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 September 30, 2000
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.
129,677,030 shares, without par value, as of October 31, 2000.
Louisville Gas and Electric Company
21,294,223 shares, without par value, as of October 31, 2000,
all held by LG&E Energy Corp.
Kentucky Utilities Company
37,817,878 shares, without par value, as of October 31, 2000,
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 27
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 37
PART II
Item 1 Legal Proceedings 38
Item 6 Exhibits and Reports on Form 8-K 39
Signatures 40
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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 Nine Months
Ended Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
REVENUES:
Electric utility $ 412,200 $ 550,376 $1,154,696 $1,318,307
Gas utility 24,381 17,623 142,676 117,054
International and
non-utility 245,315 297,391 616,205 652,951
Net revenues 681,896 865,390 1,913,577 2,088,312
OPERATING EXPENSES:
Fuel and power purchased 203,308 413,713 613,013 869,795
Gas supply expenses 117,835 82,248 325,738 234,232
Utility operation and
maintenance 95,231 103,789 297,346 322,686
International and non-
utility operation
and maintenance 49,639 48,905 154,387 141,303
Depreciation and
amortization 54,732 54,664 169,907 162,879
Asset impairment charge
(Note 4) - - 45,000 -
Non-recurring charges
(Notes 2 and 3) 3,563 - 38,952 -
Total operating expenses 524,308 703,319 1,644,343 1,730,895
Equity in earnings
of unconsolidated
ventures (Note 6) 15,938 10,092 32,628 43,799
OPERATING INCOME 173,526 172,163 301,862 401,216
Other income 2,432 5,863 13,148 14,862
Interest charges and
preferred dividends 38,976 32,414 110,860 95,177
Minority interest 5,363 4,735 11,377 10,148
Income before income taxes 131,619 140,877 192,773 310,753
Income taxes 45,939 53,711 65,862 116,843
Income from continuing
operations $ 85,680 $ 87,166 $ 126,911 $ 193,910
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LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income (cont.)
(Unaudited - Thousands of $ Except Per Share Data)
Three Months Nine Months
Ended Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Income from continuing
operations $ 85,680 $ 87,166 $ 126,911 $ 193,910
(Loss) income from disposal of
discontinued operations, net of
income tax benefit (expense)
of $94,476 and ($328)
(Note 5) - - (155,000) 788
NET INCOME (LOSS) $ 85,680 $ 87,166 $ (28,089) $ 194,698
Average common shares
outstanding 129,677 129,677 129,677 129,677
Earnings (loss) per share -
basic and diluted:
Continuing operations $ .66 $ .67 $ .98 $ 1.49
(Loss) income from dis-
posal of discontinued
operations .00 .00 (1.20) .01
Total $ .66 $ .67 $ (.22) $ 1.50
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)
Sep. 30, Dec. 31,
2000 1999
CURRENT ASSETS:
Cash and temporary cash investments $ 16,974 $ 91,413
Marketable securities 7,104 10,126
Accounts receivable - less reserve 321,486 318,914
Materials and supplies - primarily at average cost:
Fuel (predominantly coal) 58,904 91,931
Gas stored underground 66,142 49,038
Other 91,816 90,259
Prepayments and other 25,875 54,038
Total current assets 588,301 705,719
UTILITY PLANT:
At original cost 6,071,791 5,916,905
Less: reserve for depreciation 2,653,281 2,503,851
Net utility plant 3,418,510 3,413,054
OTHER PROPERTY AND INVESTMENTS - LESS RESERVES:
Investment in unconsolidated
ventures (Note 6) 253,184 249,455
Non-utility property and plant, net 431,358 477,442
Other 136,396 25,596
Total other property and investments 820,938 752,493
DEFERRED DEBITS AND OTHER ASSETS 216,758 262,491
Total assets $5,044,507 $5,133,757
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)
Sep. 30, Dec. 31,
2000 1999
CURRENT LIABILITIES:
Current portion of long-term debt $ 434,372 $ 411,810
Notes payable 550,184 449,578
Accounts payable 195,461 220,460
Net liabilities of discontinued opera-
tions (Note 5) 205,506 158,222
Other 167,336 248,841
Total current liabilities 1,552,859 1,488,911
Long-term debt 1,295,574 1,299,415
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 610,834 585,880
Investment tax credit, in
process of amortization 79,864 85,828
Regulatory liability 94,637 104,795
Other 168,339 182,357
Total deferred credits and other liabilities 953,674 958,860
Minority interests 111,396 109,952
Cumulative preferred stock 142,640 135,328
COMMON EQUITY:
Common stock, without par value -
129,677,030 shares outstanding 777,013 777,013
Other (1,981) (1,956)
Retained earnings 213,332 366,234
Total common equity 988,364 1,141,291
Total liabilities and capital $5,044,507 $5,133,757
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 $)
Nine Months
Ended
Sep. 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (28,089) $ 194,698
Items not requiring cash currently:
Depreciation and amortization 169,907 162,879
Deferred income taxes - net 13,284 (9,227)
Asset impairment charge (Note 4) 45,000 -
Non-recurring charges (Notes 2 and 3) 38,952 -
Loss (income) from disposal of dis-
continued operations (Note 5) 155,000 (788)
Other (30,241) (17,480)
Change in net current assets (179,935) (78,631)
Other 21,393 7,179
Net cash flows from operating activities 205,271 258,630
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (1,433) (917)
Proceeds from sales of securities 4,044 10,040
Construction expenditures (303,051) (291,942)
Investments in unconsolidated
ventures (Note 6) (2,125) (74,498)
Investment in subsidiary, net of cash
and temporary cash investments
acquired - (39,693)
Proceeds from sales of investments
in affiliates (Note 6) 22,507 53,384
Net cash flows from investing activities (280,058) (343,626)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt 162,900 200,000
Retirement of debt (144,962) (35,268)
Short-term borrowings 9,790,273 3,927,792
Repayment of short-term borrowings (9,691,847)(3,899,417)
Issuance of preferred stock 7,500 -
Redemption of preferred stock - (1,202)
Payment of common dividends (123,516) (119,628)
Net cash flows from financing activities 348 72,277
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS (74,439) (12,719)
BEGINNING CASH AND TEMPORARY
CASH INVESTMENTS 91,413 105,604
ENDING CASH AND TEMPORARY
CASH INVESTMENTS $ 16,974 $ 92,885
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LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Cash Flows (cont.)
