SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission Registrant, State of Incorporation, IRS Employer
File Number Address, and Telephone Number Identification No.
1-10568 LG&E Energy Corp. 61-1174555
(A Kentucky Corporation)
220 West Main Street
P.O. Box 32030
Louisville, Ky. 40232
(502) 627-2000
2-26720 Louisville Gas and Electric Company 61-0264150
(A Kentucky Corporation)
220 West Main Street
P.O. Box 32010
Louisville, Ky. 40232
(502) 627-2000
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 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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
LG&E Energy Corp.
129,682,889 shares, without par value, as of July 31, 1998.
Louisville Gas and Electric Company
21,294,223 shares, without par value, as of July 31, 1998,
all held by LG&E Energy Corp.
Kentucky Utilities Company
37,817,878 shares, without par value, as of July 31, 1998,
all held by LG&E Energy Corp.
This combined Form 10-Q is separately filed by LG&E Energy Corp.,
Louisville Gas and Electric Company and Kentucky Utilities Company.
Information contained herein related to any individual registrant is filed
by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants. In
particular, information contained herein related to LG&E Energy Corp. or
any of its direct or indirect subsidiaries other than Louisville Gas and
Electric Company or Kentucky Utilities Company is provided solely by LG&E
Energy Corp., not Louisville Gas and Electric Company or Kentucky Utilities
Company, and shall be deemed not included in the Form 10-Q of Louisville
Gas and Electric Company or the Form 10-Q of Kentucky Utilities Company.
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TABLE OF CONTENTS
PART I
Item 1 Financial Statements
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income 1
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 5
Consolidated Statements of Retained Earnings 7
Consolidated Statements of Comprehensive Income 8
Louisville Gas and Electric Company
Statements of Income 9
Balance Sheets 10
Statements of Cash Flows 12
Statements of Retained Earnings 13
Statements of Comprehensive Income 14
Kentucky Utilities Company
Statements of Income 15
Balance Sheets 16
Statements of Cash Flows 18
Statements of Retained Earnings 19
Notes to Financial Statements 20
Item 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 26
PART II
Item 1 Legal Proceedings 37
Item 4 Submission of Matters to a Vote of Security Holders 39
Item 6 Exhibits and Reports on Form 8-K 41
Signatures 42
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Part I. Financial Information - Item 1. Financial Statements
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income
(Unaudited - Thousands of $ Except Per Share Data)
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
REVENUES:
Electric utility $ 358,471 $309,085 $ 682,266 $616,820
Gas utility 26,540 34,191 119,299 130,929
Argentine gas distribution
and other 56,126 45,262 90,296 63,862
Total revenues 441,137 388,538 891,861 811,611
COST OF REVENUES:
Fuel and power purchased 126,560 99,619 238,536 196,954
Gas supply expenses 16,282 21,144 80,358 88,969
Argentine gas distribution
and other 32,248 26,200 51,675 37,594
Total cost of revenues 175,090 146,963 370,569 323,517
Gross profit 266,047 241,575 521,292 488,094
OPERATING EXPENSES:
Operation and maintenance:
Utility 110,081 110,752 213,064 210,995
Argentine gas distribution
and other 18,881 14,482 32,202 22,903
Depreciation and amortization 48,999 46,523 99,071 91,891
Total operating expenses 177,961 171,757 344,337 325,789
Equity in earnings
of joint ventures
(Note 9) 50,882 6,127 56,863 9,730
OPERATING INCOME 138,968 75,945 233,818 172,035
Merger costs to
achieve (Note 2) 65,318 - 65,318 -
Other income and (deductions) (4,971) 4,515 (2,268) 7,886
Interest charges and
preferred dividends 25,888 26,696 51,945 51,219
Minority interest 3,302 3,121 4,645 3,689
Income before income taxes 39,489 50,643 109,642 125,013
Income taxes 26,195 17,859 49,674 44,699
Income from continuing
operations $ 13,294 $ 32,784 $ 59,968 $ 80,314
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LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income (cont.)
(Unaudited - Thousands of $ Except Per Share Data)
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
Income from continuing
operations $ 13,294 $ 32,784 $ 59,968 $ 80,314
Income (loss) from discontinued
operations, net of income tax
expense (benefit) of $(16,922),
$657, $(18,907), and $538
(Notes 1 and 3) (20,093) 883 (23,599) (545)
Loss on disposal of discon-
tinued operations, net of
income tax benefit
of $125,000 (Notes
1 and 3) (225,000) - (225,000) -
NET INCOME (LOSS) $(231,799) $ 33,667 $(188,631) $ 79,769
Average common shares
outstanding 129,683 129,647 129,683 129,589
Earnings (loss) per share:
Continuing operations $ .10 $ .25 $ .46 $ .62
Discontinued operations (.15) .01 (.17) .00
Loss on disposal of dis-
continued operations (1.74) .00 (1.74) .00
Total $ (1.79) $ .26 $ (1.45) $ .62
The accompanying notes are an integral part of these financial statements.
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LG&E Energy Corp. and Subsidiaries
Consolidated Balance Sheets
(Thousands of $)
ASSETS
(Unaudited)
June 30, Dec. 31,
1998 1997
CURRENT ASSETS:
Cash and temporary cash investments $ 100,731 $ 111,003
Marketable securities 25,014 22,300
Accounts receivable - less reserve 254,014 242,942
Materials and supplies - primarily at average cost:
Fuel (predominantly coal) 51,990 45,450
Gas stored underground 14,220 42,104
Other 55,765 55,514
Net assets of discontinued opera-
tions (Notes 1 and 3) - 222,784
Prepayments and other 8,563 9,304
Total current assets 510,297 751,401
UTILITY PLANT:
At original cost 5,457,904 5,390,868
Less: reserve for depreciation 2,278,710 2,201,124
Net utility plant 3,179,194 3,189,744
OTHER PROPERTY AND INVESTMENTS - LESS RESERVES:
Investment in affiliates
(Note 9) 189,226 177,006
Non-utility property and plant, net 253,850 248,119
Other 56,870 53,534
Total other property and investments 499,946 478,659
DEFERRED DEBITS AND OTHER ASSETS 159,600 143,140
Total assets $4,349,037 $4,562,944
The accompanying notes are an integral part of these financial statements.
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LG&E Energy Corp. and Subsidiaries
Consolidated Balance Sheets (cont.)
(Thousands of $)
CAPITAL AND LIABILITIES
(Unaudited)
June 30, Dec. 31,
1998 1997
CURRENT LIABILITIES:
Long-term debt due within one year $ 21 $ 20,021
Notes payable 206,079 393,784
Accounts payable 170,069 134,714
Trimble County settlement 10,704 13,248
Net liabilities of discontinued
operations (Notes 1 and 3) 6,040 -
Other 173,133 122,780
Total current liabilities 566,046 684,547
Long-term debt 1,360,732 1,210,690
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 547,474 548,477
Investment tax credit, in
process of amortization 97,853 101,931
Regulatory liability 118,829 117,079
Other 189,035 156,688
Total deferred credits and other liabilities 953,191 924,175
Minority interests 103,581 105,985
Cumulative preferred stock 136,530 138,353
COMMON EQUITY:
Common stock, without par value -
129,682,889 shares outstanding 778,273 778,273
Other (2,207) (1,663)
Retained earnings 452,891 722,584
Total common equity 1,228,957 1,499,194
Total liabilities and capital $4,349,037 $4,562,944
The accompanying notes are an integral part of these financial statements.
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LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited - Thousands of $)
Six Months
Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (188,631)$ 79,769
Items not requiring cash currently:
Depreciation and amortization 99,071 91,891
Deferred income taxes - net 2,657 8,127
Loss from discontinued operations
(Notes 1 and 3) 23,599 545
Loss on disposal of discontinued
operations (Notes 1 and 3) 225,000 -
Other (24,687) 608
Change in net current assets 78,963 9,241
Other (24,013) (18,217)
Net cash flows from operating activities 191,959 171,964
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (4,451) (8,876)
Proceeds from sales of securities 1,820 3,317
Construction expenditures (92,206) (86,642)
Investment in affiliates (1,294) (5,790)
Proceeds from sale of investment
in affiliate 16,000 -
Acquisition of interests in
Argentine natural gas distribution
companies, net of cash and temporary
cash investments acquired - (125,852)
Net cash flows from investing activities (80,131) (223,843)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of medium-term notes 150,000 -
Retirement of long-term debt (20,021) (21)
Short-term borrowings 2,074,643 1,381,600
Repayment of short-term borrowings (2,262,624)(1,244,000)
Redemption of preferred stock (1,823) -
Issuance of common stock - 2,900
Payment of common dividends (62,275) (71,464)
Net cash flows from financing activities $ (122,100)$ 69,015
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LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Cash Flows (cont.)
(Unaudited - Thousands of $)
Six Months
Ended
June 30,
1998 1997
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS $ (10,272)$ 17,136
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 111,003 106,463
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 100,731 $ 123,599
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 35,534 $ 46,150
Interest on borrowed money 45,331 42,949
For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.
The accompanying notes are an integral part of these financial statements.
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LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Retained Earnings
(Unaudited - Thousands of $)
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
Balance at beginning
of period $ 728,942 $694,312 $ 722,584 $683,962
Net income (loss) (231,799) 33,667 (188,631) 79,769
Cash dividends declared on
common stock ($.34123, $.27581,
$.62509 and $.55162 per share) 44,252 35,753 81,062
71,505
Other - 8 - 8
Balance at end of period $ 452,891 $692,218 $ 452,891 $692,218
The accompanying notes are an integral part of these financial statements.
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LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited - Thousands of $)
(Note 5)
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
Net income (loss) $(231,799) $33,667 $(188,631) $79,769
Unrealized holding (gains) losses
on available-for-sale securities
arising during the period 22 258 8 (72)
Reclassification adjustment for
realized (gains) and losses on
available-for-sale securities
included in net income (77) (423) 34 (441)
Other comprehensive income
(loss), before tax (55) (165) 42 (513)
Income tax expense (benefit) related
to items of other comprehensive
income (22) (164) 15 (258)
Comprehensive income (loss) $(231,832) $33,666 $(188,604) $79,514
The accompanying notes are an integral part of these financial statements.
