<PAGE>1
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, 1995
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 40232
P.O. Box 32010 (Zip Code)
Louisville, KY
(Address of principal executive offices)
(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 October 31, 1995, 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.
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
OPERATING REVENUES:
Electric (Note 3). . . . . . . . .$178,785 $169,617 $444,667 $436,206
Gas. . . . . . . . . . . . . . . . 17,566 20,500 119,021 146,631
Total operating revenues. . . . . 196,351 190,117 563,688 582,837
OPERATING EXPENSES:
Fuel for electric generation . . . 36,399 39,838 104,051 109,641
Power purchased. . . . . . . . . . 13,963 1,621 15,806 8,923
Gas supply expenses. . . . . . . . 8,791 12,374 70,752 98,220
Other operation expenses (Note 4) 29,616 33,369 100,672 103,250
Maintenance. . . . . . . . . . . . 12,459 10,441 37,145 37,276
Non-recurring charges
(Note 5). . . . . . . . . . . . . - - - 38,613
Depreciation and amortization. . . 21,440 20,633 64,320 61,899
Federal and state income
taxes . . . . . . . . . . . . . . 21,953 22,025 48,195 29,624
Property and other taxes . . . . . 3,956 3,903 12,549 13,003
Total operating expenses. . . . . 148,577 144,204 453,490 500,449
NET OPERATING INCOME. . . . . . . . 47,774 45,913 110,198 82,388
Other income and (deductions) . . . 191 280 2,402 1,269
Contribution to charitable
foundation - net (Note 5). . . . . - - - 8,946
Interest charges. . . . . . . . . . 9,619 10,755 31,330 31,963
Income before cumulative effect of
change in accounting principle . . 38,346 35,438 81,270 42,748
Cumulative effect of change
in accounting principle, net of
income taxes of $2,280 (Note 6). . - - - (3,369)
NET INCOME. . . . . . . . . . . . . 38,346 35,438 81,270 39,379
Preferred Stock Dividends . . . . . 1,566 1,503 4,810 4,261
NET INCOME AVAILABLE FOR
COMMON STOCK . . . . . . . . . . .$ 36,780 $ 33,935 $ 76,460 $ 35,118
<PAGE>3
Louisville Gas and Electric Company
Balance Sheets
(Thousands of $)
ASSETS
Sept. 30, Dec. 31,
1995 1994
UTILITY PLANT:
At original cost . . . . . . . . . . . . . . . . . .$2,585,633 $2,537,895
Less: reserve for depreciation. . . . . . . . . . . 937,093 881,861
Net utility plant . . . . . . . . . . . . . . . . . 1,648,540 1,656,034
OTHER PROPERTY AND INVESTMENTS -
less reserve . . . . . . . . . . . . . . . . . . . . 761 543
CURRENT ASSETS:
Cash and temporary cash investments. . . . . . . . . 67,220 39,138
Marketable securities. . . . . . . . . . . . . . . . 41,994 50,138
Accounts receivable - less reserve . . . . . . . . . 91,318 86,058
Materials and supplies - at average cost:
Fuel (predominantly coal) . . . . . . . . . . . . . 12,892 13,869
Gas stored underground. . . . . . . . . . . . . . . 31,992 31,354
Other . . . . . . . . . . . . . . . . . . . . . . . 35,317 37,299
Prepayments. . . . . . . . . . . . . . . . . . . . . 1,000 253
Total current assets. . . . . . . . . . . . . . . . 281,733 258,109
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense . . . . . . . . . . . . . . 7,770 7,776
Regulatory assets. . . . . . . . . . . . . . . . . . 30,868 31,726
Other. . . . . . . . . . . . . . . . . . . . . . . . 10,097 12,402
Total deferred debits and other assets. . . . . . . 48,735 51,904
Total assets. . . . . . . . . . . . . . . . . . .$1,979,769 $1,966,590
<PAGE>4
Louisville Gas and Electric Company
Balance Sheets (cont.)
