013
Total Operating Expenses 150,184 145,490
Net Operating Income 33,035 33,424
Other Income and Deductions:
Interest and dividend income 419 366
Other income and deductions - net 1,295 1,046
Total Other Income and Deductions 1,714 1,412
Income Before Interest Charges 34,749 34,836
Interest Charges 9,700 9,875
Net Income 25,049 24,961
Preferred Stock Dividend Requirements 564 564
Net Income Applicable to Common Stock $ 24,485 $ 24,397
The accompanying Condensed 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,
1998 1997
Cash Flows from Operating Activities:
Net Income $ 25,049 $ 24,961
Items not requiring (providing) cash currently:
Depreciation 21,486 20,835
Deferred income taxes
and investment tax credit (121) 1,154
Changes in current assets and liabilities:
Change in fuel inventory 4,907 5,646
Change in accounts receivable (1,975) 7,525
Change in accounts payable (5,270) (4,320)
Change in accrued taxes 15,873 15,231
Change in accrued utility revenues 6,576 623
Change in other current assets and
liabilities 3,861 4,486
Other--net 2,170 (3,412)
Net Cash Provided by Operating Activities 72,556 72,729
Cash Flows from Investing Activities:
Construction expenditures - utility (15,299) (18,127)
Proceeds from insurance reimbursements 8 4,046
Net Cash Used by Investing Activities (15,291) (14,081)
Cash Flows from Financing Activities:
Short-term borrowings - net (33,600) (41,700)
Retirement of long-term debt, incl. premiums (21) (21)
Payment of dividends (17,582) (17,204)
Net Cash Used by Financing Activities (51,203) (58,925)
Net Increase (Decrease) in Cash and
Cash Equivalents 6,062 (277)
Cash and Cash Equivalents Beginning of Period 5,453 5,719
Cash and Cash Equivalents End of Period $ 11,515 $ 5,442
Supplemental Disclosures
Cash paid for:
Interest $ 6,476 $ 6,672
Income taxes $ 138 $ (320)
The accompanying Condensed 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
Mar. 31, Dec. 31,
1998 1997
ASSETS
Utility Plant:
Plant in service, at cost $2,561,149 $2,552,695
Less: Accumulated depreciation 1,149,284 1,128,282
1,411,865 1,424,413
Construction work in progress 64,079 58,939
1,475,944 1,483,352
Current Assets:
Cash and cash equivalents 11,515 5,453
Accounts receivable 46,831 44,856
Accrued utility revenues 23,092 29,668
Fuel, principally coal, at average cost 22,892 27,799
Plant materials and operating supplies,
at average cost 24,147 23,648
Other 6,360 5,769
134,837 137,193
Other Assets:
Regulatory assets 15,291 14,773
Other 47,664 44,562
62,955 59,335
Total Assets $1,673,736 $1,679,880
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 619,762 $ 612,295
Preferred stock 40,000 40,000
Long-term debt 546,330 546,351
1,206,092 1,198,646
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings - 33,600
Accounts payable 28,116 33,386
Accrued interest 10,576 8,283
Accrued taxes 23,346 7,473
Customer deposits 9,754 9,841
Accrued payroll and vacations 12,197 10,348
Other 7,090 6,215
91,100 109,167
Other Liabilities:
Accumulated deferred income taxes 247,325 245,150
Accumulated deferred investment tax credits 25,163 26,131
Regulatory tax liability - net 49,598 50,904
Other 54,458 49,882
376,544 372,067
Total Capitalization and Liabilities $1,673,736 $1,679,880
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. PRESENTATION OF CONDENSED INFORMATION
The unaudited interim financial statements presented herein
include the consolidated statements of KU Energy Corporation and
Subsidiaries (KU Energy or the Company) as well as separate financial
statements for Kentucky Utilities Company (KU). Pursuant to an
Agreement and Plan of Merger dated May 20, 1997, between KU Energy and
LG&E Energy Corp. (LG&E Energy), KU Energy merged with and into LG&E
Energy, with LG&E Energy as the surviving corporation, effective
May 4, 1998. As of that date, KU Energy's separate corporate
existence ceased. LG&E Energy is a holding company organized under
the laws of Kentucky. As of May 4, 1998, LG&E Energy's subsidiaries
include KU Capital Corporation (KU Capital), a non-utility subsidiary,
and KU, an electric utility, formerly subsidiaries of KU Energy. KU
Energy Corporation owned, and as of May 4, 1998, LG&E Energy owns
100 percent of the common equity of KU Capital and KU. This Form 10-Q
is the last report to be made by KU Energy under the Securities
Exchange Act of 1934 (Exchange Act). KU will continue to be subject
to Exchange Act reporting requirements. LG&E Energy and its other
subsidiaries will file separate reports for the quarter ended
March 31, 1998.