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Louisville Gas and Electric Company
Statements of Income
(Unaudited)
(Thousands of $)
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
OPERATING REVENUES:
Electric $174,849 $146,085 $315,435 $274,746
Gas 26,540 34,191 119,298 130,929
Total operating revenues 201,389 180,276 434,733 405,675
OPERATING EXPENSES:
Fuel for electric generation 41,242 35,438 77,283 66,450
Power purchased 15,227 2,969 24,826 6,976
Gas supply expenses 16,282 21,144 80,359 88,969
Other operation expenses 40,506 37,094 80,874 73,962
Maintenance 13,054 14,621 23,319 26,343
Depreciation and amortization 23,294 22,952 46,589 45,904
Federal and state
income taxes 13,664 11,386 26,082 24,663
Property and other taxes 4,491 4,250 9,446 9,091
Total operating expenses 167,760 149,854 368,778 342,358
NET OPERATING INCOME 33,629 30,422 65,955 63,317
Merger costs to
achieve (Note 2) 34,134 - 34,134 -
Other income and (deductions) 9,998 958 10,309 1,844
Interest charges 9,472 9,893 18,710 19,707
NET INCOME 21 21,487 23,420 45,454
Preferred stock dividends 1,143 1,161 2,266 2,288
NET INCOME (LOSS) AVAILABLE
FOR COMMON STOCK $ (1,122) $ 20,326 $ 21,154 $ 43,166
The accompanying notes are an integral part of these financial statements.
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Louisville Gas and Electric Company
Balance Sheets
(Thousands of $)
ASSETS
(Unaudited)
June 30, Dec. 31,
1998 1997
UTILITY PLANT:
At original cost $2,816,476 $2,779,234
Less: reserve for depreciation 1,108,848 1,072,842
Net utility plant 1,707,628 1,706,392
OTHER PROPERTY AND INVESTMENTS -
less reserve 1,109 1,365
CURRENT ASSETS:
Cash and temporary cash investments 49,422 50,472
Marketable securities 21,934 19,311
Accounts receivable - less reserve 129,576 124,872
Materials and supplies - at average cost:
Fuel (predominantly coal) 26,590 17,651
Gas stored underground 13,566 41,487
Other 31,643 31,866
Prepayments 1,522 2,627
Total current assets 274,253 288,286
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 6,075 6,074
Regulatory assets 39,993 24,899
Other 25,224 28,625
Total deferred debits and other assets 71,292 59,598
Total assets $2,054,282 $2,055,641
The accompanying notes are an integral part of these financial statements.
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Louisville Gas and Electric Company
Balance Sheets (cont.)
(Thousands of $)
CAPITALIZATION AND LIABILITIES
(Unaudited)
June 30, Dec. 31,
1998 1997
CAPITALIZATION:
Common stock, without par value -
Outstanding 21,294,223 shares $ 425,170 $ 425,170
Retained earnings 239,064 258,910
Other (750) (754)
Total common equity 663,484 683,326
Cumulative preferred stock 95,328 95,328
Long-term debt 626,800 626,800
Total capitalization 1,385,612 1,405,454
CURRENT LIABILITIES:
Long-term debt due within one year - 20,000
Accounts payable 105,744 98,894
Trimble County settlement 10,704 13,248
Dividends declared 22,343 21,152
Accrued taxes 17,862 18,723
Accrued interest 8,529 8,016
Other 16,749 14,608
Total current liabilities 181,931 194,641
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 247,369 249,851
Investment tax credit, in
process of amortization 73,644 75,800
Accumulated provision for pensions
and related benefits 62,694 40,608
Regulatory liability 70,444 65,502
Other 32,588 23,785
Total deferred credits and other liabilities 486,739 455,546
Total capitalization and liabilities $2,054,282 $2,055,641
The accompanying notes are an integral part of these financial statements.
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Louisville Gas and Electric Company
Statements of Cash Flows
(Unaudited - Thousands of $)
Six Months
Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,420 $ 45,454
Items not requiring cash currently:
Depreciation and amortization 46,589 45,904
Deferred income taxes - net 2,460 (1,319)
Investment tax credit - net (2,156) (2,171)
Other 2,008 1,940
Changes in current assets and liabilities:
Accounts receivable (4,704) 10,462
Materials and supplies 19,205 21,698
Trimble County settlement (2,544) (2,439)
Accounts payable 6,850 (33,864)
Accrued taxes (861) 4,626
Accrued interest 513 180
Prepayments and other 3,246 2,920
Other - net 17,647 4,475
Net cash flows from operating activities 111,673 97,866
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (3,550) (6,467)
Proceeds from sales of securities 933 1,247
Construction expenditures (48,031) (43,298)
Net cash flows from investing activities (50,648) (48,518)
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of first mortgage bonds (20,000) -
Payment of dividends (42,075) (21,258)
Net cash flows from financing activities (62,075) (21,258)
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS (1,050) 28,090
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 50,472 56,792
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 49,422 $ 84,882
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Income taxes $ 23,121 $ 25,936
Interest on borrowed money 17,357 18,710
For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.
The accompanying notes are an integral part of these financial statements.
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Louisville Gas and Electric Company
Statements of Retained Earnings
(Unaudited)
(Thousands of $)
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
Balance at beginning
of period $261,386 $232,062 $258,910 $209,222
Net income 21 21,487 23,420 45,454
Subtotal 261,407 253,549 282,330 254,676
Cash dividends declared on stock:
5% cumulative preferred 269 269 538 538
Auction rate cumulative
preferred 507 525 994 1,016
$5.875 cumulative preferred 367 367 734 734
Common 21,200 19,000 41,000 19,000
Subtotal 22,343 20,161 43,266 21,288
Balance at end of period $239,064 $233,388 $239,064 $233,388
The accompanying notes are an integral part of these financial statements.
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Louisville Gas and Electric Company
Statements of Comprehensive Income
(Unaudited - Thousands of $)
(Note 5)
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
Net income (loss) available
for common stock $(1,122) $20,326 $21,154 $43,166
Unrealized holding losses on
available-for-sale securities
arising during the period 33 419 6 2
Reclassification adjustment for
realized gains on available-for-
sale securities included in
net income (66) (412) - (402)
Other comprehensive income
(loss), before tax (33) 7 6 (400)
Income tax expense (benefit) related
to items of other comprehensive
income (13) (4) 3 (111)
Comprehensive income (loss) $(1,142) $20,337 $21,157 $42,877
The accompanying notes are an integral part of these financial statements.
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Kentucky Utilities Company
Statements of Income
(Unaudited)
(Thousands of $)
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
OPERATING REVENUES $193,079 $162,868 $376,298 $341,782
OPERATING EXPENSES:
Fuel for electric generation 54,690 41,613 103,037 86,326
Power purchased 24,602 19,599 42,591 37,202
Other operation expenses 31,458 30,483 61,431 61,271
Maintenance 16,615 20,490 29,948 32,501
Depreciation 21,617 20,911 43,103 41,746
Federal and state
income taxes 11,731 6,215 26,699 21,742
Property and other taxes 4,222 3,815 8,310 7,828
Total operating expenses 164,935 143,126 315,119 288,616
NET OPERATING INCOME 28,144 19,742 61,179 53,166
Merger costs to
achieve (Note 2) 21,830 - 21,830 -
Other income and (deductions) 2,193 2,244 3,907 3,656
Interest charges 9,626 9,898 19,326 19,773
NET INCOME (LOSS) (1,119) 12,088 23,930 37,049
Preferred stock dividends 564 564 1,128 1,128
NET INCOME (LOSS) AVAILABLE
FOR COMMON STOCK $(1,683) $ 11,524 $ 22,802 $ 35,921
The accompanying notes are an integral part of these financial statements.
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Kentucky Utilities Company
Balance Sheets
(Thousands of $)
ASSETS
(Unaudited)
June 30, Dec. 31,
1998 1997
UTILITY PLANT:
At original cost $2,641,428 $2,611,634
Less: reserve for depreciation 1,169,862 1,128,282
Net utility plant 1,471,566 1,483,352
OTHER PROPERTY AND INVESTMENTS -
less reserve 13,123 12,808
CURRENT ASSETS:
Cash and temporary cash investments 6,014 5,453
Accounts receivable - less reserve 92,998 74,524
Material and supplies - at average cost:
Fuel (predominantly coal) 25,400 27,799
Other 24,022 23,648
Prepayments 5,797 5,769
Total current assets 154,231 137,193
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 5,428 5,628
Regulatory assets 30,742 14,773
Other 18,864 26,126
Total other assets 55,034 46,527
Total assets $1,693,954 $1,679,880
The accompanying notes are an integral part of these financial statements.
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Kentucky Utilities Company
Balance Sheets (cont.)
(Thousands of $)
CAPITALIZATION AND LIABILITIES
(Unaudited)
June 30, Dec. 31,
1998 1997
CAPITALIZATION:
Common stock, without par value -
Outstanding 37,817,878 shares $ 308,140 $ 308,140
Retained earnings 287,462 304,750
Other (595) (595)
Total common equity 595,007 612,295
Cumulative preferred stock 40,000 40,000
Long-term debt 546,330 546,351
Total capitalization 1,181,337 1,198,646
CURRENT LIABILITIES:
Long-term debt due within one year 21 21
Notes payable - 33,600
Accounts payable 66,661 33,386
Dividends declared 17,588 188
Accrued taxes 18,817 7,473
Accrued interest 8,080 8,283
Other 28,455 26,216
Total current liabilities 139,622 109,167
OTHER LIABILITIES:
Accumulated deferred income
taxes 247,304 245,150
Investment tax credit, in
process of amortization 24,209 26,131
Regulatory liability 48,385 50,904
Other 53,097 49,882
Total other liabilities 372,995 372,067
Total capitalization and liabilities $1,693,954 $1,679,880
The accompanying notes are an integral part of these financial statements.
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Kentucky Utilities Company
Statements of Cash Flows
(Unaudited - Thousands of $)
Six Months
Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,930 $ 37,049
Items not requiring cash currently:
Depreciation and amortization 43,103 41,746
Deferred income taxes - net (188) 3,832
Investment tax credit - net (1,922) (2,043)
Changes in current assets and liabilities:
Accounts receivable (18,474) 4,900
Materials and supplies 2,025 (8,008)
Accounts payable 33,275 (1,754)
Accrued taxes 11,344 13
Accrued interest (203) (157)
Prepayments and other 2,032 2,093
Other (4,060) (4,845)
Net cash flows from operating activities 90,862 72,826
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from insurance reimbursement 71 4,056
Construction expenditures (32,932) (41,824)
Net cash flows from investing activities (32,861) (37,768)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings 381,500 1,180,600
Repayments of short-term borrowings (415,100)(1,183,000)
Repayments of debt (21) (21)
Payment of dividends (23,819) (34,408)
Net cash flows from financing activities (57,440) (36,829)
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS 561 (1,771)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 5,453 5,719
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 6,014 $ 3,948
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Income taxes $ 17,033 $ 21,139
Interest on borrowed money 17,925 18,504
For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.
The accompanying notes are an integral part of these financial statements.