(Unaudited - Thousands of $)
Nine Months
Ended
Sep. 30,
2000 1999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 34,177 $ 24,871
Interest on borrowed money 110,451 78,483
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 Nine Months
Ended Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Balance at beginning
of period $ 170,121 $ 494,059 $ 366,234 $ 466,279
Net income (loss) 85,680 87,166 (28,089) 194,698
Cash dividends declared on
common stock ($.3275, $.3175,
$.9625 and $.9325 per share) 42,469 41,172 124,813 120,924
Balance at end of period $ 213,332 $ 540,053 $ 213,332 $ 540,053
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 $)
Three Months Nine Months
Ended Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Net income (loss) $ 85,680 $ 87,166 $(28,089) $194,698
Unrealized holding gains (losses)
on available-for-sale securities
arising during the period 44 (287) (473) (250)
Reclassification adjustment for
realized gains and (losses) on
available-for-sale securities
included in net income 139 (89) 179 (247)
Other comprehensive income
(loss), before tax 183 (376) (294) (497)
Income tax (expense) benefit
related to items of other
comprehensive income (40) 142 111 188
Comprehensive income (loss) $ 85,823 $ 86,932 $(28,272) $194,389
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 Nine Months
Ended Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
OPERATING REVENUES:
Electric $205,259 $279,907 $544,494 $621,693
Gas 24,381 17,623 142,676 117,054
Provision for rate
refunds - (1,135) 1,844 (1,635)
Total operating revenues 229,640 296,395 689,014 737,112
OPERATING EXPENSES:
Fuel for electric generation 41,854 45,361 120,430 117,199
Power purchased 23,907 85,156 70,006 139,040
Gas supply expenses 16,097 8,763 98,180 72,650
Non-recurring charges (Note 3) - - 8,141 -
Other operation expenses 31,620 39,452 99,142 119,101
Maintenance 14,804 12,800 46,127 47,730
Depreciation and amortization 25,119 24,143 73,169 72,428
Federal and state
income taxes 23,551 25,683 47,617 47,317
Property and other taxes 4,527 4,001 14,164 12,999
Total operating expenses 181,479 245,359 576,976 628,464
NET OPERATING INCOME 48,161 51,036 112,038 108,648
Other income 1,121 336 4,490 1,648
Interest charges 11,165 9,668 32,981 27,636
NET INCOME 38,117 41,704 83,547 82,660
Preferred stock dividends 1,361 1,090 3,843 3,266
NET INCOME AVAILABLE
FOR COMMON STOCK $ 36,756 $ 40,614 $ 79,704 $ 79,394
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)
Sep. 30, Dec. 31,
2000 1999
UTILITY PLANT:
At original cost $3,155,949 $3,065,839
Less: reserve for depreciation 1,292,265 1,215,032
Net utility plant 1,863,684 1,850,807
OTHER PROPERTY AND INVESTMENTS -
less reserve 1,088 1,224
CURRENT ASSETS:
Cash and temporary cash investments 40,986 54,761
Marketable securities 4,081 6,936
Accounts receivable - less reserve 107,421 113,859
Materials and supplies - at average cost:
Fuel (predominantly coal) 11,900 17,350
Gas stored underground 57,868 38,780
Other 33,814 35,010
Prepayments and other 1,453 2,775
Total current assets 257,523 269,471
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 5,596 5,607
Regulatory assets 31,492 31,443
Other 20,232 12,900
Total deferred debits and other assets 57,320 49,950
Total assets $2,179,615 $2,171,452
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)
Sep. 30, Dec. 31,
2000 1999
CAPITALIZATION:
Common stock, without par value -
Outstanding 21,294,223 shares $ 425,170 $ 425,170
Retained earnings 288,935 259,231
Other (1,116) (1,025)
Total common equity 712,989 683,376
Cumulative preferred stock 95,140 95,328
Long-term debt 360,600 380,600
Total capitalization 1,168,729 1,159,304
CURRENT LIABILITIES:
Current portion of long-term debt 246,200 246,200
Notes payable 131,623 120,097
Accounts payable 103,701 113,008
Provision for rate refunds - 8,962
Dividends declared 18,361 24,236
Accrued taxes 30,648 23,759
Accrued interest 4,147 9,265
Other 16,835 15,725
Total current liabilities 551,515 561,252
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 281,287 255,910
Investment tax credit, in
process of amortization 64,045 67,253
Accumulated provision for pensions
and related benefits 40,204 38,431
Customer advances for construction 9,632 11,104
Regulatory liability 54,794 58,726
Other 9,409 19,472
Total deferred credits and other liabilities 459,371 450,896
Total capital and liabilities $2,179,615 $2,171,452
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 $)
Nine Months
Ended
Sep. 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 83,547 $ 82,660
Items not requiring cash currently:
Depreciation and amortization 73,169 72,428
Deferred income taxes - net 22,907 (4,981)
Investment tax credit - net (3,208) (3,217)
Other 5,899 5,255
Changes in current assets and liabilities (20,070) 42,348
Other (9,221) (7,663)
Net cash flows from operating activities 153,023 186,830
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (708) (668)
Proceeds from sales of securities 3,594 9,955
Construction expenditures (97,670) (141,932)
Net cash flows from investing activities (94,784) (132,645)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of pollution control bonds 104,638 -
Retirement of pollution control bonds (108,335) -
Retirement of first mortgage bonds (20,124) -
Short-term borrowings 1,959,012 -
Repayment of short-term borrowings (1,947,487) -
Payment of dividends (59,718) (69,343)
Net cash flows from financing activities (72,014) (69,343)
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS (13,775) (15,158)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 54,761 31,730
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 40,986 $ 16,572
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Income taxes $ 17,641 $ 53,326
Interest on borrowed money 35,903 25,497
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 Nine Months
Ended Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Balance at beginning
of period $269,179 $242,242 $259,231 $247,462
Net income 38,117 41,704 83,547 82,660
Subtotal 307,296 283,946 342,778 330,122
Cash dividends declared on stock:
5% cumulative preferred 269 269 807 807
Auction rate cumulative
preferred 725 454 1,935 1,358
$5.875 cumulative preferred 367 367 1,101 1,101
Common 17,000 23,000 50,000 67,000
Subtotal 18,361 24,090 53,843 70,266
Balance at end of period $288,935 $259,856 $288,935 $259,856
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 $)
Three Months Nine Months
Ended Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Net income available
for common stock $36,756 $40,614 $79,704 $79,394
Unrealized holding gains (losses)
on available-for-sale securities
arising during the period 113 (199) (153) (293)
Income tax benefit (expense)
related to unrealized holding
gains and losses (45) 80 62 118
Comprehensive income $36,824 $40,495 $79,613 $79,219
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 Nine Months
Ended Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
OPERATING REVENUES:
Electric $215,984 $287,703 $639,087 $730,846
Provision for rate
refunds - (6,200) - (6,200)
Net operating revenues 215,984 281,503 639,087 724,646
OPERATING EXPENSES:
Fuel for electric generation 56,012 60,770 163,093 168,338
Power purchased 39,880 104,213 122,188 195,136
Non-recurring charges (Note 3) - - 11,030 -
Other operation expenses 26,092 30,403 79,107 89,359
Maintenance 14,374 13,649 45,602 42,113
Depreciation and amortization 24,532 22,546 73,356 66,694
Federal and state
income taxes 14,119 13,910 36,854 47,130
Property and other taxes 3,814 3,483 13,031 11,384
Total operating expenses 178,823 248,974 544,261 620,154
NET OPERATING INCOME 37,161 32,529 94,826 104,492
Other income 1,322 1,604 5,301 5,767
Interest charges 10,000 9,707 29,938 28,448
NET INCOME 28,483 24,426 70,189 81,811
Preferred stock dividends 564 564 1,692 1,692
NET INCOME AVAILABLE
FOR COMMON STOCK $ 27,919 $ 23,862 $ 68,497 $ 80,119
The accompanying notes are an integral part of these financial statements.