The unaudited statements have been prepared by the Company and
KU, respectively, pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations,
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
although the Company and KU believe the disclosures are adequate to
make the information presented not misleading. The Company's
consolidated financial statements should be read in conjunction with
the financial statements and notes thereto incorporated by reference
in the Annual Report on Form 10-K of KU Energy and KU for the year
ended December 31, 1997; and the KU financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Annual Report on Form 10-K of KU Energy and KU for the
year ended December 31, 1997.
In the opinion of the Company and KU, the respective 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. Certain prior year
amounts have been reclassified on a basis consistent with the
March 31, 1998 presentation.
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
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
associated with the production of 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 total surcharge collections
from August 1, 1994 through March 31, 1998 were approximately $65
million.
The PSC's order approving the surcharge and the constitutionality
of the surcharge statute were challenged in the Franklin County
(Kentucky) Circuit Court (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 surcharge
statute, but vacating that part of the PSC's July 1994 order which the
Circuit Court's judgment described as retroactively applying the
surcharge statute. The Circuit Court further ordered the case
remanded to the PSC for a determination in accordance with the
judgment. KU and the PSC argued that the PSC's July 1994 order did
not retroactively apply the statute.
The Kentucky Attorney General and other consumer representatives
appealed to the Kentucky Court of Appeals (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
concerning the retroactive application of the surcharge statute. The
PSC previously ordered KU to collect all surcharge revenues beginning
February 1, 1995 subject to refund pending final determination of all
appeals. KU expects the PSC to continue to do so until the appeals
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
are concluded. The total surcharge collections from February 1, 1995
through March 31, 1998 were approximately $61 million.
In December 1997, the Court of Appeals rendered an opinion
upholding the portion of the Circuit Court's judgment regarding the
constitutionality of the surcharge statute but reversing that portion
of the Circuit Court's judgment concerning the claim of retroactive
application of the statute.
The Kentucky Attorney General and other consumer representatives
have filed motions for discretionary review with the Kentucky Supreme
Court (Supreme Court). The Supreme Court has the discretion to grant
or deny the motions. KU and the PSC have asked the Supreme Court to
deny the motions. KU cannot predict whether the Supreme Court will
grant review of the case or when it will act on the matter.
KU continues to believe that the constitutionality of the
surcharge statute will be upheld. Although KU cannot predict the
outcome of the claim of retroactive application of the statute, it is
the position of KU and the PSC that the July 1994 PSC order did not
retroactively apply the statute. If the Court of Appeals opinion
reversing the Circuit Court's judgment on the claim of retroactivity
is overturned and the Circuit Court's judgment, as entered, is upheld,
KU estimates that the amount it could be required to refund for
surcharge collections through March 31, 1998, from the implementation
of the surcharge would be approximately $16 million and from
February 1, 1995, would be approximately $14 million. At this time,
KU has not recorded any reserve for refund.
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. MERGER AGREEMENT WITH LG&E ENERGY CORP.
KU Energy and LG&E Energy Corp. entered into a Merger Agreement
dated May 20, 1997. For information concerning the agreement, see
Management's Discussion and Analysis - Merger Agreement with LG&E
Energy Corp.
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and
results of operations are for the Company unless otherwise stated.
Material changes in the consolidated financial condition and operating
results of KU Energy are based primarily upon the operations of KU.
FINANCIAL CONDITION
At March 31, 1998, KU had no short-term borrowings compared to
$33.6 million at December 31, 1997. The short-term borrowings have
been used primarily to finance ongoing construction expenditures and
general corporate requirements. The decrease between March 31, 1998
and December 31, 1997 is due primarily to cash provided by operations
exceeding cash required for investing and financing activities
(exclusive of short-term borrowings) in the first quarter of 1998.