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Kentucky Utilities Company
Statements of Retained Earnings
(Unaudited)
(Thousands of $)
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
Balance at beginning
of period $312,216 $295,608 $304,750 $287,851
Net income (loss) (1,119) 12,088 23,930 37,049
Subtotal 311,097 307,696 328,680 324,900
Cash dividends declared on stock:
4 3/4% preferred 237 237 475 475
6.53% preferred 327 327 653 653
Common 23,071 16,640 40,090 33,280
Subtotal 23,635 17,204 41,218 34,408
Balance at end of period $287,462 $290,492 $287,462 $290,492
The accompanying notes are an integral part of these financial statements.
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<PAGE>
LG&E Energy Corp. and Subsidiaries
Louisville Gas and Electric Company
Kentucky Utilities Company
Notes to Financial Statements
(Unaudited)
1. Effective May 4, 1998, following the receipt of all required state and
federal regulatory approvals, LG&E Energy Corp. (LG&E Energy or the
Company) and KU Energy Corporation (KU Energy) merged, with LG&E Energy
as the surviving corporation. The accompanying unaudited consolidated
financial statements reflect the accounting for the merger as a pooling
of interests and are presented as if the companies were combined as of
the earliest period presented. However, the financial information is
not necessarily indicative of the results of operations, financial
position or cash flows that would have occurred had the merger been
consummated for the periods for which it is given effect, nor is it
necessarily indicative of future results of operations, financial
position, or cash flows. The financial statements reflect the
conversion of each outstanding share of KU Energy common stock into
1.67 shares of LG&E Energy common stock. The outstanding preferred
stock of Louisville Gas and Electric Company (LG&E), a subsidiary of
LG&E Energy, and Kentucky Utilities Company (KU), a subsidiary of KU
Energy, were not affected by the Merger.
On July 28, 1998, the Company announced it would discontinue its
merchant energy trading and sales business effective June 30, 1998. It
also announced the discontinuance and intent to sell its natural gas
gathering and processing business. The Company restated its financial
statements for prior periods to present the operating results,
financial position and cash flows of these businesses as discontinued
operations. As a result of this decision, the Company recorded an
after-tax loss of $225 million in the second quarter. The write-off
calculation used current future price curves which include the effect
of recent volatility and price spikes in the power trading market.
Higher-than-forecasted prices, increased volatility and other events
not modeled could result in additional write-offs. See Note 3 for more
information.
The consolidated financial statements include the accounts of LG&E
Energy Corp., LG&E, LG&E Capital Corp. (Capital Corp.), KU Energy, KU
and KU Capital Corporation (KU Capital) and their respective wholly-
owned subsidiaries, collectively referred to herein as the "Company."
KU and KU Capital were subsidiaries of KU Energy before the merger. On
July 24, 1998, KU Capital Corporation was merged into LG&E Capital
Corp., with the latter as the surviving corporation. All significant
intercompany items and transactions have been eliminated from the
unaudited consolidated financial statements.
In the opinion of management, all adjustments, including those of a
normal recurring nature, have been made to present fairly the
consolidated financial position, results of operations and cash flows
for the periods indicated. 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 SEC rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading.
See the Company's and KU Energy's Annual Reports on Form 10-K for 1997
for information relevant to the accompanying financial statements,
including information as to the significant accounting policies of the
Company. See also LG&E's and KU's Annual Reports on Form 10-K for
1997.
2. Through June 30, 1998, the Company's costs associated with the merger
amounted to $103.9 million. This amount included $52.3 million for
LG&E and $42.3 million for
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<PAGE>
KU, and consisted of separation costs, transaction costs and other
merger-related expenditures. In accordance with regulatory filings
approved by the Kentucky Public Service Commission (the Commission) and
the Virginia State Corporation Commission, the Company deferred $38.6
million of the costs associated with the merger and will amortize this
amount over five years. LG&E and KU will refund merger-related savings
to their customers through surcredits over the next five years, and the
amortization will reduce the amount of the surcredits. The
amortization and the surcredits began in July 1998. The Company, LG&E
and KU expensed the remaining costs associated with the merger in the
second quarter of 1998, and included the amounts in merger costs to
achieve in the accompanying statements of income.
For more information, see Note 2 of the Company's Annual Report on Form
10-K for 1997, the Company's Current Report on Form 8-K dated May 4,
1998, and LG&E's and KU's Annual Reports on Form 10-K for 1997.
3. On July 28, 1998, the Company announced it would discontinue its
merchant energy trading and sales business. The Company plans to sell
or buy out the long-term contracts that obligate it to buy and sell
natural gas and electric power. In addition, the Company plans to sell
its natural gas gathering and processing business. The operating
results, financial position and cash flows of these businesses are
classified as discontinued operations in these financial statements.
The Company cannot predict the ultimate cost to buy out these contracts
or the ultimate purchase price received upon a sale of these assets,
which may be higher or lower than estimated, resulting in additional
charges. The Company expects to have completed these transactions
within one year.
The Company recorded a charge of $350.0 million ($225.0 million after
income taxes) related to the discontinuance of the merchant trading
business and the gas gathering and processing business. This charge
covers the estimated costs of terminating and buying out contracts,
reducing workforce, and writing off assets, net of estimated proceeds
the Company expects to receive. See also Note 1.
Operating results for discontinued operations follow.
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
Revenues $715,969 $521,889 $1,656,683 $1,580,967
Income (loss) before taxes (37,015) 1,540 (42,506) (7)
Income (loss) from dis-
continued operations,
net of income taxes (20,093) 883 (23,599) (545)
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<PAGE>
Net liabilities of discontinued operations at June 30, 1998, follow.
Cash and temporary cash
investments $ 3,689
Accounts receivable 378,396
Price risk management assets 786,571
Non-utility property and
plant, net 173,576
Accounts payable (401,784)
Price risk management
liabilities (730,214)
Goodwill and other assets
and liabilities, net 8,726
Net assets before accrued
loss on disposal of dis-
continued operations 218,960
Accrued loss on disposal
of discontinued operations,
net of income tax benefit
of $125,000 225,000
Net liabilities of dis-
continued operations $ 6,040
4. On April 3, 1998, LG&E entered into a forward-starting interest-rate
swap with a notional amount of $83.3 million. The swap will hedge
anticipated variable-rate borrowing commitments. It will start in
August 2000 and mature in November 2020. LG&E will pay a fixed rate of
5.21% and receive a variable rate based on the Bond Market Association
Municipal Swap Index. Under certain conditions, the counterparty to
the agreement may terminate the swap at no cost after August 2010.
5. In the first quarter of 1998, the Company, LG&E, and KU adopted
Statement of Accounting Standards No. 130, Reporting Comprehensive
Income. The Company and LG&E have presented the information required
by the Statement in their respective Statements of Comprehensive
Income. KU had no items of other comprehensive income for the three-
and six-month periods ended June 30, 1998, and June 30, 1997, and it
had no accumulated other comprehensive income at June 30, 1998, or
December 31, 1997. Accumulated other comprehensive income included in
the Company's equity totaled $244,000 and $217,000 at June 30, 1998,
and December 31, 1997, respectively. Accumulated other comprehensive
income included in LG&E's equity totaled $86,000 and $82,000 at June
30, 1998, and December 31, 1997, respectively. The Company's and
LG&E's accumulated other comprehensive income at June 30, 1998, and
December 31, 1997, consisted of unrealized holding gains and losses on
available-for-sale marketable securities.
On April 3, 1998, the American Institute of Certified Public
Accountants issued Statement of Position No. 98-5, Reporting on the
Costs of Start-Up Activities, which is effective for fiscal years
beginning after December 31, 1998. The statement requires companies to
expense the costs of start-up activities as incurred. The statement
also requires certain previously capitalized costs to be charged to
expense at the time of adoption and reported as the cumulative effect
of a change in accounting principle. The Company is currently
analyzing the provisions of the statement and anticipates that a range
of $10 to $20 million of start-up costs could be affected.
On June 15, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging
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<PAGE>
Activities. The statement is effective for fiscal years beginning
after June 15, 1999, and establishes accounting and reporting standards
that every derivative instrument be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement
requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the
income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive
hedge accounting. The Company is currently analyzing the provisions of
the statement and cannot predict the impact this statement will have on
its consolidated operations and financial position. However, the
statement could increase volatility in earnings and other comprehensive
income.
6. 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 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 June 30, 1998, were approximately $70 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 are
concluded. The total surcharge collections from February 1, 1995
through June 30, 1998 were approximately $66 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 filed
motions for discretionary review with the Kentucky Supreme Court
(Supreme Court). The Supreme Court granted said motion and the issues
are presently being briefed by the parties at the Supreme Court.
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 re
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<PAGE>
versing the Circuit Court's judgment on the claim of retroactively 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 June 30, 1998, from the implementation of the
surcharge would be approximately $17 million and from February 1, 1995,
would be approximately $15 million. At this time, KU has not recorded
any reserve for refund.
Although not a party to the KU proceeding, LG&E is involved in separate
proceedings regarding its surcharge and may also face exposure on these
matters in the event of an ultimate adverse ruling on these issues.
See Note 4 of LG&E's Notes to Financial Statements in LG&E's Annual
Report on Form 10-K for the year ended December 31, 1997, for a further
discussion.
7. Note 16 of the Company's Financial Statements for the year ended
December 31, 1997 discusses the status of certain proceedings before
the FERC regarding the status of the Southampton cogeneration facility
("Southampton") as a qualifying facility ("QF") under the Public
Utility Regulatory Policies Act for the year 1992, including a request
for clarification as to any FERC-ordered rate refunds payable from
Southampton to Virginia Electric and Power Company ("VEPCO") for the
1992 period. See Part II, Item 1, Legal Proceedings, for recent
developments in this matter.
8. Effective July 15, 1998, the Company closed its pending transaction to
lease the generating assets of Big Rivers Electric Corporation ("Big
Rivers"). Future minimum payments under the lease agreement follow
(amounts in thousands of dollars).
1998 $ -
1999 -
2000 15,481
2001 30,962
2002 30,962
Thereafter 619,240
Total $696,645
The Company paid the first two years' rent to Big Rivers at closing.
The above table does not include this payment, which totaled $55.9
million.
See "Recent Developments - Lease of Big Rivers Facilities" in Item 2,
Management's Discussion and Analysis of Operations and Financial
Condition for information concerning this transaction. See also Part
II, Item 1, Legal Proceedings, of the Company's Form 10-Q for the
quarter ended March 31, 1998 and Part I, Item 1, Business, of the
Company's 1997 Form 10-K.
9. On June 30, 1998, the partnership that owns the Rensselaer cogeneration
facility, along with 14 other independent power producers, participated
in the consummation of a Master Restructuring Agreement (MRA) with
Niagara Mohawk Power Corporation (NIMO), the purchasing utility. As
part of the MRA, the partnership restructured its power purchase
agreement with NIMO and entered into a multi-year agreement with the
utility. Substantial amounts of the gross proceeds received by the
partnership from NIMO were used to repay outstanding project debt and
financial obligations as well as termination payments to the project's
steam host, fuel suppliers, fuel transporters and other service
providers.