(Thousands of $)
CAPITAL AND LIABILITIES
Sept. 30, Dec. 31,
1995 1994
CAPITALIZATION:
Common stock, without par value -
Authorized 75,000,000 shares;
outstanding 21,294,223 shares . . . . . . . . . . .$ 425,170 $ 425,170
Common stock expense . . . . . . . . . . . . . . . . (836) (836)
Unrealized loss on marketable
securities, net of income
taxes of $250 and $1,434. . . . . . . . . . . . . . (357) (1,751)
Retained earnings. . . . . . . . . . . . . . . . . . 199,855 193,895
Total common equity . . . . . . . . . . . . . . . . 623,832 616,478
Cumulative preferred stock . . . . . . . . . . . . . 116,716 116,716
Long-term debt . . . . . . . . . . . . . . . . . . . 646,850 662,862
Total capitalization. . . . . . . . . . . . . . . . 1,387,398 1,396,056
CURRENT LIABILITIES:
Long-term debt due within
one year. . . . . . . . . . . . . . . . . . . . . . 16,000 -
Accounts payable . . . . . . . . . . . . . . . . . . 58,318 70,770
Dividends declared . . . . . . . . . . . . . . . . . 20,066 19,567
Accrued taxes. . . . . . . . . . . . . . . . . . . . 23,335 8,247
Accrued interest . . . . . . . . . . . . . . . . . . 10,920 13,394
Other. . . . . . . . . . . . . . . . . . . . . . . . 12,307 10,277
Total current liabilities . . . . . . . . . . . . . 140,946 122,255
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes (Note 7). . . . . . . . . . . . . . . . . . . 232,415 275,814
Investment tax credit, in
process of amortization . . . . . . . . . . . . . . 85,188 88,779
Accumulated provision for pensions
and related benefits. . . . . . . . . . . . . . . . 39,722 49,104
Customers' advances for construction . . . . . . . . 9,254 8,621
Regulatory liability (Note 7). . . . . . . . . . . . 60,755 8,914
Other. . . . . . . . . . . . . . . . . . . . . . . . 24,091 17,047
Total deferred credits and other liabilities. . . . 451,425 448,279
Total capital and liabilities . . . . . . . . . .$1,979,769 $1,966,590
<PAGE>5
Louisville Gas and Electric Company
Statements of Cash Flows
(Thousands of $)
Nine Months Ended
September 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 81,270 $ 39,379
Items not requiring cash currently:
Depreciation and amortization . . . . . . . . . . . 64,320 61,899
Deferred income taxes - net . . . . . . . . . . . . 8,840 (10,175)
Investment tax credit - net . . . . . . . . . . . . (3,591) (3,568)
Cumulative effect of change
in accounting principle . . . . . . . . . . . . . - 3,369
Non-recurring charges . . . . . . . . . . . . . . . - 38,613
Other . . . . . . . . . . . . . . . . . . . . . . . 2,919 5,675
(Increases) decreases in net current assets:
Accounts receivable . . . . . . . . . . . . . . . . (5,260) 22,641
Materials and supplies. . . . . . . . . . . . . . . 2,321 469
Accounts payable. . . . . . . . . . . . . . . . . . (12,452) (28,884)
Accrued taxes . . . . . . . . . . . . . . . . . . . 15,088 6,113
Accrued interest. . . . . . . . . . . . . . . . . . (2,474) (1,146)
Prepayments and other . . . . . . . . . . . . . . . 1,283 (214)
Other. . . . . . . . . . . . . . . . . . . . . . . . (450) 2,119
Net cash provided by operating activities . . . . . 151,814 136,290
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities. . . . . . . . . . . . . . . (104,542) (169,205)
Proceeds from sales of securities. . . . . . . . . . 114,105 138,848
Construction expenditures. . . . . . . . . . . . . . (57,373) (57,446)
Net cash used for
investing activities. . . . . . . . . . . . . . . (47,810) (87,803)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of pollution control bonds. . . . . . . . . 39,943 -
Retirement of pollution control bonds. . . . . . . . (41,055) -
Payment of dividends . . . . . . . . . . . . . . . . (74,810) (39,136)
Net cash used for financing activities. . . . . . .$ (75,922) $ (39,136)
<PAGE>6
Louisville Gas and Electric Company
Statements of Cash Flows (cont.)