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Kentucky Utilities Company
Balance Sheets
(Thousands of $)
ASSETS
(Unaudited)
Sep. 30, Dec. 31,
2000 1999
UTILITY PLANT:
At original cost $2,915,842 $2,851,066
Less: reserve for depreciation 1,361,016 1,288,819
Net utility plant 1,554,826 1,562,247
OTHER PROPERTY AND INVESTMENTS -
less reserve 14,364 14,349
CURRENT ASSETS:
Cash and temporary cash investments 3,113 6,793
Accounts receivable - less reserve 92,166 88,549
Materials and supplies - at average cost:
Fuel (predominantly coal) 16,825 30,225
Other 27,434 26,213
Prepayments and other 2,608 3,743
Total current assets 142,146 155,523
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 4,696 4,827
Regulatory assets 19,509 23,033
Other 8,194 25,111
Total deferred debits and other assets 32,399 52,971
Total assets $1,743,735 $1,785,090
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)
Sep. 30, Dec. 31,
2000 1999
CAPITALIZATION:
Common stock, without par value -
Outstanding 37,817,878 shares $ 308,140 $ 308,140
Retained earnings 322,467 329,470
Other (595) (595)
Total common equity 630,012 637,015
Cumulative preferred stock 40,000 40,000
Long-term debt 484,830 430,830
Total capitalization 1,154,842 1,107,845
CURRENT LIABILITIES:
Current portion of long-term debt - 115,500
Notes payable 29,942 -
Accounts payable 108,412 116,546
Provision for rate refunds - 20,567
Dividends declared 25,688 19,150
Accrued taxes 30,006 10,502
Accrued interest 8,499 7,329
Other 18,783 18,617
Total current liabilities 221,330 308,211
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 244,769 243,620
Investment tax credit, in
process of amortization 15,819 18,575
Accumulated provision for pensions
and related benefits 48,409 48,285
Regulatory liability 39,843 46,069
Other 18,723 12,485
Total deferred credits and other liabilities 367,563 369,034
Total capital and liabilities $1,743,735 $1,785,090
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 $)
Nine Months
Ended
Sep. 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 70,189 $ 81,811
Items not requiring cash currently:
Depreciation and amortization 73,356 66,694
Deferred income taxes - net (3,829) (9,174)
Investment tax credit - net (2,755) (2,783)
Changes in current assets and liabilities 8,360 (14,089)
Other 27,503 10,200
Net cash flows from operating activities 172,824 132,659
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (74,434) (145,671)
Net cash flows from investing activities (74,434) (145,671)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings 159,256 46,667
Repayment of short-term borrowings (129,313) -
Issuance of pollution control bonds 12,900 -
Retirement of pollution control bonds (74,785) -
Payment of dividends (70,128) (55,597)
Net cash flows from financing activities (102,070) (8,930)
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS (3,680) (21,942)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 6,793 58,949
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 3,113 $ 37,007
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Income taxes $ 26,544 $ 53,778
Interest on borrowed money 25,417 24,078
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 Nine Months
Ended Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Balance at beginning
of period $320,048 $319,424 $329,470 $299,167
Net income 28,483 24,426 70,189 81,811
Subtotal 348,531 343,850 399,659 380,978
Cash dividends declared on stock:
4 75% preferred 237 237 711 711
6.53% preferred 327 327 981 981
Common 25,500 19,000 75,500 55,000
Subtotal 26,064 19,564 77,192 56,692
Balance at end of period $322,467 $324,286 $322,467 $324,286
The accompanying notes are an integral part of these financial statements.
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LG&E Energy Corp. and Subsidiaries
Louisville Gas and Electric Company
Kentucky Utilities Company
Notes to Financial Statements
(Unaudited)
1. The unaudited consolidated financial statements include the accounts of
LG&E Energy Corp. and its wholly-owned subsidiaries. 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, LG&E's and KU's Reports on Form 10-K for 1999 for
information relevant to the accompanying financial statements,
including information as to the significant accounting policies of the
Company.
2. On February 28, 2000, the Company announced that its Board of Directors
accepted an offer to be acquired by Powergen for cash of approximately
$3.2 billion or $24.85 per share and the assumption of all of the
Company's debt. Pursuant to the acquisition agreement, among other
things, LG&E Energy will become a wholly owned subsidiary of Powergen
and its U.S. headquarters. The Utility Operations of the Company will
continue their separate identities and serve customers in Kentucky and
Virginia under their present names. The preferred stock and debt
securities of the Utility Operations will not be affected by this
transaction. The acquisition is expected to close 9 to 12 months from
the announcement, shortly after all of the conditions to consummation
of the acquisition are met. It is possible that the remaining
regulatory approvals may be received in time to permit a closing during
the fourth quarter of 2000. The Company expensed approximately $3.5
million and $18.9 million related to the Powergen transaction during
the three- and nine-month periods ended September 30, 2000,
respectively. The foregoing description of the acquisition does not
purport to be complete and is qualified in its entirety by reference to
LG&E Energy's current reports on Form 8-K, filed February 29, 2000,
with the SEC.
Shareholders of the Company and of Powergen approved the merger
transaction in separate meetings held in June 2000. Further, approvals
were received from the Kentucky Commission in May 2000, the FERC in
June 2000 and the Virginia Commission in July 2000. Required waiting
periods with respect to federal antitrust and federal foreign
investment laws were each terminated in August 2000. The parties'
joint application for approval to the SEC under PUHCA was submitted in
April 2000 and is currently under review by the SEC. While the Company
and Powergen believe that they will receive the requisite remaining
regulatory approvals for the merger in sufficient time to complete the
transaction on the schedule mentioned above, there can be no assurance
as to the timing of such approvals or the ability to obtain such
approvals on satisfactory terms or otherwise.
3. During the first quarter 2000, the Company took a $12.1 million ($.09)
after-tax charge for the continued "One Utility" integration of the
operations of LG&E and KU including their customer service centers and
certain administrative elements of their retail electric and gas
distribution operations. The result of this consolidation was the
elimination of approximately 400 positions most of which were taken by
employees through the Company's voluntary enhanced severance program.
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<PAGE>
4. The Company previously announced its intention to sell its natural gas
gathering and processing business in the near term. Information
gathered to date indicates that the Company will realize proceeds from
the sale of this business below carrying value. As a result, the
Company recorded a pretax impairment charge of $45 million in the
second quarter of 2000 to reduce the carrying value of this business to
more appropriately reflect net realizable value.
5. Effective June 30, 1998, the Company discontinued its merchant energy
trading and sales business. This business consisted primarily of a
portfolio of energy marketing contracts entered into in 1996 and early
1997, nationwide deal origination and some level of speculative trading
activities, which were not directly supported by the Company's physical
assets. The Company's decision to discontinue these operations was
primarily based on the impact that volatility and rising prices in the
power market had on its portfolio of energy marketing contracts.
Exiting the merchant energy trading and sales business enabled the
Company to focus on optimizing the value of physical assets it owns or
controls, and reduced the earnings impact on continuing operations of
extreme market volatility in its portfolio of energy marketing
contracts. The Company will continue to meet its obligations to buy
and sell natural gas and electric power under the terms of the
contracts until disposition or expiration. The Company, however, has
maintained sufficient market knowledge, risk management skills,
technical systems and experienced personnel to maximize the value of
power sales from physical assets it owns or controls, including LG&E,
KU and WKE.
As a result of the Company's decision to discontinue its merchant
energy trading and sales activity, and the initial decision to sell the
associated gas gathering and processing business, the Company recorded
an after-tax loss on disposal of discontinued operations of $225
million in the second quarter of 1998. The loss on disposal of
discontinued operations resulted primarily from several fixed-price
energy marketing contracts entered into in 1996 and early 1997,
including the Company's long-term contract with OPC. Other components
of the write-off included costs relating to certain peaking options,
goodwill associated with the Company's 1995 purchase of merchant energy
trading and sales operations and exit costs.
In the fourth quarter of 1999, the Company received an adverse decision
from the arbitration panel considering its contract dispute with OPC,
which was commenced by the Company in April 1998. As a result of this
adverse decision, higher than anticipated commodity prices, increased
load demands, and other factors, the Company increased its after-tax
accrued loss on disposal of discontinued operations by $175 million.
The additional write-off included costs related to the remaining
commitments in its portfolio and exit costs expected to be incurred to
serve those commitments.
In the second quarter of 2000, the Company increased its after-tax
accrued loss on disposal of discontinued operations by an additional
$155 million primarily to reflect the most recent OPC load forecast,
coupled with the increased demand experienced this summer, and new
price forecasts for the OPC and other long-term contracts. Although
the Company used what it believes to be appropriate estimates for
future energy prices, among other factors, to calculate the net
realizable value of discontinued operations, there are inherent
limitations in models to accurately predict future commodity prices,
load demands and other events that could impact the amounts recorded by
the Company.
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<PAGE>
Operating results for the discontinued merchant energy trading and
sales business follow.