As a result of a settlement among the parties, the Company will retain
a 50% interest in the partnership that owns the Rensselaer facility.
The Company received one-half of the partnership's net receipts related
to the MRA, less amounts retained by the partnership for operating
needs. The Company recognized an after-tax gain on the MRA
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<PAGE>
transaction and the settlement of $21 million. See also Part II, Item
1, Legal Proceedings.
10.Note 16 of the Company's, and Note 12 of LG&E's, Financial Statements
for the year ended December 31, 1997, respectively, in the Company's
and LG&E's Annual Report on Form 10-K for such year, discuss certain
pending settlements for an aggregate of $150,000 relating to LG&E's
status as a potentially responsible party under the Comprehensive
Environmental Response Compensation and Liability Act for certain
disposal facilities. These settlements are now final and have been
entered by the court.
11.Reference is made to Part II, Legal Proceedings, in the Company's, KU
Energy's, LG&E's and KU's 10-Qs for the quarter ended March 31, 1998,
and Part I, Item 3, Legal Proceedings, of the Company's, KU Energy's,
LG&E's and KU's (and Note 16 of the Company's Notes to Financial
Statements) in their respective Annual Reports on Form 10-K for the
year ended December 31, 1997.
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<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Recent Developments - Merger
On May 4, 1998, LG&E Energy and KU Energy merged. KU Energy was the parent
company of Kentucky Utilities Company (KU). Further information concerning
the merger is included in Notes 1 and 2.
Discontinuance of Merchant Energy Trading and Sales Business
On July 28, 1998, the Company announced that, primarily due to its current
portfolio of energy marketing contracts, and the impact that recent
volatility, instability and rising prices on the power market have had on
these contracts, it would discontinue its merchant trading and sales
business effective June 30, 1998. Exiting the merchant trading and sales
business is intended to enable the Company to focus on adding and
optimizing physical assets, and to eliminate the earnings impact of extreme
market volatility on its current portfolio of energy marketing contracts.
The Company intends to sell or buyout the long-term contracts that obligate
it to buy and sell natural gas and electric power. It also plans to sell
its natural gas gathering and processing business. The Company, however,
intends to maintain sufficient market knowledge, risk management skills,
technical systems and experienced personnel to maximize the value of power
sales from assets it owns or controls, including LG&E, KU and Big Rivers.
As a result of the Company's decision to discontinue its merchant trading
and sales activity, and the decision to sell the associated gas gathering
and processing business, the Company recorded an after-tax loss on disposal
of discontinued operations of $225.0 million in the second quarter. The
loss on disposal of discontinued operations results primarily from several
fixed-price energy marketing contracts entered in 1996 and early 1997,
including the Company's long-term contract with Oglethorpe Power
Corporation (OPC). Other components of the write-off include costs
relating to certain peaking options, goodwill associated with the Company's
1995 purchase of these operations and exit costs. Although the Company
used what it believes to be appropriate estimates for future energy prices
to calculate the write-off, there is no guarantee that higher than
anticipated future prices or a lower received purchase price than estimated
for asset sales could not result in additional write-offs. See Part II,
Item I for a discussion of settlement negotiations regarding the OPC
contract.
The Company restated its financial statements for prior periods to present
the operating results, financial position and cash flows of these
businesses as discontinued operations. See Notes 1 and 3 for more
information.
Lease of Big Rivers Facilities
As previously announced, effective July 15, 1998, the Company closed its
transaction to lease the generating assets of Big Rivers Electric
Corporation ("Big Rivers") following receipt of necessary regulatory
approvals. This 25-year transaction involves a lease by subsidiaries of
the Company of Big Rivers' approximately 1,700 megawatts of generating
capacity. Under the transactions, Western Kentucky Energy Corp. ("WKE"), a
subsidiary of the Company, leases and operates Big Rivers' three coal-fired
facilities as an exempt wholesale generator. In addition, an affiliate of
WKE operates and maintains the Station Two generating facility of the City
of Henderson, Kentucky, and another affiliate, LG&E Energy Marketing, Inc.
("LEM"), purchases from the City the capacity and energy of Station Two in
excess of the City's needs. In related transactions, LEM supplies power to
Big Rivers at fixed prices to meet the needs of its four member
distribution cooperatives and their retail customers in Western Kentucky,
and separately provides power directly to two of those cooperatives to meet
the needs of the aluminum smelting facilities of Alcan Alu
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<PAGE>
minum Corporation and Southwire Company in that state. Excess generating
capacity will remain available for LEM to market throughout the region. In
connection with these transactions, the Company, through its affiliates,
has undertaken to bear certain of the future capital requirements of those
generating assets, certain defined environmental compliance costs, and
other obligations. Big Rivers' personnel at the plants became employees of
WKE upon the commencement of the transactions. Final Kentucky Public
Service Commission approvals in connection with this transaction were
received on July 14, 1998, and final Federal Energy Regulatory Commission
approvals were received on July 8, 1998. See Part II, Item 1, Legal
Proceedings, of the Company's Form 10-Q for the quarter ended March 31,
1998 and Part I, Item 1, Business, of the Company's 1997 Form 10-K.
General
Two of the Company's principal subsidiaries are LG&E, an electric and gas
utility, and KU, an electric utility. LG&E's and KU's results of
operations and liquidity and capital resources are important factors
affecting the Company's consolidated results of operations and capital
resources and liquidity.
Some of the matters discussed in the Notes to Consolidated Financial
Statements and Management's Discussion and Analysis may contain forward-
looking statements that are subject to certain risks, uncertainties and
assumptions. Actual results may vary materially. Factors that could cause
actual results to differ materially include, but are not limited to:
general economic conditions; business and competitive conditions in the
energy industry; future prices of power and natural gas; unusual weather;
regulatory decisions, including decisions resulting from the combination of
LG&E Energy and KU Energy; and other factors described from time to time in
the Company's reports to the Securities and Exchange Commission, including
Exhibit 99.01 to the Form 10-K for the year ended December 31, 1997.
Results of Operations
LG&E's, KU's and the Argentine gas distribution companies' results of
operations are significantly affected by seasonal fluctuations in
temperature and other weather-related factors. Because of these and other
factors, the results of one interim period are not necessarily indicative
of results or trends to be expected for the full year.
Three Months Ended June 30, 1998, Compared to
Three Months Ended June 30, 1997
The Company's income from continuing operations decreased to $.10 per share
in 1998 from $.25 per share in 1997. Results for 1998 included $.42 of
after-tax charges for merger-related costs ($.19 for LG&E, $.17 for KU, and
$.06 for Corporate). Excluding these charges, income from continuing
operations totaled $.52 in 1998, an increase of $.27 over earnings for
1997. Approximately $.16 of this increase resulted primarily from closing
a Master Restructuring Agreement in June 1998 with the utility that buys
the power generated by the Rensselaer facility (see Note 9 of Notes to
Financial Statements). The rest of the increase resulted from increased
earnings at LG&E and KU.
Income from discontinued operations decreased $21.0 million due to
increased volatility, instability and rising prices in the wholesale power
market during the second quarter of 1998. See Notes 1 and 3 of Notes to
Financial Statements for more information.
LG&E Results:
LG&E's net income decreased $21.4 million for the quarter ended June 30,
1998, as compared to the quarter ended June 30, 1997, due to an after-tax
charge for merger-related expenses as discussed in Note 2 of Notes to
Financial Statements of $25 million. Excluding this
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<PAGE>
charge, LG&E's net income increased $3.6 million over the comparable second
quarter of 1997. This is primarily due to an increase in electric sales
caused by the warmer weather and decreased maintenance at electric
generation stations, partially offset by decreased gas sales and higher
operating expenses at electric generating plants and increased maintenance
expenses due to several severe storms that occurred in the second quarter
of 1998.
A comparison of LG&E's revenues for the quarter ended June 30, 1998, with
the quarter ended June 30, 1997, reflects increases and decreases which
have been segregated by the following principal causes:
Increase or
(Decrease)
(Thousands of $)
Electric Gas
Cause Revenues Revenues
Sales to ultimate consumers:
Fuel and gas supply adjustments $ 2,113 $ (1,984)
Demand side management/decoupling
revenue (3,283) (459)
Variation in sales volume, etc. 14,723 (5,385)
Total 13,553 (7,828)
Sales for resale 15,583 891
Gas transportation - net - (498)
Other (372) (216)
Total $28,764 $ (7,651)
Retail electric sales increased due to the warmer weather experienced in
the quarter compared to the second quarter of 1997; cooling degree days
this quarter were 91% higher than last year. Electric sales for resale
increased due to larger amounts of power available for off-system sales, an
increase in the unit price of sales and sales to Kentucky Utilities of $4.3
million as a result of economic dispatch of generating units between LG&E
and KU following the merger of LG&E Energy Corp. and KU Energy. As a
consequence of such economic dispatch, LG&E and KY are buying power from
each other when it is economically advisable for them to do so.
Fuel for electric generation and gas supply expenses comprise a large
segment of LG&E's total operating expenses. LG&E's electric and gas rates
contain a fuel adjustment clause and a gas supply clause, respectively,
whereby increases or decreases in the cost of fuel and gas supply may be
reflected in retail rates, subject to the approval of the Public Service
Commission of Kentucky. Fuel for electric generation increased $5.8
million (16%) for the quarter because of an increase in generation ($4.3
million) and a higher cost of coal burned ($1.5 million). Gas supply
expenses decreased $4.9 million (23%) due to a decrease in the volume of
gas delivered to the distribution system ($2.6 million) and a decrease in
net gas supply cost ($2.3 million).
Power purchased increased $12.3 million because of an increase in the unit
price of purchases, increased Kwh purchases to support increased electric
sales and increased purchases from Kentucky Utilities of $5.1 million as a
result of economic dispatch following the merger of the two companies in
May 1998.
Other operation expenses increased $3.4 million (9%) over 1997 because of
increased costs to operate the electric generating plants.
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<PAGE>
Maintenance expenses decreased $1.6 million (11%) mainly because of a
decrease in repairs at the electric generating plants ($3.5 million);
offset by increased storm damage expenses ($1.9 million).
LG&E incurred a pretax charge in the second quarter for costs associated
with the merger of LG&E Energy Corp. and KU Energy of $34.1 million. The
corresponding tax benefit of $9.1 million is recorded in Other income and
(deductions). The amount charged is in excess of the amount permitted to
be deferred as a regulatory asset by the Kentucky Public Service
Commission. See Note 2 for a further explanation of merger costs.