(Thousands of $)
Nine Months Ended
September 30,
1995 1994
NET INCREASE IN CASH AND
TEMPORARY CASH INVESTMENTS . . . . . . . . . . . . .$ 28,082 $ 9,351
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . 39,138 44,105
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD. . . . . . . . . . . . . . . . . . . .$ 67,220 $ 53,456
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes. . . . . . . . . . . . . . . . . . .$ 27,911 $ 34,709
Interest on borrowed money. . . . . . . . . . . . 32,558 32,038
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 $)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Balance at beginning of period. . . $181,575 $178,586 $193,895 $194,903
Net income. . . . . . . . . . . . . 38,346 35,438 81,270 39,379
Subtotal. . . . . . . . . . . . . 219,921 214,024 275,165 234,282
Cash dividends declared
on stock -
5% cumulative preferred . . . . . 269 269 807 807
7.45% cumulative preferred. . . . 400 400 1,199 1,199
Auction rate cumulative pref. . . 530 467 1,703 1,154
$5.875 cumulative preferred . . . 367 367 1,101 1,101
Common. . . . . . . . . . . . . . 18,500 18,000 70,500 35,500
Total dividends declared. . . . . 20,066 19,503 75,310 39,761
Balance at end of period. . . . . . $199,855 $194,521 $199,855 $194,521
<PAGE>8
Louisville Gas and Electric Company
Notes to Financial Statements
(Unaudited)
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.
Certain amounts in the statements of cash flows for the nine months ended
September 30, 1994, have been reclassified to be consistent with the
presentation for the nine months period ended September 30, 1995, with no
impact on previously reported net income. Also, certain amounts in the
balance sheet as of December 31, 1994, have been reclassified to be
consistent with the balance sheet presentation as of September 30, 1995.
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 1994.
2. On July 19, 1995, the Public Service Commission of Kentucky (Commission)
issued an order that requires the Company to refund $23.9 million to its
electric customers, plus interest (through June 1995 interest totaled $9.9
million) for a total as of the date of the order of $33.8 million, arising
from the Commission's disallowance of 25% of the Trimble County power
plant. The Commission's order required the Company to submit a proposed
refund methodology for approval within 30 days from the date of the order.
The Commission later extended the date of filing refund plans to
November 8, 1995. On November 8, 1995, the Commission granted a joint
motion to extend the date for filing refund plans to January 3, 1996.
On August 4, 1995, the Kentucky Attorney General (KAG) filed a complaint
in the Franklin (Kentucky) Circuit Court (Court) for review of the
Commission's orders of July 8, 1994, April 25, 1995, and July 19, 1995.
The KAG asked that the Court vacate those orders and remand the proceeding
back to the Commission with instructions that the Commission consider, in
determining a refund, the revenues paid by the Company's customers as a
result of the inclusion of Trimble County related construction work in
progress in the Company's rate base prior to May 20, 1988. On
September 12, 1995, the Court dismissed without prejudice KAG's complaint.
On August 8, 1995, the Company filed a request for rehearing of the
July 19 order of the Commission, and on August 28, 1995, the Commission
issued an order in which it granted rehearing only on the issue of whether
compound or simple interest should be applied to the amount the Commission
has ordered the Company to refund. The total of $33.8 million contained
in the Commission's July 19, 1995 order was calculated using compound
interest. The Company believes that the use of simple interest would
reduce the amount the Commission ordered be refunded through June 1995 by
approximately $1.6 million. The Commission has requested that the parties
to the case submit argument on this issue during the second phase of the
case dealing with refund plans.