RESULTS OF OPERATIONS
Quarter ended March 31, 1998 compared
to the Quarter ended March 31, 1997
The Company's basic earnings per common share for the three-month
period ended March 31, 1998 were $.67 compared to $.66 for the
corresponding period of 1997. The increase was primarily due to
increases in industrial sales and sales for resale during 1998 when
compared to 1997. These increases were offset somewhat by an increase
in maintenance expense.
The changes in operating revenues and kilowatt-hour sales
described below are for the Company. The only difference between
changes in operating revenues for the Company and operating revenues
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
for KU is intercompany revenues that are eliminated in the consolidated
financial statements. These intercompany amounts are immaterial.
Increase (Decrease)
From Prior Year
Three Months
Ended Mar. 31, 1998
kWh Revenues
(%) (000's)
Residential (1) $ 407
Commercial 1 508
Industrial 6 1,939
Mine Power (3) (260)
Public Authorities (1) 54
Total Retail Sales 1 2,648
Sales for Resale 12 1,246
Miscellaneous Revenues & Other - 408
Total 3 $ 4,302
In February 1997, pursuant to a PSC order, KU made a one-time
refund through the fuel adjustment clause to Kentucky customers
associated with the disposition of KU-owned railroad cars. As a
result of the refund, revenues and fuel expense were reduced by
approximately $3 million in the first quarter of 1997. KU had
reserved for the refund amount in prior periods.
Excluding the effect of the refund mentioned above, operating
revenues for the first quarter of 1998 were flat compared to the first
quarter of 1997, increasing $1 million. The increase reflects a 3%
increase in kilowatt-hour sales, which is primarily attributable to
increases in industrial sales and sales for resale. The increase in
industrial sales reflects continued economic growth in the
manufacturing sector of KU's service area. The increase in sales for
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
resale (937,799 megawatt-hours versus 843,892 megawatt-hours) was
primarily due to increased demand.
Excluding the effect of the refund mentioned above, fuel expense
increased $.8 million (2%). The increase was due to a 1% increase in
million British thermal units (MBTU) used. The increased consumption
was primarily caused by the previously mentioned increase in kilowatt-
hour sales.
Maintenance expense increased $1.3 million (11%). The increase
was primarily due to distribution utility line maintenance costs
incurred as a result of ice storm damage during the first quarter of
1998.
Federal and state income taxes decreased $.6 million (4%). The
decrease was primarily due to a decrease in pretax operating income.
MERGER AGREEMENT WITH LG&E ENERGY CORP.
On May 20, 1997, KU Energy and LG&E Energy Corp. (LG&E Energy)
entered into an Agreement and Plan of Merger (Merger) providing for
a tax-free, stock-for-stock merger of KU Energy and LG&E Energy. As a
result of the Merger which became effective May 4, 1998, LG&E Energy,
the surviving corporation, has become the parent company of KU and will
continue as parent of Louisville Gas and Electric Company (LG&E).
Shareholders of KU Energy common stock received 1.67 shares of LG&E
Energy common stock for each share of KU Energy common stock held.
The Merger will be accounted for as a pooling-of-interests.
Shareholders of both companies approved the Merger on October 14,
1997. The Merger also has been approved by the Virginia State
Corporation Commission (SCC), the PSC, the Federal Energy Regulatory
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Commission (FERC) and the Securities and Exchange Commission.
The PSC order approves a surcredit mechanism which passes one-half
of the potential non-fuel merger savings (net of costs to achieve) to
customers over the first five years following the consummation of the
Merger. The credit will be nearly 2% of customers bills in the five-year
period and will amount to approximately $63 million in net non-fuel
savings to KU customers. Similar methods for passing net non-fuel merger
savings have been approved for Virginia customers by the SCC and agreed
to by KU's municipal wholesale customers. The surcredits will become
effective for billings in July 1998.
The PSC order also approves recovery from ratepayers of one-half of
merger-related expenses (not to exceed $77.2 million) over a five-year
period. The remaining merger-related expenses will be expensed as
incurred after the effective date of the Merger. Total merger-related
expenses are now expected to be approximately $94 million of which the
Company's share is expected to be approximately $47 million. Merger-
related expenses are higher than earlier estimates primarily as a result
of higher than originally estimated separation costs. Amounts in excess
of $77.2 million will be expensed consistent with the approved
regulatory plan as part of the second quarter one-time charge. Through
March 31, 1998, the Company has deferred approximately $9.1 million
pending consummation of the Merger. Of that amount, $4.8 million is
included in regulatory assets to be recovered following the consummation
of the Merger as described above.