Variations in income tax expense are largely attributable to changes in pre-
tax income as well as non-deductible merger expenses.
Interest charges decreased partly because the Company's First Mortgage
Bonds, 6.75% Series of $20 million were retired at maturity on June 1,
1998.
KU Results:
KU's net income for the three months ended June 30, 1998 decreased $13.2
million compared to the same period of 1997. The decrease was due to an
after-tax charge in the second quarter of 1998 of $21.7 million for merger
related expenses as discussed in Note 2 of Notes to Financial Statements.
Excluding this charge, net income for the three months ended June 30, 1998,
increased $8.5 million. The increase was primarily due to increases in
residential sales, commercial sales and sales for resale caused by the
warmer weather and decreased maintenance expenses.
A comparison of KU's revenues for the quarter ended June 30,1998, with the
quarter ended June 30,1997, reflects increases and decreases which have
been segregated by the following principal causes:
Increase or
(Decrease)
(Thousands of $)
Electric
Cause Revenues
Sales to ultimate consumers:
Fuel clause adjustments $ 2,555
Environmental cost recovery 398
Variation in sales volume, etc. 8,219
Total 11,172
Sales for resale 18,514
Other 525
Total $30,211
Operating revenues increased $30.2 million (19%). The increase reflects a
28% increase in kilowatt-hour sales, which is primarily attributable to
increases in residential sales, commercial sales, and sales for resale.
The increases in residential and commercial sales were primarily due to
warmer weather during the second quarter of 1998 in comparison to 1997.
The increase in sales for resale (1,584,357 megawatt-hours versus 714,214
megawatt-hours) was primarily due to increased marketing efforts, an
increase in the unit price of sales and sales to LG&E of $5.1 million as a
result of economic dispatch following the merger of LG&E Energy Corp. and
KU Energy.
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<PAGE>
Fuel for electric generation expenses increased by $13.1 million (31%) due
to a 29% increase in million British thermal units (MBTU) used. The
increased consumption was primarily caused by the previously mentioned
increase in kilowatt-hour sales.
Power purchased increased $5 million (26%). The increase was primarily due
to a 31% increase in megawatt-hour purchases which was attributable to
increased purchases from LG&E of $4.3 million as a result of economic
dispatch following the merger of the two companies in May 1998.
Maintenance expense decreased $3.9 million (19%). The decrease was mainly
attributable to differences in the timing of production maintenance
expenditures.
Merger costs to achieve reflects the pre-tax charge of $21.8 million (the
corresponding tax benefit of $.1 million is recorded in other income and
(deductions)) for merger related expenses as discussed in Note 2 of Notes
to Financial Statements.
Variations in income tax expense are largely attributable to changes in pre-
tax income as well as non-deductible merger expenses.
Argentine Gas Distribution and Other Results:
LG&E Capital Corp. and KU Capital Corp., wholly-owned subsidiaries of the
Company, serve as the holding companies for the Company's non-utility
operations. LG&E Capital Corp., through its subsidiaries, is engaged in
various independent power projects and in the gas distribution business in
Argentina. LG&E Capital also holds the Company's discontinued operations.
KU Capital Corp., through its subsidiaries, is engaged in various
independent power projects and leveraged leases. LG&E Capital's and KU
Capital's continuing operations are included in the accompanying income
statements under the headings "Argentina Gas Distribution and Other" and
"Equity in Earnings of Joint Ventures." On July 24, 1998, KU Capital
Corporation was merged into LG&E Capital Corp., with the latter as the
surviving corporation.
Argentine gas distribution and other revenues increased $10.9 million due
to Retail Access Services' starting operations in the second quarter of
1998 and to an increase in revenues at Distribuidora de Gas del Centro
(Centro). Cost of revenues increased $6.0 million due to Retail Access
Services starting operations. Retail Access Services is a business of the
Company which provides consulting, technical, software and operational
support and services to independent retail energy service providers in
certain markets.
Argentine gas distribution and other operation and maintenance expense
increased $4.4 million due mainly to higher corporate expenses. Non-
utility depreciation and amortization increased $1.4 million due to write-
offs related to the Rensselaer project's closing of the Master
Restructuring Agreement (MRA) with Niagara Mohawk Power Corporation (NIMO).
See Note 9 of Notes to Financial Statements under Item 1.
Equity in earnings of joint ventures increased $44.8 million in 1998 due
primarily to the Rensselaer project's gain in connection with the NIMO MRA.
See Note 9 of Notes to Financial Statements under Item 1.
Non-utility other income decreased $8.9 million primarily due to the
reacquisition of one-half of the Company's interest in the partnership that
owns the Rensselaer project, and to recording related expenses. See Note 9
of Notes to Financial Statements in Item 1.
The consolidated effective tax rate increased to 66.3% in 1998 from 35.3%
in 1997 mainly due to non-deductible merger-related expenses.
- 30 -
<PAGE>
Six Months Ended June 30, 1998, Compared to
Six Months Ended June 30, 1997
The Company's income from continuing operations decreased to $.46 per share
in 1998 from $.62 per share in 1997. Results for 1998 included $.42 of
charges for merger-related costs ($.19 for LG&E, $.17 for KU, and $.06 for
Corporate). Excluding these charges, income from continuing operations
would have totaled $.88 in 1998, an increase of $.26 over earnings for
1997. Approximately $.16 of this increase resulted from closing the NIMO
MRA in June 1998 (see Note 9 of Notes to Financial Statements). The rest
of the increase resulted from increased earnings at LG&E and KU.
Income from discontinued operations decreased $23.1 million due to
increased volatility, instability and rising prices in the wholesale power
market during the first six months of 1998. See Notes 1 and 3 of Notes to
Financial Statements for more information.
LG&E Results:
LG&E's net income decreased $22 million for the first six months of 1998,
as compared to the first six months of 1997, due to the charge for merger-
related expenses as discussed in Note 2 of Notes to Financial Statements.
Excluding the costs to achieve the merger, net income increased $3 million.
This increase is mainly due to increased electric retail and wholesale
sales, partially offset by lower gas sales and higher operating expenses at
the electric generating stations.
A comparison of LG&E's revenues for the six months ended June 30, 1998,
with the six months ended June 30, 1997, reflects increases and decreases
which have been segregated by the following principal causes:
Increase or
(Decrease)
(Thousands of $)
Electric Gas
Cause Revenues Revenues
Sales to ultimate consumers:
Fuel and gas supply adjustments $ 650 $ 1,837
Demand side management/decoupling
revenue (3,283) 924
Environmental cost recovery surcharge (230) -
Variation in sales volume, etc. 15,196 (19,339)
Total 12,333 (16,578)
Sales for resale 28,974 5,399
Gas transportation - net - (14)
Other (618) (438)
Total $ 40,689 $(11,631)
Electric retail sales increased primarily due to the warmer weather
experienced in the second quarter as compared to 1997. Sales for resale
increased due to larger amounts of power available for off-system sales, an
increase in the unit price of the sales and sales to Kentucky Utilities of
$4.3 million due to economic dispatch following the merger in May 1998 of
LG&E Energy Corp. and KU Energy.
- 31 -
<PAGE>
Gas retail sales decreased from 1997 due to the warmer weather in the first
six months of 1998. Gas wholesale sales increased to $5.4 million in 1998
from zero in 1997 due to the implementation of LG&E's performance-based
ratemaking mechanism.
Fuel for electric generation increased $10.8 million (16%) for the six
months because of an increase in generation ($8.2 million) and a higher
cost of coal burned ($2.6 million). Gas supply expenses decreased $8.6
million (10%) due to a decrease in the volume of gas delivered to the
distribution system.
Power purchased increased $17.9 million because of the availability of
economically priced power during the first quarter of 1998, an increase in
the unit price of purchases in the second quarter of 1998 and increased
purchases from Kentucky Utilities of $5.1 million as a result of economic
dispatch following the merger of the two companies in May 1998.
Other operation expenses increased $6.9 million (9%) over 1997 because of
increased costs to operate the electric generating plants ($4.2 million)
and increased administrative costs ($3.3 million).
Maintenance expenses decreased $3 million (11%) primarily because of a
decrease in repairs at the electric generating plants ($4.5 million) offset
by increased storm damage expenses of $1.4 million.
LG&E incurred a pre-tax charge in the second quarter for costs associated
with the merger of LG&E Energy Corp. and KU Energy of $34.1 million. The
corresponding tax benefit of $9.1 million is recorded in other income and
(deductions). The amount charged is in excess of the amount permitted to
be deferred as a regulatory asset by the Kentucky Public Service
Commission. See Note 2 for a further explanation of merger costs.
Variations in income tax expense are largely attributable to changes in pre-
tax income as well as non-deductible merger expenses.
KU Results:
KU's net income for the six months ended June 30, 1998 decreased $13.1
million compared to the same period of 1997. This decrease was due to an
after-tax charge in the second quarter of 1998, of $21.7 million for merger
related expenses as discussed in Note 2 of Notes to Financial Statements.
Excluding this charge, net income for the six months ended June 30, 1998,
increased $8.5 million. The increase was primarily due to increases in
residential sales, commercial sales and sales for resale caused by the
warmer weather and decreased maintenance expenses.
- 32 -
<PAGE>
A comparison of KU's revenues for the six months ended June 30, 1998, with
the six months ended June 30, 1997, reflects increases and decreases which
have been segregated by the following principal causes:
Increase or
(Decrease)
(Thousands of $)
Electric
Cause Revenues
Sales to ultimate consumers:
Fuel clause adjustments $ 6,956
Environmental cost recovery 1,178
Variation in sales volume, etc. 5,686
Total 13,820
Sales for resale 19,761
Other 935
Total $34,516
Operating revenues increased $34.5 million (10%). The increase reflects a
15% increase in kilowatt-hour sales. The increase in kilowatt-hour sales
is primarily attributable to increases in residential sales, commercial
sales, and sales for resale. The increases in residential and commercial
sales are primarily attributable to warmer weather in 1998. The increase
in sales for resale (2,522,155 megawatt-hours versus 1,549,106 megawatt-
hours) was primarily due to increased marketing efforts, an increase in the
unit price of sales and sales to LG&E of $5.1 million as a result of
economic dispatch following the merger of LG&E Energy Corp. and KU Energy.
Fuel for electric generation expenses increased by $16.7 million (19%)
primarily due to a 14% increase in MBTU used. The increased consumption
was primarily caused by the previously mentioned increase in kilowatt-hour
sales.
Power purchased increased $5.4 million (14%). The increase was primarily
due to a 17% increase in megawatt-hour purchases which was primarily
attributable to increased purchases from LG&E of $4.3 million as a result
of economic dispatch following the merger of the two companies in May 1998.
Maintenance expense decreased $2.6 million (8%). The decrease was mainly
attributable to differences in the timing of production maintenance
expenditures.