<PAGE>9
The Company intends to appeal the Commission's July 19 order to seek to
overturn the decision. If the Company is unsuccessful in overturning the
decision and a refund of previously collected revenues in the amount of
$33.8 million is required to be paid, the after-tax charge to net income
would amount to approximately $20.2 million. However, the outcome of this
matter is uncertain, and the Company is unable to predict the exact amount
of refunds, if any, that ultimately may be due.
3. The Company filed an application with the Public Service Commission of
Kentucky on October 7, 1994, in which it requested approval of an
environmental cost recovery surcharge to recover certain costs required to
comply with the Federal Clean Air Act, as amended, and those federal,
state, and local environmental requirements which apply to coal combustion
wastes and by-products from facilities utilized for the production of
energy from coal. On April 6, 1995, the Commission approved, with
modifications, an environmental cost recovery surcharge estimated to
increase electric revenues by approximately $3.8 million in 1995 and $7.2
million in 1996. The surcharge became effective on May 1, 1995. The
Company, the Kentucky Attorney General and the Kentucky Industrial Utility
Customers (KIUC) filed applications for rehearing on certain issues in the
April 6 order. Among other things, the KAG and KIUC requested a reduction
of the amounts recoverable by the Company. The Commission denied all
motions for rehearing, and appeals have subsequently been filed in
Franklin Circuit Court, which are pending. The Company is unable to
predict the outcome of these proceedings.
4. In the second quarter of 1995, the Company received cash proceeds of $8
million in connection with settlement of a commercial dispute. The effect
on earnings was deferred pending completion of a study to determine the
proper amount of income to be recognized. The study was completed during
the third quarter. Accordingly, the Company recognized $6 million as a
reduction to other operations expenses. The remaining $2 million is
recorded as a reserve for future payments in connection with the dispute.
5. As part of a study of LG&E Energy Corp.'s business strategy and
realignment during 1994, the Company re-evaluated its regulatory strategy
which previously had been to seek full recovery of certain costs deferred
in accordance with prior precedents established by the Commission. As a
result of this re-evaluation, in the first quarter of 1994, the Company
wrote off certain expenses that had previously been deferred amounting to
approximately $38.6 million before taxes. While the Company continues to
believe that it could have reasonably expected to recover these costs in
future rate proceedings before the Commission, the Company 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 workforce
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 Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Post-Retirement Benefits Other Than Pensions.
<PAGE>10
In the first quarter of 1994, the Board of Directors of the Company
approved the formation of a tax-exempt charitable foundation (Foundation)
which will make charitable contributions to qualified persons and
entities. In 1994, the Company recorded a pre-tax charge against income
and made an irrevocable payment of $15 million to fund the Foundation. On
June 6, 1994, the Internal Revenue Service issued a letter stating that it
had determined the Foundation was exempt from Federal income tax under the
Internal Revenue Code.
6. The Company adopted Statement of Financial Accounting Standards No. 112,
Employers' Accounting for Post-Employment Benefits (SFAS 112) on
January 1, 1994, as required. SFAS 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 net income by $3.4
million.
7. The Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, effective January 1, 1993. Regulatory assets
and liabilities were established to recognize the future revenue
requirement impact from the deferred income taxes which were not
immediately recognized in operating results because of ratemaking
treatment. The change in Accumulated Deferred Income Taxes and Regulatory
Liability on the accompanying balance sheets reflects the accrual for the
nine months ended September 30, 1995 and certain reclassifications between
Accumulated Deferred Income Taxes and Regulatory Liability applicable to
prior periods.