Three Months Nine Months
Ended Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Revenues $190,555 $386,038 $372,131 $675,820
Loss before taxes (131,221) (166,185) (174,780) (203,729)
Income (loss) from
discontinued oper-
ations, net of in-
come taxes (81,528) (100,190) (108,591) (120,670)
Net assets of discontinued operations at September 30, 2000, follow.
Accounts receivable $ 43,138
Price risk management assets 4,899
Accounts payable (69,138)
Other assets and liab-
ilities, net 37,004
Net assets before balance
of reserve for discontinued
operations 15,903
Accrued loss on disposal
of discontinued operations,
net of income tax benefit
of $134,954 (221,409)
Net liabilities of discon-
tinued operations $(205,506)
Total pretax charges against the accrued loss on disposal of
discontinued operations through September 30, 2000, include $418.4
million for commitments prior to disposal, $69.6 million for
transaction settlements, $11.1 million for goodwill, and $37.9 million
for other exit costs. While the Company has been successful in
settling portions of its discontinued operations, significant assets,
operations and obligations remain. The Company continues to manage the
remaining portfolio and believes it has hedged certain of its future
obligations through various power purchase commitments and planned
construction of physical assets. Management cannot predict the
ultimate effectiveness of these hedges.
The pretax net fair value of the remaining commitments as of September
30, 2000, are currently estimated to be approximately $13 million in
2000, $50 million to $105 million each year in 2001 through 2004 and
$19 million in the aggregate thereafter.
As of September 30, 2000, the Company's discontinued operations were
under various contracts to buy and sell power and gas with net notional
amounts of 24.7 million Mwh's of power and 6.2 million Mmbtu's of
natural gas with a volumetric weighted-average period of approximately
30 and 56 months, respectively. These notional amounts are based on
estimated loads since various commitments do not include specified firm
volumes. The Company is also under contract to buy or sell coal and
SO2 allowances in support of its power contracts. Notional amounts
reflect the nominal volume of transactions included in the Company's
price risk management commitments,
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<PAGE>
but do not reflect actual amounts of cash, financial instruments, or
quantities of the underlying commodity which may ultimately be
exchanged between the parties.
As of October 26, 2000, the Company estimates that a $1 change in
electricity prices and a 10-cent change in natural gas prices across
all geographic areas and time periods could change the value of the
Company's remaining energy portfolio by approximately $9.8 million. In
addition to price risk, the value of the Company's remaining energy
portfolio is subject to operational and event risks including, among
others, increases in load demand, regulatory changes, and forced
outages at units providing supply for the Company. As of October 26,
2000, the Company estimates that a 1% change in the forecasted load
demand could change the value of the Company's remaining energy
portfolio by $12.0 million.
The Company's discontinued operations maintain policies intended to
minimize credit risk and revalue credit exposures daily to monitor
compliance with those policies. As of September 30, 2000, over 97% of
the Company's price risk management commitments were with
counterparties rated BBB equivalent or better. As of September 30,
2000, six counterparties represented 85% of the Company's price risk
management commitments.
6. In March 2000, the Company sold its interest in CEC-APL L.P., a
partnership in which the Company owned a 49% interest, for
approximately $18 million. This sale resulted in a pretax gain of
approximately $2 million. In June 2000, the Company sold its interest
in KUCC Cleburne Corporation, through which the Company owned a
minority interest in one of the Tenaska limited partnerships, for $4.6
million. This sale resulted in a pretax gain of approximately $1.3
million.
7. In March 2000, the 2000 Kentucky General Assembly passed House Bill 897
that established requirements for cost allocations, affiliate
transactions and a code of conduct governing the relationship between
utilities and their non-utility operations and affiliates. Management
does not expect this matter to have a material adverse effect on the
Company's financial position or results of operations.
In March 2000, LG&E filed a Notice and Statement with the Kentucky
Commission requesting an adjustment in LG&E's gas rates. LG&E asked
for a general adjustment in gas rates for a test year for the twelve
months ended December 31, 1999. The revenue increase applied for was
$26.4 million. The Commission subsequently suspended the effective
date of the proposed new tariffs, and held hearings during August 2000.
On September 27, 2000, the Commission granted LG&E an annual increase
in its base gas revenues of $20.2 million effective September 28, 2000.
The Commission authorized a return on equity of 11.25%. The Commission
approved the Company's proposal for a weather normalization billing
adjustment mechanism that will normalize the effect of weather on
revenues from gas sales. On October 19, 2000, the Kentucky Attorney
General requested that the Commission grant rehearing on a single
revenue requirements issue (normalization of forfeited discounts) on
the grounds that the September 27 Order did not rule on or otherwise
discuss the issue. On November 2, 2000, the Commission granted the
Attorney General's request for rehearing, rejected the Attorney
General's proposed adjustment to normalize the level of forfeited
discounts, and ordered that its September 27, 2000 Order be modified to
reflect its findings on the issue.
In May 2000, the Court upheld the Commission's February 1999 order that
LG&E make FAC refunds, but reversed the Commission's determination that
it was not appropriate to require LG&E to pay interest on the amounts
to be refunded. The Court remanded the case to the Commission for a
determination of whether interest should be awarded to compensate
ratepayers for LG&E's use of the money to be refunded. On June 2,
2000, LG&E filed a Notice of Appeal to the Kentucky Court of Appeals
from the Franklin Circuit Court decision. On October 31, 2000, the
Franklin Circuit Court issued its rul
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<PAGE>
ing in KU's appeal of the Commission's orders in several FAC review cases
which required KU to refund $6.7 million it previously collected
through its FAC. The Court upheld the Commission's orders in all
respects but one, and reversed the Commission's findings that the
Commission could not award interest on the refund amounts. The Court
remanded the cases to the Commission for further proceedings. On
November 2, 2000, KU filed a Notice of Appeal of the Franklin Circuit
Court's decision to the Kentucky Court of Appeals.
In June 2000, the Commission acknowledged that the PBR Order issued in
January 2000 contained errors and issued its Orders on rehearing which
revised the rate reductions it had previously ordered. LG&E's rate
reduction was lowered to $26.3 million, and KU's reduction was lowered
to $30.4 million. No parties filed appeals from the Commission's
orders within the time allowed by statute.
8. In May 2000, LG&E and KU issued new variable-rate pollution-control
bonds for $25 million and $12.9 million, respectively. At September
30, 2000, the interest rates paid on the bonds equaled 4.35% for LG&E
and 4.45% for KU. The new bonds replaced LG&E's 7.45% Series P bonds
and KU's 7.375% Series 7 and 7.60% Series 7 bonds. LG&E and KU called
the old bonds in June 2000.
In June 2000, Capital Corp. issued $150 million of floating-rate medium-
term notes due June 2001. The notes had an interest rate of 7.4925%
through September 18, 2000, and a rate equal to the three-month LIBOR
plus 70 basis points thereafter. At September 30, 2000, the interest
rate on the notes equaled 7.36%.
In August 2000, LG&E issued $83.3 million of variable-rate pollution-
control bonds. At September 30, 2000, the interest rates paid on the
bonds equaled 4.40%. The new bonds replaced LG&E's 7.625% Series Q
bonds. LG&E fully defeased the Series Q bonds on August 9, 2000.