Merger costs to achieve reflects the one-time charge in the second quarter
of 1998 of $21.8 million (the corresponding tax benefit of $.1 million is
recorded in other income and (deductions)) for merger related expenses as
discussed in Note 2 of Notes to Financial Statements.
Variations in income tax expense are largely attributable to changes in pre-
tax income as well as non-deductible merger expenses.
Argentine Gas Distribution and Other Results:
Argentine gas distribution and other revenues increased $26.4 million due
to acquiring a controlling interest in Distribuidora de Gas del Centro
(Centro) in February 1997 and to Retail Access Services starting operations
in the second quarter of 1998. Cost of revenues increased $14.1 million
for the same reasons.
- 33 -
<PAGE>
Argentine gas distribution and other operation and maintenance expense
increased $9.3 million due mainly to higher corporate expenses. Non-
utility depreciation and amortization increased $5.1 million due to writing
off certain capitalized interest and development costs related to the San
Miguel facility and to write-offs related to the Rensselaer project's
Master Restructuring Agreement (MRA) with Niagara Mohawk Power Corporation
(NIMO). For more information about the San Miguel sale, see Note 7 of
Notes to Financial Statements under Item 8 in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997. See Note 9 of Notes to
Financial Statements in Item 1 for more information about the MRA with
NIMO.
Equity in earnings of joint ventures increased $44.8 million in 1998 due to
the Rensselaer project's recording a gain related to the MRA with NIMO.
Non-utility other income decreased $9.1 million due to the reacquisition of
the Company's interest in the partnership that owns the Rensselaer project,
and to recording related expenses. See Note 9 of Notes to Financial
Statements in Item 1.
Non-utility interest charges increased $2.2 million due to an increase in
average debt outstanding.
The consolidated effective tax rate increased to 45.3% in 1998 from 35.8%
in 1997 mainly due to non-deductible merger-related expenses.
Liquidity and Capital Resources
The Company's need for capital funds is primarily related to the
construction of plant and equipment necessary to meet LG&E's and KU's
electric and gas customers' needs and protection of the environment.
Capital funds are also needed for the Company's capital obligations under
the Big Rivers lease arrangements, the discontinuance of the merchant sales
and trading business, partnership equity contributions in connection with
independent power production projects, information system enhancements, and
other business development opportunities. Construction expenditures for
the six months ended June 30, 1998, of $92.2 million were financed with
internally generated funds. It is currently anticipated that the Company
will meet its known capital needs with internally generated funds and short-
term borrowings.
The Company's combined cash and marketable securities balance decreased
$7.6 million during the six months ended June 30, 1998. The decrease
reflects construction expenditures, dividends paid and a net decrease in
debt, partially offset by cash flows from operations and proceeds received
from the sale of the Company's interest in the San Miguel project.
Variations in accounts receivable, accounts payable and materials and
supplies are generally not significant indicators of the Company's
liquidity. Such variations are primarily attributable to fluctuations in
weather, which have a direct effect on sales of electricity and natural
gas. The significant increases in accounts receivable and accounts payable
resulted from seasonal fluctuations in Centro's businesses. Gas stored
underground decreased due to seasonal fluctuations in LG&E's business.
The decrease in notes payable and the offsetting increase in long-term debt
reflect issuing $150 million of medium-term notes in February 1998 and
using the proceeds to repay a portion of the outstanding commercial paper
balance. The Company also uses commercial paper which had maturity dates
ranging between one and 270 days. Because of the rollover of these
maturity dates, total short-term borrowings during the first six months of
1998 were $2.1 billion and total repayments of short-term borrowings during
the same period were $2.3 billion. See Note 14 of Notes to Financial
Statements under Item 8 in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
- 34 -
<PAGE>
At June 30, 1998, unused capacity under the Company's lines of credit
totaled $672.1 million after considering commercial paper support and
approximately $81.8 million in letters of credit securing on- and off-
balance sheet commitments. At December 31, 1997, unused capacity under the
lines of credit totaled $541.7 million. The increase in unused capacity
resulted from repaying a portion of the outstanding commercial paper
balance.
As explained in more detail under Item 1 of Part II of this report, on July
15, 1998, the Company closed its transaction to lease the generating assets
of Big Rivers Electric Corporation. On July 14, 1998, LG&E Capital Corp.
issued $95.1 million of commercial paper to meet various working capital
requirements related to the closing.
In July 1998 following the Company's decision to discontinue its merchant
energy trading and sales business, Standard & Poor's (S&P) downgraded the
credit ratings of the Company and its subsidiaries. The Company's
corporate credit rating was changed from "A+" to "A". Similar action was
taken with respect to the credit ratings of LG&E and KU. LG&E's corporate
credit rating and first mortgage bonds are now rated "A+", its unsecured
debt and preferred stock are now rated "A" and its commercial paper is now
rated "A-1". KU's corporate credit rating and preferred stock are now
rated "A+", its first mortgage bonds are now rated "AA-" and its commercial
paper is now rated "A-1". LG&E Capital's ratings for its corporate credit
and unsecured debt are now "A" and its commercial paper rating remained at
"A-1". These ratings reflect the views of S&P, and an explanation of the
significance of these ratings may be obtained from S&P. A security rating
is not a recommendation to buy, sell or hold securities and is subject to
revision or withdrawal at any time by the rating agency.
LG&E retired $20 million of first mortgage bonds on June 1, 1998, with
funds generated internally.
At June 30, 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 during the six months ended June 30, 1998, is
due primarily to cash provided by operations exceeding cash required for
investing and financing activities (exclusive of short-term borrowings) for
the six months ended June 30, 1998.
The Company's capitalization ratios at June 30, 1998, and December 31,
1997, follow:
June 30, Dec. 31,
1998 1997
Long-term debt (including current portion) 46.4% 37.7%
Notes payable 7.0 12.1
Preferred stock 4.7 4.2
Common equity 41.9 46.0
Total 100.0% 100.0%
LG&E's capitalization ratios at June 30, 1998, and December 31, 1997,
follow:
June 30, Dec. 31,
1998 1997
Long-term debt (including current portion) 45.2% 45.4%
Preferred stock 6.9 6.7
Common equity 47.9 47.9
Total 100.0% 100.0%
- 35 -
<PAGE>
KU's capitalization ratios at June 30, 1998, and December 31, 1997, follow:
June 30, Dec. 31,
1998 1997
Long-term debt (including current portion) 46.2% 44.4%
Notes payable 0.0 2.7
Preferred stock 3.4 3.2
Common equity 50.4 49.7
Total 100.0% 100.0%
For a description of significant contingencies that may affect the Company,
LG&E and KU, reference is made to Part II herein - Item 1, Legal
Proceedings.
- 36 -
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
For a description of the significant legal proceedings involving the
Company, LG&E and KU, reference is made to the information under (i) the
following items and captions of (a) the Company's and LG&E's and (b) KU
Energy's and KU's respective combined Annual Reports on Form 10-K for the
year ended December 31, 1997: Item 1, Business; Item 3, Legal Proceedings;
Item 7, Management's Discussion and Analysis of Results of Operations and
Financial Condition; Notes 4 and 16 of the Company's Notes to Financial
Statements under Item 8; Notes 3 and 12 of LG&E's Notes to Financial
Statements under Item 8 and Note 9 of KU's Notes to Financial Statements
under Item 8; and (ii) the following items and captions of (a) the
Company's and LG&E's and (b) KU Energy's and KU's respective combined
Quarterly Reports on Form 10-Q for the quarter ended March 31, 1998: Part
III, Item 1, Legal Proceedings; and Note 2 to KU Energy's and KU's Notes to
Financial Statements. Except as described herein, to date, the proceedings
reported in the Company's and LG&E's and KU Energy's and KU's respective
Forms 10-K and first-quarter Forms 10-Q have not changed materially.
Big Rivers Transaction.
Effective July 15, 1998, the Company closed its pending transaction to
lease the generating assets of Big Rivers Electric Corporation ("Big
Rivers"). See "Recent Developments - Lease of Big Rivers Facilities" in
Item 2, Management's Discussion and Analysis of Operations and Financial
Condition for information concerning this transaction. See also Part II,
Item 1, Legal Proceedings, of the Company's Form 10-Q for the quarter ended
March 31, 1998 and Part I, Item 1, Business, of the Company's 1997 Form 10-
K.
Southampton
Note 16 of the Company's Financial Statements for the year ended December
31, 1997 discusses the status of certain proceedings before the FERC
regarding the status of the Southampton cogeneration facility
("Southampton") as a qualifying facility ("QF") under the Public Utility
Regulatory Policies Act for the year 1992, including a request for
clarification as to any FERC-ordered rate refunds payable from Southampton
to Virginia Electric and Power Company ("VEPCO") for the 1992 period. On
May 18, 1998, the FERC issued an order addressing certain issues in this
matter. The order reaffirmed certain exemptions granted Southampton as a
QF for the 1992 period. Regarding the rate refund amount, the FERC order
requires VEPCO to compensate Southampton for every hour in 1992 that the
unit was available for dispatch, whether or not actually dispatched, at
VEPCO's hourly economy energy cost, thus reducing Southampton's exposure to
refund. FERC also denied Southampton's request for approval of a $500,000
refund and directed the parties to enter into further FERC-supervised
settlement negotiations regarding calculation of the refund amount in
accordance with the clarifications in the FERC order. Southampton and
VEPCO each filed requests for rehearing of the May 18 order which are still
pending before the FERC. On May 28, 1998, Southampton filed a petition for
review of FERC's orders in this proceeding with the United States Court of
Appeals for the District of Columbia Circuit ("Court of Appeals"). Because
the Court of Appeals will dismiss a petition for review if petitions for
rehearing are simultaneously pending before FERC and several parties,
including Southampton, have sought rehearing, Southampton has filed a
voluntary motion with the Court of Appeals to dismiss its appeal without
prejudice. FERC has also filed a motion to dismiss Southampton's appeal.
If Southampton's motion is granted, Southampton could seek judicial review
of FERC's decisions in this proceeding after FERC acts on the pending
petitions for rehearing. Pending the commencement and outcome of such
negotiations, as well as any further potential actions, currently unknown,
to be taken by Southampton or VEPCO, including possible appeal of any final
FERC order, the Company cannot predict the ultimate amount of the refund.
The Company's 50% share of the revenues
- 37 -
<PAGE>
received by Southampton in 1992 was approximately $9.5 million and any
refund is subject to interest charges. The Company has also been notified
that its partners in the Southampton facility are disputing their
responsibility for their share of any refund and are asserting that the
Company should bear the full responsibility for any refund. The Company
and partners are currently negotiating these matters.
