<PAGE>1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 2 - 26720
LOUISVILLE GAS AND ELECTRIC COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Kentucky 61 - 0264150
- - -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 West Main Street, P.O. Box 32010, Louisville, KY 40232
- - ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(502) 627-2000
-------------------------------
(Registrant's telephone number)
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.
21,294,223 shares, without par value, as of April 30, 1994, all of which
- - -------------------------------------------------------------------------
were held by LG&E Energy Corp.
- - ------------------------------
<PAGE>2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
LOUISVILLE GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Thousands of $)
The following statements of income include all normal recurring adjustments
and accruals which are, in the opinion of the Company, necessary to present
a fair statement of the results for the periods shown.
Quarter Ended March 31
----------------------
1994 1993
---- ----
OPERATING REVENUES
Electric.............................. $123,317 $123,850
Gas................................... 96,362 84,781
------- -------
Total operating revenues.......... 219,679 208,631
------- -------
OPERATING EXPENSES
Fuel for electric generation.......... 33,233 33,716
Power purchased....................... 3,387 4,157
Gas supply expenses................... 67,399 57,362
Other operation expenses.............. 35,354 33,437
Maintenance........................... 13,274 11,124
Non-recurring charges (Note 2)........ 38,613 -
Depreciation and amortization......... 20,633 19,874
Federal and State income
taxes - current................... 9,678 8,686
Deferred income taxes - net........... (12,543) 4,254
Investment tax credit - net........... (1,189) (1,197)
Property and other taxes.............. 5,237 4,464
------- -------
Total operating expenses.......... 213,076 175,877
------- -------
NET OPERATING INCOME...................... 6,603 32,754
Other Income and (Deductions) (Note 3).... (9,435) 177
Interest Charges.......................... 10,494 12,145
------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE...... (13,326) 20,786
Cumulative Effect of Change in Accounting
for Post-Employment Benefits, Net of
Income Taxes of $2,280 (Note 4)....... (3,369) -
------- -------
NET INCOME (LOSS)......................... (16,695) 20,786
Preferred Stock Dividends................. 1,378 1,587
------- -------
NET INCOME (LOSS) AVAILABLE FOR
COMMON STOCK.......................... $(18,073) $ 19,199
------- -------
------- -------
<PAGE>3
LOUISVILLE GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Thousands of $)
ASSETS
March 31, December 31,
1994 1993
------------- ------------
UTILITY PLANT
At Original Cost.......................... $2,477,152 $2,464,101
Less: Reserve for depreciation............ 841,988 823,141
--------- ---------
1,635,164 1,640,960
--------- ---------
OTHER PROPERTY AND INVESTMENTS -
less reserve.............................. 35,914 22,067
--------- ---------
CURRENT ASSETS
Cash and temporary cash investments....... 51,159 44,105
Accounts receivable - less reserve........ 96,816 104,397
Materials and supplies - at average cost
Fuel (predominantly coal)............. 13,514 12,075
Gas stored underground................ 10,804 33,370
Other................................. 39,554 40,357
Prepayments............................... 985 360
--------- ---------
212,832 234,664
--------- ---------
DEFERRED DEBITS AND OTHER ASSETS
Unamortized debt expense.................. 24,404 24,698
Accumulated deferred income taxes......... 76,955 58,675
Regulatory asset - income taxes........... 39,388 39,651
Other..................................... 20,775 52,195
--------- ---------
161,522 175,219
--------- ---------
$2,045,432 $2,072,910
--------- ---------
--------- ---------
<PAGE>4
LOUISVILLE GAS AND ELECTRIC COMPANY
CAPITAL AND LIABILITIES
(Thousands of $)
CAPITALIZATION
COMMON STOCK, without par value -
Authorized 75,000,000 shares;
outstanding 21,294,223 shares......... $ 425,170 $ 425,170
COMMON STOCK EXPENSE...................... (836) (836)
RETAINED EARNINGS......................... 159,330 194,903
--------- ---------
583,664 619,237
CUMULATIVE PREFERRED STOCK................ 116,716 116,716
LONG-TERM DEBT............................ 662,875 662,879
--------- ---------
1,363,255 1,398,832
--------- ---------
CURRENT LIABILITIES
Accounts payable.......................... 89,371 93,551
Dividends declared........................ 18,878 18,878
Accrued taxes............................. 9,698 9,494
Accrued interest.......................... 11,489 12,864
Other..................................... 12,214 11,127
--------- ---------
141,650 145,914
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes......... 343,017 340,235
Investment tax credit,
in process of amortization............ 90,383 91,572
Customers' advances for construction...... 7,422 7,384
Regulatory liability - income taxes....... 46,943 46,528
