SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10944
KU Energy Corporation
(Exact name of registrant as specified in its charter)
Kentucky 61-1141273
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Quality Street, Lexington, Kentucky 40507
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 606-255-2100
Not Applicable
Former name, former address and former fiscal year, if changed since
last report
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 .
Number of shares of Common Stock outstanding at August 11, 1994:
37,817,878 shares.
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PART I. FINANCIAL INFORMATION
KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except for per share amounts)
For the Three
Months Ended
June 30,
1994 1993
Operating Revenues $154,020 $139,903
Operating Expenses:
Fuel, principally coal, used in generation 43,372 43,867
Electric power purchased 16,356 5,471
Other operating expenses 27,962 25,619
Maintenance 18,895 15,140
Depreciation 16,151 15,193
Federal and state income taxes 7,781 9,020
Other taxes 3,692 3,524
Total Operating Expenses 134,209 117,834
Net Operating Income 19,811 22,069
Other Income and Deductions:
Interest and dividend income 1,238 1,151
Other income and deductions - net 2,003 1,801
Total Other Income and Deductions 3,241 2,952
Income Before Interest and Other Charges 23,052 25,021
Interest and Other Charges 8,767 8,585
Net Income $ 14,285 $ 16,436
Average Common Shares Outstanding 37,818 37,818
Earnings Per Common Share $ .38 $ .44
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except for per share amounts)
For the Six
Months Ended
June 30,
1994 1993
Operating Revenues $320,543 $294,176
Operating Expenses:
Fuel, principally coal, used in generation 87,231 87,525
Electric power purchased 32,239 15,439
Other operating expenses 55,066 51,037
Maintenance 33,434 26,465
Depreciation 32,339 30,425
Federal and state income taxes 22,339 22,957
Other taxes 7,760 7,234
Total Operating Expenses 270,408 241,082
Net Operating Income 50,135 53,094
Other Income and Deductions:
Interest and dividend income 3,393 2,526
Other income and deductions - net 3,380 3,051
Total Other Income and Deductions 6,773 5,577
Income Before Interest and Other Charges 56,908 58,671
Interest and Other Charges 17,604 18,386
Net Income $ 39,304 $ 40,285
Average Common Shares Outstanding 37,818 37,818
Earnings Per Common Share $ 1.04 $ 1.07
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the Six Months
Ended June 30,
1994 1993
Cash Flows from Operating Activities:
Net Income $ 39,304 $ 40,285
Items not requiring (providing) cash currently:
Depreciation 32,339 30,425
Deferred income taxes and investment tax credit (3,423) 3,012
Change in fuel inventory 179 (1,552)
Change in accounts receivable 2,101 (3,209)
Change in accounts payable (3,225) (455)
Change in accrued taxes 3,004 360
Change in accrued utility revenues 1,865 827
Change in liability to ratepayers (791) 38,979
Change in escrow funds 1,577 (44,886)
Other--net (3,867) 12,163
Net Cash Provided by Operating Activities 69,063 75,949
Cash Flows from Investing Activities:
Construction expenditures - utility (89,468) (47,299)
Nonutility property (7) (17)
Purchase of long-term investments (379) (494)
Proceeds from leveraged lease investments 197 -
Investment in independent power projects (1,259) -
Other 170 108
Net Cash Used by Investing Activities (90,746) (47,702)
Cash Flows from Financing Activities:
Short-term borrowings - net 47,900 -
Issuance of long-term debt - 123,500
Funds deposited with trustee - net 18,393 (123,795)
Retirement of long-term debt, incl. premiums (21) (57,334)
Retirement of preferred stock, incl. premium (20,302) -
Payment of common stock dividends (31,010) (30,254)
Net Cash Provided (Used) by Financing Activities 14,960 (87,883)
Net Decrease in Cash and Cash Equivalents (6,723) (59,636)
Cash and Cash Equivalents Beginning of Period 32,500 122,802
Cash and Cash Equivalents End of Period $ 25,777 $ 63,166
Supplemental Disclosures
Cash paid for:
Interest on long-term debt $ 15,302 $ 17,018
Federal and state income taxes $ 25,527 $ 20,778
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