Calgary
Item 3, Legal Proceedings, to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 discusses the status of certain
proceedings relating to unauthorized transactions which were discovered in
the Company's former LG&E Natural Canada Inc. office. The Company has
agreed to dismiss one action which had been filed in this matter against a
natural gas sales and marketing company and its director, president and
secretary. The Company continues to pursue the remaining action against
its former employee as described in Item 3 to the Form 10-K, which action
is in the discovery stages.
Rensselaer
Item 3, Legal Proceedings, to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, discussed the status of a master
restructuring agreement between Niagara Mohawk Power Corporation ("NIMO")
and LG&E Westmoreland-Rensselaer ("LWR"), the owner of the Rensselaer, New
York cogeneration facility in which the Company has an interest. The
closing of the master restructuring transactions between NIMO and 14 other
independent power producers including LWR occurred June 30, 1998. In
connection with this closing and the restructuring of its power purchase
agreement with NIMO, the Company recorded an after-tax gain of $21.0
million relating to its interest in LWR. The Company previously reported
the sale of one-half of its interest in LWR. As a result of a settlement
among the parties, the Company has retained its 50% ownership in the
Rensselaer facility. See also "Recent Developments" in Part I, Item 2,
Management's Discussion and Analysis of Operations and Financial Condition.
Oglethorpe Power Contract
In November 1996, the Company, through its LG&E Energy Marketing Inc.
subsidiary (LEM), entered into a 15 year agreement with Oglethorpe Power
Corporation (OPC) to supply approximately one-half of OPC's systemwide
power needs during the term of the agreement and with rights to market
OPC's surplus power. The Company has been in settlement negotiations with
OPC over load projections provided by OPC as an inducement for LEM to enter
into the 1996 agreement. Absent an acceptable settlement with OPC, the
Company will pursue legal remedies. See also "Recent Developments" in Part
I, Item 2, Management's Discussion and Analysis of Operations and Financial
Condition.
Springfield Municipal Contract
On July 29, 1998, LEM filed suit in the United States District Court for
the Western District of Kentucky in Louisville, against the City of
Springfield, Illinois, City Water, Light and Power Company ("Springfield
CWLP"). The action seeks damages for Springfield CWLP's failure, including
in late June 1998, to sell electric energy to LEM pursuant to a February
1997 Interchange Agreement and transaction confirmations thereunder, as
well as for other related claims. LEM has estimated that its damages in
this matter may be approximately $21.0 million.
Proposed NOx Reductions
Note 16 to the Company's and Note 12 to LG&E's respective Notes to
Financial Statements for the year ended December 31, 1997 and Management's
Discussion and Analysis to KU Energy's and KU's respective Forms 10-K for
the year ending December 31, 1997 (Part I, Item
- 38 -
<PAGE>
1, Business) and their Forms 10-Q for the quarter ending March 31, 1998
(Part I, Item 2), discuss the pending United States Environmental
Protection Agency's ("USEPA") new nitrogen oxide and particulate matter
standards adopted in July 1997 and related proposed regulations issued in
October 1997. The Company continues to monitor the USEPA comment and rule-
making process in this matter through regional and industry trade groups
and organizations. If finally adopted as proposed, the regulations may
require LG&E, KU and Big Rivers, as well as the Company's independent power
projects, to incur significant capital expenditures and significantly
increased operation and maintenance costs. In connection with the closing
of the KU Energy merger and Big Rivers lease transactions and potential
Company obligations in respect of these additional coal-fired generation
assets, the Company now estimates these capital costs as potentially in
excess of $300 million in the aggregate. These costs would generally be
incurred following the year 2000. The Company believes its exposure in
this regard to be comparable to that of similarly-situated utilities with
like generation assets. The Company anticipates that a significant portion
of any such capital costs could be recoverable through rates. However,
Public Service Commission Approval is necessary and there can be no
guarantee of such recovery.
KU Environmental Surcharge
On June 10, 1998, the Kentucky Supreme Court granted motions for
discretionary review filed by the Kentucky Attorney General and consumer
representatives in court proceedings regarding the constitutionality of the
state environmental surcharge statute and related matters. Briefs are due
in early August, however no date for oral argument has yet been set. See
Note 6 to Notes to Financial Statements (Unaudited) under Item 1 of this
Form 10-Q for further details, including a discussion any potential refund
amounts.
Item 4. Submission of Matters to a Vote of Security Holders.
a) LG&E Energy's and LG&E's Annual Meetings of Shareholders were held on
April 22, 1998. KU Energy's Annual Meeting of Shareholders was held on
April 28, 1998. The sole common shareholder of KU executed a written
consent in lieu of an annual meeting on April 28, 1998.
b) Not applicable.
c) The matters voted upon and the results of the voting at the Special
Meeting are set forth below:
1. LG&E Energy:
i) The shareholders voted to elect LG&E Energy's nominees for election to
the Board of Directors as follows:
Owsley Brown II - 54,134,575 common shares cast in favor of election
and 303,969 shares withheld.
Gene P. Gardner - 54,099,551 common shares cast in favor of election
and 307,816 shares withheld.
J. David Grissom - 54,045,140 common shares cast in favor of election
and 353,789 shares withheld.
Jeffery T. Grade - 53,965,876 common shares cast in favor of election
and 404,887 shares withheld.
Holders of 235,944 common shares abstained from voting on this matter.
- 39 -
<PAGE>
ii)The shareholders voted 54,087,460 common shares in favor of and 197,592
shares against the approval of Arthur Andersen LLP as independent
auditors for 1998. Holders of 401,599 common shares abstained from
voting on this matter.
2. LG&E:
i) The shareholders voted to elect LG&E's nominees for election to the
Board of Directors as follows:
21,294,223 common shares cast in favor of election and no shares
withheld for each of Owsley Brown II, Gene P. Gardner, J. David Grissom
and Jeffery T. Grade, respectively.
Holders of no common shares abstained from voting on this matter.
ii)The shareholders voted 21,294,223 common shares in favor of and no
shares against the approval of Arthur Andersen LLP as independent
auditors for 1998.
iii)The shareholders voted 21,294,223 common shares in favor of and no
shares against the approval of an amendment to LG&E's By-laws to
increase the maximum number of directors.
3. KU Energy:
The shareholders voted to elect KU Energy's nominees for election to
the Board of Directors as follows:
Carol M. Gatton - 31,997,263 common shares cast in favor of election
and no shares withheld.
Harry M. Hoe - 32,117,171 common shares cast in favor of election and
no shares withheld.
Michael R. Whitley - 32,167,314 common shares cast in favor of election
and no shares withheld.
Holders of 438,788 common shares abstained from voting on this matter.
4. KU:
The shareholders voted to elect KU's nominees for election to the Board
of Directors as follows:
37,817,878 common shares cast in favor of election and no shares
withheld for each of Carol M. Gatton, Harry M. Hoe and Michael R.
Whitley, respectively.
Holders of no common shares abstained from voting on this matter.
d) Not applicable.
- 40 -
<PAGE>
Item 6(a). Exhibits.
Exhibit
Number Description
27 Financial Data Schedules for LG&E Energy Corp.,
Louisville Gas and Electric Company, and Kentucky
Utilities Company.
Item 6(b). Reports on Form 8-K.
On April 9, 1998, the Company filed a report on Form 8-K announcing that
the LG&E Energy Corp. and KU Energy Corporation merger will close effective
May 4, 1998, subject to Securities and Exchange Commission final approval
and the satisfaction and confirmation of certain closing conditions set
forth in their merger agreement.
On May 6, 1998, the Company filed a report on Form 8-K stating that:
1) On May 4, 1998, LG&E Energy Corp. and KU Energy Corporation completed
their merger with the Company as the surviving corporation.
2) Effective May 1, 1998, the Company elected Frederick J. Newton, III, to
the position of Senior Vice President - Human Resources and
Administration.
On June 30, 1998, the Company filed a report on Form 8-K announcing that
effective on or about January 1, 1998, the Louisville Gas and Electric
Company Employees' Stock Ownership Plan and Trust (the "ESOP") was merged
into the LG&E Energy Corp. Savings Plan and 401(k) Savings Plan for
Employees of Louisville Gas and Electric Company who are Represented by
Local 2100 of IBEW, and the ESOP ceased to exist.
On July 29, 1998, the Company filed a report on Form 8-K announcing that it
would discontinue its merchant energy trading and sales business and that
it would sell the associated gas gathering and processing business. The
Company also announced in the same report on Form 8-K that its energy
marketing subsidiary, LG&E Energy Marketing Inc. ("LEM"), intends to file
an action against the City of Springfield, Illinois, City Water, Light and
Power Company ("Springfield CWLP"). The action will seek damages for
Springfield CWLP's failure, including in late June 1998, to sell electric
energy to LEM pursuant to a February 1997 Interchange Agreement and
transaction confirmations thereunder, as well as for other related claims.
- 41 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LG&E Energy Corp.
Registrant
Date: August 12, 1998 /s/ S. Bradford Rives
S. Bradford Rives
Vice President - Finance and Controller
(On behalf of the registrant in his
capacity as Principal Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Louisville Gas and Electric Company
Registrant
Date: August 12, 1998 /s/ Michael D. Robinson
Michael D. Robinson
Vice President and Controller
(On behalf of the registrant in his
capacity as Principal Accounting Officer)
Pursuant to the requirements of the Securities and 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: August 12, 1998 /s/ Michael D. Robinson
Michael D. Robinson
Vice President and Controller
(On behalf of the registrant in his
capacity as Principal Accounting Officer)
- 42 -
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000861388
<NAME> LG&E ENERGY CORP.
<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> 3,177,897
<OTHER-PROPERTY-AND-INVEST> 469,464
<TOTAL-CURRENT-ASSETS> 733,896
<TOTAL-DEFERRED-CHARGES> 145,531
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,526,788
<COMMON> 776,010 <F1>
<CAPITAL-SURPLUS-PAID-IN> 277 <F2>
<RETAINED-EARNINGS> 728,942
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,505,229
0
138,353
<LONG-TERM-DEBT-NET> 1,360,701
<SHORT-TERM-NOTES> 205,515
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 20,021
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,296,969
<TOT-CAPITALIZATION-AND-LIAB> 4,526,788
<GROSS-OPERATING-REVENUE> 450,724
<INCOME-TAX-EXPENSE> 23,479
<OTHER-OPERATING-EXPENSES> 357,217 <F3>
<TOTAL-OPERATING-EXPENSES> 380,696
<OPERATING-INCOME-LOSS> 70,028
<OTHER-INCOME-NET> (803)
<INCOME-BEFORE-INTEREST-EXPEN> 69,225
<TOTAL-INTEREST-EXPENSE> 24,370
<NET-INCOME> 44,855
1,687
<EARNINGS-AVAILABLE-FOR-COMM> 43,168
<COMMON-STOCK-DIVIDENDS> 36,810
<TOTAL-INTEREST-ON-BONDS> 18,108
<CASH-FLOW-OPERATIONS> 142,355
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
<FN>
<F1>Includes common stock expense of $2,263.
