<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, 1997
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, 1997, 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 $)
Three Months Six Months
Ended Ended
June 30, June 30,
1997 1996 1997 1996
REVENUES:
Electric (Note 2) $146,085 $151,745 $274,746 $287,433
Gas 34,191 29,362 130,929 120,418
Total operating revenues 180,276 181,107 405,675 407,851
OPERATING EXPENSES:
Fuel for electric generation 35,438 36,692 66,450 72,606
Power purchased 2,969 5,171 6,976 8,273
Gas supply expenses 21,144 18,652 88,969 76,884
Other operations expenses 37,094 31,530 73,962 71,257
Maintenance 14,621 15,988 26,343 30,156
Depreciation and amortization 22,952 22,251 45,904 44,501
Federal and state income
taxes 11,386 13,832 24,663 28,409
Property and other taxes 4,250 4,255 9,091 9,079
Total operating expenses 149,854 148,371 342,358 341,165
NET OPERATING INCOME 30,422 32,736 63,317 66,686
Other income and
(deductions) 958 590 1,844 712
Interest charges 9,893 10,418 19,707 20,938
NET INCOME 21,487 22,908 45,454 46,460
Preferred Stock Dividends 1,161 1,136 2,288 2,292
NET INCOME AVAILABLE FOR
COMMON STOCK $ 20,326 $ 21,772 $ 43,166 $ 44,168
<PAGE>3
Louisville Gas and Electric Company
Balance Sheets
(Thousands of $)
ASSETS
June 30, Dec. 31,
1997 1996
UTILITY PLANT:
At original cost $2,721,261 $2,685,209
Less: reserve for depreciation 1,037,437 999,987
Net utility plant 1,683,824 1,685,222
OTHER PROPERTY AND INVESTMENTS -
less reserve: 1,181 1,028
CURRENT ASSETS:
Cash and temporary cash investments 84,882 56,792
Marketable securities 8,412 3,595
Accounts receivable - less reserve 104,682 115,144
Materials and supplies - at average cost:
Fuel (predominantly coal) 15,651 14,576
Gas stored underground 13,361 35,510
Other 31,802 32,426
Prepayments 1,268 2,480
Total current assets 260,058 260,523
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 6,900 6,933
Regulatory assets 25,777 27,729
Other 29,443 25,277
Total deferred debits and other assets 62,120 59,939
Total assets $2,007,183 $2,006,712
<PAGE>4
Louisville Gas and Electric Company
Balance Sheets (cont.)
(Thousands of $)
CAPITAL AND LIABILITIES
June 30, Dec. 31,
1997 1996
CAPITALIZATION:
Common stock, without par value -
Outstanding 21,294,223 shares $ 425,170 $ 425,170
Retained earnings 233,388 209,222
Other (924) (635)
Total common equity 657,634 633,757
Cumulative preferred stock 95,328 95,328
Long-term debt 626,800 646,835
Total capitalization 1,379,762 1,375,920
CURRENT LIABILITIES:
Long-term debt due within one year 20,000 -
Accounts payable 63,614 97,478
Trimble County Settlement 15,072 17,511
Dividends declared 20,161 20,131
Accrued taxes 16,608 11,982
Accrued interest 10,174 9,994
Other 14,836 13,128
Total current liabilities 160,465 170,224
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 241,939 241,681
Investment tax credit, in
process of amortization 77,869 80,040
Accumulated provision for pensions
and related benefits 42,520 42,554
Regulatory liability 75,600 77,287
Other 29,028 19,006
Total deferred credits and
other liabilities 466,956 460,568
Total capital and liabilities $2,007,183 $2,006,712
<PAGE>5
Louisville Gas and Electric Company
Statements of Cash Flows
(Thousands of $)
Six Months
Ended
June 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,454 $ 46,460
Items not requiring cash currently:
Depreciation and amortization 45,904 44,501
Deferred income taxes - net (1,319) 7,033
Investment tax credit - net (2,171) (2,203)
Other 1,940 2,056
(Increases) decreases in net current assets:
Accounts receivable 10,462 (622)
Materials and supplies 21,698 28,560
Trimble County Settlement (2,439) (8,222)
Accounts payable (33,864) (16,298)
Accrued taxes 4,626 6,449
Accrued interest 180 121
Prepayments and other 2,920 2,000
Other 4,475 (16,686)
Net cash provided by operating activities 97,866 93,149
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (6,467) (6,550)
Proceeds from sales of securities 1,247 21,036
Construction expenditures (43,298) (47,949)
Net cash used for
investing activities (48,518) (33,463)
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of first mortgage bonds - (16,000)
Payment of dividends (21,258) (39,327)
Net cash used for financing activities $ (21,258) $ (55,327)
<PAGE>6
Louisville Gas and Electric Company
Statements of Cash Flows (cont.)
