SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1993
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
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 of Incorporation) (I.R.S. Employer
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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock, without par value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
Aggregate market value at March 11, 1994 of the voting stock held by
nonaffiliates of the Registrant: $1,039,991,645
Number of shares of Common Stock outstanding at March 11, 1994: 37,817,878
Documents Incorporated by Reference: A portion of the Company's 1993
Annual Report to Shareholders is incorporated by reference in Part II. A
portion of the Company's Proxy Statement relating to the 1994 Annual
Shareholders Meeting is incorporated by reference in Part III.
Exhibit Index appears on page 12.
-1-
<PAGE>
KU ENERGY CORPORATION
Form 10-K
Annual Report to the Securities and Exchange Commission
For the Year Ended December 31, 1993
_____________
TABLE OF CONTENTS
Item Page
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . 4
3. Legal Proceedings . . . . . . . . . . . . . . . . . 4
4. Submission of Matters to a Vote of Security Holders 4
Executive Officers of the Registrant . . . . . . . . 5
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . 6
6. Selected Financial Data . . . . . . . . . . . . . . 7
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 9
8. Financial Statements and Supplementary Data . . . . 9
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . 9
PART III
10. Directors and Executive Officers of the Registrant . 10
11. Executive Compensation . . . . . . . . . . . . . . . 10
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . 10
13. Certain Relationships and Related Transactions . . . 10
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . 11
Exhibit Index . . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . 23
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<PAGE>
PART I
Item 1. Business
KU Energy Corporation
KU Energy Corporation (KU Energy or the Company), an exempt utility
holding company, was incorporated in the state of Kentucky on June 23,
1988. On December 1, 1991, a corporate reorganization was completed
under which KU Energy became the holder of all common stock of Kentucky
Utilities Company (Kentucky Utilities). KU Energy has two wholly owned
subsidiaries, Kentucky Utilities, an electric utility, and KU Capital
Corporation (KU Capital), a nonutility subsidiary. Kentucky Utilities is
KU Energy's principal subsidiary.
The Company has adopted a core energy investment strategy for its
nonutility investments. Under this strategy, energy-related investments
that utilize the Company's knowledge and expertise will be targeted. In
particular, the Company is focusing its attention on independent power
projects (including qualifying facilities and exempt wholesale
generators) and equipment leased to other utilities.
The Company is a public utility holding company as defined in the Public
Utility Holding Company Act of 1935 (the Holding Company Act). On
November 13, 1991, the Company obtained an order from the Securities and
Exchange Commission which granted an exemption from all provisions of the
Holding Company Act, except Section 9(a)(2) thereof which relates to the
acquisition of securities of public utility companies.
The ability of the Company to pay dividends on its common stock is
dependent upon distributions made to it by Kentucky Utilities and on
amounts that may be earned by the Company on future investments.
Kentucky Utilities Company
Kentucky Utilities is a public utility engaged in producing and selling
electric energy. Kentucky Utilities provides electric service to about
409,700 customers in over 600 communities and adjacent suburban and rural
areas in 77 counties in central, southeastern and western Kentucky, and
to about 27,900 customers in 5 counties in southwestern Virginia. Of the
Kentucky communities, 160 are incorporated municipalities served under
unexpired municipal franchises and the rest are unincorporated
communities where no franchises are required. Service has been provided
in Virginia without franchises for a number of years. This lack of
Virginia franchises is not expected to have a material effect on Kentucky
Utilities' operations. Kentucky Utilities also sells electric energy at
wholesale for resale in 12 municipalities.
For a complete description of Kentucky Utilities' business, reference is
made to its Annual Report on Form 10-K for the year ended December 31,
1993, filed herewith as Exhibit 99B and incorporated herein by reference.
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<PAGE>
Item 2. Properties
Refer to Kentucky Utilities Company's Annual Report on Form 10-K for the
year ended December 31, 1993 for a description of its properties.
Presently, KU Energy has no significant physical property.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-4-
<PAGE>
Executive Officers of the Registrant
Current
Positions Positions Held During at Least the
Name and Age Held Last 5 Years
John T. Newton Chairman and Chairman of the Board, President
Age 63 President and and Director of KU Energy since
Director* 1988.
Michael R. Whitley Senior Vice- Director of KU Energy since March
Age 50 President and 1992 and Senior Vice-President
Director* since 1988. Secretary of KU Energy
from 1988 to November 1992.
Roger C. Grimm Vice- Vice-President of KU Energy since
Age 55 President November 1992. Director of
Nonutility Investments of KU Energy
from August 1992 to November 1992.
President of KUE Corp. of NY
(financial consulting) from April
1991 to July 1992. Managing
Director of Financial Security
Assurance, Inc. (credit enhancement
company) from September 1985 to
March 1991.
George S. Brooks II General General Counsel and Corporate
Age 43 Counsel and Secretary of KU Energy since
Corporate November 1992.
Secretary*
William N. English Treasurer* Treasurer of KU Energy since 1988.
Age 43
Michael D. Robinson Controller* Controller of KU Energy since June
Age 38 1990.
Note: Officers are elected annually by the Board of Directors. There
is no family relationship between any executive officer and any
other executive officer or any director.
* Identified persons hold positions with the same titles at
Kentucky Utilities. Refer to Kentucky Utilities Form 10-K for
information concerning positions held during last five years.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is listed on the New York and Pacific stock
exchanges under the ticker symbol "KU." Quotes in daily newspapers can
be found under the listing "KU Engy."
<TABLE>
The table below sets forth the high and low sales prices and the
dividends paid for the Company's common stock for the periods shown.
<CAPTION>
1993 1992
Dividend Price Dividend Price
Quarter Paid High Low Paid High Low
<S> <C> <C> <C> <C> <C> <C>
First $.40 30 5/8 27 5/8 $.39 27 7/8 23 3/4
Second $.40 31 1/2 28 1/4 $.39 27 5/8 24 1/8
Third $.40 32 3/4 30 1/2 $.39 28 3/4 26 3/8
Fourth $.40 31 3/4 27 3/4 $.39 28 1/8 26 1/2
</TABLE>
KU Energy's Board has declared a common stock dividend of $.41 per share
payable March 15, 1994, to shareholders of record.
As of December 31, 1993, the Company had approximately 34,490 common
shareholders of record.
Kentucky Utilities has paid cash dividends quarterly since 1949. KU
Energy expects to continue this policy, although future dividends are
dependent on future earnings, capital requirements and financial
conditions. See Note 6 of the Notes to Consolidated Financial Statements
in the Annual Report to Shareholders (Exhibit 13). Such information is
incorporated herein by reference.
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<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992 1991 1990 1989
(dollars in thousands)
Operating Revenues:
<S> <C> <C> <C> <C> <C>
Residential $210,759 $ 194,817 $202,885 $ 187,100 $186,517
Commercial 138,271 133,519 137,653 131,990 127,158
Industrial 111,857 102,808 98,595 96,524 89,691
Mine power 34,977 36,696 37,093 37,877 37,056
Public authorities 48,142 45,570 46,332 43,125 41,967
Total sales to ultimate
consumers 544,006 513,410 522,558 496,616 482,389
Other electric utilities 62,463 58,979 61,542 53,295 45,910
Miscellaneous revenues and other 139 3,871 3,560 3,870 3,596
Total operating revenues 606,608 576,260 587,660 553,781 531,895
Operating Expenses:
Fuel used in generation 178,910 168,470 183,167 175,439 164,814
Electric power purchased 34,711 32,753 26,744 27,521 21,231
Other operating expenses 106,124 95,109 93,648 85,111 79,120
Maintenance 59,458 61,270 58,590 52,606 48,072
Depreciation 60,811 58,931 57,337 56,173 54,756
Federal and state income taxes 47,752 40,992 45,837 42,331 45,059
Other taxes 14,357 13,401 12,858 12,384 11,716
Total operating expenses
and taxes 502,123 470,926 478,181 451,565 424,768
Net Operating Income 104,485 105,334 109,479 102,216 107,127
Other Income and Deductions 10,362 12,162 12,062 15,102 11,695
Income Before Interest and
Other Charges and AFUDC 114,847 117,496 121,541 117,318 118,822
Interest and Other Charges:
Interest on long-term debt 31,650 39,571 36,559 36,132 35,663
Preferred stock dividend
requirements of Subsidiary 2,558 2,518 3,031 5,513 5,847
Other interest 1,249 1,394 1,626 1,219 912
Total interest charges 35,457 43,483 41,216 42,864 42,422
AFUDC 593 169 262 146 51
Income Before Cumulative Effect of
a Change in Accounting Principle 79,983 74,182 80,587 74,600 76,451
Cumulative Effect on Prior Years
of Accrual of Unbilled Revenues - - - - 11,470
Net Income $ 79,983 $ 74,182 $ 80,587 $ 74,600 $ 87,921
Earnings per Average Common Share:
Before cumulative effect of a
change in accounting principle $ 2.11 $ 1.96 $ 2.13 $ 1.97 $ 2.02
Cumulative effect of accrual of
unbilled revenues - - - - .30
Total $ 2.11 $ 1.96 $ 2.13 $ 1.97 $ 2.32
Common Stock Data:
Shares Outstanding - average 37,818 37,818 37,818 37,818 37,818
- year end 37,818 37,818 37,818 37,818 37,818
Dividends per Share of
Common Stock $ 1.60 $ 1.56 $ 1.50 $ 1.46 $ 1.40
</TABLE>
-7-
<PAGE>
Item 6. Selected Financial Data
(continued)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Assets (in thousands) $1,609,612 $1,473,666 $1,425,661 $1,426,269 $1,390,294
Capitalization: (in thousands)
Bonds $ 441,830 $ 443,330 $ 407,330 $ 408,070 $ 395,860
Notes 107 128 149 171 192
Unamortized premium on
long-term debt 108 519 713 772 832
Preferred stock 40,000 40,000 40,000 40,000 40,000
Preferred stock with mandatory
redemption - - - - 31,000
Common stock equity 602,503 583,319 568,152 546,477 527,111
Total capitalization $1,084,548 $1,067,296 $1,016,344 $ 995,490 $ 994,995
% Total Capitalization
Represented by:
Long-term debt 40.8 41.6 40.2 41.1 39.9
Preferred stock 3.7 3.7 3.9 4.0 7.1
Common stock equity 55.5 54.7 55.9 54.9 53.0
Kilowatt-hours Generated,
Purchased and Sold:
(in thousands)
Power generated 14,934,839 13,700,313 14,183,713 13,024,722 12,635,905
Power purchased 1,926,299 2,032,110 1,464,812 1,425,899 1,299,908
Power interchanged - net 1,556 3,393 (10,725) 14,934 (9,029)
Total 16,862,694 15,735,816 15,637,800 14,465,555 13,926,784
Less - losses and company use 1,066,251 876,862 906,468 878,337 791,474
Remainder - kilowatt-hours
sold 15,796,443 14,858,954 14,731,332 13,587,218 13,135,310
Sales classified:
Residential 4,702,697 4,278,098 4,385,670 4,012,324 4,093,485
Commercial 3,217,504 3,080,045 3,122,156 2,968,049 2,888,661
Industrial 3,409,213 3,093,113 2,874,016 2,791,304 2,650,383
Mine power 933,317 977,032 955,410 983,778 978,363
Public authorities 1,199,893 1,123,494 1,133,176 1,048,483 1,047,461
Total sales to
ultimate consumers 13,462,624 12,551,782 12,470,428 11,803,938 11,658,353
Other electric utilities 2,333,819 2,307,172 2,260,904 1,783,280 1,476,957
Total 15,796,443 14,858,954 14,731,332 13,587,218 13,135,310
Average Number of Customers 432,636 425,403 419,340 413,843 408,331
Residential Sales (per customer):
Average kilowatt-hours 12,995 12,007 12,471 11,546 11,923
Average revenue $ 582.41 $ 546.80 $ 576.93 $ 538.43 $ 543.27
System Capability - Megawatts:
Kentucky Utilities' plants 3,164 3,163 3,162 3,150 3,158
Purchased contracts 365 293 254 251 232
Total system capability 3,529 3,456 3,416 3,401 3,390
Net System Maximum Demand -
Megawatts 3,176 2,845 2,894 2,835 2,919
Load Factor (%) 57.7 59.4 58.4 56.5 53.9
Heat Rate (BTU per KWH) (1) 10,367 10,344 10,350 10,449 10,426
Fuel - Average Cost per Ton (1) $ 28.31 $ 27.88 $ 29.67 $ 30.74 $ 28.93
Average Cost per Million BTU (1) $ 1.17 $ 1.18 $ 1.24 $ 1.28 $ 1.22
(1) Based on coal consumed
</TABLE>
-8-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Refer to the caption "Management's Discussion and Analysis" in the Annual
Report to Shareholders (Exhibit 13) for the information required by this
item. Such information is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Refer to the Annual Report to Shareholders (Exhibit 13) for the
information required by this item which is incorporated herein by
reference, including:
Consolidated Statements of Income and Retained Earnings,
Consolidated Statements of Cash Flows,
Consolidated Balance Sheets,
Consolidated Statements of Capitalization,
Notes to Consolidated Financial Statements, and
Report of Independent Public Accountants.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-9-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 relating to each director and each
nominee for election as a director at the Company's 1994 Annual
Shareholders Meeting is set forth in the Company's definitive proxy
statement (the "Proxy Statement") filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act
of 1934 in connection with the Company's 1994 Annual Shareholders
Meeting. Such information is incorporated herein by reference to the
material appearing in the Proxy Statement under the caption "Election of
Directors--General." Information required by this item relating to
executive officers of the Company is set forth under a separate caption
in Part I hereof.
On January 12, 1993, a report on Form 4 (due January 10, 1993) was filed
on behalf of John T. Newton, Chairman, President and Chief Executive
Officer of the Company, with the Securities and Exchange Commission
reporting a purchase of Company Common Stock.
Item 11. Executive Compensation
The information required by Item 11 is incorporated herein by reference
to the material appearing in the Proxy Statement under the caption
Election of Directors--"Directors' Compensation", and -- "Executive
Compensation" (but excluding any information contained under the
subheadings --"Report of Compensation Committee on Executive
Compensation", and --"Performance Graph").
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated herein by reference
to the material appearing in the Proxy Statement under the caption
"Election of Directors--Voting Securities Beneficially Owned by Directors,
Nominees and Executive Officers; Other Information."
Item 13. Certain Relationships and Related Transactions
None.
-10-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) The following (1) financial statements, (2) schedules, and (3)
exhibits, are filed as a part of this Annual Report.
(1) Financial Statements (incorporated by reference under Item 8,
Financial Statements and Supplementary Data)
Consolidated Statements of Income and Retained Earnings for the
three years ended December 31, 1993,
Consolidated Statements of Cash Flows for the three years ended
December 31, 1993,
Consolidated Balance Sheets as of December 31, 1993 and 1992,
Consolidated Statements of Capitalization as of December 31,
1993 and 1992,
Notes to Consolidated Financial Statements, and
Report of Independent Public Accountants.
(2) Schedules
Schedule V Property, plant and equipment.
Schedule VI Accumulated depreciation, depletion and
amortization of property, plant and equipment.
Schedule VIII Valuation and qualifying accounts.
Schedule IX Short-term borrowings.
Schedule X Supplementary income statement information.
The following Schedules are omitted as not applicable or not
required under Regulation S-X:
I, II, III, IV, VII, XI, XII, XIII, XIV.
-11-
<PAGE>
(3) Exhibits
No. Description Page
3.A Amended and Restated Articles of Incorporation of KU
Energy Corporation. (Exhibit 3A to Form 10-K Annual
Report of KU Energy Corporation for the year ended
December 31, 1992). Incorporated by reference. -
3.B By-laws of KU Energy Corporation (Exhibit 3B to Form 10-K
Annual Report of KU Energy Corporation for the year ended
December 31, 1992). Incorporated by reference. -
4.A Rights Agreement, dated as of January 27, 1992, by and
between KU Energy Corporation and Illinois Stock Transfer
Company (Exhibit 4.1 to Form 8-K Current Report of KU
Energy Corporation, dated January 27, 1992).
Incorporated by reference. -
4.B Indenture of Mortgage or Deed of Trust dated May 1, 1947,
between Kentucky Utilities Company and Continental
Illinois National Bank and Trust Company of Chicago and
Edmond B. Stofft, as Trustees (Amended Exhibit 7(a) in
File No. 2-7061), and Supplemental Indentures thereto
dated, respectively, January 1, 1949 (Second Amended
Exhibit 7.02 in File No. 2-7802), July 1, 1950 (Amended
Exhibit 7.02 in File No. 2-8499), June 15, 1951 (Exhibit
7.02(a) in File No. 2-8499), June 1, 1952 (Amended
Exhibit 4.02 in File No. 2-9658), April 1, 1953 (Amended
Exhibit 4.02 in File No. 2-10120), April 1, 1955 (Amended
Exhibit 4.02 in File No. 2-11476), April 1, 1956 (Amended
Exhibit 2.02 in File No. 2-12322), May 1, 1969 (Amended
Exhibit 2.02 in File No. 2-32602), April 1, 1970 (Amended
Exhibit 2.02 in File No. 2-36410), September 1, 1971
(Amended Exhibit 2.02 in File No. 2-41467), December 1,
1972 (Amended Exhibit 2.02 in File No. 2-46161) April 1,
1974 (Amended Exhibit 2.02 in File No. 2-50344),
September 1, 1974 (Exhibit 2.04 in File No. 2-59328),
July 1, 1975 (Exhibit 2.05 in File No. 2-9328), May 15,
1976 (Amended Exhibit 2.02 in File No. 2-56126),
April 15, 1977 (Exhibit 2.06 in File No. 2-59328,
August 1, 1979 (Exhibit 2.04 in File No. 2-64969), May 1,
1980 (Exhibit 2 to Form 10-Q Quarterly Report of Kentucky
Utilities for the quarter ended June 30, 1980),
September 15, 1982 (Exhibit 4.04 in File No. 2-79891),
August 1, 1984 (Exhibit 4B to Form 10-K Annual Report of
Kentucky Utilities Company for the year ended
December 31, 1984), June 1, 1985 (Exhibit 4 to Form 10-Q
Quarterly Report of Kentucky Utilities Company for the
quarter ended June 30, 1985), May 1, 1990 (Exhibit 4 to
Form 10-Q Quarterly Report of Kentucky Utilities Company
for the quarter ended June 30, 1990), May 1, 1991
-12-
<PAGE>
No. Description Page
4.B (Exhibit 4 to Form 10-Q Quarterly Report of Kentucky
cont Utilities Company for the quarter ended June 30, 1991),
May 15, 1992 (Exhibit 4.02 to Form 8-K of Kentucky
Utilities Company dated May 14, 1992), August 1, 1992
(Exhibit 4 to Form 10-Q Quarterly Report of Kentucky
Utilities Company for the quarter ended September 30,
1992), June 15, 1993 (Exhibit 4.02 to Form 8-K of
Kentucky Utilities Company dated June 15, 1993) and
December 1, 1993 (Exhibit 4.01 to Form 8-K of Kentucky
Utilities Company dated December 10, 1993). Incorporated
by reference. -
4.C Supplemental Indenture dated March 1, 1992 between
Kentucky Utilities and Continental Bank, National
Association and M. J. Kruger, as Trustees, providing for
the conveyance of properties formerly held by Old
Dominion Power Company (Exhibit 4B to Form 10-K Annual
Report of Kentucky Utilities Company for the year ended
December 31, 1992). Incorporated by reference. -
10.A Kentucky Utilities' Amended and Restated Performance
Share Plan (Exhibit 10A to Form 10-Q Quarterly Report of
Kentucky Utilities Company for the quarter ended June 30,
1993). Incorporated by reference. -
10.B Kentucky Utilities' Annual Performance Incentive Plan
(Exhibit 10B to Form 10-K Annual Report of Kentucky
Utilities Company for the year ended December 31, 1990).
Incorporated by reference. -
10.C Amendment No. 1 to Kentucky Utilities' Annual Performance
Incentive Plan (Exhibit 10D to Form 10-K Annual Report of
Kentucky Utilities Company for the year ended
December 31, 1991). Incorporated by reference. -
10.D Kentucky Utilities' Executive Optional Deferred
Compensation Plan (Exhibit 10C to Form 10-K Annual Report
of Kentucky Utilities Company for the year ended
December 31, 1990). Incorporated by reference. -
10.E Amendment No. 1 to Kentucky Utilities' Executive Optional
Deferred Compensation Plan (Exhibit 10F to Form 10-K
Annual Report of Kentucky Utilities Company for the year
ended December 31, 1991). Incorporated by reference. -
-13-
<PAGE>
No. Description Page
10.F Kentucky Utilities' Director Retirement Retainer Program,
and Amendment No. 1 (Exhibit 10G to Form 10-K Annual
Report of Kentucky Utilities Company for the year ended
December 31, 1991). Incorporated by reference. -
10.G Kentucky Utilities' Supplemental Security Plan (Exhibit
10I to Form 10-K Annual Report of Kentucky Utilities
Company for the year ended December 31, 1991).