8. Reference is made to Part II herein - Item 1, Legal Proceedings.
<PAGE>11
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 September 30, 1995, Compared with
Quarter Ended September 30, 1994
Net income increased $2.9 million (8%) for the quarter ended September 30,
1995, over the quarter ended September 30, 1994, primarily due to an increase
in retail electric sales resulting from the hot summer weather and continued
cost containment efforts. Another positive factor affecting net income was the
recognition of a $6 million credit to expense as the result of the settlement
of a commercial dispute as discussed in Note 4 of Notes to Financial
Statements. These factors were partially offset by an increase in electric
power purchases required because of unplanned power plant outages.
A comparison of operating revenues for the quarter ended September 30, 1995,
with the quarter ended September 30, 1994, 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. . . . . . . $(3,008) $(2,146)
Demand side management/revenue
decoupling. . . . . . . . . . . . . . . . (5,651) 529
Environmental cost recovery. . . . . . . . . 1,513 -
Variation in sales volume, etc.. . . . . . . 18,258 (1,452)
Total . . . . . . . . . . . . . . . . . . 11,112 (3,069)
Sales for resale. . . . . . . . . . . . . . . (2,697) -
Gas transportation - net. . . . . . . . . . . - 89
Other . . . . . . . . . . . . . . . . . . . . 753 46
Total . . . . . . . . . . . . . . . . . . $ 9,168 $(2,934)
<PAGE>12
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 $3.4 million
(9%) for the quarter because of a decrease in the cost of coal burned ($1.6
million) and decreased generation ($1.8 million). Gas supply expenses
decreased $3.6 million (29%) due to a decrease in net gas supply cost ($3.2
million) and a 5% decrease in the volume of gas delivered to the distribution
system.
The Company implemented a Commission approved demand side management (DSM)
program in January 1994. The agreement contains a rate mechanism that allows
the Company concurrent recovery of DSM costs; provides the Company an incentive
for implementing DSM programs; and allows the Company to recover revenues due
to lost sales associated with the DSM programs.
On May 1, 1995, the Company implemented a Commission approved environmental
cost recovery surcharge to recover certain costs required to comply with the
Federal Clean Air Act and other governmental pollution control requirements.
See Note 3 of Notes to Financial Statements.
Power purchased increased $12.3 million due to increased purchases required
because of unplanned outages at the electric generating plants during the
warmer than normal third quarter.
Other operation expenses decreased $3.8 million (11%) as a result of
recognizing a credit to expense of $6 million in settlement proceeds received
related to a commercial dispute. See Note 4 of Notes to Financial Statements.
The credit was partially offset by an increase in various administrative
expenses.
Maintenance expenses increased $2 million (19%) primarily related to repairs
due to unplanned outages at the electric generating plants.
Depreciation and amortization increased because of additional depreciable plant
in service.
Variations in income tax expense are largely attributable to changes in pre-tax
income.
Interest charges decreased due to a reduction in accrued interest resulting
from a favorable ruling on certain income tax matters.
<PAGE>13
Nine Months Ended September 30, 1995, Compared with
Nine Months Ended September 30, 1994
Net income for the nine months ended September 30, 1995 increased $41.9 million
over the same period of 1994. This increase was due to the write off, in the
first quarter of 1994, of non-recurring items, the formation of a charitable
foundation, and the adoption of SFAS No. 112 as discussed in Note 6 of Notes to
Financial Statements. Without consideration of the charges against income in
1994 as discussed above, net income for the nine months ended September 30,
1995, increased $5.8 million (8%). This increase is due primarily to higher
retail electric commercial and industrial sales during the nine month period of
1995 and positive cost containment efforts. Another positive factor affecting
net income was the recognition of a $6 million credit to expense as the result
of the settlement of a commercial dispute as discussed in Note 4 of Notes to
Financial Statements. These factors were partially offset by increased
purchased power expenses due mainly to unplanned power plant outages this
summer.