As part of their PSC application, KU and LG&E have proposed a base
rate cap for five years after consummation of the Merger, except in the
event of extraordinary circumstances such as a significant increase in
the federal corporate tax rate. The PSC order notes that the PSC has
the statutory jurisdiction to regulate utility rates including the
authority to investigate and review KU's and LG&E's earnings at any
time.
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The PSC order also requires KU and LG&E to file by September 14,
1998, detailed plans to address any future rate regulation that may be
adopted in the state. The PSC order further provides that the PSC will
at that time determine, on the basis of the described filings and other
information, whether changes should be made to the existing regulation
of KU and LG&E.
ENVIRONMENTAL MATTERS
Environmental Cost Recovery
In August 1994, KU implemented an environmental cost recovery
mechanism (surcharge) in Kentucky. Authorized by a 1992 state statute
and approved by the PSC in July 1994, the surcharge is designed to
recover certain environmental compliance costs, including costs to
comply with the 1990 Clean Air Act Amendments, through a surcharge on
customers' bills.
The PSC's order approving the surcharge and the constitutionality
of the surcharge were challenged in a Franklin County (Kentucky) Circuit
Court (Circuit Court) action brought against KU and the PSC by the
Attorney General of Kentucky and representatives of consumer groups. In
July 1995, the Circuit Court entered a judgment upholding the
constitutionality of the surcharge statute but vacating that part of the
PSC's order which the Circuit Court's judgment described as
retroactively applying the surcharge statute. All parties (including KU
and the PSC) appealed the Circuit Court's judgment to the Kentucky Court
of Appeals (Court of Appeals). The PSC previously ordered KU to collect
all surcharge revenues beginning February 1, 1995 subject to refund
pending final determination of all appeals. KU expects the PSC
to continue to do so until the appeals are concluded. The total surcharge
collections from February 1, 1995 through March 31, 1998 were
approximately $61 million.
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In December 1997, the Court of Appeals rendered an opinion
upholding the portion of the Circuit Court's judgment regarding
the constitutionality of the surcharge statute but reversing that
portion of the Circuit Court's judgment concerning the claim of
retroactive application of the statute. The Kentucky Attorney General
and other consumer representatives have filed motions for discretionary
review with the Kentucky Supreme Court (Supreme Court). The Supreme
Court has the discretion to grant or deny the motions. KU and the PSC
have asked the Supreme Court to deny the motions. KU cannot predict
whether the Supreme Court will grant review of the case or when it will
act on the matter.
KU continues to believe that the constitutionality of the surcharge
statute will be upheld. Although KU cannot predict the outcome
of the claim of retroactive application of the statute, it is the
position of KU and the PSC that the July 1994 PSC order did not
retroactively apply the statute. If the Court of Appeals opinion
reversing the Circuit Court's judgment on the claim of retroactivity
is overturned and the Circuit Court's judgment, as entered, is
upheld, KU estimates that the amount it could be required to refund
for surcharge collections through March 31, 1998, from the
implementation of the surcharge would be approximately $16 million,
and from February 1, 1995, would be approximately $14 million. At this
time, KU has not recorded any reserve for refund. Refer to Note 2
of the Condensed Notes to Financial Statements, "Environmental Cost
Recovery."
Nitrogen Oxide Emission Reductions
The Environmental Protection Agency (EPA) issued final rules
revising the National Ambient Air Quality Standards for ozone and
particulate matter in July 1997. The revised standards would require
significant reductions in sulfur dioxide and nitrogen oxide emissions
-19-
<PAGE>
KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
from coal-fired boilers (including those at KU's generating stations)
beginning in 2004. Certain implementation proposals, which are not
yet final, would target coal-fired utilities in the Midwest and South,
including Kentucky, for more substantial reductions than other areas
and other sources of emissions. Final implementation methods will be
set by the EPA as well as state regulatory authorities.
KU believes that the costs relating to compliance with the new
standards, including capital costs as well as associated increases in
operating costs, are likely to be substantial and are dependent upon
the ultimate control program agreed to by the targeted states and EPA.
Such costs are expected to be incurred in the 2004-2007 time period.