9. External and intersegment revenues and income from continuing
operations by business segment for the three months ended September 30,
2000, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $200,560 $ 4,699 $ 22,758
LG&E gas 24,381 - 13,998
KU electric 211,640 4,344 27,919
Independent Power
Operations 4,786 - 1,454
Western Kentucky
Energy 82,151 - 16,086
Argentine Gas
Distribution 54,797 - 10,764
Other Capital Corp. 103,581 - (1,095)
All Other - (9,043) (6,204)
Consolidated $681,896 $ - $ 85,680
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<PAGE>
External and intersegment revenues and income from continuing
operations by business segment for the nine months ended September 30,
2000, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $ 531,099 $ 15,239 $ 65,835
LG&E gas 142,676 - 13,869
KU electric 623,597 15,490 68,497
Independent Power
Operations 15,400 - 16,318
Western Kentucky
Energy 209,880 - 18,587
Argentine Gas
Distribution 134,556 - 16,756
Other Capital Corp. 256,369 - (48,158)
All Other - (30,729) (24,793)
Consolidated $1,913,577 $ - $126,911
External and intersegment revenues and income from continuing
operations by business segment for the three months ended September 30,
1999, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $273,836 $ 4,936 $ 39,771
LG&E gas 17,623 - 843
KU electric 276,540 4,963 23,862
Independent Power
Operations 5,366 - 5,573
Western Kentucky
Energy 144,434 - 12,377
Argentine Gas
Distribution 48,479 - 6,632
Other Capital Corp. 99,112 - 1,754
All Other - (9,899) (3,646)
Consolidated $865,390 $ - $ 87,166
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<PAGE>
External and intersegment revenues and income from continuing
operations by business segment for the nine months ended September 30,
1999, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $ 607,681 $ 12,377 $ 78,124
LG&E gas 117,054 - 1,270
KU electric 710,626 14,020 80,119
Independent Power
Operations 18,467 - 26,850
Western Kentucky
Energy 273,462 - 10,889
Argentine Gas
Distribution 123,422 - 11,785
Other Capital Corp. 237,600 - (3,842)
All Other - (26,397) (11,285)
Consolidated $2,088,312 $ - $193,910
10.Reference is made to Part II, Legal Proceedings, below and Part I, Item
3, Legal Proceedings, of the Company's, LG&E's and KU's (and Notes 18
and 22 of the Company's Notes to Financial Statements) Annual Reports
on Form 10-K for the year ended December 31, 1999, and Part II, Item 1,
Legal Proceedings, of the Forms 10-Q for the quarters ended March 31,
2000, and June 30, 2000.
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<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
General
The Company's principal subsidiaries are LG&E, an electric and gas utility,
KU, an electric utility, LEM and Capital Corp., the holding company for all
non-utility investments other than trading operations. 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.
On February 28, 2000, the Company announced that its Board of Directors
accepted an offer to be acquired by Powergen for cash of approximately $3.2
billion or $24.85 per share and the assumption of all of the Company's
debt. For more information, see Note 2 of Notes to Financial Statements
under Item 1.
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; 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, 1999.
Results of Operations
The results of operations for LG&E, KU and Capital Corp.'s Argentine gas
distribution and WKE operations are 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 September 30, 2000, Compared to
Three Months Ended September 30, 1999
The Company's primary and diluted earnings per share from continuing
operations decreased to $.66 in 2000 from $.67 in 1999. The decrease
resulted from lower earnings at CRC, Power Operations and LG&E, and from
recording expenses related to the Powergen acquisition. Higher earnings at
KU, WKE and at the Argentine Gas Distribution companies partially offset
these decreases.
LG&E Results:
LG&E's net income decreased $3.6 million (8.6%) for the quarter ended
September 30, 2000, compared to the quarter ended September 30, 1999,
primarily due to decreased electric sales resulting from a 25% decrease in
cooling degree days and from an electric rate reduction in 2000. Decreased
operation expenses partially offset the decrease in electric revenues.
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A comparison of LG&E's revenues for the quarter ended September 30, 2000,
with the quarter ended September 30, 1999, excluding the provision for rate
refunds of $1.1 million in 1999, reflects increases and decreases which
have been segregated by the following principal causes (in thousands of $):
Electric Gas
Cause Revenues Revenues
Retail sales:
Fuel and gas supply adjustments $ (3,045) $4,100
Merger surcredit (711) -
Performance based rates 2,625 -
Environmental cost recovery (482) -
Electric rate reduction (8,333) -
Variation in sales volume, etc. (10,046) 1,575
Total retail sales (19,992) 5,675
Sales for resale (55,338) 1,319
Gas transportation - net - 17
Other 682 (253)
Total $(74,648) $6,758
In January 2000, the Kentucky Commission ordered the termination of LG&E's
proposed PBR mechanism. As a result, LG&E refunded certain amounts
collected from its customers during the nine months ended March 31, 2000.
Electric sales for resale decreased $55.3 million (61.5%) primarily due to
decreases in brokered sales activities.
Fuel for electric generation and gas supply expenses comprise a large
component 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
Kentucky Commission. Fuel for electric generation decreased $3.5 million
(7.7%) for the quarter because of an decrease in generation due to mild
weather ($1.4 million), and a decrease in the cost of coal burned ($2.1
million). Gas supply expenses increased $7.3 million primarily due to an
increase in the net gas supply cost ($6.6 million) due to higher prices and
increased purchases for wholesale sales ($1.1 million).
Power purchased decreased $61.2 million primarily due to a decrease in
brokered sales activities ($53.1 million) and purchases to support sales
for resale ($8.1 million).
Other operation expenses decreased $7.8 million (19.9%) primarily due to
decreased administrative costs ($4 million) resulting from decreased
pension and Year-2000 costs and decreased steam power production costs
($2.5 million).
Maintenance expenses increased $2 million (15.7%) in 2000 mainly due to
increases in software maintenance agreements, ($1.3 million) and steam
production maintenance ($.4 million).
Depreciation and amortization increased $1 million in 2000 because of
additional utility plant in service.
Variations in income tax expense are largely attributable to changes in pre-
tax income.
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<PAGE>
Interest expenses increased $1.5 million for the quarter ended September
30, 2000 over the quarter ended September 30, 1999 due to increased short
term borrowings.
KU Results:
KU's net income increased $4.1 million (16.6%) for the quarter ended
September 30, 2000, as compared to the quarter ended September 30, 1999.
The increase was primarily the result of higher off-system sales and lower
operation and maintenance expenses, which offset the effects of mild
weather and the effect of retail rate reductions.
A comparison of KU's revenues for the quarter ended September 30, 2000,
with the quarter ended September 30, 1999, excluding the provision for rate
refunds of $6.2 million recorded in 1999, reflects increases and decreases
which have been segregated by the following principal causes:
Sales to ultimate consumers:
Fuel supply adjustments $ 5,418
Environmental cost recovery (1,980)
Performance based rate reduction 2,528
Merger surcredit (658)
Electric rate reduction (8,133)
Variation in sales volume, etc. (3,413)
Total retail sales (6,238)
Wholesale sales (65,437)
Other (44)
Total $(71,719)
The environmental cost recovery surcharges are costs recovered from retail
customers for investments KU made in facilities for compliance with clean
air regulations. As shown above, KU recovered $2.0 million less as
compared with the same quarter 1999.
In January 2000, the Kentucky Commission ordered the termination of KU's
proposed PBR mechanism. As a result, KU refunded certain amounts collected
from its customers during the nine months ended March 31, 2000.
The electric rate reduction resulted from the Kentucky Commission's January
2000 PBR order reducing KU's base electric rates.
On May 4, 1998, LG&E Energy and KU Energy merged. As a result of merger,
the Kentucky Commission approved a surcredit for savings achieved from the
merger to be passed to the ultimate consumer over a five-year period. The
reduction to retail sales for the merger surcredit is a reflection of that
rate reduction.
The decrease in wholesale sales is due to fewer brokered sales marketing
opportunities and reduced revenue resulting from more moderate summer
prices compared to recent summers.
Fuel for electric generation comprises a large segment of KU's total
operating expenses. KU's electric rates contain an FAC, whereby increases
or decreases in the cost of fuel are reflected in retail rates, subject to
the approval of the Kentucky Commission, the Virginia Commission, and the
FERC.