(Thousands of $)
Six Months
Ended
June 30,
1997 1996
NET INCREASE IN CASH AND
TEMPORARY CASH INVESTMENTS $ 28,090 $ 4,359
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 56,792 58,131
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 84,882 $ 62,490
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 25,936 $ 21,334
Interest on borrowed money 18,710 20,048
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 Six Months
Ended Ended
June 30, June 30,
1997 1996 1997 1996
Balance at beginning of period $232,062 $184,945 $209,222 $181,049
Net income 21,487 22,908 45,454 46,460
Subtotal 253,549 207,853 254,676 227,509
Cash dividends declared
on stock -
5% cumulative preferred 269 269 538 538
Auction rate cumulative pref. 525 500 1,016 1,020
$5.875 cumulative preferred 367 367 734 734
Common 19,000 18,500 19,000 37,000
Total dividends declared 20,161 19,636 21,288 39,292
Balance at end of period $233,388 $188,217 $233,388 $188,217
<PAGE>8
Louisville Gas and Electric Company
Notes to Financial Statements
(Unaudited)
1. The unaudited financial statements included herein have been
prepared by Louisville Gas and Electric Company (the "Company" or
"LG&E"), pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, all
adjustments have been made to present fairly the consolidated
financial position, results of operations and cash flows for the
periods indicated. The adjustments consist of those of a normal
and recurring nature. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to SEC rules and regulations,
although the Company believes that the disclosures are adequate
to make the information presented not misleading.
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 1996.
2. In April 1995, in response to an application filed by the
Company, the Commission approved, with modifications, an
environmental cost recovery surcharge that increased electric
revenues by $3.2 million in 1995, $2.4 million in 1996 and is
expected to increase 1997 revenues an additional $.5 million.
An appeal of the Commission's April 1995 order by various
intervenors in the proceeding is currently pending in the
Franklin Circuit Court of Kentucky. The Company is
contesting the legal challenges to the surcharge, but
cannot predict the outcome of the appeal. The amount of
refunds that may be ordered, if any, are not expected to
have a material adverse effect on the Company's financial
position or results of operations.
3. New Accounting Pronouncements. Effective January 1, 1997,
the Company adopted Statement of Financial Accounting Standards
No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities (SFAS No. 125). This
new standard is effective for all transfers and servicing of
financial assets and extinguishments of liabilities occurring
after December 31, 1996. Adopting SFAS No. 125 had no impact on
the Company's financial position or results of operations.
<PAGE>9
The Company adopted the provisions of Statement of Position
(SOP) 96-1, Environmental Remediation Liabilities,
January 1, 1997. This statement provides authoritative
guidance for recognition, measurement, and disclosure of
environmental remediation liabilities in financial
statements. Due to the Company's previous recognition of
this type of liability, adoption did not have a material
impact on the Company's financial position or results of
operation.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings per Share, effective for annual periods ending
after December 15, 1997.
This statement, which establishes standards for computing
and presenting earnings per share, will not have an effect
on the Company because the common stock is held by the
parent, LG&E Energy Corp.
4. The Company is exploring steps that it can take to maintain
or even improve its position as a low-cost producer of
electricity and evaluating other actions, including an analysis
associated with the future recovery of certain regulatory assets,
that will enable the Company to continue to offer favorable
electric rates to its customers.