Incorporated by reference. -
10.H KU Energy's Director Retirement Retainer Program (Exhibit
10J to Form 10-K Annual Report of KU Energy Corporation
for the year ended December 31, 1992). Incorporated by
reference. -
10.I KU Energy's Performance Share Plan (Exhibit 10A to
Form 10-Q Quarterly Report of KU Energy Corporation for
the quarter ended June 30, 1993). Incorporated by
reference. -
10.J KU Energy's Annual Performance Incentive Plan N/A
10.K Amendment No. 1 to KU Energy's Annual Performance
Incentive Plan N/A
10.L Amendment No. 2 to Kentucky Utilities' Annual Performance
Incentive Plan (Exhibit 10.H to Form 10-K Annual Report
of Kentucky Utilities Company for the year ended
December 31, 1993). Incorporated by reference. -
10.M Amendment No. 3 to Kentucky Utilities' Annual Performance
Incentive Plan (Exhibit 10.I to Form 10-K Annual Report
of Kentucky Utilities Company for the year ended
December 31, 1993). Incorporated by reference. -
10.N Amendment No. 2 to Kentucky Utilities' Executive Optional
Deferred Compensation Plan (Exhibit 10.J to Form 10-K
Annual Report of Kentucky Utilities Company for the year
ended December 31, 1993). Incorporated by reference. -
10.O Kentucky Utilities' Amended and Restated Director
Deferred Compensation Plan (Exhibit 10.K to Form 10-K
Annual Report of Kentucky Utilites Company for the year
ended December 31, 1993). Incorporated by reference. -
10.P KU Energy's Executive Optional Deferred Compensation Plan N/A
10.Q KU Energy's Director Deferred Compensation Plan N/A
13 Portions of 1993 Annual Report to Shareholders N/A
21 List of Subsidiaries N/A
23 Consent of Independent Public Accountants N/A
-14-
<PAGE>
No. Description Page
99.A Description of Common Stock N/A
99.B Kentucky Utilities Company Form 10-K for the year ended
December 31, 1993 N/A
Note - Exhibit numbers 10.A through 10.Q are management contracts
or compensatory plans or arrangements required to be filed as
exhibits to this Form 10-K.
-15-
<PAGE>
The following instruments defining the rights of holders of certain
long-term debt of Kentucky Utilities Company have not been filed with
the Securities and Exchange Commission but will be furnished to the
Commission upon request.
1. Loan Agreement dated as of May 1, 1990 between Kentucky
Utilities and the County of Mercer, Kentucky, in connection
with $12,900,000 County of Mercer, Kentucky, Collateralized
Solid Waste Disposal Facility Revenue Bonds (Kentucky
Utilities Company Project) 1990 Series A, due May 1, 2010 and
May 1, 2020.
2. Loan Agreement dated as of May 1, 1991 between Kentucky
Utilities and the County of Carroll, Kentucky, in connection
with $96,000,000 County of Carroll, Kentucky, Collateralized
Pollution Control Revenue Bonds (Kentucky Utilities Company
Project) 1992 Series A, due September 15, 2016.
3. Loan Agreement dated as of August 1, 1992 between Kentucky
Utilities and the County of Carroll, Kentucky, in connection
with $2,400,000 County of Carroll, Kentucky, Collateralized
Pollution Control Revenue Bonds (Kentucky Utilities Company
Project) 1992 Series C, due February 1, 2018.
4. Loan Agreement dated as of August 1, 1992 between Kentucky
Utilities and the County of Muhlenberg, Kentucky, in
connection with $7,200,000 County of Muhlenberg, Kentucky,
Collateralized Pollution Control Revenue Bonds (Kentucky
Utilities Company Project) 1992 Series A, due February 1,
2018.
5. Loan Agreement dated as of August 1, 1992 between Kentucky
Utilities and the County of Mercer, Kentucky, in connection
with $7,400,000 County of Mercer, Kentucky, Collateralized
Pollution Control Revenue Bonds (Kentucky Utilities Company
Project) 1992 Series A, due February 1, 2018.
6. Loan Agreement dated as of August 1, 1992 between Kentucky
Utilities and the County of Carroll, Kentucky, in connection
with $20,930,000 County of Carroll, Kentucky, Collateralized
Pollution Control Revenue Bonds (Kentucky Utilities Company
Project) 1992 Series B, due February 1, 2018.
7. Loan Agreement dated as of December 1, 1993, between Kentucky
Utilities and the County of Carroll, Kentucky, in connection
with $50,000,000 County of Carroll, Kentucky, Collateralized
Solid Waste Disposal Facilities Revenue Bonds (Kentucky
Utilities Company Project) 1993 Series A due December 1,
2023.
(B) No reports on Form 8-K were filed by the Company during the last
quarter of 1993.
-16-
<PAGE>
<TABLE>
SCHEDULE V
KU ENERGY CORPORATION & SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Retirements
Balance or Sales at Other Balance
Jan. 1, Additions Original Changes Dec. 31,
1991 At Cost Cost (a) 1991
Electric Plant (in thousands)
<S> <C> <C> <C> <C> <C>
Intangible $ 102 $ 2 $ (1) $ - $ 103
Production
Steam 948,164 30,254 (11) - 978,407
Hydro 8,905 1,278 - - 10,183
Other 4,662 - - - 4,662
Transmission 344,239 4,250 (384) 83 348,188
Distribution 473,938 28,885 (5,963) (83) 496,777
General 54,152 4,699 (1,937) - 56,914
Plant in Service 1,834,162 69,368 (8,296) - 1,895,234
Construction Work
in Progress 25,311 (3,456) - - 21,855
Total $1,859,473 $ 65,912 $ (8,296) $ - $ 1,917,089
Retirements
Balance or Sales at Other Balance
Jan. 1, Additions Original Changes Dec. 31,
1992 At Cost Cost (a) 1992
Electric Plant (in thousands)
Intangible $ 103 $ - $ - $ - $ 103
Production
Steam 978,407 17,329 (3,437) - 992,299
Hydro 10,183 395 (3) - 10,575
Other 4,662 99 - - 4,761
Transmission 348,188 13,647 (473) 1,126 362,488
Distribution 496,777 33,224 (5,200) (1,087) 523,714
General 56,914 5,984 (1,635) (39) 61,224
Plant in Service 1,895,234 70,678 (10,748) - 1,955,164
Construction Work
in Progress 21,855 15,567 - - 37,422
Total $1,917,089 $ 86,245 $ (10,748) $ - $ 1,992,586
Retirements
Balance or Sales at Other Balance
Jan. 1, Additions Original Changes Dec. 31,
1993 At Cost Cost (a) 1993
Electric Plant (in thousands)
Intangible $ 103 $ 6 $ (4) $ - $ 105
Production
Steam 992,299 11,596 (122) (753) 1,003,020
Hydro 10,575 18 - - 10,593
Other 4,761 327 - - 5,088
Transmission 362,488 6,339 (356) (85) 368,386
Distribution 523,714 32,791 (4,826) 85 551,764
General 61,224 5,178 (1,752) 1,310 65,960
Plant in Service 1,955,164 56,255 (7,060) 557 2,004,916
Plant - Purchased
or Sold - - - (228) (228)
Total Plant 1,955,164 56,255 (7,060) 329 2,004,688
Construction Work
in Progress 37,422 121,407 - - 158,829
Total $ 1,992,586 $ 177,662 $ (7,060) $ 329 $ 2,163,517
( ) Denotes deduction.
Note-Refer to Note 1 of the Notes to Consolidated Financial Statements for information as to
the Company's depreciation method and rates and to Management's Discussion and Analysis -
Construction for information concerning 1993 additions.
(a) Amounts in Other Changes column represent transfers between plant accounts, the
transfer of nonutility property to utility property and entries related to the disposition of
an asset.
</TABLE>
-17-
<PAGE>
<TABLE>
SCHEDULE VI
KU ENERGY CORPORATION & SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Property, Plant and Equipment Intangibles
Total Electric Vehicles Franchises
(in thousands)
<S> <C> <C> <C> <C>
Balance January 1, 1991 $ 718,715 $ 707,774 $ 10,916 $ 25
Additions:
Provision charged to--
Depreciation expense $ 57,337 $ 57,335 $ - $ 2
Transportation expense clearing 2,318 - 2,318 -
Fuel inventory 3 3 - -
Other(1) 2,243 2,208 35 -
61,901 59,546 2,353 2
Deductions:
Retirements (8,296) (6,468) (1,827) (1)
Removal costs, net of salvage (1,276) (1,276) - -
(9,572) (7,744) (1,827) (1)
Balance January 1, 1992 $ 771,044 $ 759,576 $ 11,442 $ 26
Additions:
Provision charged to--
Depreciation expense (2) $ 58,849 $ 58,847 $ - $ 2
Transportation expense clearing 2,393 - 2,393 -
Fuel inventory 379 379 - -
Other(1) 2,556 2,514 42 -
64,177 61,740 2,435 2
Deductions:
Retirements (10,748) (9,165) (1,583) -
Removal costs, net of salvage (971) (971) - -
(11,719) (10,136) (1,583) -
Balance January 1, 1993 $ 823,502 $ 811,180 $ 12,294 $ 28
Additions:
Provision charged to--
Depreciation expense (2) $ 60,800 $ 60,798 $ - $ 2
Transportation expense clearing 2,524 - 2,524 -
Fuel inventory 382 382 - -
Other(1) 1,791 1,768 23 -
65,497 62,948 2,547 2
Deductions:
Retirements (7,060) (5,419) (1,637) (4)
Removal costs, net of salvage (1,979) (1,988) 9 -
(9,039) (7,407) (1,628) (4)
Balance December 31, 1993 $ 879,960 $ 866,721 $ 13,213 $ 26
(1) Includes reimbursement for relocation of properties and the accumulated depreciation
applicable to minor properties acquired.
(2) Excludes $11,000 and $82,000 of depreciation expense on nonutility property for 1993
and 1992, respectively.
</TABLE>
-18-
<PAGE>
<TABLE>
SCHEDULE VIII
KU ENERGY CORPORATION & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Year Ended December 31, 1993 1992 1991
(in thousands)
Accumulated Provision for Uncollectible Accounts Receivable
<S> <C> <C> <C>
Balance at beginning of year $1,033 $ 1,132 $ 1,013
Balance at end of year $ 923 $ 1,033 $ 1,132
____________
Note-Other valuation and qualifying accounts are not significant.
</TABLE>
-19-
<PAGE>
<TABLE>
SCHEDULE IX
KU ENERGY CORPORATION & SUBSIDIARIES
SHORT-TERM BORROWINGS
<CAPTION>
As of December 31, Year Ended December 31,
Weighted Amount Outstanding Weighted
Average (in thousands) Average
Balance Interest Month End Weighted Interest
Year (in thousands) Rate Maximum Average(1) Rate(2)
Commercial Paper
<S> <C> <C> <C> <C> <C>
1991 $ - - $ - $ - -
1992 $ - - - - -
1993 $ - - $ 14,900 $ 1,916 3.22%
(1) Based on a daily weighting of total short-term borrowings outstanding.
(2) Based on the percentage relationship that total annual interest expense bears to the
total annual weighted average amount outstanding.
</TABLE>
-20-
<PAGE>
<TABLE>
SCHEDULE X
KU ENERGY CORPORATION & SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<CAPTION>
Year Ended December 31, 1993 1992 1991
(in thousands)
Other Taxes
<S> <C> <C> <C>
Real estate and personal property $ 6,877 $ 6,233 $ 6,250
Payroll 5,590 5,265 4,727
Other 1,890 1,903 1,881
Total $ 14,357 $ 13,401 $ 12,858
____________
Note-The amounts of depreciation and taxes charged to other income and balance sheet
accounts are not significant. The amounts charged to the respective accounts for rents,
royalties, advertising costs, and research and development aggregated less than one
percent of total revenues.
</TABLE>
-21-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To KU Energy Corporation & Subsidiaries:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in KU Energy
Corporation's Annual Report to Shareholders incorporated by reference in
this Form 10-K and have issued our report thereon dated January 26, 1994.
Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedules listed in Item 14(a)(2) are
the responsibility of KU Energy Corporation's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, fairly
state, in all material respects, the financial data required to be set
forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen & Co.
Arthur Andersen & Co.
Chicago, Illinois
January 26, 1994
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on
March 14, 1994.
KU ENERGY CORPORATION
/s/ John T. Newton
John T. Newton
Chairman and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant in the capacities and on the date indicated.
Signature Title
/s/ John T. Newton
John T. Newton Chairman and President (Principal Executive
Officer) and Director
/s/ Michael R. Whitley
Michael R. Whitley Senior Vice-President (Principal Financial
Officer) and Director
/s/ Michael D. Robinson
Michael D. Robinson Controller (Principal Accounting Officer)
/s/ Mira S. Ball
Mira S. Ball Director
/s/ W. B. Bechanan
W. B. Bechanan Director
/s/ Harry M. Hoe
Harry M. Hoe Director
/s/ Milton W. Hudson
Milton W. Hudson Director
/s/ Frank V. Ramsey, Jr.
Frank V. Ramsey, Jr. Director
/s/ Warren W. Rosenthal
Warren W. Rosenthal Director
/s/ William L. Rouse, Jr.
William L. Rouse, Jr. Director
/s/ Charles L. Shearer
Charles L. Shearer Director
March 14, 1994
-23-
EXHIBIT 10.J
KU ENERGY CORPORATION
ANNUAL PERFORMANCE INCENTIVE PLAN
PLAN DOCUMENT
January 1993
-24-
<PAGE>
KU ENERGY CORPORATION
ANNUAL PERFORMANCE INCENTIVE PLAN DOCUMENT
ARTICLE I - PLAN OBJECTIVES
The objectives of the Plan are to advance the interests of the
Company and its shareholders, by providing incentive
compensation opportunities that attract, retain and motivate a
select group of management or highly compensated employees:
1.1 By providing compensation opportunities which are
competitive with those of other utility holding
companies of comparable size, and
1.2 By motivating key executives to achieve annual business
goals and contribute to team performance by allowing
them to share in the risks and rewards of the business.
ARTICLE II - DEFINITIONS
For purposes of the Plan, the following definitions shall
control:
- 25 -
<PAGE>
2.1 "Affiliate" -- Any member of any controlled group of
corporations (as defined in Section 414(b) of the
Internal Revenue Code (the 'Code')) of which the
Employer is a member, any member of a group of trades
or businesses which are under common control (as
defined in Section 414(c) of the Code) of which the
Employer is a member, any member of an affiliated
service group (as defined in Section 414(m) of the
Code) of which the Employer is a member, and any other
organization deemed to be affiliated with the Employer
under Section 414(o) of the Code.
2.2 "Base Salary" -- Annualized base salary paid to a
Participant as of January 1st of each Plan Year or as
of such later date during a Plan Year as of which the
Executive becomes a Participant in the Plan, except
that if an Executive becomes a Participant as of a date
other than January 1st of a Plan Year, such amount
shall be prorated in proportion to the portion of the
Plan Year in which the Executive will be a Participant.
2.3 "Beneficiary" -- Any person or persons designated by a
Participant to receive amounts payable in accordance
with this Plan in the event of the Participant's death.
If no Beneficiary has been designated or if no
designated Beneficiary shall survive the Participant,
- 26 -
<PAGE>
the Participant's Beneficiary shall be deemed to be his
estate.
2.4 "Company" -- KU Energy Corporation, and successors
thereto.
2.5 "Committee" -- The Compensation Committee of the Board
of Directors of the Company.
2.6 "Disability" -- A physical or mental condition arising
after the effective date of this Plan which prevents a
Participant from engaging in any occupation or
employment for remuneration or profit, except for the
purpose of rehabilitation not incompatible with such
findings. The determination shall be made (i) on
medical evidence by a licensed physician assigned by
the Committee, or (ii) on evidence that the
Participant is eligible for disability benefits under
the Social Security Act in effect at the date of
disability. Disability shall exclude disabilities
arising from (a) intentionally self-inflicted injury
or self-induced illness; or (b) a proven unlawful act
or enterprise on the part of the Participant.
2.7 "Employer" -- The Company and any subsidiary or
affiliated entity to which the Plan is extended by the
- 27 -
<PAGE>
Board of Directors of the Company and which adopts the
Plan.
2.8 "Executive" -- Any management or highly compensated
employee of an Employer who is deemed by the Committee
to be eligible for participation in this Plan.
2.9 "Executive Optional Deferred Compensation Plan of KU
Energy Corporation" -- A special plan, as it may be
amended from time to time, designed to allow
Participants in this Plan to elect to defer Incentive
Award payments to a specified future date.
2.10 "Incentive Award" -- Awards made by the Committee under
this Plan. All awards will be paid in cash.
2.11 "Participation Form" -- The form that is prepared
annually for each Participant, which describes the
goals and award opportunities under this Plan, a sample
of which is attached hereto as Appendix A.
2.12 "Participant" -- An Executive of the Employer
designated by the Committee to participate in this
Plan.
2.13 "Plan" -- The Annual Performance Incentive Plan as
- 28 -
<PAGE>
adopted by the Company, as may be amended from time to
time.
2.14 "Plan Year" -- The Company's fiscal year.
2.15 "Retirement" -- Severance from employment with the
Employer and Affiliates at or after attaining fifty-
five (55) years of age and with not less than fifteen
(15) complete years of service with the Employer.
ARTICLE III - ADMINISTRATION OF THE PLAN
The Plan will be administered by the Committee. The Committee
is authorized to interpret the Plan and to establish and amend
rules and regulations necessary for Plan administration.
Decisions of the Committee shall be binding on all persons
claiming rights under the Plan. Recommendations as to the
operation and administration of the Plan, eligible employees
to participate in the Plan, type and amount of Incentive Awards
and performance criteria may be made by the management of the
Employer to the Committee. The Committee may employ such
counsel (who may be counsel for any Employer), consultants
and/or agents and may arrange for such services as it may
determine to be necessary or appropriate in the administration
of the Plan. All expenses incurred by the Committee in
- 29 -
<PAGE>
administering the Plan shall be paid by the Employers.
ARTICLE IV - DESCRIPTION OF THE PLAN
The Plan is a target incentive plan which provides for the
establishment of target, threshold and maximum levels of
individual Incentive Awards based on performance against
specific predetermined performance targets. Financial and cost
control measures will be established for each Plan Year,
individual goals may also be established for Participants each
Plan Year. Each year, management shall submit to the Committee
recommendations for the following Plan Year which shall
include: proposed Participants, target, threshold and maximum
award opportunities, performance targets for each performance
criterion (measure), and the weighting of the annual Incentive
Award among the performance criteria for each individual. From
time to time during a Plan Year management may also recommend
proposed additional Participants for such Plan Year and the
award opportunities and performance criteria for such
individuals. As soon as practicable after the end of the Plan
Year, each Participants Incentive Award will be determined
based on performance against the pre-established performance
targets.
- 30 -
<PAGE>
ARTICLE V - PARTICIPANTS
Participants will be selected by the Committee from among the
Executives of the Employers.
5.1 Awards under this Plan may be made only to Executives
who are in a position to make significant contributions
to the success of the Company.
5.2 Management shall recommend to the Committee those
Executives to be considered for Plan participation each
Plan Year. These recommendations are to be effective
only after they have been approved by the Committee.
ARTICLE VI - AWARD LEVELS
6.1 At the time Executives are selected as Participants in
the Plan, management of the Company shall recommend to
the Committee the target annual Incentive Award
opportunity, expressed as a percentage of the
Participant's Base Salary.
6.2 The achievement of threshold performance earns no
award, maximum performance earns 1.5 times the target
award opportunity. Awards for performance between
- 31 -
<PAGE>
threshold and target performance, and target and
maximum performance will be determined by straight-line
interpolation.
ARTICLE VII - PERFORMANCE CRITERIA AND PERFORMANCE GOALS
Prior to the beginning of each Plan Year (or as soon as
possible after the Plan is adopted in the case of the 1993 Plan
Year or after an Executive is added as a Participant during a
Plan Year), management shall recommend to the Committee
threshold, target, and maximum performance goals for each
performance criterion defined below applicable to each
Participant. The Committee shall determine, based on
management's recommendation, the weighting of each performance
criterion, as it applies to each Participant.
The following performance criteria are applicable to the Plan:
7.1 Cost Control Criterion
The level of expenses of some or all of the Company's
businesses identified by the Committee as compared to a
targeted level of expenses set by the Committee.
- 32 -
<PAGE>
7.2 Shareholder Criterion
Actual net income available to common shareholders as a
percentage of targeted net income available to common
shareholders.