June 30, Dec. 31,
ASSETS 1994 1993
Utility Plant:
Plant in service, at cost $2,020,277 $2,004,688
Less: Accumulated depreciation 910,853 879,960
1,109,424 1,124,728
Construction work in progress 231,087 158,829
1,340,511 1,283,557
Current Assets:
Cash and cash equivalents 25,777 32,500
Escrow funds - coal contract litigation 36,175 37,752
Construction funds held by trustee 2 18,268
Accounts receivable 39,293 41,394
Accrued utility revenues 23,710 25,575
Fuel, principally coal, at average cost 30,894 31,073
Materials and supplies, at average cost 18,271 17,261
Other 8,401 7,808
182,523 211,631
Investments, Deferred Charges and Other Assets:
Investment in marketable securities 15,819 16,397
Investment in leveraged leases 10,996 10,320
Accumulated deferred income taxes 41,446 36,418
Unamortized loss on reacquired debt 12,831 13,295
Other 38,432 37,994
119,524 114,424
Total Assets $1,642,558 $1,609,612
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 609,468 $ 602,503
Preferred stock of Subsidiary 40,000 40,000
Long-term debt of Subsidiary 442,018 442,045
1,091,486 1,084,548
Current Liabilities:
Preferred stock and long-term debt
due within one year 21 20,021
Short-term borrowings 47,900 -
Accounts payable 40,669 43,894
Accrued interest 7,029 7,302
Accrued taxes 7,460 4,456
Customers' deposits 6,278 10,803
Accrued payroll and vacations 8,175 7,719
Liab. to ratepayers - coal contract litigation 36,076 36,867
Other 8,461 6,444
162,069 137,506
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 253,080 248,369
Accumulated deferred investment tax credits 40,330 42,385
Regulatory liabilities 67,780 69,689
Other 27,813 27,115
389,003 387,558
Total Capitalization and Liabilities $1,642,558 $1,609,612
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. PRESENTATION OF CONDENSED INFORMATION
Pursuant to the rules and regulations of the Securities and
Exchange Commission, certain information has been condensed and
certain footnote disclosures have been omitted, which are
normally included in financial statements prepared in accordance
with generally accepted accounting principles.
These financial statements should be read in conjunction
with the financial statements and notes thereto in the KU Energy
Corporation (KU Energy or the Company) Annual Report on Form 10-K
for the year ended December 31, 1993.
In the opinion of management, the information furnished
herein reflects all adjustments which are necessary to present
fairly the results of the periods shown and the disclosures which
have been made are adequate to make the information not
misleading. Results of interim periods are not necessarily
indicative of results for any twelve-month period due to the
seasonal nature of the business of the Company's principal
subsidiary, Kentucky Utilities Company (Kentucky Utilities).
2. PREFERRED STOCK
Kentucky Utilities issued $20 million of 6.53% preferred
stock in December 1993. On February 1, 1994, Kentucky Utilities
used the proceeds from this issue, together with other available
funds, to redeem its 7.84% Preferred Stock at a total cost of
$20.3 million (including a redemption premium of $.3 million).
Kentucky Utilities announced its intention to redeem this
preferred stock on December 22, 1993.
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
KU Energy Corporation is a holding company organized under
the laws of Kentucky. KU Energy has two wholly owned
subsidiaries, Kentucky Utilities Company, an electric utility,
and KU Capital Corporation (KU Capital), a nonutility investment
subsidiary. Kentucky Utilities is KU Energy's principal
subsidiary. Material changes in the consolidated financial
condition and operating results of KU Energy are based primarily
upon the operations of Kentucky Utilities.
LIQUIDITY & RESOURCES
Kentucky Utilities' construction expenditures increased
approximately $20 million and $42 million for the three-month and
six-month periods ended June 30, 1994, respectively, when
compared to the corresponding periods of 1993. The increases are
attributable primarily to expenditures for combustion turbine
peaking units and for compliance with the 1990 Clean Air Act
Amendments.