KU further believes that such capital and operating costs are the type
of costs that are eligible for recovery from customers under its
environmental surcharge mechanism. However, approval from the PSC is
required. Refer to Note 2 of the Condensed Notes to Financial
Statements, Environmental Cost Recovery. The exact nature of the
impact of the new standards on KU's operations will not likely be
known for some time.
FORWARD LOOKING STATEMENTS
This report includes forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. All
statements made herein which are not based on historical facts are
forward looking and, accordingly, involve risks and uncertainties that
could cause actual results to differ materially from those discussed.
Such forward looking statements include those under Managements'
-20-
<PAGE>
KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Discussion and Analysis relating to the anticipated results of
proceedings related to the environmental surcharge, the Company's
share of merger-related expenses, the anticipated amount of customer
savings resulting from the Merger, the anticipated strengthened
competetive position resulting from the Merger, and the impact of the
revisions to the National Ambient Air Quality Standards and recovery
of related costs. Such statements are based on management's belief,
judgment and analysis as well as assumptions made by and information
available to management at the date hereof. In addition to any
assumptions and cautionary factors referred to specifically in this
report in connection with such forward looking statements, factors
that could cause actual results to differ materially from those
contemplated by the forward looking statements include unanticipated
or adverse decisions in regulatory proceedings or litigation and other
matters detailed in Exhibit 99.04, Cautionary Statements, to the 1997
Annual Report on Form 10-K of KU Energy and KU, incorporated herein by
reference.
-21-
<PAGE>
KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 2 of the Condensed Notes to Financial Statements,
Environmental Cost Recovery, for a discussion of KU's environmental
surcharge.
ITEM 5. OTHER INFORMATION
Unaudited Supplemental Pro Forma Combined Condensed Consolidated
Financial Information
The following supplemental unaudited pro forma financial
information combines the historical balance sheets and statements of
income of LG&E Energy and KU Energy, including their respective
subsidiaries, after giving effect to the Merger. The unaudited pro
forma combined condensed balance sheet at March 31, 1998 gives effect
to the Merger as if it had occurred at March 31, 1998. The unaudited
pro forma combined condensed statements of income for all periods give
effect to the Merger as if it had occurred at January 1, 1996. These
statements are prepared on the basis of accounting for the Merger as a
pooling of interests and are based on the assumptions set forth in the
notes thereto. The pro forma financial information does not give
effect to the expected synergies of the transaction.
The following supplemental pro forma financial information has
been prepared from, and should be read in conjunction with, the
historical financial statements and related notes thereto of LG&E
Energy and KU Energy as included in their respective Annual Reports on
Form 10-K for the year ended December 31, 1997. The following
information is not necessarily indicative of the financial position or
operating results that would have occurred had the Merger been
consummated on the date as of which, or at the beginning of the
periods for which, the Merger is being given effect, nor is it
necessarily indicative of future operating results or financial
position. In addition, due to the effect of seasonal fluctuations in
temperature and other weather-related factors on the operations of
LG&E Energy and KU Energy, financial results for the three-month
periods ended March 31, 1998 and 1997 are not necessarily indicative
of trends for any twelve-month period.