7.3 Individual Criterion
Individual performance objectives (typically one to
three goals) may be established for each Participant.
These objectives shall relate to and support the
strategic and/or operating objectives of the Company.
7.4 The Committee may adjust the threshold, target, and
maximum performance goals for each performance
criterion at any time during a Plan Year to reflect any
extraordinarily unusual occurrence which is outside the
control of management and/or any Participant, which
occurrence has a significant impact on the Company.
ARTICLE VIII - COMMUNICATION OF THE PLAN
After performance targets are established as described above,
management shall advise each Participant of these targets and
his award opportunities under the Plan. This communication
will take place each Plan Year via an individual employee
Participation Form (Appendix A).
- 33 -
<PAGE>
ARTICLE IX - PAYMENT OF AWARDS
Incentive Awards shall be payable in cash as soon as feasible
after the close of the Plan Year as determined by the
Committee.
9.1 In the event of termination of employment with the
Employer and Affiliates during a Plan Year by reason of
Retirement, Disability or death of the Participant, the
Participant, in the case of Disability or Retirement,
or the Participant's Beneficiary, in the case of the
Participant's death, shall earn an Incentive Award
based on actual salary earned prior to termination
during the Plan Year, and actual performance against
established targets. The transfer of employment from
the Employer to an Affiliate during a Plan Year shall
not be deemed a termination of employment for purposes
of the Plan.
9.2 In the event of termination of employment with the
Employer and Affiliates during a Plan Year for any
other reason, participation in the Plan will be
terminated and no award will be payable to the
terminated Participant.
- 34 -
<PAGE>
9.3 If the Participant's employment with the Employer and
Affiliates is terminated after the end of the Plan
Year, but prior to receipt of the corresponding
Incentive Award, the Participant, or the Participant's
Beneficiary in the case of the Participant's death,
shall be paid the full Incentive Award at the time the
other Participants' Incentive Awards are paid unless
termination is the result of gross negligence or
malfeasance as determined by the Committee in which
case no award will be paid.
9.4 Notwithstanding any provision of the Plan, the Chief
Executive Officer of the Company, in his sole
discretion, may limit or eliminate any Participant's
participation in the Plan, provided such limitation or
elimination occurs prior to date the award would
otherwise be paid to the Participant.
ARTICLE X - DEFERRAL OF INCENTIVE AWARD PAYMENT
Subject to all of the provisions of the Executive Optional
Deferred Compensation Plan of KU Energy Corporation a
Participant may validly elect to defer all or part of any
Incentive Award which may be payable to the Participant under
this Plan. Such election however, shall not apply to all or
- 35 -
<PAGE>
any part of an Incentive Award payable for a Plan Year in the
event of the Participant's death prior to the time other
Participants' Incentive Awards for that Plan Year are paid.
ARTICLE XI - EFFECTIVE DATE OF THE PLAN
The Plan shall be effective for the Plan Year commencing
January 1, 1993, and may be terminated, amended, modified or
supplemented at any time by the Company.
ARTICLE XII - MISCELLANEOUS PROVISIONS
12.1 By acceptance of any Incentive Award under the Plan,
each Participant agrees that benefit calculations under
all other plans of the Employer will exclude, unless
otherwise expressly provided in any such plan, the
Incentive Awards under the Plan.
12.2 The designation as a Participant in the Plan and the
receipt of an Incentive Award under the Plan shall not
give the Participant any right to continued employment
or the right to receive an Incentive Award under the
Plan in a subsequent year.
- 36 -
<PAGE>
12.3 Except as required by law, no right of the Participant
or designated Beneficiary to receive payments under
this Plan shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance,
charge, pledge, or hypothecation or to execution,
attachment, levy or similar process or assignment by
operation of law and any attempt, voluntary or
involuntary, to effect any such action shall be null
and void and of no effect.
12.4 Any words herein used in the masculine shall be read
and construed in the feminine where appropriate. Words
in the singular shall be read and construed as though
used in the plural in all cases where the context so
requires.
12.5 This Plan shall be construed under the laws of the
Commonwealth of Kentucky.
- 37 -
<PAGE>
IN WITNESS THEREOF, the Company has caused this Plan to be
executed by its duly authorized officers as of this
19th day of February, 1993.
WITNESSES: KU ENERGY CORPORATION
/s/ Janice Houp By: /s/ John T. Newton
President
/s/ Nora Bentley Attest: /s/ George S. Brooks, II
Secretary
(SEAL)
- 38 -
<PAGE>
APPENDIX A
KU ENERGY CORPORATION
ANNUAL PERFORMANCE INCENTIVE PLAN
Participation Form for Plan Year Commencing ___________
_______________________________________________________________
_______________________________________________________________
PARTICIPANT____________________________________________________
TARGET AWARD OPPORTUNITY: ________% of Base Salary
or $_________________________________
MAXIMUM AWARD OPPORTUNITY EQUALS $_______________________ x 1.5
or $_____________________________
APPLICABLE PERFORMANCE CRITERIA AND WEIGHTING:
A. Cost Control ________%
B. Net Income ________%
C. Individual Goals (as applicable) ________%
(i) ____________________________ __________%
(ii) ____________________________ __________%
(iii) ____________________________ __________%
100%
100%
- 39 -
<PAGE>
PERFORMANCE TARGETS FOR 19_____
AND
AMOUNT EACH WILL EARN
_________________________________________________________________
_________________________________________________________________
Performance % Base Salary Dollars
Criterion Levels Earned Earned
A. Cost Control Threshold $______ _____________ _______
Target $______ _____________ _______
Maximum $______ _____________ _______
B. Net Income Threshold $______ _____________ _______
Target $______ _____________ _______
Maximum $______ _____________ _______
C. Individual
Goals Missed _____________ _______
Slightly Missed _____________ _______
Fully Achieved _____________ _______
Exceeded _____________ _______
Far Exceeded _____________ _______
Dollars earned at Target Perfromance: $__________
Dollars earned at Maximum Performance: $__________
- 40 -
<PAGE>
ANNUAL PERFORMANCE INCENTIVE PLAN
OF
KU ENERGY CORPORATION
BENEFICIARY DESIGNATION FORM
This election is in accordance with the provisions of the
Annual Performance Incentive Plan (the Plan) of KU Energy
Corporation (the Company) and is made this ________ day of
________________, 19_____, by __________________________
(the Executive).
I hereby designate the person or persons below as beneficiary
or beneficiaries to receive any benefits that may become
payable under the Plan on account of my death. I hereby revoke
any previous designations of beneficiaries under the Plan and I
understand that I may make future changes.
(Designate beneficiaries by given name, i.e., Mary J. Jones,
rather than Mrs. John Jones.)
- 41 -
<PAGE>
PRIMARY BENEFICIARIES
Name Relationship Share (%)
_____________________________ ___________________ ___________
_____________________________ ___________________ ___________
_____________________________ ___________________ ___________
_____________________________ ___________________ ___________
If I have designated above more than one primary beneficiary,
payment of my benefits shall be made to the primary
beneficiaries surviving me in the Share Percentage indicated;
provided, however, if any primary beneficiary shall not survive
me or shall die prior to distribution, the undistributed share
allocated to such primary beneficiary shall be paid to the
primary beneficiaries who do survive (pro-rated if more than
one survives based on the Share Percentage allocated to each
surviving beneficiary).
CONTINGENT BENEFICIARIES
Name Relationship Share (%)
_____________________________ ___________________ ___________
_____________________________ ___________________ ___________
_____________________________ ___________________ ___________
_____________________________ ___________________ ___________
- 42 -
<PAGE>
If I have designated above more than one contingent
beneficiary, payment of my benefits shall be made to the
contingent beneficiaries surviving the last to die of me and my
primary beneficiaries in the Share Percentage indicated;
provided, however, if any contingent beneficiary shall not
survive the last to die of me and my primary beneficiaries or
shall die prior to distribution, the undistributed share
allocated to such contingent beneficiary shall be paid to the
contingent beneficiaries who do survive (pro-rated if more than
one survives based on the Share Percentage allocated to each
surviving contingent beneficiary).
IN WITNESS WHEREOF, I hereunto set my hand as of the
date first above written.
______________________________ ______________________________
(Witness) (Executive)
Received and accepted on behalf of the Compensation Committee
of the Board of Directors of KU Energy Corporation.
KU ENERGY CORPORATION
Dated _______________________ By ___________________________
- 43 -
EXHIBIT 10.K
AMENDMENT NO. 1 TO
KU ENERGY CORPORATION
ANNUAL PERFORMANCE INCENTIVE PLAN
The KU Energy Corporation Annual Performance Incentive
Plan, (the "Plan"), is hereby amended, effective as of January 1,
1994, in the following respects:
1. By renumbering Section 7.3 and Section 7.4 of the
Plan as Section 7.4 and Section 7.5, respectively, and by adding
a new Section 7.3 after Section 7.2 as follows:
"7.3 Safety Criterion
A measure, determined by commonly accepted practices
or procedures, that reflects the number and/or
severity of occupational injuries and illnesses of
some or all of the Company's businesses identified by
the Committee."
IN WITNESS WHEREOF, KU Energy Corporation has caused this
instrument to be executed in its name by its President and its
Corporate Seal to be hereunto affixed, attested by its Secretary,
as of the 13th day of December, 1993.
KU ENERGY CORPORATION
By: /s/ John T. Newton
[CORPORATE SEAL] Chairman and President
ATTEST:
/s/ George S. Brooks II
Secretary
-44-
EXHIBIT 10.P
EXECUTIVE OPTIONAL DEFERRED
COMPENSATION PLAN
OF
KU ENERGY CORPORATION
January 1993
-45-
<PAGE>
EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN
OF
KU ENERGY CORPORATION
ARTICLE I - PLAN
This Plan is an unfunded Deferred Compensation arrangement for
a select group of management or highly compensated employees
who are rendering service to the Employer.
ARTICLE II - DEFINITIONS
For purposes of the Plan, the following definitions shall
control:
2.1 "Annual Performance Incentive Plan" -- The annual
incentive plan(s) sponsored by the Company as amended
from time to time.
2.2 "Beneficiary" -- Any person or persons designated by
the Executive to receive amounts payable in accordance
with this Plan in the event of the Executive's death.
If no Beneficiary has been designated or if no
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designated Beneficiary shall survive the Executive, the
Executive's Beneficiary shall be deemed to be his
estate.
2.3 "Committee" -- The Compensation Committee of the Board
of Directors of the Company.
2.4 "Company" -- KU Energy Corporation, and successors
thereto.
2.5 "Death" -- Death from any cause.
2.6 "Deferred Compensation" -- The portion of a Partici-
pant's annual incentive award (if any) which may be
paid to the Participant under the Company's Annual
Performance Incentive Plan(s) that has been deferred to
this Plan.
2.7 "Deferred Compensation Account(s)" or "Account(s)" --
The accounts that may be established each year by the
Employer as a book reserve for each of its Participants
to which shall be credited the sum of the Participant's
Deferred Compensation for that year plus any earnings
credited thereafter in accordance with Article VI.
2.8 "Deferral Election Form" -- The form made available
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annually by the Committee to an Executive which, when
properly executed by the Executive, effects his
participation in the Plan for the next following
Performance Cycle. A copy of the Deferral Election
Form is attached hereto as Exhibit A and is made a part
hereof.
2.9 "Disability" -- A physical or mental condition arising
after the effective date of this Plan which prevents a
Participant from engaging in any occupation or
employment for remuneration or profit, except for the
purpose of rehabilitation not incompatible with such
findings. The determination shall be made (i) on
medical evidence by a licensed physician assigned by
the Committee, or (ii) on evidence that the Partici-
pant is eligible for disability benefits under the
Social Security Act in effect at the date of
disability. Disability shall exclude disabilities
arising from (a) intentionally self-inflicted injury
or self-induced illness; or (b) a proven unlawful act
or enterprise on the part of the Participant.
2.10 "Employer" -- The Company and any subsidiary or
affiliated entity to which the Plan is extended by the
Board of Directors of the Company and which adopts the
Plan.
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2.11 "Executive" -- Any management or highly compensated
employee of an Employer who is deemed by the Committee
to be eligible for participation in this Plan.
2.12 "Participant" -- Any employee designated as an
Executive who elects to participate in the Plan
according to Article IV or a person who was such at the
time of his Retirement, Death, Disability or
Termination of Service and who retains, or whose
Beneficiary obtains, a benefit under the Plan which has
not been forfeited or distributed.
2.13 "Performance Cycle" -- The period of time during which
the value of an award under the Company's Annual
Performance Incentive Plan is determined.
2.14 "Plan" -- The Executive Optional Deferred Compensation
Plan of KU Energy Corporation as described in this
instrument, effective January 1, 1993, and, as may be
amended, thereafter.
2.15 "Return on Capital" -- The result of dividing the
Company's net income before interest charges by the
Company's total capitalization as both are reported on
the Company's financial statements.
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2.16 "Termination of Service" -- The termination for any
reason of a Participant's employment as a regular
employee of the Employer and the members of any
controlled group of corporations (as defined in
Section 414(b) of the Internal Revenue Code
(the 'Code')) of which the Employer is a member, the
members of any group of trades or businesses which are
under common control (as defined in Section 414(c) of
the Code) of which the Employer is a member, the
members of any affiliated service group (as defined in
Section 414(m) of the Code) of which the Employer is a
member, and all other organizations deemed to be
affiliated with the Employer under Section 414(o) of
the Code.
ARTICLE III - ADMINISTRATION OF THE PLAN
The Plan will be administered by the Committee. The Committee
is authorized to interpret the Plan and to establish and amend
rules and regulations necessary for Plan administration.
Decisions of the Committee shall be binding on all persons
claiming rights under the Plan. The Committee may employ such
counsel (who may be counsel for any Employer), consultants
and/or agents and may arrange for such services as it may
determine to be necessary or appropriate in the administration
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of the Plan. All expenses incurred by the Committee in
administering the Plan shall be paid by the Employers.
ARTICLE IV - PARTICIPANTS
4.1 Any Executive may elect to have all or any portion of
his award under the Company's Annual Performance
Incentive Plan deferred and credited with earnings in
accordance with the terms and conditions of the Plan.
4.2 An Executive desiring to exercise such election under
Paragraph 4.1 shall notify the Committee each time he
wishes to exercise a deferral election. Such notice
must be in writing, on a Deferral Election Form
provided by the Committee, and delivered to the
Committee not later than the December 31st preceding
the start of a new Performance Cycle. In the case of
the 1993 Performance Cycle only, an Executive may
deliver such notice to the Committee by March 17, 1993.
In addition, if an Executive becomes a participant in
the Company's Annual Performance Incentive Plan for a
Performance Cycle as of a date other than January 1st,
that Executive may deliver such notice to the Committee
within 30 days of the date as of which that Executive
becomes a participant in the Annual Performance
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Incentive Plan. Once delivered to the Committee, a
deferral election as made on a Deferral Election Form
shall be irrevocable.
4.3 The amount of a Participant's Deferred Compensation
shall be credited to his Deferred Compensation Account
at the time such amount would have otherwise been paid
to him under the Company's Annual Performance Incentive
Plan but for his deferral election under the Plan.
4.4 No Participant or his designated Beneficiary shall
acquire any property interest in his Deferred
Compensation Account or any other assets of the
Employer, their rights being limited to receiving from
the Employer deferred payments as set forth in this
Plan and these rights are conditioned upon continued
compliance with the terms and conditions of this Plan.
To the extent, that any Participant or Beneficiary
acquires a right to receive benefits under this Plan,
such right shall be no greater than the right of any
unsecured general creditor of the Employer.
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ARTICLE V - CONTINUED PARTICIPATION IN THE PLAN
A Participant shall not actively participate in the Plan for
any Performance Cycle for which a Deferral Election Form has
not been timely executed and filed as provided by Paragraph 4.2
herein. In this event, such a Participant's Deferred
Compensation Account(s) shall continue to be subject to the
provisions of the Plan and all previously submitted Deferral
Election Forms. For subsequent Performance Cycles, an
Executive may again actively participate hereunder by
submitting the appropriate Deferral Election Form in accordance
with the provisions of Article IV hereunder.
ARTICLE VI - CREDITING OF EARNINGS
Each calendar quarter each Participant's Deferred Compensation
Account will be credited with earnings in addition to any
amounts credited to such account under Article IV of this Plan.
Such earnings shall be equal to the interest that would have
been earned during such calendar quarter on the average of the
balances of the Participant's account at the end of each
calendar month during such calendar quarter at a rate per annum
equal to the greater of (1) the Company's Return on Capital
for the twelve-month period that ends coincident with that
quarter or (2) the 13 week Treasury bill rate as reported in
the Wall Street Journal on the first business day coinciding
with or next following the end of that calendar quarter.
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ARTICLE VII - DISTRIBUTION OF AMOUNTS DEFERRED UNDER THE PLAN
All payments for the Plan will be made in cash. The Partici-
pant will receive payments from the Plan in accordance with the
Deferral Election Form(s) on file. Notwithstanding the
preceding sentence, the remaining balance of a Participant's
Deferred Compensation Account will be paid in a lump sum as
soon as practical after a Participant's Termination of Service
or if a change of control occurs as described in Article XI.
ARTICLE VIII - DEATH
8.1 At the time that an Executive becomes a Participant, he
shall designate in writing a Beneficiary to receive any
payments to which he would have been entitled under the
terms of this Plan. The Beneficiary referred to in
this paragraph may be designated or changed by the
Executive (without the consent of any prior
Beneficiary) on a form provided by the Committee and
delivered to the Committee before his Death. If no
such Beneficiary shall have been designated, or if no
designated Beneficiary shall survive the Executive,
payments shall be payable to the Executive's estate.
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8.2 If the Executive's employment is terminated because of
Death or if the Executive should die after his
Termination of Service but before his Deferred
Compensation Account balance has been paid, then the
Employer shall make payments of the Executive's
remaining balance in his Deferred Compensation Account
to his designated Beneficiary in the same manner and to
the extent as provided in Article VII.
8.3 If after the Executive's Death, all of his designated
Beneficiary(ies) should die before all payments are
made by the Employer, then the value of the remaining
payments shall be paid as promptly as possible in one
lump sum to the estate of the last to die of such
designated Beneficiary(ies).
ARTICLE IX - DISABILITY
If the Executive's employment is terminated because of
Disability, then the Employer shall make payments to the
Executive in the same manner and to the same extent as provided
in Article VII.
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ARTICLE X - INCAPACITY
If the Committee shall find that any person to whom any payment
is payable under this Plan is unable to care for his affairs
because of illness or accident, or is a minor, any payment due
(unless a prior claim therefore shall have been made by a duly
appointed guardian, committee or legal representative) may be
paid to the spouse, a child, a parent, a brother or a sister or
to any person deemed by the Committee in such a manner as the
Committee shall determine. For all determinations made by the
Committee under this Article, the Committee shall have full
acquittance. Any such payment shall be a complete discharge of
the liabilities of the Employer under this agreement.
ARTICLE XI - CHANGE IN CONTROL
A "change in control" for purposes of the Plan shall have
occurred if at any time any of the following events shall
occur:
a) The Company or KU (as defined below) is merged or
consolidated or reorganized into or with another
corporation or other legal person, and as a result
of such merger, consolidation, or reorganization
less than a majority of the combined voting power
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of the then-outstanding securities of such
corporation or person immediately after such
transaction is held in the aggregate by the
holders of the then-outstanding securities
entitled to vote generally in the election of
directors (the "Voting Stock") of the Company
immediately prior to such transaction;
b) The Company or KU sells or otherwise transfers all
or substantially all of its assets to any other
corporation or other legal entity, and as a result
of such sale or transfer less than a majority of
the combined voting power of the then-outstanding
securities of such other corporation or entity
immediately after such sale or transfer is held in
the aggregate by the holders of Voting Stock of
the Company immediately prior to such sale or
transfer;
c) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or
report or item therein), each as promulgated
pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), disclosing that
any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the
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Exchange Act) has become the beneficial owner (as
the term "beneficial owner" is defined under
Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities
representing 10% or more of the combined voting
power of the Voting Stock of the Company or the
Voting Stock of KU;
d) The Company or KU files a report or proxy
statement with the Securities and Exchange
Commission pursuant to the Exchange Act disclosing
in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item
therein) that a change in control of the Company
or KU has or may have occurred or will or may
occur in the future pursuant to any then-existing
contract or transaction; or
e) If at any time during any period of two
consecutive years, individuals who at the
beginning of any such period constitute the
directors of the Company or KU cease for any
reason to constitute at least a majority thereof,
unless the election, or the nomination for
election by such company's stockholders, of each
director of such company first elected during such
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period was approved by a vote of at least two-
thirds of the directors of such company then still
in office who were directors of such company at
the beginning of any such period.