Fuel for electric generation decreased $4.8 million (7.8%) for the quarter
because of a decrease in generation ($1.5 million) and the cost of coal
burned ($3.3 million).
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<PAGE>
Power purchased decreased $64.3 million (61.7%) because there were fewer
opportunities in the brokered sales market as mentioned above.
Other operating expenses decreased by $4.3 million (14.2%). The decrease
was mainly attributable to lower administrative and general expenses ($3.0
million) and customer service and information expenses ($1 million), which
were the result of further integration of customer functions.
Depreciation and amortization increased due to additional utility plant in
service.
Variations in income tax expense are largely attributable to changes in
pretax income and to recording federal and state tax adjustments.
LG&E Capital Corp. and Other Results:
Power Operations
Power Operations' equity in earnings of unconsolidated ventures increased
from $5.4 million in 1999 to $9.3 million in 2000. The increase resulted
from reversing maintenance reserves in 2000 and from starting operations at
the project in Gregory, Texas, in July 2000.
Western Kentucky Energy
WKE's revenues decreased from $144.4 million in 1999 to $82.2 million in
2000 due mainly to lower off-system sales. WKE's cost of revenues
decreased from $100.8 million in 1999 to $32.4 million in 2000 due mainly
to a decrease in the amount of power purchased to sell off-system.
Argentine Gas Distribution
The Argentine Gas Distribution companies' net income increased from $6.6
million in 1999 to $10.8 million in 2000 due mainly to higher equity in the
earnings of Gas BAN and Centro and a decrease in the effective tax rate.
Other
Other revenues increased from $99.1 million in 1999 to $103.6 million in
2000. The increase resulted from increased sales in the Company's natural
gas gathering and processing business and higher energy marketing revenues,
partially offset by decreases in revenues at Retail Access Services and CRC-
Evans.
Other cost of revenues increased from $73.1 million in 1999 to $88.1
million in 2000. The increase resulted from increased sales in the
Company's natural gas gathering and processing business and higher energy
marketing cost of revenues, partially offset by a decrease at Retail Access
Services.
The Company recorded non-recurring charges totaling $3.6 million during the
third quarter of 2000. See Note 2 of Notes to Financial Statements under
Item 1 for more information.
Other income for Capital Corp. and Other decreased from $4.6 million in
1999 to $2.8 million in 2000. The decrease resulted from receiving a claim
related to an undeveloped independent power project in California in the
third quarter of 1999, partially offset by an increase in interest income.
Capital Corp. and Other interest expense increased from $12.0 million in
1999 to $17.1 million in 2000. The increase resulted from funding
discontinued operations and corporate
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<PAGE>
operating expenses. The Company's consolidated effective income tax rate
decreased from 38.1% in 1999 to 34.9% in 2000 due mainly to recording
foreign and state tax adjustments.
Nine Months Ended September 30, 2000, Compared to
Nine Months Ended September 30, 1999
The Company's primary and diluted earnings per share from continuing
operations decreased to $.98 in 2000 from $1.49 in 1999. The decrease
resulted primarily from an asset impairment charge taken on the Company's
natural gas gathering and processing business ($.21), recognizing expenses
associated with the integration of the Company's two utilities ($.09), and
from recording expenses related to the Powergen acquisition ($.12).
Excluding these nonrecurring items, earnings per share from continuing
operations decreased from $1.49 in 1999 to $1.40 in 2000. This decrease
resulted from lower earnings at KU and CRC-Evans, decreases resulting from
recognizing one-time items in 1999, and higher interest expense at Capital
Corp. Higher earnings at LG&E, WKE and the Argentine Gas Distribution
companies partially offset these decreases. The one-time items recognized
in 1999 consisted of a gain on the sale of the Company's interest in the
Rensselaer project, proceeds from bankruptcy settlements related to the
Company's windpower partnerships, and fees related to the development of an
independent power project in Gregory, Texas.
LG&E Results:
LG&E's net income increased $.9 million (1.1%) for the first nine months of
2000, as compared to the first nine months of 1999, primarily because of
decreases in operation expenses. This was partially offset by a decrease
in operating revenues. The decrease in operating revenues resulted from
a decrease in cooling degree days and an electric rate reduction.
A comparison of LG&E's revenues for the nine months ended September 30,
2000, with the nine months ended September 30, 1999, excluding the
provision for rate refunds, reflects increases and decreases which have
been segregated by the following principal causes (in thousands of $):
Electric Gas
Cause Revenues Revenues
Retail sales:
Fuel and gas supply adjustments $ (1,270) $14,029
Merger surcredit (1,642) -
Performance based rates 350 -
Environmental cost recovery (1,206) -
Electric rate reductions (15,683) -
Variation in sales volume, etc. (11,609) 4,038
Total retail sales (31,060) 18,067
Sales for resale (47,510) 7,772
Gas transportation - net - 180
Other 1,371 (397)
Total $(77,199) $25,622
In January 2000, the Kentucky Commission ordered the termination of LG&E's
proposed PBR mechanism. As a result, LG&E refunded certain amounts
collected from its customers during the nine months ended March 31, 2000.
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<PAGE>
Electric sales for resale decreased $47.5 million (28.4%) primarily due to
decreases in brokered sales activities.
Fuel for electric generation increased $3.2 million (2.8%) year-to-date
because of an increase in generation ($9.3 million), partially offset by a
decrease in the cost of coal burned ($6.1 million). Gas supply expenses
increased $25.5 million (35.1%) primarily due to an increase in the net
gas supply cost ($20 million) and increased purchases for wholesale sales
($7.1 million).
Power purchased decreased $69 million (49.7%) primarily due to a decrease
in brokered sales activities ($66.2 million) and purchases to support sales
for resale ($2.8 million).
Other operation expenses decreased $20.0 million (16.8%) for the nine
months ended September 2000 as compared to same period ended September 1999
primarily due to lower administrative costs ($14.1 million) resulting from
lower pension and Year-2000 expenses, and to lower steam and other power
production expenses ($4.8 million).
Non-recurring charges in 2000 of $8.1 million include the costs associated
with the Company's One-Utility Program.
Maintenance expenses for the first nine months of 2000 decreased $1.6
million (3.4%) primarily due to decreases in scheduled outages at the Mill
Creek and Cane Run generating station ($4.3 million) and electric
distribution maintenance ($1 million), partially offset by an increase in
software maintenance costs ($3.4 million)
Depreciation and amortization increased $.7 million in 2000 because of
additional utility plant in service.
Other income and deductions increased $2.8 million (172.5%) due to gains on
the sale of non-utility property.
Variations in income tax expense are largely attributable to changes in pre-
tax income.
Interest expense increased $5.3 million (19.3%) for the first nine months
of 2000 due to increased short term borrowings.
KU Results:
KU's net income decreased $11.6 million (14.2%) for the nine months ended
September 30, 2000 as compared to the nine months ended September 30, 1999.
The decrease was partially due to a non-recurring charge of $6.6 million,
after tax, made in the first quarter of 2000 for costs associated with
further integration of KU and LG&E. Excluding this non-recurring charge,
net income decreased $5 million, mainly due to rate reductions ordered by
the Kentucky Commission early in 2000, partially offset by decreased
operation expenses.
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A comparison of KU's revenues for the nine months ended September 30, 2000,
with the nine months ended September 30, 2000, excluding the provision for
rate refunds of $6.2 million recorded in the third quarter of 1999,
reflects increases and decreases which have been segregated by the
following principal causes:
Sales to ultimate consumers:
Fuel supply adjustments $ 3,618
Environmental cost recovery surcharge (5,062)
Performance based rate reduction 795
Merger surcredit (1,389)
Electric rate reduction (20,273)
Variation in sales volume, etc. 10,134
Total retail sales (12,177)
Wholesale sales (82,189)
Other 2,607
Total $(91,759)
The environmental cost recovery surcharges are costs recovered from retail
customers for investments KU made in facilities for compliance with clean
air regulations. As shown above, KU recovered $5.1 million less for the
nine months ended September 30, 2000 as compared with the nine months ended
September 30, 1999.