5. On May 20, 1997, LG&E Energy Corp. (LG&E Energy), the parent
company of LG&E, entered into an Agreement and Plan of Merger
with KU Energy Corporation ("KU"), which is the parent of
Kentucky Utilities Company ("Kentucky Utilities"). As a result
of the Merger, LG&E Energy will become the parent company of KU's
principal operating subsidiary, Kentucky Utilities. The
operating utility subsidiaries (LG&E and Kentucky Utilities) will
maintain their separate corporate identities and will continue to
serve customers in Kentucky and Virginia under their present
names. LG&E Energy and KU expect more than $760 million in gross
non-fuel savings over a ten-year period following the Merger.
Costs to achieve these synergies are estimated to be $77 million.
The preferred stock and debt securities of the operating utility
subsidiaries will not be affected by the Merger. Further
information regarding this proposed transaction is included in
Part II of this Form 10-Q.
6. Reference is made to Part II herein - Item 1, Legal
Proceedings, and Note 13 of the Notes to Financial Statements of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
<PAGE>10
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
On May 20, 1997, LG&E Energy Corp. ("LG&E Energy"), the parent
company of LG&E, entered into an Agreement and Plan of Merger with
KU Energy Corporation ("KU"), which is the parent company of
Kentucky Utilities Company ("Kentucky Utilities"). Further
information regarding this proposed transaction is included in
Part II of this Form 10-Q. The following discussion and analysis
is based on the financial conditions and operations of LG&E and
does not reflect the potential effects of the combination between
LG&E Energy and KU.
Some of the matters discussed in Part I or Part II of this Form
10-Q may contain forward looking statements that are subject to
certain risks, uncertainties and assumptions. Such forward looking
statements are intended to be identified in this document by the
words "anticipate," "estimate," "objective," "possible,"
"potential" and similar expressions. Actual results may vary
materially. Factors that could cause actual results to differ
materially include: general economic conditions; business and
competitive conditions in the energy industry; change in federal
or state legislation; unusual weather; actions by state or federal
regulatory agencies affecting rates; regulatory decisions
regarding the proposed Merger of LG&E Energy Corp. and KU Energy
Corporation; and the other factors described in Exhibit 99.01 to
this Form 10-Q.
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, 1997, Compared with
Quarter Ended June 30, 1996
Net income decreased $1.4 million (6%) for the quarter ended
June 30, 1997, as compared to the quarter ended June 30, 1996,
primarily due to a decrease in electric sales caused by the
unseasonably mild weather. Cooling degree days were 45% below
1996. In addition, lower net income this quarter resulted from a
one-time reduction of certain employee fringe benefits recorded in
operation expenses in the second quarter of 1996.
<PAGE>11
A comparison of operating revenues for the quarter ended June 30,
1997, with the quarter ended June 30, 1996, 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 $ (876) $ 5,224
Demand side management/revenue
decoupling 5,147 2,238
Environmental cost recovery
surcharge 113 -
Variation in sales volume, etc. (10,086) (2,698)
Total (5,702) 4,764
Sales for resale (1,353) -
Gas transportation - net - 126
Other 1,395 (61)
Total $ (5,660) $ 4,829
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 retail rates, subject to the approval of the Public
Service Commission of Kentucky. Fuel for electric generation
decreased $1.3 million (3%) for the quarter because of a decrease
in generation ($1.6 million) partially offset by a higher cost of
coal burned ($.3 million). Gas supply expenses increased $2.5
million (13%) due to an increase in net gas supply cost ($2.9
million), partially offset by a decrease in the volume of gas
delivered to the distribution system ($.4 million).
Power purchased decreased $2.2 million (43%) because of fewer
outages at the electric generating plants as compared to the same
period in 1996.
Other operation expenses increased $5.6 million (18%) over 1996
mainly because the Company recorded a credit to expense in the
second quarter of 1996 for a one-time reduction of certain
employee fringe benefits in connection with a change in the
collective bargaining agreement ($3.6 million) and a portion of
the settlement proceeds related to a commercial dispute ($1
million). Also contributing to the increase were higher costs to
operate the Company's electric power plants and distribution
systems ($1.3 million).