Notwithstanding the foregoing provisions of paragraph (c) or
(d) above, unless otherwise determined in a specific case by
majority vote of the Board of Directors of the Company and KU,
a "change in control" shall not be deemed to have occurred for
purposes of the Plan solely because (i) the Company, (ii) an
entity in which the Company, KU or one or more other
Subsidiaries directly or indirectly beneficially owns 50% or
more of the voting securities (a "Subsidiary"), or (iii) any
Company-sponsored, KU-sponsored, or Subsidiary-sponsored
employee stock ownership plan or any other employee benefit
plan of the Company, KU or Subsidiary, either files or becomes
obligated to file a report or a proxy statement under or in
response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item
therein) under the Exchange Act, disclosing beneficial
ownership by it of shares of Voting Stock of the Company or KU,
whether in excess of 10% or otherwise, or because the Company,
KU or a Subsidiary reports that a change in control of the
Company or KU has or may have occurred or will or may occur in
the future by reason of such beneficial ownership. Notwith-
standing the foregoing provisions of this Article XI, a "change
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in control" shall not be deemed to have occurred by reason of
the Reorganization.
For purposes of this Article XI:
"KU" shall mean Kentucky Utilities Company.
"Reorganization" shall mean the corporate reorgani-
zation whereby the Company became the holding company of KU as
approved by the Board of Directors of KU on May 16, 1988 and
May 27, 1988.
ARTICLE XII - AMENDMENT OF PLAN
The Plan may be amended in whole or in part from time to time
by the Company. Notice of every such amendment shall be given
in writing to each Participant and Beneficiary of a deceased
Participant.
ARTICLE XIII - MISCELLANEOUS
13.1 Neither this Agreement, nor any action of the Employer
or Committee, nor any election to defer Compensation
hereunder shall be construed to confer on any person
any legal right to be continued as an employee of the
Employer.
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13.2 Except as required by law, no right of the Executive or
Beneficiary to receive payments under this Plan shall
be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy or
similar process or assignment by operation of law and
any attempt, voluntary or involuntary, to effect any
such action shall be null and void and of no effect.
13.3 The Employer shall have the right to deduct from all
payments any taxes required by law to be withheld with
respect to any payments made under this Plan.
13.4 Masculine pronouns used herein shall refer to men or
women or both, and nouns when stated in the singular
shall include the plural and when stated in the plural
shall include the singular wherever appropriate.
13.5 This Plan shall be construed under the laws of the
Commonwealth of Kentucky.
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IN WITNESS THEREOF, the Company has caused this Plan to be
executed by its duly authorized officers as of this
19th day of February, 1993.
WITNESSES: KU ENERGY CORPORATION
/s/ Janice Houp By: /s/ John T. Newton
President
/s/ Nora Bentley Attest: /s/ George S. Brooks II
Secretary
(SEAL)
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EXHIBIT A
EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN
OF
KU ENERGY CORPORATION
DEFERRAL ELECTION FORM
This election is in accordance with the provisions of the
Executive Optional Deferred Compensation Plan (the Plan) of KU
Energy Corporation (the Company) and is made this ______ day of
_________________, 19_____, by __________________________ (the
Executive). By making such election, I understand and agree
that I become a party to said Plan, and agree to be bound by
its terms and conditions. I further understand that this
election is irrevocable.
In accordance with the provisions of the Plan I hereby elect to
defer for the Performance Cycle commencing on January 1, 19____
and maturing on December 31, 19____ the following amount of
compensation that may be payable to me under the Company's
Annual Performance Incentive Plan for services rendered during
that Performance Cycle.
The lessor of ________% of any incentive payment or $_________.
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I understand that this election will remain in effect only for
the above indicated Performance Cycle and that a new Deferral
Election Form must be completed for each other Performance
Cycle that I wish to participate in the Plan.
I further elect that the value of my Deferred Compensation
Account for the above indicated Performance Cycle be payable to
me on the first day of ______________, 19____.
IN WITNESS WHEREOF, I hereunto set my hand as of the
date first above written.
______________________________ ______________________________
(Witness) (Executive)
Received and accepted on behalf of the Compensation Committee
of the Board of Directors of KU Energy Corporation.
KU ENERGY CORPORATION
Dated _______________________ By ___________________________
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EXHIBIT 10.Q
KU ENERGY CORPORATION
DIRECTOR DEFERRED COMPENSATION PLAN
Effective May 1, 1992
ARTICLE I
Purpose
The KU Energy Corporation Director Deferred
Compensation Plan (the "Plan") is hereby established, effective
May 1, 1992, to provide eligible directors of KU Energy
Corporation with the opportunity to defer some or all of the
compensation which may be payable to them for services to be
performed as members of the Board of Directors of KU Energy
Corporation.
ARTICLE II
Definitions
The following words and phrases shall have the meanings
set forth below unless a different meaning is clearly required by
the context:
(a) Account: The account maintained for each
Participant showing his or her interest under the Plan as
provided in Section 4.1.
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(b) Accounting Date: Each March 31, June 30,
September 30, and December 31 of each calendar year. The first
Accounting Date under the Plan shall be June 30, 1992.
(c) Beneficiary: The person or persons (natural or
otherwise) designated, in accordance with Section 5.4, to receive
the distribution of a Participant's Account balance in the event
of the Participant's death.
(d) Board: The Board of Directors of the Company.
(e) Change in Control: A change in control as more
fully defined in Section 5.6.
(f) Committee: The Compensation Committee of the
Board.
(g) Company: KU Energy Corporation, a corporation
organized and existing under the laws of the Commonwealth of
Kentucky.
(h) Compensation: Any retainer and meeting fees
payable to the Director by the Company for services rendered as a
member of the Board or any committee thereof.
(i) Director: Any member of the Board on or after the
Effective Date who is separately compensated for his or her
services as a member of the Board.
(j) Effective Date: May 1, 1992.
(k) KU: Kentucky Utilities Company.
(l) Participant: A Director participating in the Plan
in accordance with the provisions of Section 3.2, or a former
Director whose Account balance under the Plan has not been paid
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in full.
(m) Plan: The KU Energy Corporation Director Deferred
Compensation Plan set forth in this instrument, as it may be
amended from time to time.
(n) Service: An individual's service on the Board and
on the boards of KU or other any Subsidiary.
(o) Subsidiary: An entity in which the Company, KU or
one or more other Subsidiaries directly or indirectly bene-
ficially owns 50% or more of the voting securities.
ARTICLE III
Eligibility and Participation
3.1 Eligibility: Each member of the Board who is a
Director on the Effective Date shall be eligible to participate
in the Plan as of the Effective Date. Each other Director shall
be eligible to participate in the Plan as of the first day of the
month next following the date he or she becomes a Director.
3.2 Participation: A Director may elect to
participate in the Plan effective as of the date the Director
first becomes eligible to participate as provided in Section 3.1,
or effective as of the January 1st of any calendar year beginning
after such date, by filing written notice of such election with
the Company prior to the effective date of such election. Such
notice shall be accompanied by (i) an election to defer
Compensation as provided in Section 3.4 and (ii) an election as
to the method of payment as provided in Section 5.1. Upon filing
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such election notice, the Director shall become a Participant in
the Plan effective as of the date elected as permitted in this
Section 3.2.
3.3 Crediting of Compensation: Commencing on the
effective date of a Participant's participation in the Plan and
continuing during the period that Compensation is to be credited
to the Participant's Account under the Plan, the Company shall
defer payment of and credit to the Participant's Account all or
such portion, as elected by the Participant under Section 3.4, of
the Compensation that the Participant would have received for
services rendered by the Participant during such period as a
member of the Board but for his participation in the Plan, such
credits to be made as provided in Section 4.2(a).
3.4 Election to Defer: At the time a Director elects
to become a Participant, the Director shall elect to have from
10% to 100%, in specified multiples of 10%, of his or her
Compensation for services rendered subsequent to the date the
Director becomes a Participant deferred under the Plan and
credited to his or her Account as provided in Section 3.3. Such
election shall remain in effect until changed or terminated as
hereinafter provided.
A Participant may change his or her election under this
Section 3.4 effective as of the January 1st of any calendar year
with respect to Compensation for services to be rendered as a
Director on or subsequent to such January 1st, by giving the
Company written notice of such change at least 15 days prior to
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such January 1st. Any change may (i) increase or decrease,
within the limits prescribed in the preceding paragraph, the
portion of Compensation to be deferred and credited to the
Participant's Account as provided in Section 3.3, (ii) terminate
an election to defer Compensation under this Section 3.4 or
(iii) resume the deferral of Compensation under the Plan within
the limits prescribed in the preceding paragraph. A change in
the portion of Compensation deferred or the termination of a
Participant's election to defer Compensation shall not entitle
the Participant to receive payment of his or her Account balance,
which shall be payable only as provided in Article V.
Any election or change in election under this
Section 3.4 shall be made on a form provided or prescribed by the
Company.
ARTICLE IV
Participants' Accounts
4.1 Individual Accounts: A separate Account shall be
maintained by the Company on its books for each Participant.
4.2 Accounting Procedures: Each Participant's Account
shall be adjusted as of each Accounting Date as follows and in
the following order:
(a) Each Participant's Account shall be
credited with the amount of Compensation to
be credited to his or her Account as provided
in Section 3.3 during the calendar quarter
ending on such Accounting Date. Credits
shall be made as of the last business day of
the respective calendar months in which such
Compensation would have been paid to the
Participant by the Company but for his or her
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participation in the Plan.
(b) Each Participant's Account shall
next be charged as of such Accounting Date
with the amount of any distributions under
the Plan to the Participant or to his or her
Beneficiary effective as of such Accounting
Date.
(c) Unless (i) a Change in Control has
occurred during the calendar quarter ending
on such Accounting Date and the last
paragraph of Section 5.1 is applicable to the
Participant or (ii) a Participant has
terminated his Service during the calendar
quarter ending on such Accounting Date and
Section 5.5 is applicable to the Participant,
each Participant's Account shall next be
credited with the amount equivalent to
interest to be added to the Participant's
Account as of such Accounting Date. The
interest equivalent to be credited as of an
Accounting Date shall be equal to the
interest that would be earned on the average
of the balances in the Participant's Account
at the end of each calendar month during the
calendar quarter ending on such Accounting
Date, at a rate per annum which equals the
average prime rate charged by banks as
reported in the Federal Reserve Bulletin
published on or next prior to such Accounting
Date.
ARTICLE V
Distribution of Benefits
5.1 Termination Prior to a Change in Control For
Reasons Other Than Death: Within 15 days after the Accounting
Date coincident with or next following the date on which the
Participant terminates his or her Service prior to the date on
which a Change in Control occurs for any reason other than death,
the Company shall pay, or commence to pay, to the Participant in
cash the amount credited to his or her Account. Payment shall be
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made in accordance with Payment Method I, Payment Method II or
Payment Method III, below, as elected by the Director at the time
the Director elects to become a Participant:
(a) Payment Method I - By payment in a
lump sum of the amount credited to
the Participant's Account as of the
Accounting Date coincident with or
next following the date on which
the Participant terminates his or
her Service.
(b) Payment Method II - By payment in
quarterly installments, the number
of which shall be the lesser of
(i) 40 or (ii) the aggregate number
of full calendar quarters during
which compensation was credited to
the Participant's Account under the
Plan and to his or her account
under any similar plan of KU or
other Subsidiary (but not counting
any such calendar quarter more than
once). The amount of each install-
ment shall be equal to the quotient
obtained by dividing the balance
credited to Participant's Account
as of the Accounting Date coin-
cident with or next preceding the
date of such installment payment by
the number of installment payments
remaining to be made to such
Participant at the time of such
calculation.
(c) Payment Method III - By payment in
annual installments, the number of
which shall be the lesser of (i) 10
or (ii) the aggregate number of
full calendar years (but not less
than one) during which compensation
was credited to the Participant's
Account under the Plan and to his
or her account under any similar
plan of KU or other Subsidiary (but
not counting any such calendar year
more than once). The amount of
each installment shall be equal to
the quotient obtained by dividing
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the balance credited to Partici-
pant's Account as of the Accounting
Date coincident with or next
preceding the date of such install-
ment payment by the number of
installment payments remaining to
be made to such Participant at the
time of such calculation.
An election under this Section 5.1 shall be made on a form
provided or prescribed by the Company and once made shall be
irrevocable.
Notwithstanding a Participant's election under, or the
foregoing provisions of, this Section 5.1, if a Change in Control
occurs after a Participant terminates his or her Service but
prior to the complete distribution under the Plan of the balance
credited to his or her Account, the amount credited to the
Participant's Account as of the date the Change in Control occurs
increased by the amount of any Compensation deferred under the
Plan by the Participant subsequent to the Accounting Date on or
next preceding the date on which the Change in Control occurs
(the "undistributed amount"), plus an amount equivalent to
interest as provided below, shall be paid in cash in a lump sum
to the Participant (or, in the event of the Participant's death
after his termination of Service, to his or her Beneficiary)
within 15 days after the date on which the Change in Control
occurs. The interest equivalent to be paid pursuant to the
preceding sentence shall be equal to the interest that would be
earned on the undistributed amount during the period from the
Accounting Date on or next preceding the date on which the Change
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in Control occurs to the date of distribution, at the rate per
annum used under Section 4.2(c) as of the Accounting Date on or
next preceding the date on which the Change in Control occurs.
5.2 Death: Upon the death of a Participant, whether
before or after termination as a member of the Board, prior to
the complete distribution of the balance credited to his or her
Account, any undistributed amount credited to the Participant's
Account as of the Accounting Date coincident with or next
following the Participant's date of death shall be paid in cash
in a lump sum to the Participant's Beneficiary within 15 days
after such Accounting Date; provided, however, if a Change in
Control shall occur either before or after the Participant's
death but prior to the complete distribution of the balance
credited to the Participant's Account, distribution shall be made
to the Beneficiary as provided in the last paragraph of
Section 5.1 or in Section 5.5, whichever is applicable, rather
than as provided in this Section 5.2.
5.3 Hardship Distribution: With the written consent
of the Committee, a Participant may withdraw from his or her
Account as of an Accounting Date a cash amount not in excess of
the balance credited to the Participant's Account as of such
Accounting Date. The Committee, in its sole discretion, may
consent to such withdrawal but only if the withdrawal is
necessary, upon demonstration by or on behalf of the Participant,
because of a substantial financial hardship of the Participant as
a result of accident, illness or disability. The Committee, in
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its sole discretion, shall determine the amount of such a
distribution that is needed to meet the need created by the
hardship. Any such distribution shall be charged to the
Participant's Account.
5.4 Beneficiary: As used in the Plan, the term
"Beneficiary" means:
(a) The last person designated as
Beneficiary by the Participant in a written
notice on a form prescribed by and filed with
the Company;
(b) If there is no designated
Beneficiary or if the person so designated
shall not survive the Participant, such
Participant's spouse; or
(c) If no such designated Beneficiary
and no such spouse is living upon the death
of a Participant, or if all such persons die
prior to the full distribution of the
Participant's Account, then the legal
representative of the last survivor of the
Participant and such persons, or, if the
Company shall not receive notice of the
appointment of any such legal representative
within one year after such death, the heirs-
at-law of such survivor (in the proportions
in which they would inherit his intestate
personal property) shall be the Beneficiaries
to whom the then remaining balance of the
Participant's Account shall be distributed.
Any Beneficiary designation may be changed from time to time by
like notice similarly delivered. No notice given under this
Section shall be effective unless and until the Company actually
receives such notice and enters it in its records.
5.5 Termination On or After a Change in Control: If a
Participant terminates his or her Service on or after the date on
which a Change in Control occurs, the amount credited to the
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Participant's Account as of the Accounting Date on or next
preceding the date on which the Participant terminates his or her
Service increased by the amount of any Compensation deferred
under the Plan by the Participant subsequent such Accounting Date
(the "undistributed amount"), plus an amount equivalent to
interest as provided below, shall be paid in cash in a lump sum
to the Participant (or, in the event of the Participant's death,
to his or her Beneficiary) within 15 days after the Participant's
termination of Service. The interest equivalent to be paid
pursuant to the preceding sentence shall be equal to the interest
that would be earned on the undistributed amount during the
period from the Accounting Date on or next preceding the
Participant's termination of Service to the date of distribution,
at the rate per annum used under Section 4.2(c) as of the
Accounting Date on or next preceding the date of termination.
5.6 Change in Control: For purposes of the Plan, a
"Change in Control" shall have occurred if at any time any of the
following events shall occur:
(a) The Company or KU is merged or
consolidated or reorganized into or with
another corporation or other legal person,
and as a result of such merger, consolidation
or reorganization less than a majority of the
combined voting power of the then-outstanding
securities of such corporation or person
immediately after such transaction is held in
the aggregate by the holders of the then-
outstanding securities entitled to vote
generally in the election of directors (the
"Voting Stock") of the Company immediately
prior to such transaction;
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(b) The Company or KU sells or
otherwise transfers all or substantially all
of its assets to any other corporation or
other legal entity, and as a result of such
sale or transfer less than a majority of the
combined voting power of the then-outstanding
securities of such other corporation or
entity immediately after such sale or
transfer is held in the aggregate by the
holders of Voting Stock of the Company,
immediately prior to such sale or transfer;
(c) There is a report filed on Schedule
Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report or item
therein), each as promulgated pursuant to the
Securities Exchange Act of 1934, as amended
(the "Exchange Act"), disclosing that any
person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner
(as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange
Act) of securities representing 10% or more
of the combined voting power of the Voting
Stock of the Company or the Voting Stock of
KU;
(d) The Company or KU files a report or
proxy statement with the Securities and
Exchange Commission pursuant to the Exchange
Act disclosing in response to Form 8-K or
Schedule 14A (or any successor schedule, form
or report or item therein) that a change in
control of the Company or KU has or may have
occurred or will or may occur in the future
pursuant to any then-existing contract or
transaction; or
(e) If at any time during any period of
two consecutive years, individuals who at the
beginning of any such period constitute the
directors of the Company or KU cease for any
reason to constitute at least a majority
thereof, unless the election, or the
nomination for election by such company's
stockholders, of each director of such
company first elected during such period was
approved by a vote of at least two-thirds of
the directors of such company then still in
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office who were directors of such company at
the beginning of any such period.
Notwithstanding the foregoing provisions of paragraph
(c) or (d) above, unless otherwise determined in a specific case
by majority vote of the Board of Directors of the Company and KU,
a "Change in Control" shall not be deemed to have occurred for
purposes of the Plan solely because (i) the Company, (ii) a
Subsidiary or (iii) any Company-sponsored, KU-sponsored or
Subsidiary-sponsored employee stock ownership plan or any other
employee benefit plan of the Company, KU or Subsidiary, either
files or becomes obligated to file a report or a proxy statement
under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item
therein) under the Exchange Act, disclosing beneficial ownership
by it of shares of Voting Stock of the Company or KU, whether in
excess of 10% or otherwise, or because the Company, KU or a
Subsidiary reports that a change in control of the Company or KU
has or may have occurred or will or may occur in the future by
reason of such beneficial ownership. Notwithstanding the fore-
going provisions of this Section 5.6, a "Change in Control" shall
not be deemed to have occurred by reason of the Reorganization.
'Reorganization' shall mean the corporate reorganization whereby
the Company became the holding company of KU as approved by the
Board of Directors of KU on May 16, 1988 and May 27, 1988.
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ARTICLE VI
Financing of Benefits
The Plan shall be a nonqualified and unfunded plan.
Benefit payments under the Plan shall represent an unsecured
general obligation of the Company and shall be paid by the
Company from its general assets. No special fund or trust shall
be created or held for the financing of benefits under the Plan.
ARTICLE VII
Facility of Payment
Whenever a person entitled to receive any payment under
the Plan is a person under legal disability or a person not
adjudicated incompetent but who, by reason of illness or mental
or physical disability, is in the opinion of the Committee unable
properly to manage his or her affairs, then such payments shall
be paid in such of the following ways as the Committee deems
best: (a) to such person directly; (b) to the legally appointed
guardian or conservator of such person; (c) to some relative or
friend of such person for his or her benefit; (d) for the benefit
of such person in such manner as the Committee considers
advisable. Any payment made in accordance with the provisions of
this Article shall be a complete discharge of any liability for
the making of such payment under the Plan, and the distributee's
receipt shall be a sufficient discharge to the Company.
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ARTICLE VIII
Administration
The Plan shall be administered by the Compensation
Committee of the Board. The Committee shall have such duties and
powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, to construe and
interpret the Plan, decide all questions of eligibility and
determine the amount and time of payment of benefits hereunder.
The Committee shall have no power to add to, subtract from or
modify any of the terms of the Plan, or to change or add to any
benefits provided under the Plan, or to waive or fail to apply
any requirements of eligibility for a benefit under the Plan. No
Participant who is a member of such Committee may vote on any
question relating specifically to himself or herself.