Other..................................... 52,762 42,445
--------- ---------
540,527 528,164
--------- ---------
$2,045,432 $2,072,910
--------- ---------
--------- ---------
<PAGE>5
LOUISVILLE GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of $)
Quarter Ended March 31
--------------------------
1994 1993
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................ $(16,695) $ 20,786
Items not requiring cash currently:
Depreciation and amortization............ 20,633 20,106
Deferred income taxes - net.............. (14,818) (12,894)
Investment tax credit - net.............. (1,189) (9,462)
Cumulative effect of change in
accounting principle................. 3,369 -
Non-recurring charges.................... 38,613 -
Other.................................... 3,759 1,269
(Increase) decrease in certain net
current assets:
Accounts receivable...................... 7,581 1,677
Materials and supplies................... 21,930 30,074
Accounts payable......................... (4,180) (20,504)
Accrued taxes............................ 204 33,540
Accrued interest......................... (1,375) 369
Prepayments and other.................... 462 809
Other........................................ (4,192) 7,250
------- -------
Net cash provided from
operating activities................... 54,102 73,020
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of capital asset........................ - 91,076
Long-term investment in securities........... (13,847) (165)
Construction expenditures.................... (14,323) (22,110)
------- -------
Net cash provided from (used for)
investing activities................... (28,170) 68,801
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of pollution control bonds........ - (27,411)
Decrease in notes payable.................... - (8,000)
Payment of dividends......................... (18,878) (18,567)
------- -------
Net cash used for financing activities... (18,878) (53,978)
------- -------
<PAGE>6
LOUISVILLE GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of $)
NET INCREASE IN CASH AND
TEMPORARY CASH INVESTMENTS................... $ 7,054 $ 87,843
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD.......................... 44,105 946
------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD................................ $ 51,159 $ 88,789
------- -------
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes............................. $ 4,970 $ 28
Interest on borrowed money............... 11,583 11,419
For the purposes of this statement, all temporary cash investments purchased
with a maturity of three months or less are considered cash equivalents.
<PAGE>7
LOUISVILLE GAS AND ELECTRIC COMPANY
STATEMENTS OF RETAINED EARNINGS
(Thousands of $)
Quarter Ended March 31
----------------------
1994 1993
---- ----
Balance at beginning of period........ $194,903 $178,667
Add net income (loss)................. (16,695) 20,786
------- -------
178,208 199,453
------- -------
Deduct: Cash dividends declared
on stock -
5% cumulative preferred..... 269 269
7.45% cumulative preferred.. 400 400
$8.90 cumulative preferred.. - 556
Auction rate cumulative
preferred................. 342 362
$5.875 cumulative preferred. 367 -
Common...................... 17,500 16,500
------- -------
18,878 18,087
------- -------
Balance at end of period.............. $159,330 $181,366
------- -------
------- -------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. The financial statements included herein have been prepared by Louisville
Gas and Electric Company (the "Company" or "LG&E"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year 1993.
2. Effective January 1, 1994, LG&E's parent company, LG&E Energy Corp.,
realigned its business to reflect its outlook for rapidly emerging
competition in all segments of the energy service industry. Under the
realignment, a national business unit, LG&E Energy Services, was formed
to develop and manage all of its utility and non-utility electric power
generation and concentrate on the marketing and brokering of wholesale
electric power on a regional and national basis. LG&E will increase its
focus on customer service and develop more customer options as the local
utility industry becomes more competitive in the future.
<PAGE>8
In addition to the realignment, LG&E has been re-evaluating its regulatory
strategy which previously had been to seek full recovery of certain costs
deferred in accordance with prior precedent established by the Public
Service Commission of Kentucky. LG&E completed its study in the first
quarter of 1994 and decided to write off several non-recurring items
amounting to approximately $38.6 million before-tax. While LG&E continues
to believe that it could have reasonably expected to recover these costs
in future rate proceedings before the Public Service Commission of
Kentucky, LG&E decided to deduct these expenses currently and not seek
recovery for such expenses in future rates due to increasing competitive
pressures and the existing and anticipated future economic conditions.