A comparison of operating revenues for the nine months ended September 30,
1995, with the nine months ended September 30, 1994, 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. . . . . . . $(9,257) $(11,779)
Demand side management/revenue
decoupling. . . . . . . . . . . . . . . . (2,582) 3,132
Environmental cost recovery. . . . . . . . . 2,070 -
Variation in sales volume, etc.. . . . . . . 20,902 (21,408)
Total . . . . . . . . . . . . . . . . . . 11,133 (30,055)
Sales for resale. . . . . . . . . . . . . . . (3,576) -
Gas transportation - net. . . . . . . . . . . - 2,694
Other . . . . . . . . . . . . . . . . . . . . 904 (249)
Total . . . . . . . . . . . . . . . . . . $ 8,461 $(27,610)
Fuel for electric generation decreased $5.6 million (5%) for the nine months
because of a lower cost of coal burned ($7.4 million), partially offset by
increased generation ($1.8 million). Gas supply expenses decreased $27.5
million (28%) because of a decrease in gas delivered to the distribution system
($16.8 million) and the lower cost of net gas supply ($10.7 million).
Power purchased increased $6.9 million primarily because of increased purchases
required due to unplanned outages at the electric power plants during the
warmer than normal third quarter.
<PAGE>14
Other operation expenses decreased $2.6 million (2%) primarily due to crediting
$6 million to expense representing the settlement proceeds received related to
a commercial dispute. See Note 4 of Notes to Financial Statements. The credit
was partially offset by an increase in various administrative expenses.
Non-recurring charges recognized in 1994 include the write off of previously
deferred 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
Statement of Financial Accounting Standards No. 106, Employers' Accounting for
Post-Retirement Benefits Other Than Pensions. See Note 5 of Notes to Financial
Statements.
Depreciation and amortization increased because of an increase in depreciable
plant in service.
Variations in income tax expense are largely attributable to changes in pre-tax
income.
Property and other taxes decreased mainly due to payroll taxes associated with
severance payments in connection with work force reductions recorded in the
first quarter of 1994. See Note 5 of Notes to Financial Statements.
Other income and deductions increased $1.1 million primarily because of an
increase in dividend and interest income from investments.
The contribution to charitable foundation represents the expense (net of taxes)
associated with the formation of a tax-exempt charitable foundation recorded in
the first quarter of 1994. See Note 5 of Notes to Financial Statements.
Interest charges decreased primarily due to a reduction in accrued interest
resulting from a favorable ruling on certain income tax matters, partially
offset by a higher composite interest rate on outstanding debt. A component of
interest expense was the cost associated with $30 million of interest rate
swaps that the Company entered into as a standard hedging device in connection
with the issuance of Pollution Control Bonds Series S due September 1, 2017, in
1992. The swaps are designed to reduce the Company's exposure to interest rate
risk. During the nine months ended September 30, 1995, the Company received
interest at a composite rate of 3.83% and paid interest at a composite rate of
4.55% pursuant to the swaps.
Cumulative Effect of Change in Accounting for Post-Employment Benefits reflects
an accounting change required by the adoption of Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Post-Employment
Benefits. See Note 6 of Notes to Financial Statements.
Liquidity and Capital Resources
The Company's capital structure and cash flow remained strong throughout the
reported periods. This is evidenced primarily by the Company's ability to meet
its capital needs through internal generation.
<PAGE>15
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 nine
months ended September 30, 1995 of $57 million were financed with internally
generated funds.
The Company's combined cash, temporary cash investments, and marketable
securities balance increased $20 million during the nine months ended
September 30, 1995. The increase reflects the Company's cash flow from
operations less construction expenditures and dividend payments.
Variations in accounts receivable and accounts payable are not generally
significant indicators of the Company's liquidity, as such variations are
primarily attributable to seasonal fluctuations in weather, which has a direct
effect on sales of electricity and natural gas.
In April 1995, the Company issued $40 million of Jefferson County, Kentucky,
Pollution Control Revenue Bonds, 5.90% Series, due April 15, 2023. The
proceeds of the bonds were used to redeem the outstanding 9.25% Series of
Pollution Control Bonds due July 1, 2015.