ARTICLE IX
Miscellaneous
9.1 Other Agreements. The Plan shall not affect in
any way the rights or obligations of a Director under any
deferred compensation or other agreement between the Director and
the Company or KU, including, but not limited to, the KU Energy
Corporation Director Retirement Retainer Program.
9.2 Successors. The Company shall require any
successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or sub-
stantially all of the business and/or assets of the Company
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expressly to assume and to agree to perform this Plan in the same
manner and to the same extent the Company would be required to
perform if no such succession had taken place. This Plan shall
be binding upon and inure to the benefit of the Company and any
successor of or to the Company, including without limitation any
persons acquiring directly or indirectly all or substantially all
of the business and/or assets of the Company whether by sale,
merger, consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed the "Company" for the
purposes of this Plan), and the heirs, executors and adminis-
trators of each Director.
9.3 Interests Not Transferable. No person shall have
any right to commute, encumber, pledge or dispose of any right to
receive payments hereunder, nor shall such payments be subject to
seizure, attachment or garnishment for the payments of any debts,
judgments, alimony or separate maintenance obligations or be
transferable by operation of law in the event of bankruptcy,
insolvency or otherwise, all payments and rights hereunder being
expressly declared to be nonassignable and nontransferable.
9.4 Amendment and Termination. The Plan may be
amended from time to time or terminated by the Board at any time,
but no amendment or termination may adversely affect the rights
of any person without his or her prior written consent.
9.5 Applicable Law. This Plan shall be construed in
accordance with and governed by the laws of the Commonwealth of
Kentucky.
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9.6 Notices. For all purposes of this Plan, all
communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered or five business
days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the Secretary of
the Company) at its principal executive office and to a
Participant at his or her principal residence, or to such other
address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
9.7 Severability: Each section, subsection and lesser
section of this Plan constitutes a separate and distinct under-
taking, covenant and/or provision hereof. Whenever possible,
each provision of this Plan shall be interpreted in such manner
as to be effective and valid under applicable law. In the event
that any provision of this Plan shall finally be determined to be
unlawful, such provision shall be deemed severed from this Plan,
but every other provision of this Plan shall remain in full force
and effect, and in substitution for any such provision held
unlawful, there shall be substituted a provision of similar
import reflecting the original intention of the parties hereto to
the extent permissible under law.
9.8 Withholding of Taxes: The Company may withhold
from any amounts payable under this Plan all federal, state, city
and other taxes as shall be legally required.
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IN WITNESS WHEREOF, KU Energy Corporation has caused
this instrument to be executed in its name by its President and
its Corporate Seal to be hereunto affixed, attested by its
Secretary, on this 19th day of May, 1992.
KU ENERGY CORPORATION
By /s/ John T. Newton
President
[Corporate Seal]
ATTEST:
/s/ Michael R. Whitley
Secretary
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EXHIBIT 13
Management's Discussion and Analysis of Financial Condition and Results
of Operation
KU Energy Corporation (KU Energy or the Company), a holding company, has
two wholly owned subsidiaries, Kentucky Utilities Company (Kentucky
Utilities), an electric utility, and KU Capital Corporation (KU Capital),
a nonutility subsidiary. Kentucky Utilities is KU Energy's principal
subsidiary.
RESULTS OF OPERATIONS
Earnings
Earnings per average common share were $2.11 in 1993 compared to $1.96 in
1992 and $2.13 in 1991. The increase in 1993 earnings was primarily due
to weather-related growth in sales and lower interest charges
attributable to debt refinancings and redemptions. Earnings in 1993 were
negatively impacted by an increase in other operating expenses and a
decline in interest and dividend income. The decline in 1992 earnings
was due to unusually mild weather, increases in operating and maintenance
costs, and an increase in interest charges attributed to a $35 million
increase in long-term debt.
<TABLE>
Sales & Revenues
<CAPTION>
Increase (Decrease)
From Prior Years
1993 1992
kWh Revenues kWh Revenues
(%) (000's) (%) (000's)
<S> <C> <C> <C> <C>
Residential 10 $ 15,942 (2) $ (8,068)
Commercial 4 4,752 (1) (4,134)
Industrial 10 9,049 8 4,213
Mine Power & Public
Authorities 2 853 1 (1,159)
Total Retail Sales 7 30,596 1 (9,148)
Other Electric Utilities 1 3,484 2 (2,563)
Provision for Refund -
Litigation Settlement - (3,309) - -
Miscellaneous Revenues
and Other - (423) - 311
Total 6 $ 30,348 1 $ (11,400)
</TABLE>
Sales increased 6% to 15.8 billion kilowatt-hours (kWh) in 1993. The
increase resulted primarily from increases in sales to residential and
industrial customers. The rise in residential sales reflects cooler
weather in the first and fourth quarters of 1993 and warmer weather
during the second and third quarters of 1993 as compared to the
corresponding periods of 1992. Due to the exceptionally warm weather in
the third quarter of 1993, Kentucky Utilities set an all-time peak demand
for electricity on July 28, 1993, of 3,176 megawatts. The increase in
industrial sales reflects the general strength of the service area
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economy as well as an increase in the number of industrial customers. As
a result of the increase in sales, revenues rose 5% in 1993 to
$606.6 million. Revenues in 1993 were reduced approximately $3.3 million
as a result of refunds to customers of amounts recovered from a
litigation settlement with a former coal supplier. The $3.3 million,
which was charged against revenue, represents $4.1 million of fuel
savings less $.8 million for incurred litigation costs. See Note 2 of
the Notes to the Consolidated Financial Statements.
Despite declines in residential and commercial sales in 1992, total sales
increased due to greater sales to industrial customers. The decline in
residential and commercial sales was the result of cooler than normal
weather in the second and third quarters of 1992, compared to warmer than
normal weather in the corresponding periods of 1991. The decline in 1992
revenues was due primarily to lower average fuel costs passed on to
customers.
<TABLE>
Kilowatt-Hour Sales
<CAPTION>
Year Ended December 31, 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
kWh Sales (in millions) 15,796 14,859 14,731 13,587 13,135
</TABLE>
1993 Kilowatt-Hour Sales by Classification
Year Ended December 31, 1993
Residential 30%
Commercial 20%
Industrial 22%
Mine Power 6%
Public Authorities 8%
Other Electric Utilities 14%
Total 100%
Fuel and Purchased Power Expense
Fuel expense in 1993 totaled $178.9 million, a 6% increase over 1992.
The increase was largely attributable to greater coal consumption. Fuel
expense for 1993 reflects a $4.1 million reduction associated with the
refunding to customers of fuel cost savings resulting from the litigation
settlement with a former coal supplier. See Note 2 of the Notes to
Consolidated Financial Statements. Purchased power expense increased
$2.0 million (6%) in 1993. The increase reflects greater demand charges
associated with a new short-term capacity contract with a neighboring
utility, partially offset by a 5% decline in power purchases. The
decline in power purchases was due to a reduction in the availability of
Owensboro Municipal Utilities' (OMU) generating units during scheduled
maintenance of those units in the second quarter of 1993. A contract
between Kentucky Utilities and OMU allows Kentucky Utilities to purchase,
on an economic basis, surplus power from a 400-megawatt generating
station owned by OMU.
Fuel expense in 1992 declined $14.7 million (8%) to $168.5 million. The
reduction was due to a lower average price per ton of coal consumed (6%)
and to a decline in coal consumption (2%). The decline in the average
price per ton was due to lower cost coal and to the completion in May
1992 of the amortization of buyout costs associated with a terminated
coal contract. Coal consumption in 1992 was reduced as a result of
increases in power purchases. Purchased power expense rose $6.0 million
(22%) in 1992 due to increased power purchases (39%), primarily under the
OMU contract. The increase in purchased power costs resulting from
greater kWh purchases in 1992 was partially offset by a reduction in the
average price per kWh purchased.
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Other Operating Expenses
Other operating expenses for 1993 increased $11.0 million (12%),
$6.3 million of which resulted from the adoption of a new accounting
standard. See Note 4 (Other Postretirement Benefits) of the Notes to
Consolidated Financial Statements.
Other Income and Deductions
Other income and deductions in 1993 declined $1.5 million. A reduction
in interest and dividend income resulted from lower levels of cash
investments. This reduction was partially offset by an increase in
income from nonutility investments.
Other income and deductions in 1992 were comparable to 1991. Additional
interest and dividend income, associated with an increase in the average
amounts available for investment and bond proceeds deposited pending
retirement of existing debt issues, were offset by lower available short-
term investment returns.
Interest and Other Charges
Interest and other charges decreased $8.2 million (19%) in 1993. The
decrease was the result of the redemption of two debt issues near the
beginning of the second quarter of 1993 and the refinancing of several
debt issues during the second half of 1992 and early in the third quarter
of 1993 at significantly lower interest rates. See Note 5 of the Notes
to Consolidated Financial Statements for information pertaining to the
Company's refinancing and redemption activities in 1993.
Interest and other charges in 1992 increased $2.3 million (6%). The
interest expense associated with the issuance of additional debt was
partially offset by the refinancing of higher cost existing debt.
Reduced preferred stock dividend requirements also partially offset the
increase in interest and other charges. The effects of the increase in
interest expense were partially offset by the above mentioned interest
income on bond proceeds deposited.
LIQUIDITY & RESOURCES
Capital Structure
KU Energy continues to maintain a strong capital structure. At the end
of 1993, common stock equity represented 55.5% of total capitalization
while long-term debt stood at 40.8%, and preferred stock was 3.7%.
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<TABLE>
Total Capitalization
<CAPTION>
As of December 31, 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Capitalization (in millions) $1,085 $1,067 $1,016 $ 995 $ 995
Long-Term Debt 40.8% 41.6% 40.2% 41.1% 39.9%
Preferred Stock 3.7% 3.7% 3.9% 4.0% 7.1%
Common Stock Equity 55.5% 54.7% 55.9% 54.9% 53.0%
</TABLE>
Cash Flow
In 1993, cash provided by operating activities accounted for 69% of total
cash requirements as compared to 87% in 1992 and 105% for 1991. Cash
requirements included in the above percentages exclude optional debt
refinancings and redemptions. At the end of 1993, cash and cash
equivalents totaled $32.5 million. Cash and cash equivalents were
$122.8 million at the end of 1992 and $125.6 million at year-end 1991.
Cash and cash equivalents were utilized to redeem $55 million of first
mortgage bonds and to help meet expenditures for compliance with the 1990
Clean Air Act Amendments, peaking unit construction and leveraged lease
investments, thus lowering cash levels at the end of 1993.
Financing
During 1993, Kentucky Utilities continued to take advantage of
opportunities to reduce its embedded cost of long-term debt through
refinancings. A total of $120 million of first mortgage bonds was
refinanced in 1993 at significantly lower interest rates. Kentucky
Utilities has refinanced over $300 million of long-term debt over the
past year and a half. The reduction of interest expense on an annual
basis from these refinancings will total about $5.4 million. In 1992,
Kentucky Utilities refinanced $53 million of first mortgage bonds
(including a $3 million redemption premium) and $133.9 million of
pollution control bonds at significantly lower interest rates. As a
result of the foregoing activities, Kentucky Utilities' embedded cost of
long-term debt declined to 7.23% in 1993 as compared to 8.00% in 1992 and
8.94% in 1991.
In December 1993, $50 million of 5 3/4% Collateralized Solid Waste
Disposal Facility Revenue Bonds were issued to finance a portion of the
costs of environmental compliance facilities currently under
construction.
Kentucky Utilities also issued $20 million of 6.53% preferred stock in
December 1993. Proceeds from the sale of this issue were used to redeem
the utility's 7.84% Preferred Stock on February 1, 1994. See Note 5 of
the Notes to Consolidated Financial Statements for additional information
on 1993 financing activities.
<TABLE>
Embedded Cost of Long-Term Debt
<CAPTION>
As of December 31, 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Embedded Cost of Long-Term Debt 7.23% 8.00% 8.94% 8.93% 8.97%
</TABLE>
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Nonutility Investments
KU Energy has adopted a core energy strategy for its nonutility
investments. Under this strategy, targeted investments that build on the
Company's knowledge and expertise will be made in energy-related areas.
In particular, the Company is focusing its attention on independent power
projects (including qualifying facilities and exempt wholesale
generators) and equipment leased to other utilities.
In 1993, KU Capital purchased, for about $10 million, equity interests in
leveraged leases of six combustion turbine generating units, which are
leased to utility companies. Other nonutility investments include a
hedged utility preferred stock portfolio totaling $16.0 million and
short-term money market investments which totaled $23.2 million at the
end of 1993.
Construction
Construction expenditures totaled $177.1 million in 1993 as compared to
$86.1 million in 1992 and $65.6 million in 1991. The 1993 increase was
largely attributable to $48.7 million expended for compliance with the
1990 Clean Air Act Amendments and $55.5 million expended for construction
of peaking units.
Projected construction requirements for the 1994-1998 period are
$631.6 million. Included in this amount are $152.3 million for
environmental compliance measures of which $128.6 million is for
compliance with the 1990 Clean Air Act Amendments. Also included in the
1994-1998 construction total is $137.8 million for peaking units.
Kentucky Utilities expects to provide about 79% of its 1994-1998
construction requirements through internal sources of funds with the
balance primarily from long-term debt.
<TABLE>
Construction Expenditures by Function - Actual
<CAPTION>
(in millions of dollars) 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C>
Total Construction Expenditures $ 52.2 $ 59.2 $ 65.6 $ 86.1 $177.1
Generation 12.0% 25.7% 33.7% 42.1% 69.7%
Distribution 59.1% 53.6% 47.6% 36.3% 21.5%
Transmission and Other 28.9% 20.7% 18.7% 21.6% 8.8%
</TABLE>
<TABLE>
Construction Expenditures by Function - Projected
<CAPTION>
(in millions of dollars) 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Total Construction Expenditures $183.6 $109.1 $128.6 $125.0 $ 85.3
Generation 70.9% 46.6% 53.9% 48.1% 18.5%
Distribution 19.6% 33.6% 29.3% 33.0% 51.2%
Transmission and Other 9.5% 19.8% 16.8% 18.9% 30.3%
</TABLE>
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Providing for Customer Growth
Kentucky Utilities utilizes a least cost planning strategy to ensure that
growth in customer demand is provided for in the most efficient and cost-
effective manner. The Kentucky Public Service Commission (PSC) requires
filing of an Integrated Resource Plan every two years. Kentucky
Utilities filed its 1993 Integrated Resource Plan in October 1993. This
plan includes a 15-year load forecast and description of existing and
planned conservation programs, load management programs and generation
facilities to meet forecasted requirements in a reliable manner at the
lowest reasonable costs. The PSC has initiated an informal review of the
plan according to existing regulations.
As outlined in Kentucky Utilities' 1993 Integrated Resource Plan, annual
growth in sales and customer peak demand is forecast at 1.8% and 1.9%,
respectively, over the next 15 years. The utility plans to provide for
customer growth in the '90s through purchased power and the addition of
combustion turbine peaking units. Three 110-megawatt peaking units are
currently under construction. Two of the units will be installed in 1994
and the other in 1995. An additional peaking unit may be required in
each year from 1996-1998. There are no plans for additional baseload
capacity before 2010.
ENVIRONMENTAL MATTERS
Clean Air Act Compliance
Kentucky Utilities' compliance strategy for the 1990 Clean Air Act
Amendments includes installing flue gas desulfurization systems
(scrubbers), low nitrogen oxide burners and continuous emission
monitoring devices as well as fuel switching to lower sulfur coal. The
key component of the utility's compliance plan for Phase I requirements,
which are effective January 1, 1995, is a scrubber under construction at
Ghent Unit 1. The flexible design of the Ghent Unit 1 scrubber provides
the option of installing equipment to scrub flue gas from Ghent Unit 2 at
an economical cost. Anticipated costs of implementing this option are
included in the total estimated 1994-1998 construction expenditures shown
above.
In 1993, Kentucky Utilities revised its previous cost estimates for
compliance to reflect lower than expected costs for construction of the
Ghent Unit 1 scrubber. Kentucky Utilities also deferred, until the 2005
time frame, an additional scrubber originally planned at Brown Unit 3 for
compliance with Phase II requirements, which are effective January 1,
2000. The utility had anticipated capital spending of about $359 million
through 2000 for the 1990 Clean Air Act Amendments ($166 million for
Phase I and $193 million for Phase II). With the above mentioned
revisions and the anticipated additional equipment to scrub Ghent Unit 2,
current estimates of the capital costs for compliance through the year
2000 are about $200 million (over two-thirds of which should be incurred
by January 1, 1995). Through December 31, 1993, about $70 million had
been spent for compliance.
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Kentucky Utilities has purchased 12,900 Phase I emission allowances and
has been awarded about 114,000 additional allowances through
participation in the Environmental Protection Agency's Phase I Extension
Plan Program. The allowances give the utility additional flexibility in
implementing its compliance plans and will be incorporated into its
strategy to achieve the most economical means of compliance.
Kentucky Utilities will continue to review and revise its compliance
plans to ensure that its obligations are most effectively met.
Environmental Surcharge
In January 1994, Kentucky Utilities filed plans with the PSC to implement
an environmental surcharge. The surcharge will permit the utility to
recover certain ongoing operating and capital costs of compliance with
any federal, state or local environmental requirements associated with
the production of energy from coal, including the 1990 Clean Air Act
Amendments. Upon PSC approval, the proposed environmental surcharge
would begin August 1, 1994. Kentucky Utilities estimates that under the
proposed surcharge, it would recover about $15.5 million in environmental
costs during the first twelve months and about $23 million during the
second twelve months.
Other
In 1990, the Company received a letter from the Environmental Protection
Agency (EPA) identifying Kentucky Utilities and others as potentially
responsible parties under the Comprehensive Environmental Response
Compensation and Liability Act of 1980 for a disposal site in Daviess
County, Kentucky. The EPA has turned over responsibility for
investigation of the site and development of a remediation plan to a
group (not including Kentucky Utilities) originally named as potentially
responsible parties. Kentucky Utilities has entered into an agreement
with the group as to the portion of the investigation and development
costs to be borne by Kentucky Utilities in connection with the site. Any
remediation plan would be subject to approval of the EPA. Although a
final, approved plan has yet to be developed, Kentucky Utilities does not
believe that any liability with respect to the site will have a material
impact on its financial position or results of operations.
NATIONAL ENERGY POLICY ACT
The National Energy Policy Act of 1992 (Energy Act) promotes energy
efficiency, environmental protection and increased competition.
Provisions of the Energy Act of most importance to electric utilities are
those that promote competition in the generation and transmission of
electricity. The Energy Act removes long-standing constraints on the
development of wholesale power generation by establishing a new class of
independent power producers which are exempt from traditional utility
regulation. The Energy Act also makes it easier for nonutility power
producers to gain access to utility-owned transmission networks by
allowing the Federal Energy Regulatory Commission to order wholesale
"wheeling" by public utilities. While the final impact of the Energy Act
is yet to be determined, the Company believes that it will increase
competition and may affect the traditional business strategies of the
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utility industry. The Company further believes it is well positioned for
increased competition because Kentucky Utilities' rates continue to be
among the lowest in the nation.
IMPACT OF ACCOUNTING STANDARDS
Refer to Note 8 of the Notes to Consolidated Financial Statements for
information concerning a new standard for accounting for investments in
debt and equity securities.
INFLATION
Kentucky Utilities' rates are designed to recover operating and
historical plant costs. Financial statements, which are prepared in
accordance with generally accepted accounting principles, report
operating results in terms of historic costs and do not evaluate the
impact of inflation. Inflation affects Kentucky Utilities' construction
costs, operating expenses and interest charges. Inflation can also
impact Kentucky Utilities' financial performance if rate relief is not
granted on a timely basis for increased operating costs.