Maintenance expenses decreased $1.4 million (9%) because of a
decrease in storm damage expenses.
<PAGE>12
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 increased $.4 million primarily because of increased
interest income from investments.
Interest charges decreased $.5 million (5%) primarily because of a
decrease in outstanding debt. The Company's First Mortgage Bonds,
5.625% Series of $16 million were retired at maturity on June 1,
1996 and $50 million in other debt was refinanced at more
favorable rates in 1996.
Six Months Ended June 30, 1997 Compared with
Six Months Ended June 30, 1996
Net income for the six months ended June 30, 1997 decreased $1
million (2%) as compared to the same period of 1996. This
decrease is due primarily to a decrease in sales of electricity
and natural gas caused by unseasonably mild weather conditions.
A comparison of operating revenues for the six months ended
June 30, 1997, with the six months ended June 30, 1996 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 $ (1,668) $ 25,897
Demand side management/revenue
decoupling 6,551 3,805
Environmental cost recovery
surcharge 265 -
Variation in sales volume, etc. (13,197) (19,858)
Total (8,049) 9,844
Sales for resale (7,390) -
Gas transportation - net - 575
Other 2,752 92
Total $(12,687) $ 10,511
Fuel for electric generation decreased $6.2 million (8%) for the
six months ended June 30, 1997, primarily because of decreased
generation ($6.6 million), partially offset by a higher cost of
coal burned ($.4 million). Gas supply expenses increased $12.1
million (16%) primarily because of an increase in the cost of net
gas supply ($25.5 million), partially offset by a decrease in gas
delivered to the distribution system ($13.4 million).
<PAGE>13
Power purchased decreased $1.3 million (16%) due mainly to less
power being purchased to meet native load and other power
commitments and fewer outages at the electric generating plants.
Other operation expenses increased $2.7 million (4%) over 1996
because of the recognition of credits to expense in 1996 for a
one-time reduction of certain employee fringe benefits in
connection with a change in the collective bargaining agreement
($3.6 million) and for settlement proceeds related to a commercial
dispute ($1 million). In addition, expenses for the operation of
electric power plants increased $2.4 million.
Maintenance expenses decreased $3.8 million (13%) primarily due to
a decrease in repairs at the electric generating plants ($2.6
million) and expenses related to storm damage ($1.2 million).
Other income and deductions increased $1.1 million primarily
because of interest income recorded as a result of a favorable tax
settlement and higher income from investments.
Interest charges decreased $1.2 million (6%) primarily because of a
decrease in outstanding debt and favorable refinancing activities.
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, 1997,
of $43 million, were financed with internally generated funds.
The Company's cash and temporary cash investments balance increased
$28 million during the six months ended June 30, 1997. The
increase reflects the Company's cash flow from operations less
construction expenditures, dividends paid, and the purchase of
securities.
Variations in accounts receivable, accounts payable and materials
and supplies 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.
At June 30, 1997, the Company had unused lines of credit of $200
million with banks for which it pays commitment fees. The lines
are scheduled to expire in the year 2001. The Company expects to
renegotiate such lines when they expire.
<PAGE>14
The Company's capitalization ratios at June 30, 1997, and
December 31, 1996 were:
June 30, Dec. 31,
1997 1996
Long-term debt (including
current portion) 46.2% 47.0%
Preferred stock 6.8 6.9
Common equity 47.0 46.1
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>15
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
following items and captions of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 Item 1, Business;
Item 3, Legal Proceedings; Item 7, Management's Discussion and
Analysis of Results of Operations and Financial Condition; and
Notes 2 and 13 of the Notes to Financial Statements under Item 8.
To date, the proceedings reported in the Company's 1996 Form 10-K
have not changed materially.
Item 4. Submission of Matters to a Vote of Security Holders
a. The Company's Annual Meeting of Shareholders was held on
May 8, 1997.
b. Not applicable.
c. The matters voted upon and the results of the voting at the
Annual Meeting are set forth below:
1. The shareholders voted to elect the Company's nominees
for election to the Board of Directors as follows:
William C. Ballard, Jr. - 21,294,223 common and 603,781
preferred shares cast in favor of election and 1,544
preferred shares withheld.