In January 2000, the Kentucky Commission ordered the termination of KU's
proposed PBR mechanism. As a result, KU refunded certain amounts collected
from its customers during the nine months ended March 31, 2000.
The electric rate reduction resulted from the Kentucky Commission's January
2000 PBR order reducing KU's base electric rates.
On May 4, 1998, LG&E Energy and KU Energy merged. As a result of merger,
the Kentucky Commission approved a surcredit for savings achieved from the
merger to be passed to the ultimate consumer over a five-year period. The
reduction to retail sales for the merger surcredit is a reflection of that
rate reduction.
The decrease in wholesale sales is due to fewer brokered sales marketing
opportunities and the reduced availability of power because of planned
outages at the electric generating plants.
Fuel for electric generation decreased $5.2 million (3.1%) because of a
decrease in generation ($2.5 million) and a decrease in the cost of coal
burned ($2.7 million).
Power purchased decreased $72.9 million (37.4%) because there were fewer
opportunities in the brokered sales market as mentioned above.
Non-recurring charges of $6.6 million, after tax, include the costs
associated with the Company's One-Utility Program.
Other operating expenses decreased by $10.3 million (11.5%). The decrease
was mainly attributable to a decrease in administration and general
expenses.
Maintenance expenses increased by $3.5 million (8.3%) due primarily to
increased maintenance at the steam generating plants.
Depreciation and amortization increased due to additional utility plant in
service.
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Variations in income tax expense are largely attributable to changes in
pretax income and to recording federal and state tax adjustments.
LG&E Capital Corp. and Other Results:
Power Operations
Power Operations' revenues decreased from $18.5 million in 1999 to $15.4
million in 2000. The decrease resulted mainly from recognizing revenues in
1999 related to the Rensselaer project, which the Company sold in March
1999.
Power Operations' operation and maintenance expense decreased from $7.5
million in 1999 to $5.3 million in 2000. The decrease resulted primarily
from writing off assets related to the Rensselaer project in 1999.
Power Operations' equity in earnings of unconsolidated ventures decreased
from $35.4 million in 1999 to $21.6 million in 2000, due to recognizing a
pretax gain of $15.4 million on the sale of the Rensselaer project in 1999
and to receiving proceeds from bankruptcy settlements related to the
Company's windpower partnerships in the second quarter of 1999.
Western Kentucky Energy
WKE's revenues decreased from $273.5 million in 1999 to $209.9 million in
2000 due mainly to lower off-system sales, partially offset by higher sales
to industrial customers. WKE's cost of revenues decreased from $177.9
million in 1999 to $103.4 million in 2000 mainly due to a decrease in
purchased power.
WKE's operation and maintenance expenses decreased from $72.1 million in
1999 to $70.4 million in 2000 due mainly to a decrease in payroll-related
benefits expenses. WKE's depreciation and amortization expense increased
from $2.3 million in 1999 to $4.5 million in 2000 due to increased
expenditures for information systems conversions.
WKE's interest income increased from $.8 million in 1999 to $2.2 million in
2000 due to an increase in the note receivable from Big Rivers.
Argentine Gas Distribution
The Argentine Gas Distribution companies' net income increased from $11.8
million in 1999 to $16.8 million in 2000 due mainly to an increase in net
revenues, increased equity in the earnings of Gas BAN and Centro, and a
decrease in the effective tax rate, partially offset by an increase in
operation and maintenance expenses.
Other
Other revenues increased from $237.6 million in 1999 to $256.4 million in
2000. The increase resulted from acquiring CRC-Evans in July 1999, and
from higher energy marketing revenues and increased sales in the Company's
natural gas gathering and processing business. Fees received in 1999
related to the development of an independent power project in Gregory,
Texas, and a decrease in Retail Access Services' revenues partially offset
the increases.
Other cost of revenues increased from $185.9 million in 1999 to $211.1
million in 2000. The increase resulted from acquiring CRC-Evans in July
1999, and from higher energy marketing revenues and increased sales in the
Company's natural gas gathering and processing business. A decrease in
Retail Access Services' revenues partially offset the increases.
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<PAGE>
The Company recorded asset-impairment and other non-recurring charges
totaling $84.0 million during the nine months ended September 30, 2000.
See Notes 2, 3 and 4 of Notes to Financial Statements under Item 1 for more
information.
Other income for Capital Corp. and Other increased from $9.2 million in
1999 to $9.7 million in 2000. The increase resulted from recognizing the
gain on the sale of the Company's interest in KUCC Cleburne in the second
quarter of 2000 and the gain on the sale of the Company's interest in CEC-
APL L.P. in the first quarter of 2000. Higher interest income also
contributed to the increase. This increase was partially offset by
decreases resulting from payments received in 1999 related to the
Rensselaer sale and the initial settlement of a claim on an undeveloped
independent power project in California.
Capital Corp. and Other interest expense increased from $35.2 million in
1999 to $44.9 million in 2000. The increase resulted from funding
discontinued operations, corporate operating expenses, and the Gas BAN and
CRC acquisitions. The Company's consolidated effective income tax rate
decreased from 37.6% in 1999 to 34.2% in 2000 due to an increase in
investment and wind tax credits as a percent of pretax income and to
recording foreign and state tax adjustments.
Liquidity and Capital Resources
The Company's need for capital funds is largely related to the construction
of plant and equipment necessary to meet the needs of electric and gas
utility customers and equity investments in connection with independent
power production projects and other energy-related growth or acquisition
opportunities among the non-utility businesses. Capital funds are also
needed for the Company's capital obligations under the Big Rivers lease
arrangements, losses incurred in connection with the discontinuance of the
merchant energy trading and sales business, information system
enhancements, and other business development opportunities. Fluctuations
in the Company's discontinued energy marketing and trading activities also
affected liquidity throughout the quarter. Lines of credit and commercial
paper programs are maintained to fund these temporary capital requirements.
Construction expenditures for the nine months ended September 30, 2000, of
$303.1 million were financed with internally generated funds and commercial
paper.
The Company's combined cash and marketable securities balance decreased
$77.5 million during the nine months ended September 30, 2000. The decrease
reflects construction expenditures and dividends paid, partially offset by
cash flows from operations, proceeds received from sales of investments in
affiliates, and a net increase in debt.
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 increase in accounts receivable during the nine months ended
September 30, 2000, resulted mainly from increases at the Company's natural
gas gathering and processing business and at Centro, partially offset by
decreases at LG&E and WKE. The decrease in accounts payable also resulted
from decreases at LG&E, KU and WKE, partially offset by increases at the
Company's natural gas gathering and processing business and at Centro. The
decrease in fuel resulted from seasonal decreases at LG&E, KU and WKE, and
the increase in gas stored underground resulted from a seasonal increase at
LG&E.
The decrease in prepayments and other resulted mainly from reclassifying
costs related to the purchase of combustion turbines at Capital Corp. from
current to noncurrent.
The decrease in non-utility property and plant resulted from recording an
impairment charge in the second quarter of 2000. See Note 4 of Notes to
Financial Statements under Item 1 for more information. The increase in
other property and investments resulted from
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<PAGE>
expenditures related to the purchase of combustion turbines by Capital
Corp. The decrease in deferred debits and other assets resulted mainly
from writing off the goodwill associated with the Company's natural gas
gathering and processing business and a decrease in the cash surrender
value of life insurance at KU.
The increase in net liabilities of discontinued operations resulted from an
increase in the Company's accrued loss on disposal of discontinued
operations, partially offset by payments and operating losses.