-22-
<PAGE>
<TABLE>
<CAPTION>
LG&E ENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET
At March 31,1998
(Thousands of Dollars)
LG&E Energy KU Energy Pro Forma Pro Forma
(As Reported) (As Reported) Adjustment Combined
(Note 1) (Note 2) (Note 3)
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and temporary cash investments $ 134,984 $ 32,386 $ - $ 167,370
Marketable securities 25,048 - - 25,048
Accounts receivable - less reserve 465,114 70,163 (320) 534,957
Materials and supplies - primarily
at average cost:
Fuel (predominately coal) 21,501 22,892 - 44,393
Gas stored underground 13,365 - - 13,365
Other 31,985 24,147 - 56,132
Price risk management assets 182,262 - - 182,262
Prepayments and other 4,340 6,360 - 10,700
Total current assets 878,599 155,948 (320) 1,034,227
Utility plant:
At original cost 2,789,600 2,625,228 - 5,414,828
Less: reserve for depreciation 1,087,647 1,149,284 - 2,236,931
Net utility plant 1,701,953 1,475,944 - 3,177,897
Other property and investments
- less reserve:
Investments in affiliates 153,042 2,081 - 155,123
Non-utility property and plant, net 420,918 2,642 - 423,560
Price risk management assets 57,025 - - 57,025
Other 29,228 43,349 - 72,577
Total other property and
investments 660,213 48,072 - 708,285
Deferred debits and other assets 120,837 56,253 (2,798) 174,292
Total assets $ 3,361,602 $ 1,736,217 $ (3,118) $ 5,094,701
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
</TABLE>
-23-
<PAGE>
<TABLE>
LG&E ENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET
At March 31, 1998
(Thousands of Dollars)
<CAPTION>
LG&E Energy KU Energy Pro Forma Pro Forma
(As Reported) (As Reported) Adjustment Combined
(Note 1) (Note 2) (Note 3)
CAPITAL AND LIABILITIES
Current liabilities:
<S> <C> <C> <C> <C>
Long-term debt due within one year $ 20,000 $ 21 $ - $ 20,021
Notes payable 205,515 - - 205,515
Accounts payable 393,748 28,052 7,573 429,373
Trimble County settlement 11,542 - - 11,542
Price risk management liabilities 177,238 - - 177,238
Other 78,388 63,468 (4,314) 137,542
Total current liabilities 886,431 91,541 3,259 981,231
Long-term debt 814,371 546,330 - 1,360,701
Deferred credits and other liabilities:
Accumulated deferred income taxes 319,633 255,037 - 574,670
Investment tax credit, in process
of amortization 74,722 25,163 - 99,885
Regulatory liability 71,287 50,263 - 121,550
Price risk management liabilities 53,848 - - 53,848
Other 111,064 55,374 - 166,438
Total deferred credits and
other liabilities 630,554 385,837 - 1,016,391
Minority interests 99,173 - - 99,173
Cumulative preferred stock 98,353 40,000 - 138,353
Common equity 832,720 672,509 (6,377) 1,498,852
Total capital and liabilities $ 3,361,602 $ 1,736,217 $ (3,118) $ 5,094,701
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
</TABLE>
-24-
<PAGE>
<TABLE>
LG&E ENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
Three Months Ended March 31, 1998
(Thousands of Dollars Except Per Share Data)
<CAPTION>
LG&E Energy KU Energy Pro Forma Pro Forma
(As Reported) (As Reported) Adjustment Combined
(Note 1) (Note 2) (Note 3)
REVENUES
<S> <C> <C> <C> <C>
Energy marketing and trading $ 940,714 $ - $ - $ 940,714
Electric utility 140,585 183,210 (24) 323,771
Gas utility 92,759 - - 92,759
Argentine gas distribution and
other 34,170 1,912 - 36,082
Total revenues 1,208,228 185,122 (24) 1,393,326
COST OF REVENUES
Energy marketing and trading 932,479 - - 932,479
Fuel and power purchased 45,640 66,336 (24) 111,952
Gas supply expenses 64,076 - - 64,076
Argentine gas distribution and
other 19,427 - - 19,427
Total cost of revenues 1,061,622 66,336 (24) 1,127,934
Gross profit 146,606 118,786 - 265,392
OPERATING EXPENSES
Operation and maintenance:
Energy marketing and trading 10,506 - - 10,506
Utility 55,590 47,393 - 102,983
Argentine gas distribution and
other 12,781 540 - 13,321
Depreciation and amortization 31,750 21,533 - 53,283
Total operating expenses 110,627 69,466 - 180,093
Equity in earnings of joint ventures 5,119 - - 5,119
OPERATING INCOME 41,098 49,320 - 90,418
Other income and (deductions) 1,531 953 - 2,484
Interest charges and
preferred dividends 16,627 10,270 - 26,897
Minority interest 1,343 - - 1,343
Income before income taxes 24,659 40,003 - 64,662
Income taxes 6,896 14,598 - 21,494
NET INCOME $ 17,763 $ 25,405 $ - $ 43,168
Average common shares outstanding
(Note 4) 66,528 37,818 25,338 129,684
Earnings per share of common
stock - basic and diluted $ 0.27 $ 0.67 $ N/A $ 0.33
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