Ronald L. Bittner - 21,294,223 common shares and 603,090
preferred shares cast in favor of election and 2,235
preferred shares withheld.
S. Gordon Dabney - 21,294,223 common shares and 600,504
preferred shares cast in favor of election and 4,821
preferred shares withheld.
T. Ballard Morton, Jr. - 21,294,223 common shares and
600,760 preferred shares cast in favor of election and
4,565 preferred shares withheld.
Holders of 325 preferred shares abstained from voting on
this matter.
2. The shareholders voted 21,294,223 common shares and
597,924 preferred shares in favor of and 2,297 preferred
shares against the approval of Arthur Andersen LLP as
independent auditors for 1997. Holders of 6,142
preferred shares abstained from voting on this matter.
d. Not applicable.
<PAGE>16
Item 5. Other Matters
On May 20, 1997, LG&E Energy Corp., a Kentucky corporation ("LG&E
Energy"), and KU Energy Corporation, a Kentucky corporation
("KU"), entered into an Agreement and Plan of Merger (the "Merger
Agreement") providing for a merger of LG&E Energy and KU.
Pursuant to the Merger Agreement, among other things, KU will be
merged with and into LG&E Energy, with LG&E Energy as the
surviving corporation (the "Merger"). The Merger, which was
unanimously approved by the Boards of Directors of LG&E Energy and
KU, is expected to close shortly after all of the conditions to
consummation of the Merger, including the receipt of all
applicable regulatory approvals, are met or waived.
As a result of the Merger, LG&E Energy, which is the parent of
LG&E, will become the parent company of KU's principal operating
subsidiary, Kentucky Utilities Company ("Kentucky Utilities").
LG&E and Kentucky Utilities will maintain their separate corporate
identities and will continue to serve customers in Kentucky and
Virginia under their present names. LG&E Energy and KU expect
more than $760 million in gross non-fuel savings over a ten-year
period following the Merger. Costs to achieve these synergies are
estimated to be $77 million. In regulatory filings associated
with approval of the Merger, LG&E and Kentucky Utilities will
commit not to seek increases in base rates and are proposing
reductions in their retail customers' bills in amounts based on
50% of the currently estimated cost savings to be achieved as a
result of the Merger, less 50% of the costs to achieve such
savings, in each of the next five years following effectiveness of
the Merger. The preferred stock and debt securities of LG&E and
Kentucky Utilities will not be affected by the Merger.
Under the terms of the Merger Agreement, each outstanding share of
the common stock, without par value, of KU ("KU Common Stock")
(other than shares with respect to which dissenters' rights are
perfected under applicable state law), together with the
associated KU stock purchase rights, will be converted into the
right to receive 1.67 shares of common stock, without par value,
of LG&E Energy ("LG&E Energy Common Stock"), together with the
associated LG&E Energy stock purchase rights. A holder of KU
Common Stock who would otherwise have been entitled to a
fractional share of LG&E Energy Common Stock will be entitled to
receive a cash payment in lieu of such fractional share. The
outstanding shares of LG&E Energy Common Stock will remain
unchanged and outstanding. As of May 16, 1997, there were
66,484,875 shares of LG&E Energy common stock outstanding, and
37,817,878 shares of KU common stock outstanding. Based on such
capitalization, upon consummation of the Merger 51.3% of the
outstanding LG&E Energy common stock will be owned by the
shareholders of LG&E Energy prior to the Merger and 48.7% will be
owned by former KU shareholders.