Kentucky Utilities expects to fund approximately 50% of its
remaining 1994 construction expenditures from the issuance of
short-term and long-term debt with the balance primarily from
internal sources.
In April 1994, KU Capital entered into agreements with
Tenaska, Inc. (a developer of gas-fired cogeneration and
independent power generation projects in the United States and
Canada) and affiliates to purchase limited partnership interests
in the ownership and development of certain independent power
generation projects. Under the agreements, which are subject to
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the completion of formal legal documentation, KU Capital will
become a limited partner in two operating cogeneration projects
and in two independent power projects being developed under the
leadership of Tenaska. KU Capital estimates that its investment
in the four Tenaska-sponsored projects will be about $15 million
over the 1994-1997 period. In July 1994, KU Capital funded $7.3
million as cash collateral for its equity contribution commitment
in one of the development projects which has commenced
construction. KU Capital has also agreed to participate in
funding the development of future Tenaska-sponsored independent
power projects in North America. KU Capital will fund about $10
million of project development expenditures over the 1994-1996
time frame. This funding commitment will provide KU Capital with
the opportunity to invest in future successful development
projects.
RESULTS OF OPERATIONS
Quarter ended June 30, 1994, compared
to the Quarter ended June 30, 1993
Increase (Decrease)
From Prior Year
Three Months
Ended June 30, 1994
kWh Revenues
(%) (000's)
Residential 6 $ 2,395
Commercial 4 1,529
Industrial 8 2,186
Mine Power & Public Authorities 4 883
Total Retail Sales 6 6,993
Other Electric Utilities 58 7,037
Provision for Refund -
Litigation Settlement - (365)
Miscellaneous Revenues & Other - 452
Total 14 $14,117
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating revenues increased $14.1 million (10%) primarily
as a result of a 14% increase in kilowatt-hour sales. The
increase in kilowatt-hour sales is primarily attributable to
increases in residential, commercial, industrial and off-system
sales. The increases in residential and commercial sales reflect
unusually warm weather during the month of June 1994. The
increase in industrial sales reflects continued economic growth
in the service area. Approximately one third of the increase in
industrial sales is due to greater sales to Toyota Motor
Manufacturing U.S.A., Inc. (TMM), Kentucky Utilities' largest
customer. TMM completed an $800 million assembly plant expansion
in March 1994. The increase in off-system sales is attributable
to an increase in demand for power due to unusually warm weather
and maintenance programs at neighboring utilities. Revenues were
reduced by approximately $.4 million resulting from refunds to
customers of amounts recovered from a litigation settlement with
a former coal supplier.
Fuel and purchased power expense increased $10.4 million
(21%). Fuel expense decreased $.5 million (1%). This decrease
reflects a 5% decline in net kilowatt-hour generation offset by a
4% increase in the average price per ton of coal consumed. Fuel
expense also reflects a $.4 million reduction associated with the
refunding to customers of fuel cost savings related to the
resolution of a coal contract dispute. Purchased power expense
increased by $10.9 million due to greater kilowatt-hour purchases
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
($7.2 million) and higher demand costs ($3.7 million). The
increase in kilowatt-hour purchases during the second quarter of
1994 is the result of the previously discussed sales increases as
well as the decline in net kilowatt-hour generation. The
increased kilowatt-hour purchases reflect a permanent increase in
capacity entitlement, effective January 1994, under an existing
purchased power contract with Electric Energy, Inc. (EEI) and
greater kilowatt-hour purchases from Owensboro Municipal
Utilities (OMU). Scheduled maintenance of OMU's generating units
in the second quarter of 1993 resulted in a reduction of
availability during that period. The increase in demand costs is
primarily due to the permanent increase in capacity entitlement
from EEI.
Maintenance expenses increased $3.8 million (25%), primarily
due to the timing of scheduled maintenance at Kentucky Utilities'
generating stations.