</TABLE>
-25-
<PAGE>
<TABLE>
LG&E ENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
Three Months Ended March 31, 1997
(Thousands of Dollars Except Per Share Data)
<CAPTION>
LG&E Energy KU Energy Pro Forma Pro Forma
(As Reported) (As Reported) Adjustment Combined
(Note 1) (Note 2) (Note 3)
REVENUES
<S> <C> <C> <C> <C>
Energy marketing and trading $ 1,059,078 $ - $ (4) $ 1,059,074
Electric utility 128,827 178,908 (204) 307,531
Gas utility 96,738 - - 96,738
Argentine gas distribution and
other 18,600 1,177 - 19,777
Total revenues 1,303,243 180,085 (208) 1,483,120
COST OF REVENUES
Energy marketing and trading 1,046,396 - (14) 1,046,382
Fuel and power purchased 35,019 62,316 (194) 97,141
Gas supply expenses 67,825 - - 67,825
Argentine gas distribution and
other 11,394 - - 11,394
Total cost of revenues 1,160,634 62,316 (208) 1,222,742
Gross profit 142,609 117,769 - 260,378
OPERATING EXPENSES
Operation and maintenance:
Energy marketing and trading 11,970 - - 11,970
Utility 53,431 46,812 - 100,243
Argentine gas distribution and
other 7,802 619 - 8,421
Depreciation and amortization 27,887 20,882 - 48,769
Total operating expenses 101,090 68,313 - 169,403
Equity in earnings of joint ventures 3,384 - - 3,384
OPERATING INCOME 44,903 49,456 - 94,359
Other income and (deductions) 3,367 527 - 3,894
Interest charges and
preferred dividends 14,422 10,440 - 24,862
Minority interest 568 - - 568
Income before income taxes 33,280 39,543 - 72,823
Income taxes 12,041 14,680 - 26,721
NET INCOME $ 21,239 $ 24,863 $ - $ 46,102
Average common shares outstanding
(Note 4) 66,383 37,818 25,338 129,539
Earnings per share of common
stock - basic and diluted $ 0.32 $ 0.66 $ - $ 0.36
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
</TABLE>
-26-
<PAGE>
LG&E Energy Corp.
Notes to Unaudited Supplemental
Pro Forma Combined Condensed Financial Statements
1. Reclassifications have been made to certain as reported account
balances reflected in KU Energy's financial statements to conform to
this reporting presentation. All other financial statement
presentation and accounting policy differences are immaterial and have
not been adjusted in the supplemental pro forma combined condensed
financial statements.
2. Intercompany transactions (power purchased and power sales
transactions) between LG&E Energy and KU Energy during the periods
presented were eliminated through pro forma adjustments.
3. Merger-related transaction costs are currently estimated to be
approximately $21.4 million (including fees for financial advisors,
attorneys, accountants, consultants, filings and printing). LG&E
Energy and KU Energy have incurred transaction costs of $13.5 million
through March 31, 1998, which are included in deferred debits and other
assets in the supplemental pro forma combined condensed balance sheet.
None of the estimated cost savings resulting from the Merger or costs
to achieve such savings have been reflected in the supplemental pro
forma combined condensed statements of income. A charge of $6.4
million ($10.7 million, net of income taxes of $4.3 million) as a pro
forma adjustment to retained earnings and a credit of $2.8 million
($10.7 million less $13.5 million actual charges incurred through
March 31, 1998) as a pro forma adjustment to deferred debits and other
assets have been made in the supplemental pro forma combined condensed
balance sheet to recognize such estimated transaction costs and the
proposed treatment following the consummation of the Merger.
4. The supplemental pro forma combined condensed financial statements
reflect the conversion of each share of KU Energy Common Stock (no par
value) outstanding into 1.67 shares of LG&E Energy Common Stock (no par
value) as provided in the Merger Agreement. The supplemental pro forma
combined condensed financial statements are presented as if the
companies were combined during all periods included therein.
-27-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed as part of this report:
Exhibit Number Description
27.01 Financial Data Schedule for KU Energy
(required for electronic filing only in
accordance with Item 601 (c)(1) of
Regulation S-K.)
27.02 Financial Data Schedule for KU (required
for electronic filing only in accordance
with Item 601(c)(1) of Regulation S-K.)
99.01 Cautionary Statements - KU Energy and KU.
(Exhibit 99.04 to Form 10-K Annual Report
of KU Energy and KU for the year ended
D e cember 31, 1997). Incorporated by
reference.
(b) Reports on Form 8-K.
None.