<PAGE>17
The Merger is subject to customary closing conditions, including,
without limitation, the approval of the holders of a majority of
the outstanding shares of common stock of each of LG&E Energy and
KU, the receipt of all necessary governmental approvals and the
making of all necessary governmental filings, including approvals
of various regulators in Kentucky and Virginia under state utility
laws, the approval of the Federal Energy Regulatory Commission
under the Federal Power Act, the approval of the Securities and
Exchange Commission (the "Commission") under the Public Utility
Holding Company Act of 1935, and the filing of requisite
notifications with the Federal Trade Commission and the Department
of Justice under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the expiration of all applicable waiting
periods thereunder. The Merger is also subject to the receipt of
opinions of counsel that the Merger will qualify as a tax-free
reorganization and assurances from the parties' independent
accountants that the Merger will qualify as a pooling of interests
for accounting purposes. In addition, the Merger is conditioned
upon the effectiveness of a registration statement to be filed
with the Commission with respect to the LG&E Energy common stock
to be issued in the Merger and the approval for listing of such
shares on the New York Stock Exchange. It is anticipated that
LG&E Energy, as parent of LG&E and Kentucky Utilities, will
continue to be an exempt holding company under the Public Utility
Holding Company Act of 1935. Meetings of the shareholders of LG&E
Energy and KU to vote upon approval of the merger will be convened
on October 14, 1997.
The foregoing description of the Merger does not purport to be
complete and is qualified in its entirety by reference to the
following documents (including the exhibits thereto) filed with
the Securities and Exchange Commission ("SEC"): (i) current
reports on Form 8-K, dated May 21, 1997 and May 30, 1997, of LG&E
Energy (SEC File No. 1-10568), and (ii) Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997 (SEC File No. 1-
10568) (the "LG&E Energy Form 10-Q"). The LG&E Energy Form 10-Q
contains certain pro-forma financial information regarding the
transaction and is incorporated herein by this reference.
<PAGE>18
Item 6(a). Exhibits.
Exhibit No.
2.01 Agreement and Plan of Merger, dated as of May 20, 1997,
by and between LG&E Energy and KU (filed as Exhibit 2.01
to the current report on Form 8-K, dated May 30, 1997 of
LG&E Energy, SEC File No. 1-10568, and incorporated
herein by this reference).
27. Financial Data Schedule
99.01 Cautionary Statement for purposes of the "Safe Harbor"
provisions of the Private Securities Litigation Reform
Act of 1995.
99.02 Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 of LG&E Energy (SEC File No. 1-10568 and
incorporated herein by this reference).
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
Date: August 14, 1997 Victor A. Staffieri
__________________________________
Victor A. Staffieri
Chief Financial Officer
(On behalf of the registrant in his
capacity as Principal Accounting
Officer)
<TABLE> <S> <C>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,683,824
<OTHER-PROPERTY-AND-INVEST> 1,181
<TOTAL-CURRENT-ASSETS> 260,058
<TOTAL-DEFERRED-CHARGES> 62,120
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,007,183
<COMMON> 424,334
<CAPITAL-SURPLUS-PAID-IN> (88)
<RETAINED-EARNINGS> 233,388
<TOTAL-COMMON-STOCKHOLDERS-EQ> 657,634
0
95,328
<LONG-TERM-DEBT-NET> 626,800
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 20,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 607,421
<TOT-CAPITALIZATION-AND-LIAB> 2,007,183
<GROSS-OPERATING-REVENUE> 405,675
<INCOME-TAX-EXPENSE> 24,663
<OTHER-OPERATING-EXPENSES> 317,695
<TOTAL-OPERATING-EXPENSES> 342,358
<OPERATING-INCOME-LOSS> 63,317
<OTHER-INCOME-NET> 1,844
<INCOME-BEFORE-INTEREST-EXPEN> 65,161
<TOTAL-INTEREST-EXPENSE> 19,707
<NET-INCOME> 45,454
2,288
<EARNINGS-AVAILABLE-FOR-COMM> 43,166
<COMMON-STOCK-DIVIDENDS> 19,000
<TOTAL-INTEREST-ON-BONDS> 18,891
<CASH-FLOW-OPERATIONS> 97,866
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
2
<PAGE>1
Exhibit 99.01
Louisville Gas and Electric Company Cautionary Factors
The Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for forward-looking statements to
encourage such disclosures without the threat of litigation
providing those statements are identified as forward-looking and
are accompanied by meaningful, cautionary statements identifying
important factors that could cause the actual results to differ
materially from those projected in the statement. Forward-looking
statements have been and will be made in written documents and
oral presentations of Louisville Gas and Electric Company (the
"Company"). Such statements are based on management's beliefs as
well as assumptions made by and information currently available
to management. When used in the Company's documents or oral