-90-
<PAGE>
Consolidated Statements
of Income and
Retained Earnings
KU Energy Corporation
& Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
(in thousands of dollars, except for per share amounts)
<S> <C> <C> <C>
Operating Revenues $ 606,608 $ 576,260 $ 587,660
Operating Expenses:
Fuel, principally coal, used in generation 178,910 168,470 183,167
Electric power purchased 34,711 32,753 26,744
Other operating expenses 106,124 95,109 93,648
Maintenance 59,458 61,270 58,590
Depreciation 60,811 58,931 57,337
Federal and state income taxes 47,752 40,992 45,837
Other taxes 14,357 13,401 12,858
502,123 470,926 478,181
Net Operating Income 104,485 105,334 109,479
Other Income and Deductions:
Interest and dividend income 4,737 7,866 8,744
Other income and deductions - net 6,033 4,415 3,503
10,770 12,281 12,247
Income Before Interest and Other Charges 115,255 117,615 121,726
Interest and Other Charges:
Interest on long-term debt 31,650 39,571 36,559
Preferred stock dividend requirements of Subsidiary 2,558 2,518 3,031
Other interest charges 1,064 1,344 1,549
35,272 43,433 41,139
Net Income $ 79,983 $ 74,182 $ 80,587
Earnings per Average Common Share, based on average
shares outstanding of 37,817,878 $ 2.11 $ 1.96 $ 2.13
Retained Earnings Beginning of Year $ 275,475 $ 260,289 $ 238,614
Add Net Income 79,983 74,182 80,587
355,458 334,471 319,201
Deduct:
Dividends on common stock, $1.60, $1.56 and $1.50
per share during 1993, 1992 and 1991, respectively 60,509 58,996 56,727
Preferred stock redemption expense and other - - 2,185
60,509 58,996 58,912
Retained Earnings End of Year $ 294,949 $ 275,475 $ 260,289
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
-91-
<PAGE>
Consolidated Statements
of Cash Flows
KU Energy Corporation
& Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1993 1992 1991
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income $ 79,983 $ 74,182 $ 80,587
Items not requiring (providing) cash currently:
Depreciation 60,811 58,931 57,337
Deferred income taxes 6,064 3,262 272
Investment tax credit deferred (4,131) (4,149) (4,377)
Change in fuel inventory 7,694 (642) 15,836
Change in accounts receivable (9,243) 5,443 25
Change in accounts payable 22,660 (1,823) 5,495
Change in accrued utility revenues (2,019) (1,970) 883
Change in liability to ratepayers 36,867 - -
Change in escrow funds (37,752) - -
Other - net 2,688 (1,253) 7,765
Net Cash Provided by Operating Activities 163,622 131,981 163,823
Cash Flows from Investing Activities:
Construction expenditures - utility (177,069) (86,077) (65,649)
Nonutility property (17) (5,037) (135)
Purchase of long-term investments (944) (15,160) -
Investment in leveraged leases (10,320) - -
Other 380 801 504
Net Cash Used by Investing Activities (187,970) (105,473) (65,280)
Cash Flows from Financing Activities:
Issuance of long-term debt 173,500 219,930 -
Funds deposited with trustee - net (18,268) 528 6,311
Retirement of long-term debt, including premiums (180,677) (190,756) (711)
Retirement of preferred stock - - (32,732)
Issuance of preferred stock 20,000 - -
Payment of common stock dividends (60,509) (58,996) (56,727)
Net Cash Used by Financing Activities (65,954) (29,294) (83,859)
Net Increase (Decrease) in Cash and Cash Equivalents (90,302) (2,786) 14,684
Cash and Cash Equivalents Beginning of Year 122,802 125,588 110,904
Cash and Cash Equivalents End of Year $ 32,500 $122,802 $125,588
Supplemental Disclosures
Cash paid for:
Interest on long-term debt $ 33,860 $ 41,912 $ 36,441
Federal and state income taxes $ 42,190 $ 38,696 $ 48,080
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
-92-
<PAGE>
Consolidated
Balance Sheets
KU Energy Corporation
& Subsidiaries
<TABLE>
<CAPTION>
As of December 31, (in thousands of dollars) 1993 1992
Assets
Utility Plant:
<S> <C> <C>
Plant in service, at cost $2,004,688 $1,955,164
Less: Accumulated depreciation 879,960 823,502
1,124,728 1,131,662
Construction work in progress 158,829 37,422
1,283,557 1,169,084
Current Assets:
Cash and cash equivalents 32,500 122,802
Escrow funds - coal contract litigation 37,752 -
Construction funds held by trustee 18,268 -
Accounts receivable, net of allowance for doubtful accounts 41,394 32,151
Accrued utility revenues 25,575 23,556
Fuel, principally coal, at average cost 31,073 38,767
Plant materials and operating supplies, at average cost 17,261 11,932
Other 7,808 1,970
211,631 231,178
Investments, Deferred Charges and Other Assets:
Investment in marketable securities 16,397 16,067
Investment in leveraged leases 10,320 -
Accumulated deferred income taxes 36,418 16,566
Unamortized loss on reacquired debt 13,295 8,613
Other 37,994 32,158
114,424 73,404
$1,609,612 $1,473,666
Capitalization and Liabilities
Capitalization: (See Consolidated Statements of Capitalization)
Common stock equity $ 602,503 $ 583,319
Preferred stock 40,000 40,000
Long-term debt 442,045 443,977
1,084,548 1,067,296
Current Liabilities:
Preferred stock and long-term debt due within one year 20,021 21
Accounts payable 43,894 21,234
Accrued interest 7,302 10,621
Accrued taxes 4,456 4,060
Customers' deposits 10,803 10,605
Accrued payroll and vacations 7,719 6,762
Liability to ratepayers - coal contract litigation 36,867 -
Other 6,444 6,003
137,506 59,306
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 248,369 280,642
Accumulated deferred investment tax credits 42,385 46,516
Regulatory liabilities 69,689 5,090
Other 27,115 14,816
387,558 347,064
$1,609,612 $1,473,666
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
-93-
<PAGE>
Consolidated
Statements of
Capitalization
KU Energy Corporation
& Subsidiaries
<TABLE>
<CAPTION>
As of December 31, (in thousands of dollars) 1993 1992
Common Stock Equity:
Common stock, without par value, authorized 160,000,000
<S> <C> <C>
shares, outstanding 37,817,878 shares $ 308,140 $ 308,140
Capital stock expense and other (586) (296)
Retained earnings 294,949 275,475
602,503 583,319
Preferred Stock, Kentucky Utilities cumulative,
without par value, $100 stated value
4 3/4%, outstanding 200,000 shares 20,000 20,000
6.53%, outstanding 200,000 shares 20,000 -
7.84%, outstanding 200,000 shares 20,000 20,000
Less: Amounts to be redeemed within one year 20,000 -
40,000 40,000
Long-Term Debt:
First mortgage bonds, substantially all of Kentucky Utilities'
utility plant is pledged as security for these bonds 441,830 443,330
Unamortized premium 108 519
441,938 443,849
8% secured note, due January 5, 1999 128 149
Less: Amounts to be redeemed within one year 21 21
442,045 443,977
$1,084,548 $ 1,067,296
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
-94-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of KU Energy
Corporation (KU Energy or the Company), a holding company, and its wholly
owned subsidiaries, Kentucky Utilities Company (Kentucky Utilities), an
electric utility, and KU Capital Corporation (KU Capital), which
currently invests in marketable securities and leveraged leases.
Kentucky Utilities is the principal subsidiary of KU Energy. All
significant intercompany balances and transactions have been eliminated.
Regulation
Kentucky Utilities is a public utility subject to regulation by the
Kentucky Public Service Commission (PSC), the Virginia State Corporation
Commission (SCC) and the Federal Energy Regulatory Commission (FERC).
With respect to accounting matters, Kentucky Utilities maintains its
accounts in accordance with the Uniform System of Accounts as defined by
these agencies. Its accounting policies conform to generally accepted
accounting principles applicable to rate regulated enterprises and
reflect the effects of the ratemaking process.
Utility Plant
Utility plant is stated at the original cost of construction. The cost
of repairs and minor renewals is charged to maintenance expense as
incurred. Property unit replacements are capitalized and the
depreciation reserve is charged with the cost, less net salvage, of units
retired.
Depreciation
Provision for depreciation of utility plant is based on straight-line
composite rates applied to the cost of depreciable property. The rates
approximated 3.3% in 1993, 1992 and 1991.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers highly liquid
investments with a maturity of three months or less from the date of
purchase to be cash equivalents.
The Company utilizes a cash management mechanism that funds certain bank
accounts for checks as they are presented to those banks. The Company
classified checks written but not presented to those banks, which
amounted to $9.9 million at December 31, 1993, in accounts payable.
Marketable Securities
Investments in marketable securities are stated at the lower of aggregate
-95-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
cost or market. The investment portfolio includes preferred stocks which
are hedged with Treasury futures contracts. Gains and losses on
purchased hedges of the equity securities are deferred as an adjustment
to the carrying amount of the hedged equity securities.
Unamortized Loss on Reacquired Debt
Kentucky Utilities defers costs (primarily call premiums) arising from
the reacquisition or retirement of long-term debt. Costs related to
refinanced debt are amortized over the lives of the new debt issues.
Costs related to retired debt not refinanced are amortized over the
period to the scheduled maturity of the retired debt.
Operating Revenues and Fuel Costs
Revenues are recorded based on services rendered to customers. Kentucky
Utilities accrues an estimate of revenues for electric service furnished
from the meter reading dates to the end of each accounting period. Cost
of fuel used in electric generation is charged to expense as the fuel is
consumed. The cost of fuel for 1991 and 1992 included an amortization of
buyout costs associated with the termination of a coal supply contract.
A fuel adjustment clause adjusts operating revenues for changes in the
level of fuel costs charged to expense.
2. Fuel Litigation Refund
Kentucky Utilities had been involved in litigation which began in 1984
with a former coal supplier over the price and other terms of the
parties' long-term contract for Ghent Unit 3. Pursuant to an order of
the Fayette (KY) Circuit Court, Kentucky Utilities deposited part of the
disputed coal prices with the Fayette Circuit Court pending a final
decision. During the course of the proceedings, the supplier filed for
relief under the Federal Bankruptcy Code. On February 1, 1993, the
Bankruptcy Court for the Eastern District of Kentucky approved a
settlement agreement disposing of all litigation and claims between
Kentucky Utilities and the supplier. All other actions and appeals
involving the various parties and claimants have been dismissed.
In March 1993, the deposited funds (totaling approximately $44 million,
including interest through that date) were released by the Fayette
Circuit Court to Kentucky Utilities and have been held by Kentucky
Utilities in a segregated escrow account pending disposition in
accordance with appropriate orders of regulatory agencies.
During 1993, Kentucky Utilities submitted plans to the FERC, PSC and SCC
for distributing a portion of the deposited funds to customers.
Kentucky Utilities' plan was approved by the SCC, as submitted, and
refunds of the Virginia retail portion of the deposited funds
(approximately $2.3 million), plus interest, are being made to Virginia
-96-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
retail customers over 12 months beginning August 1, 1993. Kentucky
Utilities' plan was approved by the FERC, as submitted, and a refund of
that portion of the deposited funds (approximately $3.9 million) relating
to wholesale customers was made in lump sum payments in September 1993.
In an order which became final in February 1994, the PSC ordered Kentucky
Utilities to refund that portion of the deposited funds relating to
Kentucky retail customers (approximately $35.5 million), plus interest,
to customers on its system from April 1985 through December 1990. The
order allows Kentucky Utilities to retain $.8 million of incurred
litigation costs and $2.4 million for savings attributable to off-system
sales. The PSC order also allows Kentucky Utilities recovery of its
costs incurred in administering an approved refund plan. A refund plan
in accordance with the PSC order has been filed by Kentucky Utilities for
PSC approval.
The total escrow funds remaining after the above mentioned FERC and SCC
refunds and the withdrawals for savings attributable to off-system sales
($2.4 million) and incurred litigation costs ($.8 million) resulting from
the FERC and SCC orders are reflected on the Balance Sheet under the
caption "Escrow funds - coal contract litigation." The "Liability to
ratepayers - coal contract litigation" represents the fuel cost savings
(including interest) that will be credited to Kentucky and Virginia
retail customers. Approximately $3.2 million of "Other Deferred Credits"
represents the portion of savings attributable to off-system sales and
the Kentucky jurisdictional allowed litigation costs. Kentucky Utilities
will record a $3.2 million reduction of expense (for the off-system sales
and allowed litigation costs) in 1994.
3. Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
This statement requires an asset and liability approach for financial
accounting and reporting for income taxes rather than the deferred
method. It requires the Company to establish deferred tax assets and
liabilities, as appropriate, for all temporary differences, and to adjust
deferred tax balances to reflect changes in tax rates expected to be in
effect during the periods the temporary differences reverse. At the
date of adoption, because of the effects of rate regulation, the Company
recorded an increase of $22 million in deferred tax assets and a decrease
of $53 million in deferred tax liabilities, and established a
corresponding regulatory liability of $75 million, primarily to recognize
the probable future reduction in rates to flowback to customers amounts
previously collected for deferred taxes in excess of current statutory
tax rates. The adoption of this standard did not have a material impact
on results of operation, cash flows or financial position.
-97-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
Investment tax credits result from provisions of the tax law which
permitted a reduction of the Company's tax liability based on certain
construction expenditures. Such credits have been deferred in the
accounts and are being amortized as reductions in income tax expense over
the life of the related property.
The accumulated deferred income taxes as set forth below and in the
Consolidated Balance Sheets arise from the following temporary
differences at December 31 and January 1, 1993:
<TABLE>
<CAPTION>
December 31 January 1
(in thousands of dollars) Deferred Deferred Deferred Deferred
Tax Assets Tax Liabilities Tax Assets Tax Liabilities
Accelerated depreciation
and other property
<S> <C> <C> <C> <C>
related differences $ 28,529 $ 241,893 $ 27,820 $ 224,452
Other 13,786 6,476 10,732 2,631
Total accumulated
deferred income taxes $ 42,315 $ 248,369 $ 38,552 $ 227,083
</TABLE>
Of the $3.8 million increase in deferred tax assets and the $21.3 million
increase in deferred tax liabilities, approximately $1.3 million and $9.6
million, respectively, resulted from an increase in the federal statutory
corporate income tax rate from 34% to 35% effective January 1, 1993. This
resulted in a net decrease of $8.3 million in the regulatory liability.
-98-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
<TABLE>
The components of income tax expense are as follows:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1993 1992 1991
Income taxes charged to Operating Income:
<S> <C> <C> <C>
Current - federal $ 35,579 $ 30,460 $ 36,656
- state 9,403 7,851 9,105
44,982 38,311 45,761
Deferred - federal 2,812 2,254 570
- state 65 557 160
2,877 2,811 730
Deferred investment tax credit (107) (130) (654)
47,752 40,992 45,837
Income taxes charged to Other Income
and Deductions:
Current - federal (2,060) 807 1,581
- state (577) (12) 504
(2,637) 795 2,085
Deferred - federal 2,591 361 (362)
- state 596 90 (96)
3,187 451 (458)
Amortization of deferred investment tax credit (4,024) (4,019) (3,723)
(3,474) (2,773) (2,096)
Total income tax expense $ 44,278 $ 38,219 $ 43,741
The provisions for deferred income taxes relate to the following items:
Year Ended December 31, (in thousands of dollars) 1993 1992 1991
Accelerated depreciation and other
property related differences $ 5,596 $ 6,817 $ 5,658
Power plant inventory 418 (10) (3,564)
Loss on reacquired debt 3,459 1,165 (39)
Other (3,409) (4,710) (1,783)
Total provisions for deferred income taxes $ 6,064 $ 3,262 $ 272
</TABLE>
The Company's effective income tax rate, determined by dividing income
taxes by the sum of such taxes and net income, was 35.6% in 1993, 34.0% in
1992 and 35.2% in 1991. The difference between the effective rate and the
statutory federal income tax rate is attributable to the following factors:
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1993 1992 1991
Federal income tax computed at
<S> <C> <C> <C>
35%, 34% and 34%, respectively $ 43,491 $ 38,216 $ 42,272
Add (Deduct):
State income taxes, net of federal income tax benefit 6,167 5,601 6,384
Amortization of deferred investment tax credit (4,131) (4,140) (3,857)
Other, net (1,249) (1,458) (1,058)
Total income tax expense $ 44,278 $ 38,219 $ 43,741
</TABLE>
-99-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
4. Retirement and Postemployment Benefits
Pensions
The Company has a noncontributory defined benefit pension plan covering
substantially all of its employees. Benefits under this plan are based
on years of service, final average base pay and age at retirement. The
Company's funding policy is to make such contributions as are necessary
to finance the benefits provided under the plan. The Company's
contributions meet the funding standards set forth in the Employee
Retirement Income Security Act of 1974. The plan assets consist
primarily of equity and fixed income investments.
The Company also has a Supplemental Security Plan for certain management
personnel. Retirement benefits under this plan are based on years of
service, earnings and age at retirement. The plan has no advance
funding. Benefit payments are made to retired employees or their
beneficiaries from the general assets of the Company.
<TABLE>
The reconciliation of the funded status of the retirement plans and the
pension liability recorded by the Company is as follows:
<CAPTION>
As of December 31, (in thousands of dollars) 1993 1992
<S> <C> <C>
Fair value of plan assets $ 157,137 $ 147,235
Projected benefit obligation (169,309) (144,380)
Plan assets in excess of (less than)
projected benefit obligation (12,172) 2,855
Unrecognized net (gain)/loss from past
experience different than that assumed 6,361 (7,628)
Unrecognized prior service cost 4,966 5,334
Unrecognized net asset (1,949) (2,099)
Regulatory effect recorded (5,146) (5,090)
Pension liability $ (7,940) $ (6,628)
Accumulated benefit obligation (including vested benefits
of $128,779 and $105,442, respectively) $ 130,758 $ 107,503
</TABLE>
<TABLE>
Components of Net Pension Cost:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1993 1992 1991
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 5,036 $ 4,774 $ 4,307
Interest cost on projected benefit obligation 12,311 11,482 10,473
Actual return on plan assets (13,229) (11,384) (20,158)
Net amortization and deferral 1,785 350 10,941
Regulatory effect based on funding 56 705 1,139
Net pension cost $ 5,959 $ 5,927 $ 6,702
Assumptions Used in Determining Actuarial Valuations:
1993 1992 1991
Weighted average discount rate used to
determine the projected benefit obligation 7 1/2% 8 3/4% 8 3/4%
Rate of increase for compensation levels (1) 4 3/4% 6% 6%
Weighted average expected long-term rate
of return on assets 8 1/4% 8 3/4% 8 3/4%
(1) 5 1/4%, 6 1/2% and 6 1/2%, respectively, used for the Supplemental Security Plan
valuation.
</TABLE>
-100-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
Other Postretirement Benefits
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106). This standard provides
accounting and disclosure requirements associated with the Company's
obligation to provide postretirement benefits other than pensions to
present and future retirees. In accordance with this standard, the
Company will accrue, during the years that the employee renders service,
the expected cost of providing these benefits for retired employees,
their beneficiaries and covered dependents. The Company previously
recognized these costs on a pay-as-you-go (cash) basis. Amounts paid for
retirees for 1992 and 1991 amounted to $2.3 million and $2.4 million,
respectively.
The Company provides certain health care and life insurance benefits to
eligible retired employees and their dependents. The postretirement
health care plan is contributory for employees who retired after
December 31, 1992, with retiree contributions indexed annually based upon
the experience of retiree medical expenses for the preceding year. Pre-
1993 retirees are not required to contribute to the plan. The Company's
employees become eligible for retiree medical benefits after 15 years of
service and attainment of age 55. The life insurance plan is
noncontributory and is based on compensation levels prior to retirement.
Employees may purchase additional life insurance equal to the amount
provided by the Company.
In 1993, the Company began funding, in addition to current requirements
for benefit payments, the maximum tax-favored amount allowed through
certain tax deductible funding vehicles. The Company anticipates making
similar funding decisions in future years, but will consider and make
such funding decisions on the basis of tax, regulatory and other relevant
conditions in effect at such times.
The PSC issued a decision in December 1992 stating that the rate
treatment resulting from the adoption of SFAS 106 will be considered on a
case-by-case basis in the context of a general rate case. Based on
management's interpretation of this PSC Order, the Company is not
deferring the Kentucky jurisdictional portion of these costs. The FERC
and the SCC both have approved accrual of these costs for ratemaking
purposes in accordance with SFAS 106. The Company is deferring, in
accordance with the SCC and FERC Orders, the difference between costs
determined in accordance with SFAS 106 and the level currently reflected
in rates for the portion of costs associated with the Virginia and FERC
jurisdictions until the next general rate cases in the respective
jurisdictions as a result of the above mentioned Orders. The impact on
results of operations, after giving effect to the regulatory treatment
discussed above, is an increase in pre-tax expense for the year ended
December 31, 1993 of $6.3 million (net of capitalized payroll benefits).
-101-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
<TABLE>
The reconciliation of the funded status of the plans and the
postretirement benefit liability recorded by the Company is as follows:
<CAPTION>
As of December 31, (in thousands of dollars) 1993
Accumulated postretirement benefit obligation:
<S> <C>
Retirees $( 38,331)
Fully eligible active plan participants (8,448)
Other active plan participants (28,813)
(75,592)
Plan assets at fair value 2,440
Accumulated postretirement benefit obligation
in excess of plan assets (73,152)
Unrecognized net loss from past
experience different from that assumed 3,230
Unrecognized transition obligation 63,483
Regulatory effect recorded 689
Accrued postretirement benefit liability $ (5,750)
Components of the net periodic postretirement benefit cost are as follows:
Year Ended December 31, (in thousands of dollars) 1993
Service cost (benefits attributed to $ 2,048
service during the period)
Interest cost on accumulated postretirement
benefit obligation 5,730
Amortization of transition obligation 3,341
Regulatory deferral (689)
Net periodic postretirement benefit cost $ 10,430
</TABLE>
For measurement purposes, a 10% annual rate of increase in the per capita
cost of covered health care benefits is assumed for 1994. The health
care cost trend rate is assumed to decrease gradually to 5.25% through
2004 and remain at that level thereafter over the projected payout period
of the benefits. Increasing the assumed health care cost trend rates by
1 percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1993, by $12 million
(16%) and the aggregate of the service and interest cost components of
the net periodic postretirement benefit cost for the year by $1.6 million
(20%).