-28-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
KU Energy Corporation (by its successor LG&E Energy Corp.) and Kentucky
Utilities Company have each duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
KU ENERGY CORPORATION
(By its successor LG&E
Energy Corp.)
(Registrant)
Date May 13, 1998 /s/ Victor A. Staffieri
Victor A. Staffieri
Chief Financial Officer
Date May 13, 1998 /s/ Michael R. Whitley
Michael R. Whitley
Vice Chairman, President and
Chief Operating Officer
KENTUCKY UTILITIES COMPANY
(Registrant)
Date May 13, 1998 /s/ Michael D. Robinson
Michael D. Robinson
Vice President and Controller
(on behalf of the registrant in
his capacity as Principal
Accounting Officer)
-29-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1998 AND THE STATEMENTS OF INCOME AND CASH FLOWS FOR
THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10-Q QUARTERLY REPORT.
</LEGEND>
<CIK> 0000835715
<NAME> KU ENERGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,475,944
<OTHER-PROPERTY-AND-INVEST> 50,509
<TOTAL-CURRENT-ASSETS> 155,948
<TOTAL-DEFERRED-CHARGES> 53,816
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,736,217
<COMMON> 308,137
<CAPITAL-SURPLUS-PAID-IN> (594)
<RETAINED-EARNINGS> 364,966
<TOTAL-COMMON-STOCKHOLDERS-EQ> 672,509
0
40,000
<LONG-TERM-DEBT-NET> 546,330
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 21
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 477,357
<TOT-CAPITALIZATION-AND-LIAB> 1,736,217
<GROSS-OPERATING-REVENUE> 183,210
<INCOME-TAX-EXPENSE> 14,738
<OTHER-OPERATING-EXPENSES> 135,776
<TOTAL-OPERATING-EXPENSES> 150,514
<OPERATING-INCOME-LOSS> 32,696
<OTHER-INCOME-NET> 2,979
<INCOME-BEFORE-INTEREST-EXPEN> 35,675
<TOTAL-INTEREST-EXPENSE> 10,270
<NET-INCOME> 25,405
0
<EARNINGS-AVAILABLE-FOR-COMM> 25,405
<COMMON-STOCK-DIVIDENDS> 17,018
<TOTAL-INTEREST-ON-BONDS> 9,289
<CASH-FLOW-OPERATIONS> 75,396
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1998 AND THE STATEMENTS OF INCOME AND CASH FLOWS FOR THE
PERIOD ENDED MARCH 31,1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q QUARTERLY REPORT.
</LEGEND>
<CIK> 0000055387
<NAME> KENTUCKY UTILITIES COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,475,944
<OTHER-PROPERTY-AND-INVEST> 12,932
<TOTAL-CURRENT-ASSETS> 134,837
<TOTAL-DEFERRED-CHARGES> 50,023
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,673,736
<COMMON> 308,140
<CAPITAL-SURPLUS-PAID-IN> (594)
<RETAINED-EARNINGS> 312,216
<TOTAL-COMMON-STOCKHOLDERS-EQ> 619,762
0
40,000
<LONG-TERM-DEBT-NET> 546,330
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 21
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 467,623
<TOT-CAPITALIZATION-AND-LIAB> 1,673,736
<GROSS-OPERATING-REVENUE> 183,219
<INCOME-TAX-EXPENSE> 14,968
<OTHER-OPERATING-EXPENSES> 135,216
<TOTAL-OPERATING-EXPENSES> 150,184
<OPERATING-INCOME-LOSS> 33,035
<OTHER-INCOME-NET> 1,714
<INCOME-BEFORE-INTEREST-EXPEN> 34,749
<TOTAL-INTEREST-EXPENSE> 9,700
<NET-INCOME> 25,049
564
<EARNINGS-AVAILABLE-FOR-COMM> 24,485
<COMMON-STOCK-DIVIDENDS> 17,018
<TOTAL-INTEREST-ON-BONDS> 9,289
<CASH-FLOW-OPERATIONS> 72,556
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>AT MARCH 31, 1998, ALL OUTSTANDING COMMON STOCK OF KENTUCKY UTILITIES
COMPANY WAS HELD BY ITS PARENT COMPANY, KU ENERGY CORPORATION. THEREFORE,
EARNINGS PER SHARE IS NOT APPLICABLE.
</FN>
</TABLE>