The decrease in other current liabilities resulted from differences in the
timing of estimated tax payments and a decrease in the provision for rate
refunds.
Long-term debt (including current portion) increased by $18.7 million due
to Capital Corp.'s issuing $150 million of medium-term notes in June 2000,
partially offset by LG&E's redeeming its first mortgage bonds 7.5% series
due July 1, 2002, in January 2000, and by KU's redeeming its Series Q 5.95%
bonds due June 15, 2000, in June 2000. Capital Corp.'s redemption of $50
million of medium-term notes due September 7, 2000, in September 2000 also
offset the increase.
At September 30, 2000, unused capacity under the Company's lines of credit
totaled $276.0 million after considering commercial paper support and
approximately $55.2 million in letters of credit securing on- and off-
balance sheet commitments.
Standard and Poor's downgraded LG&E's, KU's and Capital Corp.'s debt
ratings on February 28, 2000. The downgrades reflect S&P's opinion of the
credit quality of the Companies following the impact of the Kentucky
Commission rate reduction and the OPC decision. S&P, Moody's and Fitch
continue to have the debt of the Companies on credit watch pending review
of the financial condition following consummation of the merger of the
Company with Powergen.
In July 2000, Fitch (formerly Duff and Phelps) downgraded the long-term
debt of Capital Corp. to BBB+ following the announcement of the increase in
the discontinued operations reserve. Also during the second quarter of
2000, Capital Corp.'s commercial paper rating changed from D-1- to F-2 as a
result of the merger of Fitch and Duff and Phelps.
Also in July 2000, the Company announced plans to build up to ten natural
gas fired combustion turbines. The Company will build the turbines in
Kentucky and Georgia to meet the native load commitments of its two
utilities and to mitigate its exposure related to the OPC contract. The
Company has not arranged, but has under consideration, several possible
methods of financing the construction of the turbines, including the use of
new short- or long-term credit facilities or the use of project or lease
financing.
Before the third quarter of 2000, certain of Capital Corp.'s long-term debt
and lease agreements required the Company to maintain a debt-to-
capitalization ratio not greater than 65%. Capital Corp. and its financial
institutions changed the agreements during the third quarter, and the
agreements now require the Company to maintain a debt-to-capitalization
ratio not greater than 70%. On March 1, 2001, the debt-to-capitalization
ratio required by the agreements will drop back to 65%. The Company's debt-
to-capitalization ratio at September 30, 2000, as defined in the
agreements, equaled an amount just under 65%.
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<PAGE>
The Company's capitalization ratios follow:
Sep. 30, Dec. 31,
2000 1999
Long-term debt (including current portion) 50.7% 49.8%
Notes payable 16.1 13.1
Preferred stock 4.2 3.9
Common equity 29.0 33.2
Total 100.0% 100.0%
LG&E's capitalization ratios follow:
Sep. 30, Dec. 31,
2000 1999
Long-term debt (including current portion) 39.2% 41.1%
Notes payable 8.5 7.9
Preferred stock 6.2 6.2
Common equity 46.1 44.8
Total 100.0% 100.0%
KU's capitalization ratios follow:
Sep. 30, Dec. 31,
2000 1999
Long-term debt (including current portion) 40.9% 44.7%
Notes payable 2.5 0.0
Preferred stock 3.4 3.3
Common equity 53.2 52.0
Total 100.0% 100.0%
For a description of certain contingencies that may affect the Company,
LG&E and KU, reference is made to Part II herein - Item 1, Legal
Proceedings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
LG&E Energy is exposed to market risks in both its regulated and non-
utility operations. Both operations are exposed to market risks from
changes in interest rates and commodity prices, while the non-utility
operations are also exposed to changes in foreign exchange rates. To
mitigate changes in cash flows attributable to these exposures, the Company
has entered into various derivative instruments. Derivative positions are
monitored using techniques that include market value and sensitivity
analysis.
The potential change in interest expense resulting from changes in base
interest rates of the Company's unswapped debt did not change materially
during the three- and nine-month periods ended September 30, 2000. The
potential changes in the fair values of the Company's interest-rate swaps
resulting from changes in interest rates and the yield curve also did not
change materially during the three- and nine-month periods ended September
30, 2000. The Company's exposure to market risks from changes in commodity
prices and foreign exchange rates remained immaterial during the three- and
nine-month periods ended September 30, 2000.
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<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 the
following items and captions of (a) the Company's, LG&E's and KU's
respective combined Annual Report on Form 10-K for the year ended December
31, 1999: Item 1, Business; Item 3, Legal Proceedings; Item 7,
Management's Discussion and Analysis of Results of Operations and Financial
Condition; Notes 2, 6, 18 and 22 of the Company's Notes to Financial
Statements under Item 8; Notes 3, 12 and 16 of LG&E's Notes to Financial
Statements under Item 8 and Notes 3, 11 and 14 of KU's Notes to Financial
Statements under Item 8 and (b) the Company's, LG&E's and KU's respective
combined Quarterly Reports on Form 10-Q for the quarters ended March 31,
2000, and June 30, 2000: Part II, Item 1, Legal Proceedings. Except as
described herein, to date, the proceedings reported in the Company's,
LG&E's and KU's respective combined Annual Report on Form 10-K have not
changed materially.
Powergen Merger Regulatory Filings
On February 28, 2000, the Company announced the signing of a definitive
merger agreement with Powergen of the United Kingdom, wherein, upon
closing, the Company will become a wholly-owned subsidiary of Powergen and
shareholders of the Company will receive $24.85 per share of Company common
stock. The transaction is expected to be completed 9 to 12 months from
announcement, subject to receipt of required regulatory approvals and other
conditions to consummation. It is possible that the remaining regulatory
approvals may be received in time to permit a closing during the fourth
quarter of 2000.
Shareholders of the Company and of Powergen approved the merger transaction
in separate meetings held in June 2000. Further, approvals were received
from the Kentucky Commission in May 2000, the FERC in June 2000 and the
Virginia Commission in July 2000. Required waiting periods with respect to
federal antitrust and federal foreign investment laws were each terminated
in August 2000. The parties joint application for approval to the SEC
under PUHCA was submitted in April 2000 and is currently under review by
the SEC. While the Company and Powergen believe that they will receive the
requisite remaining regulatory approvals for the merger in sufficient time
to complete the transaction on the schedule mentioned above, there can be
no assurance as to the timing of such approvals or the ability to obtain
such approvals on satisfactory terms or otherwise. For further discussion
of this matter, see Note 2, Notes to Financial Statements, in Part I of
this Quarterly Report on Form 10-Q and Item 1, Powergen Merger, and Note 22
to the Company's Notes to Financial Statements under Item 8 of its Annual
Report on Form 10-K for the year ended December 31, 1999.
Gas Rate Increase Proceeding
In August 2000, hearings were held before the Kentucky Commission regarding
LG&E's March 2000 application for an general adjustment in gas rates. The
requested increase of approximately $26.4 million, the first major non-fuel-
related adjustment requested by LG&E to gas rates in 10 years, is designed
to reflect higher service and distribution costs to natural gas customers.
On September 27, 2000, the Kentucky Commission granted LG&E an annual
increase in its base gas rates of $20.2 million, with an authorized return
on equity of 11.25%.
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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 August 14, 2000, the Company filed a report on Form 8-K stating that on
July 28, 2000, it announced that it had increased its after-tax loss on
disposal of discontinued operations by an additional $155 million.
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<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: November 14, 2000 /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.
Louisville Gas and Electric Company
Registrant
Date: November 14, 2000 /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: November 14, 2000 /s/ Michael D. Robinson
Michael D. Robinson
Vice President and Controller
(On behalf of the registrant in his
capacity as Principal Accounting Officer)
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