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%. The weighted-average discount
rate used in determining the initial transition amount was 8.75%. The
rate of increase for compensation levels was assumed to be 4.75%.
-102-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
Other Postemployment Benefits
In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits". This statement establishes
standards of accounting and reporting for the estimated cost of benefits
provided by an employer to former or inactive employees after employment
but before retirement. The Company provides medical and life insurance
benefits to disabled employees that are covered by this statement. The
Company adopted this standard in 1993. The adoption of this standard did
not have a material impact on financial condition or results of
operation.
5. Commitments and Contingencies
<TABLE>
The effects of certain commitments made by the Company are estimated
below:
<CAPTION>
(in thousands of dollars) 1994 1995 1996 1997 1998
Estimated Construction
<S> <C> <C> <C> <C> <C>
Expenditures $183,600 $109,100 $128,600 $125,000 $ 85,300
Estimated Contract
Obligations:
Fuel 153,400 92,500 66,300 54,200 12,500
Purchased power 25,000 23,300 25,500 26,300 26,100
Operating leases 3,100 3,100 3,000 3,000 3,000
Sinking Fund Requirements
and Redemptions:
First mortgage bonds 376 376 376 376 376
Preferred stock $ 20,000 $ - $ - $ - $ -
</TABLE>
Construction Program
Kentucky Utilities frequently reviews its construction program and may
revise its projections of related expenditures based on revisions to its
estimated load growth and projections of its future load.
See Management's Discussion and Analysis - Construction for a discussion
of future expenditures relating to compliance with the 1990 Clean Air Act
Amendments and construction of peaking units.
Coal Supply
Obligations under Kentucky Utilities' coal purchase contracts are stated
at prices effective January 1, 1994, and are subject to changes as
defined by the terms of the contracts.
Purchased Power Agreements
Kentucky Utilities has purchase power arrangements with Owensboro
Municipal Utilities (OMU), Electric Energy, Inc. (EEI) and Illinois Power
Company (IP). Under the OMU agreement, which expires on January 1, 2020,
-103-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
Kentucky Utilities purchases, on an economic basis, all of the output of
a 400-MW generating station not required by OMU. The amount of purchased
power available to Kentucky Utilities during 1994-1998, which is expected
to be approximately 8% of Kentucky Utilities' total kWh requirements, is
dependent upon a number of factors including the units' availability,
maintenance schedules, fuel costs and OMU requirements. Payments are
based on the total costs of the station allocated per terms of the OMU
agreement, which generally follows delivered kWh. Included in the total
costs is Kentucky Utilities' proportionate share of debt service
requirements on $30.1 million of OMU bonds outstanding at December 31,
1993. The debt service is allocated to Kentucky Utilities based on its
annual allocated share of capacity, which averaged approximately 51% in
1993. In 1995, Kentucky Utilities' total costs will increase to include
Kentucky Utilities' proportionate share of debt service requirements on
approximately $171.5 million of additional OMU bonds issued to finance
capital improvements designed to enable OMU to comply with the 1990 Clean
Air Act Amendments.
Kentucky Utilities has a 20% equity ownership in EEI, which is accounted
for on the equity method of accounting. Through 1993, the equity
ownership permitted Kentucky Utilities to share in the output of a 1,000-
MW station not needed by EEI. Kentucky Utilities' entitlement, beginning
January 1, 1994, will be 20% of the available capacity of the station.
Payments are based on the total costs of the station allocated per terms
of an agreement among the owners, which generally follows delivered kWh.
Kentucky Utilities has contracted to purchase 75-MW of capacity from IP
for the period of January 1993 through March 1994, and 125-MW of capacity
from April 1994 through December 1994.
Sinking Fund Requirements and Redemptions
Annual sinking fund requirements for Kentucky Utilities' first mortgage
bonds may be met with cash or expenditures for bondable property as
provided in the Mortgage Indenture. Kentucky Utilities intends to meet
the 1994 sinking fund requirements with expenditures for bondable
property.
Kentucky Utilities redeemed all of the outstanding shares of its 7.84%
preferred stock on February 1, 1994, at a total price of $20.3 million.
Lines of Credit
Kentucky Utilities has aggregate bank lines of credit of $55 million, all
of which remained unused at December 31, 1993. These lines of credit may
not be withdrawn at the banks' option prior to September 30, 1994. In
support of these lines of credit, Kentucky Utilities compensates the
banks by paying a commitment fee.
Short-Term Borrowings
Kentucky Utilities' short-term financing requirements are satisfied
through the sale of commercial paper. Beginning November 1993, Kentucky
Utilities sold short-term commercial paper at interest rates varying from
3.10 to 3.25 percent. At December 31, 1993, Kentucky Utilities had no
short-term commercial paper borrowings outstanding.
-104-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
Long-Term Debt
<TABLE>
First Mortgage Bonds of Kentucky Utilities (including those
collateralizing pollution control revenue bonds) outstanding at December
31, 1993 and 1992, were as follows:
<CAPTION>
(in thousands of dollars) 1993 1992
First Mortgage Bonds:
<S> <C> <C>
7 5/8% Series H, due May 1, 1999 $ - $ 25,000
8 3/4% Series I, due April 1, 2000 - 30,000
5.95% Series Q, due June 15, 2000 61,500 -
7 5/8% Series J, due September 1, 2001 - 35,000
7 3/8% Series K, due December 1, 2002 35,500 35,500
6.32% Series Q, due June 15, 2003 62,000 -
9 1/8% Series L, due April 1, 2004 - 25,000
9 1/4% Series M, due June 1, 2006 - 30,000
8 1/2% Series N, due April 1, 2007 - 30,000
7.92% Series P, due May 15, 2007 53,000 53,000
8.55% Series P, due May 15, 2027 33,000 33,000
245,000 296,500
First Mortgage Bonds, Pollution Control Series:
7 3/8% Pollution Control Series 7, due May 1, 2010 4,000 4,000
7.45% Pollution Control Series 8, due September 15, 2016 96,000 96,000
6 1/4% Pollution Control Series 1B, due February 1, 2018 20,930 20,930
6 1/4% Pollution Control Series 2B, due February 1, 2018 2,400 2,400
6 1/4% Pollution Control Series 3B, due February 1, 2018 7,200 7,200
6 1/4% Pollution Control Series 4B, due February 1, 2018 7,400 7,400
7.60% Pollution Control Series 7, due May 1, 2020 8,900 8,900
5 3/4% Pollution Control Series 9, due December 1, 2023 31,900 -
5 3/4% County of Carroll, Kentucky, Collateralized Solid
Waste Disposal Facility Revenue Bonds, due December 1, 2023 18,100 -
196,830 146,830
$ 441,830 $ 443,330
</TABLE>
Kentucky Utilities redeemed $30 million of Series M and $25 million of
Series L First Mortgage Bonds (including redemption premiums of
$1.4 million and $.9 million, respectively) in March and April of 1993,
respectively.
In June 1993, Kentucky Utilities issued $123.5 million of Series Q First
Mortgage Bonds. Proceeds of the issue were used to redeem $25 million of
Series H, $30 million of Series I, $35 million of Series J and
$30 million of Series N First Mortgage Bonds (plus redemption premiums
aggregating $3.3 million) in July 1993.
In 1993, Kentucky Utilities entered into a loan agreement with the County
of Carroll, Kentucky, to finance the construction of solid waste disposal
facilities. The County issued $50 million of the 5 3/4% revenue bonds,
with the proceeds held in a construction fund by a trustee. As the
construction funds held by the trustee are drawn down, Kentucky Utilities
Pollution Control Series 9 Bonds are delivered to the trustee in an
amount equal to the amount drawn down.
-105-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
6. Common Stock
KU Energy is subject to restrictions applicable to all corporations under
Kentucky law on the use of retained earnings for cash dividends on common
stock. Kentucky Utilities is subject to the same restrictions as well as
those contained in Virginia law, its Mortgage Indenture and Articles of
Incorporation. At December 31, 1993, there were no restricted retained
earnings.
The Company has a shareholder rights plan designed to provide protection
to shareholders in the event of an unsolicited attempt to acquire the
Company. Under the shareholder rights plan, KU Energy shareholders will
receive as a dividend one right for each share of KU Energy common stock.
Should certain events occur (for instance, an acquirer becomes the
beneficial owner of 20 percent or more of the Company's outstanding
voting stock without approval by the Company, or certain transactions
occur following an acquirer becoming the beneficial owner of 10 percent
or more of such voting stock without Company approval), each right would
entitle the holder, other than the acquirer, to purchase common shares of
KU Energy or shares of any company that acquires KU Energy at a discount
from the market value. In certain circumstances, the Company may redeem
the rights at a price of $.01 per right. The rights expire in February
2002.
7. Preferred Stock
KU Energy
As of December 31, 1993, there were 20 million shares of KU Energy
preferred stock, without par value, authorized for issuance.
Kentucky Utilities
Kentucky Utilities redeemed all 120,000 shares of its 8.65% preferred
stock and 180,000 shares of its 9.96% preferred stock on March 1, 1991,
and the remaining 10,000 shares of its 9.96% preferred stock on June 1,
1991 at a total price of $32.7 million.
In December 1993, Kentucky Utilities issued 200,000 shares of 6.53%
preferred stock. The proceeds were used to redeem 200,000 shares of
7.84% preferred stock on February 1, 1994.
-106-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
<TABLE>
Each series of preferred stock is redeemable at the option of Kentucky
Utilities upon 30 days' written notice as follows:
<CAPTION>
Redemption Price per Share
Series (plus accrued and unpaid dividends, if any)
<S> <C>
4 3/4% $101.00
6.53% (Not redeemable prior to December 1, 2003.)
$103.265 through November 30, 2004, decreasing
approximately $.33 each twelve months
thereafter to $100 on or after December 1, 2013.
7.84% $101.50
</TABLE>
As of December 31, 1993, there were 5.3 million shares of Kentucky
Utilities preferred stock, having a maximum aggregate stated value of
$200 million, authorized for issuance.
8. Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
Cash and cash equivalents, escrow funds, construction funds and
customers' deposits carrying values approximate fair value because of the
short maturity of these amounts.
Investment in marketable securities are based on quoted market prices.
Long-term debt fair values are based on quoted market prices for Kentucky
Utilities' first mortgage bonds and on current rates available to
Kentucky Utilities for debt of the same remaining maturities for Kentucky
Utilities' pollution control bonds and promissory note.
Kentucky Utilities has an interest rate swap agreement with a notional
amount of $70 million. Fair value of this instrument is the estimated
amount the counterparty would pay to Kentucky Utilities to terminate the
swap at the date of measurement.
<TABLE>
The estimated fair values of the Company's financial instruments at
December 31 are as follows:
<CAPTION>
1993 1992
Carrying Estimated Carrying Estimated
(in thousands of dollars) Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Investment in marketable securities $ 16,397 $ 16,483 $ 16,067 $ 16,181
Interest rate swap - 2,550 - 3,260
Long-term debt $ 442,066 $489,042 $ 443,998 $ 471,278
</TABLE>
-107-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
If the excess of fair value over carrying value of Kentucky Utilities'
long-term debt were settled at amounts approximating those above, the
anticipated regulatory treatment would allow recovery of these amounts in
rates over a prescribed amortization period. Accordingly, any settlement
would not have a significant impact on the Company's financial position
or results of operations.
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". This statement, which must be adopted on January 1, 1994,
addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and all investments
in debt securities. The Company does not anticipate that the new
standard will have a material impact on its financial condition or
results of operations.
9. Leveraged Leases
KU Capital purchased equity interests in three existing leveraged lease
arrangements from a third party in 1993. KU Capital is co-lessor on each
of these leases involving combustion turbine generating units. The
leases expire in 1999. The residual values are estimated to be between
131% to 152% of the cost. KU Capital's equity investment represents 73%
of the aggregate purchase price of the leases. The remaining 27%
represents the nonrecourse debt provided by lenders at the inception of
the leases in 1974. The lenders have been granted, as their sole remedy
in the event of default by the lessees, an assignment of rentals due
under the leases and a security interest in the leased properties.
<TABLE>
The following is a summary of the components of KU Capital's net
investment in leveraged leases:
<CAPTION>
As of December 31, (in thousands of dollars) 1993
<S> <C>
Rentals receivable (net of nonrecourse debt) $ 3,032
Estimated residual value of leased property 19,661
Less: Unearned and deferred income 12,373
Investment in leveraged leases 10,320
Less: Accumulated deferred income taxes 239
Net investment in leveraged leases $ 10,081
The following is a summary of the components of income from leveraged
leases:
Year Ended December 31, (in thousands of dollars) 1993
Income before income taxes $ 565
Income tax expense 228
Income from leveraged leases $ 337
</TABLE>
-108-
<PAGE>
Financial
Information
(Unaudited)
KU Energy Corporation
& Subsidiaries
Quarterly financial results for 1993 and 1992 are summarized below.
Generally, quarterly results may fluctuate due to seasonal variations,
changes in fuel costs and other factors.
<TABLE>
<CAPTION>
Quarter 4th 3rd 2nd 1st
(in thousands of dollars, except for per share amounts)
1993
<S> <C> <C> <C> <C>
Operating Revenues $ 151,823 $ 160,609 $ 139,903 $ 154,273
Net Operating Income 20,951 30,440 22,069 31,025
Net Income 15,251 24,447 16,436 23,849
Earnings per Average
Common Share .40 .64 .44 .63
1992
Operating Revenues $ 139,831 $ 152,024 $ 137,911 $ 146,494
Net Operating Income 20,817 31,084 24,112 29,321
Net Income 13,953 22,258 16,057 21,914
Earnings per Average
Common Share .37 .59 .42 .58
</TABLE>
These quarterly amounts reflect, in the Company's opinion, all adjustments
(including only normal recurring adjustments) necessary for a fair
presentation.
-109-
<PAGE>
Report of
Independent
Public
Accountants
KU Energy Corporation
& Subsidiaries
To the Shareholders of
KU Energy Corporation:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of KU Energy Corporation (a Kentucky
corporation) and Subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income and retained earnings, and cash
flows for each of the three years in the period ended December 31, 1993.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of KU Energy
Corporation and Subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As explained in Notes 3 and 4 to the financial statements, effective
January 1, 1993, the Company changed its method of accounting for income
taxes and postretirement benefits other than pensions.
/s/ Arthur Andersen & Co.
Arthur Andersen & Co.
Chicago, Illinois
January 26, 1994
-110-
EXHIBIT 21
KU ENERGY CORPORATION & SUBSIDIARIES
LIST OF SUBSIDIARIES
KU ENERGY CORPORATION
Kentucky Utilities Company, a Kentucky and Virginia corporation--wholly
owned subsidiary.
KU Capital Corporation, a Kentucky Corporation--wholly owned subsidiary.
KENTUCKY UTILITIES COMPANY
Electric Energy, Inc., an Illinois corporation--Kentucky Utilities owns
20% of EEI's common stock.
-111-
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in the previously filed Form S-8
Registration Statement of KU Energy Corporation and Kentucky
Utilities Company (File No. 33-44234) of our reports dated
January 26, 1994, included in or incorporated by reference in KU
Energy Corporation's Form 10-K for the year ended December 31,
1993.
/s/Arthur Andersen & Co.
Arthur Andersen & Co.
Chicago, Illinois
March 14, 1994
-112-
EXHIBIT 99.A
DESCRIPTION OF COMMON STOCK
General. The authorized capital stock of KU Energy consists of
20,000,000 shares of preferred stock, without par value, issuable
in series of which none is outstanding, and 160,000,000 shares of
common stock, without par value, of which 37,817,878 were
outstanding at December 31, 1993. Kentucky Utilities, KU Energy's
subsidiary, has authorized capital stock of 5,300,000 shares of
Cumulative Preferred Stock, without par value, issuable in
series, of which 600,000 shares, $100 per share stated value,
were outstanding at December 31, 1993; 2,000,000 shares of
Preference Stock, without par value, issuable in series, of which
no shares are outstanding; and 80,000,000 shares of common stock,
of which 37,817,878 shares, all owned by KU Energy, were
outstanding at December 31, 1993. Kentucky Utilities has issued
and outstanding $441,830,000 in aggregate principal amount of
First Mortgage Bonds of various series under its First Mortgage
Indenture ("Kentucky Utilities' Mortgage Indenture").
The following statements, unless the context otherwise indicates,
are brief summaries of the substance or general effect of certain
provisions of KU Energy's Amended and Restated Articles of
Incorporation, as amended, ("KU Energy's Articles") or the
Amended and Restated Articles of Incorporation, as amended, of
Kentucky Utilities' and the resolutions or amendments
establishing series of Kentucky Utilities Preferred Stock and
Preference Stock (collectively, "Kentucky Utilities' Articles"),
and of Kentucky Utilities' Mortgage Indenture securing its
outstanding First Mortgage Bonds. Such statements make use of
defined terms and are not complete; they are subject to all the
provisions of KU Energy's Articles, Kentucky Utilities' Articles
or Kentucky Utilities' Mortgage Indenture, as the case may be.
Dividend Rights. Dividends on Common Stock of KU Energy will
depend in the foreseeable future primarily upon the earnings,
financial condition and capital requirements of Kentucky
Utilities. The ability of KU Energy to pay dividends on its
Common Stock would be limited to the extent Kentucky Utilities is
limited in its right to pay dividends on or acquire Kentucky
Utilities Common Stock.
Whenever dividends on all outstanding shares of Kentucky
Utilities Preferred and Preference Stock of all series for all
previous quarter-yearly dividend periods and the current quarter-
yearly dividend period shall have been paid or declared and set
apart for payment, and whenever all amounts required to be set
aside for any sinking fund for the redemption or purchase of
shares of the Kentucky Utilities Preferred or Preference Stock
for all previous periods or dates shall have been paid or set
aside, and subject to the limitations summarized below, the
Kentucky Utilities Board of Directors may declare dividends on
Kentucky Utilities Common Stock out of any surplus or net profits
of Kentucky Utilities legally available for that purpose.
Kentucky Utilities' Mortgage Indenture provides, in effect, that,
so long as certain currently outstanding series of First Mortgage
Bonds are outstanding, Kentucky Utilities will not declare or pay
any dividends (other than in stock) on Kentucky Utilities Common
Stock, or make any other distribution on or purchase any Kentucky
Utilities Common Stock, unless the total amount charged or
-113-
<PAGE>
provided for maintenance, repairs and depreciation of the
mortgaged properties subsequent to May 1, 1947, plus the surplus
earned during the period and remaining after any such dividend,
distribution or purchase, shall equal at least 15% of Kentucky
Utilities' total utility operating revenues for the period, after
deducting from such revenues the cost of electricity purchased
for resale. Kentucky Utilities' Articles provide in effect that,
so long as any Kentucky Utilities Preferred Stock is outstanding,
the total amount of all dividends or other distributions on
Kentucky Utilities Common Stock (other than in stock) that may be
paid, and purchases of Kentucky Utilities Common Stock that may
be made, during any 12-month period shall not exceed (a) 75% of
Kentucky Utilities' net income (as defined) for the 12-month
period next preceding each such dividend, distribution or
purchase, if the ratio of "common stock equity" to "total
capital" (as defined) is 20% to 25%, or (b) 50% of such net
income if such ratio is less than 20%. If such ratio is in
excess of 25% , no such dividends may be paid or distributions or
purchases made that would reduce such ratio to less than 25%
except to the extent permitted by clauses (a) and (b). At
December 31, 1993, no amount of retained earnings was restricted
as to the payment of dividends on Kentucky Utilities Common Stock
under the foregoing provisions of Kentucky Utilities' Mortgage
Indenture or Kentucky Utilities' Articles.