<F2>Represents unrealized loss on marketable securities,
net of taxes.
<F3>Includes equity in earnings of affiliates of
$5,981.
<F4>The Company restated this schedule to reflect
its merger with KU Energy Corporation and to
reclassify discontinued operations.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000861388
<NAME> LG&E ENERGY CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,155,821
<OTHER-PROPERTY-AND-INVEST> 470,464
<TOTAL-CURRENT-ASSETS> 671,161
<TOTAL-DEFERRED-CHARGES> 127,148
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,424,594
<COMMON> 775,209 <F1>
<CAPITAL-SURPLUS-PAID-IN> (100)<F2>
<RETAINED-EARNINGS> 694,312
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,469,421
0
135,328
<LONG-TERM-DEBT-NET> 1,230,604
<SHORT-TERM-NOTES> 310,500
<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> 1,278,720
<TOT-CAPITALIZATION-AND-LIAB> 4,424,594
<GROSS-OPERATING-REVENUE> 423,073
<INCOME-TAX-EXPENSE> 26,840
<OTHER-OPERATING-EXPENSES> 327,551 <F3>
<TOTAL-OPERATING-EXPENSES> 354,391
<OPERATING-INCOME-LOSS> 68,682
<OTHER-INCOME-NET> 1,943
<INCOME-BEFORE-INTEREST-EXPEN> 70,625
<TOTAL-INTEREST-EXPENSE> 22,832
<NET-INCOME> 47,793
1,691
<EARNINGS-AVAILABLE-FOR-COMM> 46,102
<COMMON-STOCK-DIVIDENDS> 35,752
<TOTAL-INTEREST-ON-BONDS> 18,719
<CASH-FLOW-OPERATIONS> 116,346
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
<FN>
<F1>Includes common stock expense of $1,861.
<F2>Represents unrealized loss on marketable securities,
net of taxes.
<F3>Includes equity in earnings of affiliates of
$3,603.
<F4>The Company restated this schedule to reflect
its merger with KU Energy Corporation and to
reclassify discontinued operations.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000861388
<NAME> LG&E ENERGY CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,161,686
<OTHER-PROPERTY-AND-INVEST> 476,617
<TOTAL-CURRENT-ASSETS> 683,242
<TOTAL-DEFERRED-CHARGES> 134,411
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,455,956
<COMMON> 775,512 <F1>
<CAPITAL-SURPLUS-PAID-IN> (101)<F2>
<RETAINED-EARNINGS> 692,218
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,467,629
0
135,328
<LONG-TERM-DEBT-NET> 1,210,635
<SHORT-TERM-NOTES> 349,800
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 20,021
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,272,543
<TOT-CAPITALIZATION-AND-LIAB> 4,455,956
<GROSS-OPERATING-REVENUE> 811,611
<INCOME-TAX-EXPENSE> 44,699
<OTHER-OPERATING-EXPENSES> 643,265 <F3>
<TOTAL-OPERATING-EXPENSES> 687,964
<OPERATING-INCOME-LOSS> 123,647
<OTHER-INCOME-NET> 7,341
<INCOME-BEFORE-INTEREST-EXPEN> 130,988
<TOTAL-INTEREST-EXPENSE> 47,803
<NET-INCOME> 83,185
3,416
<EARNINGS-AVAILABLE-FOR-COMM> 79,769
<COMMON-STOCK-DIVIDENDS> 71,505
<TOTAL-INTEREST-ON-BONDS> 37,582
<CASH-FLOW-OPERATIONS> 171,964
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
<FN>
<F1>Includes common stock expense of $1,874.
<F2>Represents unrealized loss on marketable securities,
net of taxes.
<F3>Includes equity in earnings of affiliates of
$9,730.
<F4>The Company restated this schedule to reflect
its merger with KU Energy Corporation and to
reclassify discontinued operations.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000861388
<NAME> LG&E ENERGY CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,189,744
<OTHER-PROPERTY-AND-INVEST> 478,659
<TOTAL-CURRENT-ASSETS> 751,401
<TOTAL-DEFERRED-CHARGES> 143,140
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,562,944
<COMMON> 776,393 <F1>
<CAPITAL-SURPLUS-PAID-IN> 217 <F2>
<RETAINED-EARNINGS> 722,584
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,499,194
0
138,353
<LONG-TERM-DEBT-NET> 1,210,690
<SHORT-TERM-NOTES> 393,784
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 20,021
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,300,902
<TOT-CAPITALIZATION-AND-LIAB> 4,562,944
<GROSS-OPERATING-REVENUE> 1,713,419
<INCOME-TAX-EXPENSE> 115,472
<OTHER-OPERATING-EXPENSES> 1,313,227 <F3>
<TOTAL-OPERATING-EXPENSES> 1,428,699
<OPERATING-INCOME-LOSS> 284,720
<OTHER-INCOME-NET> 2,703
<INCOME-BEFORE-INTEREST-EXPEN> 287,423
<TOTAL-INTEREST-EXPENSE> 97,586
<NET-INCOME> 189,837
6,841
<EARNINGS-AVAILABLE-FOR-COMM> 182,996
<COMMON-STOCK-DIVIDENDS> 144,366
<TOTAL-INTEREST-ON-BONDS> 75,010
<CASH-FLOW-OPERATIONS> 322,814
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
<FN>
<F1>Includes common stock expense of $1,880.
<F2>Represents unrealized loss on marketable securities,
net of taxes.
<F3>Includes equity in earnings of affiliates of
$22,937.
<F4>The Company restated this schedule to reflect
its merger with KU Energy Corporation and to
reclassify discontinued operations.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000861388
<NAME> LG&E ENERGY CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,179,194
<OTHER-PROPERTY-AND-INVEST> 499,946
<TOTAL-CURRENT-ASSETS> 510,297
<TOTAL-DEFERRED-CHARGES> 159,600
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,349,037
<COMMON> 775,822 <F1>
<CAPITAL-SURPLUS-PAID-IN> 244 <F2>
<RETAINED-EARNINGS> 452,891
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,228,957
0
136,530
<LONG-TERM-DEBT-NET> 1,360,732
<SHORT-TERM-NOTES> 206,079
<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> 1,416,718
<TOT-CAPITALIZATION-AND-LIAB> 4,349,037
<GROSS-OPERATING-REVENUE> 891,861
<INCOME-TAX-EXPENSE> 49,674
<OTHER-OPERATING-EXPENSES> 662,688 <F3>
<TOTAL-OPERATING-EXPENSES> 712,362
<OPERATING-INCOME-LOSS> 179,499
<OTHER-INCOME-NET> (316,185)<F4>
<INCOME-BEFORE-INTEREST-EXPEN> (136,686)<F4>
<TOTAL-INTEREST-EXPENSE> 48,551
<NET-INCOME> (185,237)
3,394
<EARNINGS-AVAILABLE-FOR-COMM> (188,631)
<COMMON-STOCK-DIVIDENDS> 81,062
<TOTAL-INTEREST-ON-BONDS> 36,123
<CASH-FLOW-OPERATIONS> 191,959
<EPS-PRIMARY> (1.45)
<EPS-DILUTED> (1.45)
<FN>
<F1>Includes common stock expense of $2,451.
<F2>Represents unrealized loss on marketable securities,
net of taxes.
<F3>Includes equity in earnings of affiliates of
$56,863.
<F4>Includes loss from discontinued operations and
loss on disposal of discontinued operations, both
net of income taxes.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000055387
<NAME> KENTUCKY UTILITIES COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,471,566
<OTHER-PROPERTY-AND-INVEST> 13,123
<TOTAL-CURRENT-ASSETS> 154,231
<TOTAL-DEFERRED-CHARGES> 55,034
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,693,954
<COMMON> 307,545 <F1>
<CAPITAL-SURPLUS-PAID-IN> 0 <F2>
<RETAINED-EARNINGS> 287,462
<TOTAL-COMMON-STOCKHOLDERS-EQ> 595,007
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> 512,596
<TOT-CAPITALIZATION-AND-LIAB> 1,693,954
<GROSS-OPERATING-REVENUE> 376,298
<INCOME-TAX-EXPENSE> 24,741
<OTHER-OPERATING-EXPENSES> 288,420
<TOTAL-OPERATING-EXPENSES> 313,161
<OPERATING-INCOME-LOSS> 63,137
<OTHER-INCOME-NET> (19,881)
<INCOME-BEFORE-INTEREST-EXPEN> 43,256
<TOTAL-INTEREST-EXPENSE> 19,326
<NET-INCOME> 23,930
1,128
<EARNINGS-AVAILABLE-FOR-COMM> 22,802
<COMMON-STOCK-DIVIDENDS> 40,090
<TOTAL-INTEREST-ON-BONDS> 18,654
<CASH-FLOW-OPERATIONS> 90,862
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes common stock expense of $595.
<F2>Represents unrealized loss on marketable securities,
net of taxes.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000060549
<NAME> LOUISVILLE GAS AND ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,707,628
<OTHER-PROPERTY-AND-INVEST> 1,109
<TOTAL-CURRENT-ASSETS> 274,253
<TOTAL-DEFERRED-CHARGES> 71,292
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,054,282
<COMMON> 424,335 <F1>
<CAPITAL-SURPLUS-PAID-IN> 85 <F2>
<RETAINED-EARNINGS> 239,064
<TOTAL-COMMON-STOCKHOLDERS-EQ> 663,484
0
95,328
<LONG-TERM-DEBT-NET> 626,800
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 668,670
<TOT-CAPITALIZATION-AND-LIAB> 2,054,282
<GROSS-OPERATING-REVENUE> 434,733
<INCOME-TAX-EXPENSE> 26,082
<OTHER-OPERATING-EXPENSES> 342,696
<TOTAL-OPERATING-EXPENSES> 368,778
<OPERATING-INCOME-LOSS> 65,955
<OTHER-INCOME-NET> (23,825)<F3>
<INCOME-BEFORE-INTEREST-EXPEN> 42,130
<TOTAL-INTEREST-EXPENSE> 18,710
<NET-INCOME> 23,420
2,266
<EARNINGS-AVAILABLE-FOR-COMM> 21,154
<COMMON-STOCK-DIVIDENDS> 41,000
<TOTAL-INTEREST-ON-BONDS> 17,469
<CASH-FLOW-OPERATIONS> 111,674
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes common stock expense of $836.
<F2>Represents unrealized loss on marketable securities,
net of taxes.
<F3>Includes merger cost to achieve. See Note 2 of Notes
to Financial Statements.
</FN>
</TABLE>