The items written off include costs incurred in connection with early
retirements and work force reductions that occurred in 1992 and 1993 which
consist primarily of separation payments, enhanced early retirement
benefits, and health care benefits; costs associated with property damage
claims pertaining to particulate emissions from its Mill Creek electric
generating plant which primarily consist of spotting on automobile finish
and aluminum siding; and certain costs previously deferred resulting from
adoption in January 1993 of SFAS No. 106 (Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Post-Retirement
Benefits Other Than Pensions).
3. In the first quarter of 1994, the Board of Directors of the Company
approved the formation of a tax-exempt charitable foundation which will
make charitable contributions to qualified persons and entities. The
Board authorized an initial contribution to the foundation of up to $15
million. Accordingly, the Company recorded a pre-tax charge against
income and accrued $15 million to fund the contribution. Funding is
anticipated to occur following the receipt of exempt status for the
foundation under the Internal Revenue Code. Contributions made from this
foundation will not be charged against income and, therefore, will not
affect the Company's net income in the future.
4. The Company adopted SFAS No. 112 (Statement of Financial Accounting
Standards No. 112, Employers' Accounting for Post-Employment Benefits) in
the first quarter of 1994. SFAS No. 112 requires the accrual of the
expected cost of benefits to former or inactive employees after employment
but before retirement. The cumulative effect of the accounting change was
recorded in the first quarter of 1994 and decreased pre-tax income by $5.6
million.
5. Reference is made to Part II herein - Item 1, Legal Proceedings.
<PAGE>9
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Results of Operations
---------------------
Because of seasonal fluctuations in temperature and other factors the results
of one interim period are not necessarily indicative of results to be
expected for the year.
Quarter Ended March 31, 1994, Compared with
Quarter Ended March 31, 1993
-------------------------------------------
Excluding the write off of non-recurring items, the formation of a charitable
foundation and the adoption of SFAS No. 112 as discussed in Notes 2, 3, and
4, net income for the quarter ended March 31, 1994, decreased $1.4 million
(6.6%) from the quarter ended March 31, 1993, primarily because of increased
storm damage expenses of approximately $3 million. This amount reflects the
higher restoration costs in 1994 caused by the area's worst winter storm in
16 years. This decrease was partially offset by increased sales of
electricity and natural gas to retail customers.
A comparison of operating revenues for the quarter ended March 31, 1994, with
the quarter ended March 31, 1993, 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.............. $ (987) $ 811
Variation in sales volume, etc............... 3,896 12,077
----- ------
Total.................................... 2,909 12,888
Sales to Other Utilities....................... (3,549) -
Gas Transportation - Net....................... - (1,395)
Other.......................................... 107 88
----- ------
Total.................................... $ (533) $11,581
----- ------
----- ------
Fuel for electric generation and gas supply expenses comprise a large segment
of the Company's total operating expenses. The Company'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 the Company's rates, subject to the approval of the Public
Service Commission of Kentucky. Fuel for electric generation decreased
slightly for the quarter primarily because of a decrease in the cost of coal
burned. Gas supply expenses increased 17% due mainly to an increase in the
volume of gas delivered to the distribution system and the higher cost of gas
purchased.
<PAGE>10
Power purchased decreased due mainly to less power wheeled for other
utilities.
Other operation expenses increased primarily as a result of increased
electric and gas distribution expenses and increased costs to operate the
electric power plants. Maintenance expenses increased primarily due to an
increase in storm damage expenses caused by the severe winter weather and
increased costs to maintain the power plants.
Non-recurring charges include the write off of costs in connection with early
retirements and work force reductions that occurred in 1992 and 1993, costs
in connection with property damage claims pertaining to particulate emissions
from the Mill Creek electric generating plant, and certain costs previously
deferred resulting from adoption of SFAS No. 106 (Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Post-Retirement
Benefits Other Than Pensions) expense previously recorded as a deferred item.
See Note 2 of Notes to Financial Statements.
Depreciation and amortization increased because of increased depreciable
plant in service.
Variations in income tax expense are largely attributable to changes in
pre-tax income.
Property and other taxes increased mainly due to payroll taxes associated
with the write off of severance payments in connection with work force
reductions. See Note 2 of Notes to Financial Statements.
Other income and deductions include the provision (net of taxes) associated
with the formation of a tax-exempt charitable foundation. See Note 3 of
Notes to Financial Statements.
Interest charges decreased because of a lower composite interest rate on
outstanding debt.
Cumulative Effect of Change in Accounting for Post-Employment Benefits
reflects an accounting change required by the adoption of SFAS No. 112
(Statement of Financial Accounting Standards No. 112, Employers' Accounting
for Post-Employment Benefits). See Note 4 of Notes to Financial Statements.
Liquidity and Capital Resources
-------------------------------
The Company's need for capital funds is primarily related to the construction
of plant and equipment necessary to meet electric and gas customers' needs
and the protection of the environment. Construction expenditures for the
first quarter of 1994 of $14 million were financed with internally generated
funds.
At March 31, 1994, the Company had unused lines of credit of $145 million
with banks for which it pays commitment fees. The lines are scheduled to
expire at various periods throughout 1994. The Company intends to
renegotiate such lines when they expire.
<PAGE>11
The Company's capitalization ratios at March 31, 1994, and December 31, 1993
were:
March 31, 1994 December 31, 1993
-------------- -----------------
Long-term debt............... 48.6% 47.4%
Preferred stock.............. 8.6 8.3
Common stock equity.......... 42.8 44.3
----- -----
Total...................... 100.0% 100.0%
----- -----
----- -----
The decrease in common stock equity reflects the write off of several
non-recurring items as discussed in Notes 2 and 4 and the provision for
charitable contributions discussed in Note 3 of Notes to Financial Statements
under Part I, Item I - Financial Statements.
For a description of significant contingencies that may affect the Company,
reference is made to Part II herein - Item 1, Legal Proceedings.
<PAGE>12
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
For a description of the significant legal proceedings involving the Company,
reference is made to the information under the items and captions of the
Company's Annual Report on Form 10-K for the year ended December 31, 1993:
Item 1, Business; Item 3, Legal Proceedings; Item 7, Management's Discussion
and Analysis of Results of Operations and Financial Condition; and Notes 7
and 8 of the Notes to Financial Statements under Item 8, Financial Statements
and Supplementary Data. Except as noted below, there have been no material
changes in these proceedings as reported in the Company's Form 10-K.
Environmental. As discussed in Note 7 of the Notes to Financial Statements
under Item 8 of the Company's Form 10-K, the Company owns or formerly owned
three primary sites where manufactured gas plant operations were located.
Such manufactured gas plant operations, conducted in the 1838 to 1960 time
period, typically produced coal tar byproducts and other constituents that
may necessitate cleanup measures. The Company commenced site investigations
at the two Company owned sites to determine if significant levels of
contaminants are present. In the first quarter of 1994, the Company entered
into an agreement with the current owner of the third site and a third-party
in which the three parties have committed to jointly perform a site
investigation. The Company anticipates spending a total of approximately
$1.3 million on site investigations expected to be completed by 1995.
Preliminary testing at all three sites has identified contaminants typical
of manufactured gas plant operations. Until an investigation and associated
regulatory review is completed for each site, the Company will be unable to
predict what, if any, cleanup activities may be necessary.
Trimble County Generating Plant. As discussed in Note 8 of the Notes to
Financial Statements under Item 8 of the Company's Form 10-K, on January 7,
1994, the Company filed testimony with the Kentucky Public Service Commission
(Commission) in which it recommended that the Commission allow it to recover
the approximately $11.1 million it refunded to customers under the 1989
settlement agreement. Testimony was filed by the Kentucky Attorney General,
the Jefferson County Attorney, the Metro Human Needs Alliance, and the
Kentucky Industrial Utility Customers. The testimony recommended that the
Commission order the Company to refund approximately $183 million, based upon
their argument that the Company should refund 25% of the revenue requirements
associated with Trimble County's construction-work-in-progress it collected
over the course of the Trimble County construction project. The Company
continues to maintain the position that no additional refunds are necessary
to fully effectuate the Commission's disallowance of 25% of Trimble County's
costs, and that the refund amounts supported by the other parties to the
proceeding would require the Commission to engage in retroactive ratemaking,
which is prohibited under Kentucky law. No date has been set for a hearing.
The Company is unable to predict the outcome of the Commission proceedings,
the amount of additional refunds or recoveries, if any, that may be ordered
or whether the Commission will revise its earlier position.
<PAGE>13
Item 6(b). Reports on Form 8-K.
None
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.
LOUISVILLE GAS AND ELECTRIC COMPANY
-----------------------------------
Registrant
By M. L. Fowler
-----------------------------------
Vice President and Controller
(On behalf of the registrant in
his capacity as Principal
Accounting Officer)
Date May 13, 1994
------------