Voting Rights. The shares of KU Energy's Common Stock entitle
the holders thereof to one vote for each share upon all matters
upon which shareholders have the right to vote, subject to any
special voting rights, if any, which may vest in the holders of
KU Energy's preferred stock. KU Energy's preferred stock may be
issued in series, each of which will be identical except for such
relative rights and preferences with respect to the matters
listed in the next sentence as may be determined by the Board of
Directors of KU Energy. The Board of Directors of KU Energy may
determine, for each series of preferred stock, the number of
shares and the rate of dividend (or method of determining
dividends) to be borne by the shares of each such series, the
voting rights, if any, the stated value, if any, and the
preferences with respect to distributions including dividends and
distributions upon dissolution of shares of such series, the
price or prices at which, and other terms and conditions on
which, shares of each series may be redeemed, and the sinking
fund provisions, if any, for the redemption or purchase of shares
of each such series, the conversion privileges, if any, and may
change redeemed or re-acquired shares of any such series into
shares of another series, subject, however, to such restrictions
and limitations as are or may be, from time to time provided
by law or contained in KU Energy's Articles. If a quorum
consisting of a majority of the shares outstanding and entitled
to vote on the matter is present (either in person or by proxy)
at a shareholders' meeting, action on a matter (other than the
election of directors) by a voting group shall be approved if the
votes cast within the voting group favoring the action exceed the
votes cast opposing the action, (i) except as described under
"Board of Directors" below, (ii) except that directors are
elected by cumulative voting and (iii) unless a greater vote is
required by law.
Shareholder Rights. KU Energy has a shareholder rights plan
designed to provide protection to shareholders in the event of an
unsolicited attempt to acquire KU Energy. Under the shareholder
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<PAGE>
rights plan, KU Energy shareholders will receive as a dividend
one right for each share of KU Energy common stock. Should
certain events occur - for instance, an acquirer becomes the
beneficial owner of 20 percent or more of KU Energy's outstanding
voting stock without approval by KU Energy or certain
transactions occur following an acquirer becoming the beneficial
owner of 10 percent or more of such voting stock without KU
Energy approval, each right would entitle the holder, other than
the acquirer, to purchase common shares of KU Energy or shares of
any company that acquires KU Energy at a discount from the market
value. In certain circumstances, KU Energy may redeem the rights
at a price of $.01 per right. The rights expire in February
2002.
Preemptive Rights. Holders of KU Energy's securities have no
preemptive subscription rights.
Liquidation Rights. In the event of any liquidation or
dissolution of KU Energy, holders of Common Stock are entitled to
receive the net assets of KU Energy except to the extent of the
preferential rights, if any, of the holders of KU Energy's
preferred stock as may be established from time to time in
accordance with KU Energy's Articles.
Board of Directors. KU Energy's Bylaws provide for a Board of
Directors comprised of from nine to eleven members as determined
from time to time by the Board. The Board currently has ten
members. KU Energy's Articles provide for the classification of
the Board of Directors into groups with directors being elected
for three-year terms. Under KU Energy's Articles, the article
providing for the classification of the Board of Directors may
not be altered, amended or repealed and no provision inconsistent
with such article may be adopted without the vote of 80 percent
of the shares entitled to vote generally, voting as a class.
Cumulative Voting. KU Energy's Articles provide for the election
of directors by cumulative voting.
Amendments to the Registrant's Articles. Except as set forth
under "Board of Directors" above, KU Energy's Articles may be
amended or repealed, if the number of shares voted in favor of
such amendment exceeded the number of shares voted against such
amendment by each voting group or, if such amendment would give
rise to dissenters' rights, by the affirmative vote of the
holders of a majority of the outstanding shares of KU Energy
entitled to vote on such amendment (which would include the
Common Stock and any series of preferred stock which, by its
terms or applicable law, was so entitled to vote), unless any
class or series of shares is entitled to vote as a class in
respect thereof, in which event the proposed amendment must be
approved in addition by the required vote of each class or series
of shares entitled to vote as a class in respect thereof.
Call of Special Meetings. KU Energy's Articles provide that no
meeting of shareholders may be called by shareholders unless
called by the holders of at least 51 percent of all the votes
entitled to be cast on each issue proposed to be considered at
the special meeting.
Miscellaneous. The Transfer Agents for the Common Stock are
Illinois Stock Transfer Company, Chicago, Illinois, and Harris
Trust and Savings Bank, Chicago, Illinois; and the Registrar is
Harris Trust and Savings Bank, Chicago, Illinois.
The outstanding shares of Common Stock of KU Energy are fully
paid and nonassessable.
KU Energy reserves the right to increase, decrease or reclassify
its authorized capital stock or any class or series thereof, and
to amend or repeal any provisions of KU Energy's Articles, in the
manner prescribed by law, subject to the limitations described in
KU Energy's Articles; and all rights conferred on shareholders in
KU Energy's Articles are subject to this reservation.
-115-
EXHIBIT 99.B
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1993
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission file number 1-3464
KENTUCKY UTILITIES COMPANY
(Exact name of Registrant as specified in its charter)
Kentucky and Virginia 61-0247570
(State of Incorporation) (I.R.S. Employer
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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Preferred Stock, 4 3/4% cumulative, Philadelphia Stock Exchange, Inc.
stated value $100 per share
Securities registered pursuant to Section 12(g) of the Act:
Preferred stock, cumulative, stated value $100 per share
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant: None
Number of shares of Common Stock outstanding at March 11, 1994: 37,817,878
shares (owned by the parent - KU Energy Corporation).
Documents Incorporated by Reference: None
Exhibit Index appears on page 44.
-116-
<PAGE>
KENTUCKY UTILITIES COMPANY
Form 10-K
Annual Report to the Securities and Exchange Commission
For the Year Ended December 31, 1993
_____________
TABLE OF CONTENTS
Item Page
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 9
4. Submission of Matters to a Vote of Security Holders . . . . . . . 9
Executive Officers of the Registrant . . . . . . . . . . . . . . 10
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . 12
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 13
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 15
8. Financial Statements and Supplementary Data . . . . . . . . . . . 22
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . 42
PART III
10. Directors and Executive Officers of the Registrant . . . . . . . 42
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 42
12. Security Ownership of Certain Beneficial Owners and Management . 42
13. Certain Relationships and Related Transactions . . . . . . . . . 42
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 43
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
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PART I
Item 1. Business
General
Kentucky Utilities Company (Kentucky Utilities) is a wholly owned
subsidiary of KU Energy Corporation (KU Energy). Kentucky Utilities is a
public utility engaged in producing and selling electric energy.
Kentucky Utilities provides electric service to about 409,700 customers
in over 600 communities and adjacent suburban and rural areas in 77
counties in central, southeastern and western Kentucky, and to about
27,900 customers in 5 counties in southwestern Virginia. In Virginia,
Kentucky Utilities operates under the name Old Dominion Power Company.
Of the Kentucky communities, 160 are incorporated municipalities served
under unexpired municipal franchises and the rest are unincorporated
communities where no franchises are required. Service has been provided
in Virginia without franchises for a number of years. This lack of
Virginia franchises is not expected to have a material effect on Kentucky
Utilities' operations. Kentucky Utilities also sells electric energy at
wholesale for resale in 12 municipalities.
The territory served by Kentucky Utilities has an aggregate population
estimated at 1,000,000. The largest city served is Lexington, Kentucky.
The population of the metropolitan Lexington area is estimated at
225,000. The populations of the next 10 largest cities served at retail
range from about 21,000 to 9,000. The territory served includes most of
the Blue Grass Region of central Kentucky and parts of the coal mining
areas in southeastern and western Kentucky and southwestern Virginia.
Lexington is the center of the Blue Grass Region, in which thoroughbred
horse, burley tobacco and bourbon whiskey distilling industries are
located. Among the principal industries in the territory served are coal
mining, automotive and related industries, agriculture, primary metals
processing, crude oil production, pipeline transportation, and the
manufacture of electrical and other machinery and of paper and paper
products.
Revenues
Kentucky Utilities' sources of electric revenues and the respective
percentages of total revenues for the three years 1991-1993 were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
Amount % Amount % Amount %
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential $ 210,759 35 $194,817 34 $ 202,885 35
Commercial 138,271 23 133,519 23 137,653 23
Industrial 111,857 18 102,808 18 98,595 17
Mine Power 34,977 6 36,696 7 37,093 6
Public Authorities 48,142 8 45,570 8 46,332 8
Other Electric Utilities 62,463 10 58,979 10 61,542 11
Miscellaneous Revenues 119 - 3,432 - 3,560 -
Total $ 606,588 100 $575,821 100 $ 587,660 100
</TABLE>
The electric utility business is affected by varying seasonal weather
patterns. As a result, operating revenues (and associated operating
expenses) are not generated evenly throughout the year.
Operations
Kentucky Utilities' net generating capability is 3,164 megawatts. The
net generating capability available for operation at any time may be
lower because of periodic outages of generating units due to inspection,
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maintenance, fuel restrictions, or modifications required by regulatory
agencies. Kentucky Utilities obtains power from other utilities under
bulk power purchase and interchange contracts. At December 31, 1993,
Kentucky Utilities' system capability, including purchases from others,
was 3,529 megawatts. The all-time system peak demand, on a one-hour
integrated basis, occurred on July 28, 1993 and was 3,176 megawatts.
During 1993, Kentucky Utilities generated about 89% and purchased about
11% of its net system output.
Kentucky Utilities is one of 28 members of the East Central Area
Reliability Coordination Agreement, the purpose of which is to augment
the reliability of the members' bulk power supply through coordination of
planning and operation of generation and transmission facilities. The
members are engaged in the generation, transmission and sale of electric
power and energy in the east central area of the United States, which
covers all or portions of Michigan, Indiana, Ohio, Kentucky,
Pennsylvania, Virginia, West Virginia and Maryland. Kentucky Utilities
also has interconnections and contractually established operating
arrangements with neighboring utilities and cooperatives.
Under a contract with Owensboro Municipal Utilities (OMU), Kentucky
Utilities has agreed to purchase from OMU the surplus output of the
150 megawatt and 250 megawatt generating units at OMU's Elmer Smith
station. Purchases under the contract are made under a contractual
formula which has resulted in costs which were and are expected to be
comparable to the cost of other power purchased or generated by Kentucky
Utilities. Such power constituted about 8% of Kentucky Utilities' net
system output during 1993. See Note 5 of the Notes to Financial
Statements.
Kentucky Utilities owns 20% of the common stock of Electric Energy, Inc.
(EEI), which owns and operates a 1,000-MW station in southern Illinois.
Prior to 1994, Kentucky Utilities was entitled to receive varying amounts
of power from EEI when available. Such power constituted about 1% of
Kentucky Utilities' net system output during 1993. Commencing January 1,
1994, Kentucky Utilities' entitlement is 20% of the available capacity of
the station. Such power is expected to be about 5% of Kentucky
Utilities' net system output in 1994. See Note 5 of the Notes to
Financial Statements.
Kentucky Utilities has contracted to purchase 75 megawatts of generating
capacity from Illinois Power Company from January 1, 1993 to March 31,
1994, and 125 megawatts from April 1, 1994 to December 31, 1994.
Kentucky Utilities had approximately 2,260 employees at December 31,
1993, of which about 300 are covered by union contracts expiring
August 1994.
Fuel Matters
Coal-burning generating units provided more than 99% of Kentucky
Utilities' net kilowatt-hour generation for 1993. The remainder of
Kentucky Utilities' net generation for 1993 was provided by hydroelectric
plants, oil and/or natural gas burning units. The average delivered cost
of coal purchased, per ton and per million BTU, for the periods indicated
were as follows:
1993 1992 1991
Per ton $ 27.92 $ 27.94 $ 27.99
Per million BTU $ 1.15 $ 1.16 $ 1.16
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The average delivered costs of coal purchased on a spot basis during 1993
were $26.23 per ton and $1.08 per million BTU. Kentucky Utilities
purchased 44%, 42% and 33% of its coal on a spot basis during 1993, 1992
and 1991, respectively.
Kentucky Utilities maintains its fuel inventory at levels estimated to be
necessary to avoid operational disruptions at its coal-fired generating
units. Reliability of coal deliveries can be affected from time to time
by a number of factors, including coal mine labor strikes and other
supplier operating difficulties.
Kentucky Utilities believes there are adequate reserves available to
supply its existing base-load generating units with the quantity and
quality of coal required for those units throughout their useful lives.
Kentucky Utilities intends to meet a substantial portion of its coal
requirements with 5 year contracts. Kentucky Utilities anticipates that
coal supplied under such agreements will represent about two-thirds of
the requirements over the next several years. The balance of coal
requirements will be met through spot purchases. See Note 5 of the Notes
to Financial Statements for the estimated obligations under fuel
contracts for each of the years 1994 through 1998.
Kentucky Utilities does not anticipate encountering any significant
problems acquiring an adequate supply of fuel necessary to operate its
new peaking units. See "Construction" for a discussion of Kentucky
Utilities' plans to add peaking capacity.
Kentucky Utilities' fuel adjustment clause for Kentucky customers, which
operates to reflect changes in the cost of fuel in billings to customers,
is designed to conform to a general regulation providing for a uniform
monthly fuel adjustment clause for all electric utilities in Kentucky
subject to the jurisdiction of the Kentucky Public Service Commission
(PSC). The clause is based on a formula approved by the Federal Energy
Regulatory Commission (FERC) but with certain modifications, including
the exclusion of excess fuel expense attributable to certain forced
outages, the filing of fuel procurement documentation, a procedure for
billing over and under recoveries of fuel cost fluctuations from the base
rate level and provision for periodic public hearings to review past
adjustments, to make allowance for any past adjustments found not
justified, to disallow any improper expenses and to re-index base rates
to include current fuel costs.
The fuel adjustment clause mechanism for Virginia customers, which is
adjusted annually, uses an average fuel cost factor based primarily on
projected test year fuel costs. The fuel cost factor is adjusted for the
over or under collection of fuel costs from the previous year.
Environmental Matters
Federal and state agencies have adopted environmental protection
standards which apply to the electric operations of Kentucky Utilities.
To comply with these standards, Kentucky Utilities has spent $296 million
through 1993 for the installation of pollution control equipment and for
the institution of other environmental protection measures.
Kentucky Utilities' generating units are operated in compliance with the
Kentucky Natural Resources and Environmental Protection Cabinet's (the
"Cabinet") State Implementation Plan (the "KYSIP") and New Source
Performance Standards developed under the Clean Air Act. The KYSIP is a
federally-approved plan for the attainment of the national ambient air
quality standards. The KYSIP contains standards relating to the
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emissions of various pollutants (sulfur dioxide, total suspended
particulates and nitrogen oxides) from Kentucky Utilities' fossil-fuel
fired steam electric generating units. These emission standards are of
varying stringencies and compliance with these standards is attained
through a variety of pollution control technologies (scrubbers,
electrostatic precipitators, and low NOx burners) and the use of low
sulfur coal. Kentucky Utilities' operations are in substantial
compliance with current emission standards.
The acid rain control provisions of the 1990 Clean Air Act Amendments,
which are effective in two phases, will require Kentucky Utilities to
further decrease the emissions of sulfur dioxide and nitrogen oxides from
its fossil-fuel fired steam electric generating units. Ghent Unit 1, E.
W. Brown Units 1, 2 and 3, and Green River Unit 4 have been designated as
Phase I affected units which must comply with sulfur dioxide emission
reduction obligations by January 1, 1995. Kentucky Utilities has adopted
a strategy designed to comply with the acid rain control provisions,
which will involve the installation of a scrubber and related facilities
on Ghent Unit 1 during the first phase (which begins January 1, 1995) as
well as fuel switching to lower sulfur coal on some other Phase I
affected units to comply with sulfur dioxide limitations. In addition,
the retrofit of low NOx burners on these units will be required in order
to comply with nitrogen oxide limitations. On July 21, 1993, the United
States Environmental Protection Agency (the EPA) issued final acid rain
permits for each of Kentucky Utilities' Phase I affected units. The
EPA's approval of Kentucky Utilities acid rain compliance plan was
accompanied by bonus allowances awarded for the installation of the
scrubber on Ghent Unit 1 and an extension of the Phase I effective date
to January 1, 1997, for certain portions of the acid rain control
requirements. Kentucky Utilities current plans are to be in compliance
with sulfur dioxide emission reduction obligations by January 1, 1995.
See Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations - Construction and - Environmental Matters for
additional discussion.
During 1990, each of Kentucky Utilities' five fossil-fuel fired steam
electric generating stations was re-issued a wastewater discharge permit
by the Cabinet under the Clean Water Act's National Pollutant Discharge
Elimination System. These 5-year permits place water quality-based
effluent limitations (i.e., thermal and chemical limits) on each of the
power plant's discharges. Kentucky Utilities' operations are in
substantial compliance with the conditions in the permits.
Pursuant to the Resource Conservation and Recovery Act, utility wastes
(fly ash, bottom ash and scrubber sludge) have been categorized as
special wastes (i.e., wastes of large volume, but low environmental
hazard). The EPA has concluded that the disposal of coal combustion by-
products by practices common to the utility industry are adequate for the
protection of human health and the environment. The Cabinet also
regulates utility wastes as special wastes under its waste management
program.
Under the Toxic Substances Control Act, the EPA regulates the use,
servicing, repair, storage and disposal of electrical equipment
containing polychlorinated biphenyls (PCB). To comply with these
regulations, Kentucky Utilities has implemented procedures to be followed
in the handling, storage and disposal of PCBs. In addition, Kentucky
Utilities has completed the mandated phase out of all of its pole-class
PCB capacitors and has no vault-type PCB transformers in use, in or near
commercial buildings.
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On February 13, 1990, Kentucky Utilities received a letter from the EPA
identifying Kentucky Utilities and others as potentially responsible
parties under the Comprehensive Environmental Response Compensation and
Liability Act (CERCLA or "Superfund") for a disposal site in Daviess
County, Kentucky. The letter also asked Kentucky Utilities, and the
other persons or entities named, to proceed voluntarily with a
remediation program at the site. Under Superfund, a responsible party
may be liable for all or a portion of all monies expended by the
government to take corrective action at the site. The EPA has turned
over responsibility for investigation of the site and development of a
remediation plan to a group (not including Kentucky Utilities) originally
named as potentially responsible parties. Kentucky Utilities has entered
into an agreement with the group as to the portion of the investigation
and development costs to be borne by Kentucky Utilities in connection
with the site. The agreement does not cover costs which may be incurred
in connection with any remediation plan. Any remediation plan would be
subject to approval of the EPA. Although a final plan has yet to be
developed or approved, Kentucky Utilities does not believe that any
liability with respect to the site will have a material impact on its
financial position or results of operations.
Regulation
Kentucky Utilities is subject to the jurisdiction of the PSC and the
Virginia State Corporation Commission (SCC) as to rates, service,
accounts, issuance of securities and in other respects. By reason of
owning and operating a small amount of electric utility property in one
county in Tennessee (having a gross book value of about $212,000),
Kentucky Utilities may also be subject to the jurisdiction of the
Tennessee Public Service Commission as to rates, accounts, issuance of
securities and in other respects. Since 1992, utilities in Kentucky have
been allowed to use either a historical test period or a forward-looking
test period in rate filings.
Rate regulation in Kentucky allows each utility, with a PSC-approved
environmental compliance plan and environmental surcharge rider, to
recover on a current basis the cost of complying with any federal, state
or local environmental requirements, including the 1990 Clean Air Act
Amendments, which apply to coal combustion wastes and by-products from
facilities utilized for the production of energy from coal. An approved
surcharge rider will allow Kentucky Utilities to recover any compliance
related operating expenses and to earn a reasonable rate of return on
compliance related capital expenditures through the application of the
surcharge each month to customers' bills. For information regarding
Kentucky Utilities filing with the PSC for approval of a rider, see
Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations - Environmental Matters - Environmental Surcharge.
Integrated resource planning regulations in Kentucky require Kentucky
Utilities and the other major utilities to make biennial filings, with
the PSC, of various historical and forecasted information relating to
forecasted load, capacity margins and demand-side management techniques.
Pursuant to Kentucky law, the PSC has established the boundaries of the
service territory or area of each supplier of retail electric service in
Kentucky (including Kentucky Utilities), other than municipal
corporations, within which each such supplier shall have the exclusive
right to render retail electric service.
The FERC has jurisdiction under the Federal Power Act over certain of the
electric utility facilities and operations and accounting practices of
Kentucky Utilities, and in certain other respects as provided in the Act.
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The FERC has classified Kentucky Utilities as a "public utility" as
defined in the Act.
Kentucky Utilities is presently exempt from all the provisions of the
Public Utility Holding Company Act of 1935, except Section 9(a)(2)
thereof (which relates to the acquisition of securities of public utility
companies), by virtue of the exemption granted by an order of the
Securities and Exchange Commission dated April 19, 1949 and, absent
further action by the Commission, by virtue of annual exemption
statements filed by Kentucky Utilities with the Commission pursuant to
Rule 2 prescribed under the Act.
National Energy Policy Act
See Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operation - National Energy Policy Act.
Item 2. Properties
<TABLE>
Kentucky Utilities owns and operates the following electric generating
stations:
<CAPTION> Nameplate Effective
Rating (KW) Capability (KW)
<S> <C> <C> <C> <C>
Steam: Ghent Ghent, Ky 2,226,060 2,006,000
Green River South Carrollton, