<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 June 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 July 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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
OPERATING REVENUES:
Electric (Note 3). . . . . . . . .$142,340 $143,272 $265,882 $266,589
Gas. . . . . . . . . . . . . . . . 25,481 29,770 101,455 126,131
Total operating revenues. . . . . 167,821 173,042 367,337 392,720
OPERATING EXPENSES:
Fuel for electric generation . . . 35,801 36,570 67,652 69,803
Power purchased. . . . . . . . . . 1,037 3,914 1,843 7,301
Gas supply expenses. . . . . . . . 13,594 18,447 61,961 85,846
Other operation expenses . . . . . 35,658 34,527 71,056 69,880
Maintenance. . . . . . . . . . . . 13,205 13,561 24,687 26,836
Non-recurring charges
(Note 4). . . . . . . . . . . . . - - - 38,613
Depreciation and amortization. . . 21,440 20,633 42,880 41,266
Federal and state income
taxes . . . . . . . . . . . . . . 13,013 11,653 26,241 7,600
Property and other taxes . . . . . 4,058 3,864 8,593 9,100
Total operating expenses. . . . . 137,806 143,169 304,913 356,245
NET OPERATING INCOME. . . . . . . . 30,015 29,873 62,424 36,475
Other income and (deductions) . . . 1,809 1,477 2,211 989
Contribution to charitable
foundation - net (Note 4). . . . . - - - 8,946
Interest charges. . . . . . . . . . 10,739 10,714 21,711 21,208
Income before cumulative effect of
change in accounting principle . . 21,085 20,636 42,924 7,310
Cumulative effect of change
in accounting principle, net of
income taxes of $2,280 (Note 5). . - - - (3,369)
NET INCOME. . . . . . . . . . . . . 21,085 20,636 42,924 3,941
Preferred Stock Dividends . . . . . 1,627 1,380 3,244 2,758
NET INCOME AVAILABLE FOR
COMMON STOCK . . . . . . . . . . .$ 19,458 $ 19,256 $ 39,680 $ 1,183
<PAGE>3
Louisville Gas and Electric Company
Balance Sheets
(Thousands of $)
ASSETS
June 30, Dec. 31,
1995 1994
UTILITY PLANT:
At original cost . . . . . . . . . . . . . . . . . .$2,569,555 $2,537,895
Less: reserve for depreciation. . . . . . . . . . . 918,133 881,861
Net utility plant . . . . . . . . . . . . . . . . . 1,651,422 1,656,034
OTHER PROPERTY AND INVESTMENTS -
less reserve . . . . . . . . . . . . . . . . . . . . 36,944 50,681
CURRENT ASSETS:
Cash and temporary cash investments. . . . . . . . . 50,731 39,138
Accounts receivable - less reserve . . . . . . . . . 87,127 86,058
Materials and supplies - at average cost:
Fuel (predominantly coal) . . . . . . . . . . . . . 10,225 13,869
Gas stored underground. . . . . . . . . . . . . . . 11,681 31,354
Other . . . . . . . . . . . . . . . . . . . . . . . 36,635 37,299
Prepayments. . . . . . . . . . . . . . . . . . . . . 1,535 253
Total current assets. . . . . . . . . . . . . . . . 197,934 207,971
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense . . . . . . . . . . . . . . 7,844 7,776
Regulatory assets. . . . . . . . . . . . . . . . . . 31,817 31,726
Other. . . . . . . . . . . . . . . . . . . . . . . . 12,700 12,402
Total deferred debits and other assets. . . . . . . 52,361 51,904
Total assets. . . . . . . . . . . . . . . . . . .$1,938,661 $1,966,590
<PAGE>4
Louisville Gas and Electric Company
Balance Sheets (cont.)
(Thousands of $)
CAPITAL AND LIABILITIES
June 30, Dec. 31,
1995 1994
CAPITALIZATION:
Common stock, without par value -
Authorized 75,000,000 shares;
outstanding 21,294,223 shares . . . . . . . . . . .$ 425,170 $ 425,170
Common stock expense . . . . . . . . . . . . . . . . (836) (836)
Unrealized loss on marketable
securities, net of income
taxes of $79 and $1,434 . . . . . . . . . . . . . . (338) (1,751)
Retained earnings. . . . . . . . . . . . . . . . . . 181,575 193,895
Total common equity . . . . . . . . . . . . . . . . 605,571 616,478
Cumulative preferred stock . . . . . . . . . . . . . 116,716 116,716
Long-term debt (Note 6). . . . . . . . . . . . . . . 646,854 662,862
Total capitalization. . . . . . . . . . . . . . . . 1,369,141 1,396,056
CURRENT LIABILITIES:
Long-term debt due within
one year. . . . . . . . . . . . . . . . . . . . . . 16,000 -
Accounts payable . . . . . . . . . . . . . . . . . . 58,553 70,770
Dividends declared . . . . . . . . . . . . . . . . . 19,627 19,567
Accrued taxes. . . . . . . . . . . . . . . . . . . . 6,102 8,247
Accrued interest . . . . . . . . . . . . . . . . . . 11,998 13,394
Other. . . . . . . . . . . . . . . . . . . . . . . . 12,057 10,277
Total current liabilities . . . . . . . . . . . . . 124,337 122,255
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes (Note 7). . . . . . . . . . . . . . . . . . . 230,393 275,814
Investment tax credit, in
process of amortization . . . . . . . . . . . . . . 86,339 88,779
Accumulated provision for pensions
and related benefits. . . . . . . . . . . . . . . . 40,163 49,104
Customers' advances for construction . . . . . . . . 9,166 8,621
Regulatory liability (Note 7). . . . . . . . . . . . 61,403 8,914
Other. . . . . . . . . . . . . . . . . . . . . . . . 17,719 17,047
Total deferred credits and other liabilities. . . . 445,183 448,279
Total capital and liabilities . . . . . . . . .$1,938,661 $1,966,590
<PAGE>5
Louisville Gas and Electric Company
Statements of Cash Flows
(Thousands of $)
Six Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 42,924 $ 3,941
Items not requiring cash currently:
Depreciation and amortization . . . . . . . . . . . 42,880 41,266
Deferred income taxes - net . . . . . . . . . . . . 5,713 (12,268)
Investment tax credit - net . . . . . . . . . . . . (2,440) (2,378)
Cumulative effect of change
in accounting principle . . . . . . . . . . . . . - 3,369
Non-recurring charges . . . . . . . . . . . . . . . - 38,613
Other . . . . . . . . . . . . . . . . . . . . . . . 1,908 4,742
(Increases) decreases in net current assets:
Accounts receivable . . . . . . . . . . . . . . . . (1,069) 11,436
Materials and supplies. . . . . . . . . . . . . . . 23,981 19,539
Accounts payable. . . . . . . . . . . . . . . . . . (12,217) (18,082)
Accrued taxes . . . . . . . . . . . . . . . . . . . (2,145) (8,284)
Accrued interest. . . . . . . . . . . . . . . . . . (1,396) 325
Prepayments and other . . . . . . . . . . . . . . . 498 (187)
Other. . . . . . . . . . . . . . . . . . . . . . . . (9,118) (4,279)
Net cash provided by operating activities . . . . . 89,519 77,753
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities. . . . . . . . . . . . . . . (75,468) (34,360)
Proceeds from sales of securities. . . . . . . . . . 91,970 19,519
Construction expenditures. . . . . . . . . . . . . . (38,127) (37,551)
Net cash used for
investing activities. . . . . . . . . . . . . . . (21,625) (52,392)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of pollution control bonds. . . . . . . . . 39,959 -
Retirement of pollution control bonds. . . . . . . . (41,076) -
Payment of dividends . . . . . . . . . . . . . . . . (55,184) (37,756)
Net cash used for financing activities. . . . . . .$ (56,301) $ (37,756)
<PAGE>6
Louisville Gas and Electric Company
Statements of Cash Flows (cont.)
(Thousands of $)
Six Months Ended
June 30,
1995 1994
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS . . . . . . . . . . . . .$ 11,593 $ (12,395)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . 39,138 44,105
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD. . . . . . . . . . . . . . . . . . . .$ 50,731 $ 31,710
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes. . . . . . . . . . . . . . . . . . .$ 23,494 $ 25,864
Interest on borrowed money. . . . . . . . . . . . 22,285 20,183
For the purposes of this statement, all temporary cash investments purchased
with a maturity of three months or less are considered cash equivalents.
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Louisville Gas and Electric Company
Statements of Retained Earnings
(Thousands of $)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Balance at beginning of period. . . $180,117 $159,330 $193,895 $194,903
Net income. . . . . . . . . . . . . 21,085 20,636 42,924 3,941
Subtotal. . . . . . . . . . . . . 201,202 179,966 236,819 198,844
Cash dividends declared
on stock -
5% cumulative preferred . . . . . 269 269 539 538
7.45% cumulative preferred. . . . 400 400 799 799
Auction rate cumulative pref. . . 591 344 1,172 687
$5.875 cumulative preferred . . . 367 367 734 734
Common. . . . . . . . . . . . . . 18,000 - 52,000 17,500
Total dividends declared. . . . . 19,627 1,380 55,244 20,258
Balance at end of period. . . . . . $181,575 $178,586 $181,575 $178,586
<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. 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 applicable through June 1995 of $9.9
million, for a total of $33.8 million, arising from the Commission's
disallowance of 25% of the Trimble County power plant. The Commission's
order requires the Company to submit a proposed refund methodology for
approval within 30 days from the date of the order. On August 4, 1995,
the Kentucky Attorney General filed a complaint in the Franklin
(Kentucky) Circuit Court for review of the Commission's orders of July 8,
1994, April 25, 1995, and July 19, 1995 in this proceeding. The
complaint seeks to have the Court vacate those orders and remand the
proceeding back to the Commission with instructions that the Commission
consider in determining a refund amount the revenues paid by the
Company's customers as a result of the inclusion of Trimble County
related CWIP in the Company's rate base prior to May 20, 1988. On
August 8, 1995, the Company filed a request for rehearing of the July 19
order with the Commission. If the Company is unsuccessful at overturning
the decision and the refund 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 (KAG) 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 are requesting 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.
<PAGE>9
4. 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.
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.
5. 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.
6. On April 18, 1995, the Company completed the issuance of $40 million
Jefferson County, Kentucky, 5.90% Pollution Control Bonds, 1995 Series A
due April 15, 2023. The proceeds from the sale were used to redeem the
1985 Series A Jefferson County, Kentucky, 9.25% Pollution Control Bonds.
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 six months ended June 30, 1995 and certain
reclassifications between Accumulated Deferred Income Taxes and
Regulatory Liability applicable to prior periods.
<PAGE>10
8. LG&E Energy Corp., the Company's parent, has recorded an $8 million
liability in connection with potential amounts that may be owed by the
Company as a result of litigation. The liability is offset by an asset
of equal amount representing proceeds received from a third party in the
second quarter. The Company is in the process of determining the amount
of liability to charge to expense.
9. 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 June 30, 1995, Compared with
Quarter Ended June 30, 1994
Net income increased $.5 million for the quarter ended June 30, 1995, over the
second quarter of 1994 primarily due to an increase in electric industrial
sales and decreased power purchased required this quarter to meet native load
and other power commitments.
A comparison of operating revenues for the quarter ended June 30, 1995, with
the quarter ended June 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. . . . . . . $(3,372) $(2,406)
Demand side management/revenue
decoupling. . . . . . . . . . . . . . . . 625 529
Environmental cost recovery. . . . . . . . . 504 -
Variation in sales volume, etc.. . . . . . . 1,546 (2,992)
Total . . . . . . . . . . . . . . . . . . (697) (4,869)
Sales for resale. . . . . . . . . . . . . . . (442) -
Gas transportation - net. . . . . . . . . . . - 602
Other . . . . . . . . . . . . . . . . . . . . 207 (22)
Total . . . . . . . . . . . . . . . . . . $ (932) $(4,289)
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 $.8
million (2%) for the quarter primarily because of a decrease in the cost of
coal burned ($3.1 million) partially offset by increased generation of $2.3
million. Gas supply expenses decreased $4.9 million (26%) due to a lower
volume of gas delivered to the distribution system ($2.6 million) and a
decrease in net gas supply cost ($2.3 million).
<PAGE>12
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, the Company implemented a Commission approved environmental cost
recovery surcharge to recover certain costs required to comply with the
Federal Clean Air Act. See Note 3 of Notes to Financial Statements.
Power purchased decreased $2.9 million due mainly to less power being
purchased to meet native load and other power commitments.
Other operation expenses increased $1.1 million (3%) mainly as a result of
increased costs to operate electric power plants and electric and gas
distribution systems.
Maintenance expenses decreased $.4 million (3%) because of fewer repairs this
quarter associated with the Mill Creek electric power plant.
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.
Other income and deductions increased primarily due to an increase in dividend
and interest income from investments.
Six Months Ended June 30, 1995, Compared with
Six Months Ended June 30, 1994
Net income for the six months ended June 30, 1995 increased $39 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 5 of Notes
to Financial Statements. Without consideration of the charges against income
in 1994 as discussed above, net income for the six months ended June 30, 1995,
increased $2.9 million (7.2%). This increase is due primarily to higher
retail electric industrial sales during the six month period of 1995 and the
higher maintenance expenses incurred in January 1994 because of the severe
winter storm.
<PAGE>13
A comparison of operating revenues for the six months ended June 30, 1995,
with the six months ended June 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. . . . . . . $(6,249) $ (9,632)
Demand side management/revenue
decoupling. . . . . . . . . . . . . . . . 3,069 2,602
Environmental cost recovery. . . . . . . . . 504 -
Variation in sales volume, etc.. . . . . . . 2,696 (19,956)
Total . . . . . . . . . . . . . . . . . . 20 (26,986)
Sales for resale. . . . . . . . . . . . . . . (879) -
Gas transportation - net. . . . . . . . . . . - 2,605
Other . . . . . . . . . . . . . . . . . . . . 152 (295)
Total . . . . . . . . . . . . . . . . . . $ (707) $(24,676)
Fuel for electric generation decreased $2.2 million (3%) for the six months
primarily because of a lower cost of coal burned ($5.9 million), partially
offset by increased generation ($3.7 million). Gas supply expenses decreased
$23.9 million (28%) primarily because of a decrease in gas delivered to the
distribution system ($16.8 million) and the lower cost of net gas supply ($7.1
million).
Power purchased declined because less power was wheeled for other utilities
and purchased to meet native load and other power commitments.
Other operation expenses increased $1.2 million (2%) primarily due to an
increase in various administrative expenses.
Maintenance expenses decreased $2.1 million (8%), primarily due to storm
related expenses during the first quarter of 1994 ($1.3 million) and fewer
repairs at the electric power plants.
Non-recurring charges 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 4 of Notes to
Financial Statements.
Depreciation and amortization increased because of an increase in depreciable
plant in service.
<PAGE>14
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 4 of Notes to Financial Statements.
Other income and deductions increased primarily due to 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 4 of Notes to Financial
Statements.
Interest charges increased because of 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 six months
ended June 30, 1995, the Company received interest at a composite rate of
3.88% 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 5 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.
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 six
months ended June 30, 1995 of $38 million were financed with internally
generated funds.
The Company's combined cash and temporary cash investments balance increased
$12 million during the six months ended June 30, 1995. The increase reflects
the Company's cash flow from operations and sale of available-for-sale
securities, 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.
<PAGE>15
At June 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. The Company intends to renegotiate such
lines when they expire.
The Company's capitalization ratios at June 30, 1995, and December 31, 1994
were:
June 30, Dec. 31,
1995 1994
Long-term debt
(including current portion) . . . . . . . . 47.9% 47.5%
Preferred stock . . . . . . . . . . . . . . . 8.4 8.4
Common equity . . . . . . . . . . . . . . . . 43.7 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, and (iv) the
Company's current report on Form 8-K dated July 21, 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, and Form 8-K dated July 21, 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, Part II, Item 1,
Legal Proceedings, of the Company's Form 10-Q for the quarter ended March 31,
1995, and the Company's current report on Form 8-K, dated July 21, 1995,
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
ordered the Company to issue its electric customers a refund of $23.9 million,
plus interest applicable through June 1995 of $9.9 million, for a total of
$33.8 million, arising from the disallowance of 25% of its Trimble County
plant. The Commission's order requires the Company to submit, within the next
30 days, a proposed refund methodology for Commission approval. On August 4,
1995, the Kentucky Attorney General filed a complaint in the Franklin
(Kentucky) Circuit Court for review of the Commission's orders of July 8,
1994, April 25, 1995, and July 19, 1995 in this proceeding. The complaint
seeks to have the Court vacate those orders and remand the proceeding back to
the Commission with instructions that the Commission consider in determining a
refund amount the revenues paid by the Company's customers as a result of the
inclusion of Trimble County related CWIP in the Company's rate base prior to
May 20, 1988. On August 8, 1995, the Company filed a request for rehearing of
the July 19 order with the Commission. 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.
<PAGE>17
Environmental Surcharge. As reported in Note 2 of the 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
March 31, 1995, on April 6, 1995, the Commission approved, with modifications,
the Company's application for an environmental cost recovery surcharge to
recover certain costs required to comply with the Federal Clean Air Act, as
amended, and other federal, state, and local environmental laws, regulations
and orders which apply to coal combustion wastes and by-products from
facilities utilized for the production of energy from coal. As a result of
the order approving the surcharge, the Company estimates that its electric
revenues will increase by approximately $3.8 million in 1995 and $7.2 million
in 1996. The Company, the Kentucky Attorney General (KAG) 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 are
requesting 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.
Environmental. As reported in Note 10 of Notes to Financial Statements in the
Company's 1994 Form 10-K, in August 1993, 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
alleged 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. On August 3, 1995, the plaintiffs filed
a motion for leave to file an amended complaint bringing 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.
Item 5. Other Information.
On July 31, 1995, the Commission released the findings of a comprehensive
management and operations audit that found the Company "well managed,
aggressive and fast becoming a 'best in class' utility".
The audit, which began in September 1994, was part of the Commission's ongoing
management audit program. Vantage Consulting, Inc., selected by the
Commission to perform the audit, commended the Company for excellence in
several areas, including executive management, strategic planning, customer
satisfaction, cost control, continuous improvement, and employee and
shareholder relations. The audit also highlighted employees' dedication and
commitment to achieving the Company's goals and increasing overall productivi-
ty.
Consultants from Vantage conducted 260 interviews and field visits and made
875 information requests of the Company in completing its ten month review.
The audit contains 98 recommendations. The Company had begun or was planning
to initiate many of the recommendations within the Wholesale Electric, Retail
Electric, and Retail Gas areas.
<PAGE>18
By implementing the audit recommendations, the report estimates that the
Company may realize $11 million in cost savings. However, many of those
recommendations require incremental costs to be incurred before savings can be
realized.
Item 6(a). Exhibits.
Exhibit No.
27. Financial Data Schedule
Item 6(b). Reports on Form 8-K.
On April 13, 1995, a report on Form 8-K was filed announcing the approval,
with modifications, of the Company's application for an environmental cost
recovery surcharge.
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: August 11, 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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