presentations, the words "anticipate", "estimate", "expect",
"objective" and similar expressions are intended to identify
forward-looking statements. In addition to any assumptions and
other factors referred to specifically in connection with such
forward-looking statements, factors that could cause the
Company's actual results to differ materially from those
contemplated in any forward-looking statements include, among
others, the following:
* Increased competition in the utility industry, including
effects of: decreasing margins as a result of competitive
pressures; industry restructuring initiatives; transmission
system operation and/or administration initiatives; recovery
of investments made under traditional regulation; nature of
competitors entering the industry; retail wheeling; a new
pricing structure; and former customers entering the
generation market;
* Changing market conditions and a variety of other factors
associated with physical energy and financial trading
activities including, but not limited to, price, basis,
credit, liquidity, volatility, capacity, transmission,
currency, interest rate and warranty risks;
* Risks associated with price risk management strategies
intended to mitigate exposure to adverse movement in the
prices of electricity and natural gas on both a global and
regional basis;
* Economic conditions including inflation rates and monetary
fluctuations;
* Customer business conditions including demand for their
products or services and supply of labor and materials used
in creating their products and services;
* Financial or regulatory accounting principles or policies
imposed by the Financial Accounting Standards Board, the
Securities and Exchange Commission, the Federal Energy
Regulatory Commission, state public utility commissions,
state entities which regulate natural gas transmission,
gathering and processing and similar entities with
regulatory oversight;
<PAGE>2
* Availability or cost of capital such as changes in: interest
rates, market perceptions of the utility and energy-related
industries, the Company or security ratings;
* Factors affecting utility operations such as unusual weather
conditions; catastrophic weather-related damage; unscheduled
generation outages, unusual maintenance or repairs;
unanticipated changes to fossil fuel, or gas supply costs or
availability due to higher demand, shortages, transportation
problems or other developments; environmental incidents; or
electric transmission or gas pipeline system constraints;
* Employee workforce factors including changes in key
executives, collective bargaining agreements with union
employees, or work stoppages;
* Rate-setting policies or procedures of regulatory entities,
including environmental externalities;
* Social attitudes regarding the utility, natural gas and
power industries;
* Costs and other effects of legal and administrative
proceedings, settlements, investigations, claims and
matters, including but not limited to those described in
Note 13 of the Notes to Financial Statements of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996, under the caption Commitments and
Contingencies and in Note 2 of the Notes to Financial
Statements of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997;
* Technological developments, changing markets and other
factors that result in competitive disadvantages and create
the potential for impairment of existing assets;
* Other business or investment considerations that may be
disclosed from time to time in the Company's Securities and
Exchange Commission filings or in other publicly
disseminated written documents.
In addition, numerous matters associated with the proposed
combination of LG&E Energy Corp. ("LG&E Energy"), the parent of
Louisville Gas and Electric Company, and KU Energy Corporation,
including:
* Regulatory authorities' decisions regarding business
combination issues including the approval of the business
combination as proposed, the rate structure of utility
operating companies after the merger, transmission system
operation and administration, or divestiture of portions of
LG&E Energy's business;
<PAGE>3
* Qualification of the transaction as a pooling of interest;
* Factors affecting the anticipated cost savings including
national and regional economic conditions, national and
regional competitive conditions, inflation rates, weather
conditions, financial market conditions, and synergies
resulting from the business combination;
* Allocation of benefits of cost savings between shareholders
and customers, which will depend, among other things, upon
the results of regulatory proceedings in various
jurisdictions;
* Different or additional federal and state regulatory
requirements or restrictions to which the Company may be
subject as a result of the business combination (including
conditions which may be imposed in connection with obtaining
the regulatory approvals necessary to consummate the
business combination);
The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