In December 1995, the Company plans to redeem the outstanding shares of its
7.45% Cumulative Preferred Stock with a par value of $25 per share at a
redemption price of $25.75 per share. The Company will fund the $22 million
redemption with cash generated internally.
At September 30, 1995, 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 1995 and 1996. The Company intends to
renegotiate such lines when they expire.
The Company's capitalization ratios at September 30, 1995, and December 31,
1994 were:
Sept. 30, Dec. 31,
1995 1994
Long-term debt
(including current portion) . . . . . . . . 47.2% 47.5%
Preferred stock . . . . . . . . . . . . . . . 8.3 8.4
Common equity . . . . . . . . . . . . . . . . 44.5 44.1
Total. . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
For a description of significant contingencies that may affect the Company,
reference is made to Part II herein - Item 1, Legal Proceedings.
<PAGE>16
Part II. Other Information
Item 1. Legal Proceedings.
For a description of the significant legal proceedings involving the Company,
reference is made to: (i) the information under the following items and
captions of the Company's Annual Report on Form 10-K for the year ended
December 31, 1994: Item 1, Business; Item 3, Legal Proceedings; Item 7,
Management's Discussion and Analysis of Results of Operations and Financial
Condition; and Notes 2, 10, and 11 of the Notes to Financial Statements under
Item 8, (ii) the Company's current report on Form 8-K dated April 13, 1995,
(iii) the information under Part II, Item 1, Legal Proceedings, of the
Company's Form 10-Q for the quarter ended March 31, 1995, (iv) the Company's
current report on Form 8-K dated July 21, 1995, and (v) the information under
Part II, Item 1, Legal Proceedings, of the Company's Form 10-Q for the quarter
ended June 30, 1995. Except as noted below, there have been no material
changes in these proceedings as reported in the Company's 1994 Form 10-K,
Form 8-K dated April 13, 1995, Form 10-Q for the quarter ended March 31, 1995,
Form 8-K dated July 21, 1995, and the Form 10-Q for the quarter ended June 30,
1995.
Trimble County. Reference is made to Note 11 of the Notes to Financial
Statements under Item 8 of the Company's 1994 Form 10-K, to Part II, Item 1,
Legal Proceedings, of the Company's Form 10-Q for the quarter ended March 31,
1995, to the Company's current report on Form 8-K, dated July 21, 1995, to the
Company's Form 10-Q for the quarter ended June 30, 1995, and to Note 2 of Notes
to Financial Statements under Part I, Item 1 of this filing, regarding
proceedings before the Kentucky Public Service Commission (Commission) to
determine the proper ratemaking treatment to exclude 25% of the Trimble County
electric generating facility from customer rates for the period May 1988
through December 1990.
On July 19, 1995, the Commission issued an order that requires the Company to
refund $23.9 million to its electric customers, plus interest (through June
1995 interest totaled $9.9 million), for a total as of the date of the order of
$33.8 million, arising from the Commission's disallowance of 25% of the Trimble
County power plant. The Commission's order required the Company to submit a
proposed refund methodology for approval within 30 days from the date of the
order. The Commission later extended the date of filing refund plans to
November 8, 1995. On November 8, 1995, the Commission granted a joint motion
to extend the date for filing refund plans to January 3, 1996.
On August 4, 1995, the Kentucky Attorney General (KAG) filed a complaint in the
Franklin (Kentucky) Circuit Court (Court) for review of the Commission's orders
of July 8, 1994, April 25, 1995, and July 19, 1995. The KAG asked that the
Court vacate those orders and remand the proceeding back to the Commission with
instructions that the Commission consider, in determining a refund, the
revenues paid by the Company's customers as a result of the inclusion of
Trimble County related construction work in progress in the Company's rate base
prior to May 20, 1988. On September 12, 1995, the Court dismissed without
prejudice KAG's complaint.
<PAGE>17
On August 8, 1995, the Company filed a request for rehearing of the July 19
order of the Commission, and on August 28, 1995, the Commission issued an order
in which it granted rehearing only on the issue of whether compound or simple
interest should be applied to the amount the Commission has ordered the Company
to refund. The total of $33.8 million contained in the Commission's July 19,
1995 order was calculated using compound interest. The Company believes that
the use of simple interest would reduce the amount the Commission ordered be
refunded through June 1995 by approximately $1.6 million. The Commission has
requested that the parties to the case submit argument on this issue during the
second phase of the case dealing with refund plans.
The outcome of this matter is uncertain, and the Company is unable to predict
the exact amount of refunds, if any, that ultimately may be due.
Environmental. As reported in Note 10 of Notes to Financial Statements under
Item 8 of the Company's 1994 Form 10-K, and in Part II, Item 1, Legal
Proceedings, of the Company's Form 10-Q for the quarter ended June 30, 1995, 34
persons filed a complaint in Jefferson Circuit Court against the Company
seeking certification of a class consisting of all persons within 2.5 miles of
the Mill Creek plant who have allegedly suffered personal injury or property
damage as a result of emissions from the plant. In June 1994, the court denied
the plaintiffs' motion for certification of the class and thus limited the
scope of the litigation to the claims of the individual plaintiffs. In August
1995, the court granted the plaintiff's motion for leave to file an amended
complaint to bring a total of 537 individual plaintiffs into the pending
litigation. The plaintiffs continue to seek compensation for alleged personal
injury and property damage, injunctive relief, a fund to finance future medical
monitoring of area residents and other relief. The plaintiffs seek
certification of a class consisting of all persons within 3.5 miles of the
plant who have allegedly suffered property damage. The Company intends to
vigorously defend itself in the pending litigation.
As reported in Note 10 of the Notes to Financial Statements under Item 8 of the
Company's 1994 Form 10-K, in 1987, the United States Environmental Protection
Agency (USEPA) identified the Company as one of the numerous potentially
responsible parties (PRPs) allegedly liable under the Comprehensive
Environmental Response, Compensation, and Liability Act as amended for the
Smith's Farm site in Bullitt County, Kentucky. Previously reported estimated
cleanup costs of approximately $70 million have recently been revised to
approximately $60 million. The Company and several other parties have shared
certain cleanup costs until a voluntary allocation of liability can be reached
among the parties. It is not possible at this time to predict the outcome or
precise impact of the matter. However, management believes that this matter
should not have a material adverse impact on the financial position or results
of operation of the Company, as other financially viable PRPs appear to have
primary responsibility for any environmental liability at the site.
<PAGE>18
As reported in Note 10, of the Notes to Financial Statements under Item 8 of
the Company's 1994 Form 10-K, in March 1994, the Air Pollution Control District
of Jefferson County, Kentucky (APCD) adopted a regulation requiring a 15%
reduction from 1990 volatile organic compound (VOC) emissions from industrial
sources. There are currently no demonstrated technologies for control of VOC
emissions from coal-fired boilers. Consequently, compliance with the
regulation could require limits on generation at the Mill Creek and Cane Run
plants, unless the APCD adopts a provision for compliance through utilization
of banked emission allowances. The Company is currently participating in
negotiations between the APCD and industry groups in an effort to obtain an
exemption from the VOC reduction requirements.
Item 6(a). Exhibits.
Exhibit No.
27. Financial Data Schedule
Item 6(b). Reports on Form 8-K.
On July 21, 1995, a report on Form 8-K was filed announcing that on July 19,
the Public Service Commission of Kentucky ordered the Company to issue its
electric customers a refund of $33.8 million, arising from the disallowance of
25% of the Company's Trimble County plant.
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
Date: November 13, 1995 M. L. Fowler
M. L. Fowler
Vice President and Controller
(On behalf of the registrant in his
capacity as Principal Accounting Officer)
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