Six months ended June 30, 1994, compared
to the Six Months ended June 30, 1993
Increase (Decrease)
From Prior Year
Six Months
Ended June 30, 1994
kWh Revenues
(%) (000's)
Residential 9 $ 7,807
Commercial 5 3,209
Industrial 8 3,477
Mine Power & Public Authorities 4 1,452
Total Retail Sales 7 15,945
Other Electric Utilities 48 10,487
Provision for Refund -
Litigation Settlement - (902)
Miscellaneous Revenues & Other - 837
Total 12 $26,367
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating revenues increased $26.4 million (9%) primarily as
a result of a 12% increase in kilowatt-hour sales. The increase
in kilowatt-hour sales is primarily attributable to increases in
residential, commercial, industrial and off-system sales. The
increases in residential and commercial sales reflect colder
weather during the first quarter of 1994 and unusually warm
weather during the month of June 1994. The increase in
industrial sales reflects continued economic growth in the
service area. Approximately one third of the increase in
industrial sales is due to greater sales to TMM due to its recent
plant expansion. The increase in off-system sales is
attributable to an increase in demand for power due to extreme
weather conditions and maintenance programs at neighboring
utilities. Revenues were reduced by approximately $.9 million
resulting from refunds to customers of amounts recovered from a
litigation settlement with a former coal supplier. The $.9
million, which was charged against revenue, represents $3.3
million of fuel savings less $2.4 million for incurred litigation
costs and off-system sales which Kentucky Utilities was allowed
to retain pursuant to a regulatory order.
Fuel and purchased power expense increased $16.5 million
(16%). Fuel expense reflects a $3.3 million reduction associated
with the refunding to customers of fuel cost savings related to
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the resolution of a coal contract dispute. This reduction in
fuel expense was substantially offset by a 3.5% increase in the
average price of coal consumed. Net kilowatt-hour generation
remained fairly constant in comparison to the corresponding six-
month period in 1993. Purchased power expense increased $16.8
million due to greater kilowatt-hour purchases ($10.4 million)
and higher demand costs ($6.4 million). The increase in kilowatt-
hour purchases is the result of the previously discussed sales
increases. The increased kilowatt-hour purchases reflect a
permanent increase in capacity entitlement, effective January
1994, under an existing purchased power contract with EEI. The
increase in demand costs is primarily due to the permanent
increase in capacity entitlement from EEI.
Maintenance expenses increased $7.0 million (26%). The
increase is the result of distribution utility line maintenance
costs incurred as a result of extensive ice storm damage during
the first quarter of 1994, as well as the timing of scheduled
maintenance at Kentucky Utilities' generating stations.
ENVIRONMENTAL SURCHARGE
On July 19, 1994, the Kentucky Public Service Commission
(PSC) approved Kentucky Utilities' environmental surcharge
application. The surcharge is designed to recover certain
ongoing operating and capital costs of complying with federal,
state or local environmental requirements associated with the
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
production of energy from coal, including the 1990 Clean Air Act
Amendments. The environmental surcharge was implemented in
August 1994. Kentucky Utilities estimates that it will recover
approximately $15 million in environmental costs during the first
twelve months and about $23 million during the second twelve
months. Amounts collected will be subject to PSC review every
two years.
Two intervenors have filed petitions with the PSC seeking a
rehearing of the PSC's surcharge order. The PSC has not ruled on
either petition. Any party to the proceeding may appeal the
final PSC order to the Franklin County (KY) Circuit Court.
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PART II. OTHER INFORMATION
KU ENERGY CORPORATION AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the April 26, 1994 Annual Meeting of Shareholders, the
following proposal was acted upon and approved.
(1) To elect three Directors to the Board of Directors of
the Company
Votes
Votes for Withheld
Milton W. Hudson 31,395,923 390,007
John T. Newton 31,494,442 390,007
William L. Rouse, Jr. 31,344,348 390,007
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
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KU ENERGY CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
KU ENERGY CORPORATION
(Registrant)
Date August 11, 1994 /s/ John T. Newton
John T. Newton
Chairman and President
Date August 11, 1994 /s/ Michael D. Robinson
Michael D. Robinson
Controller
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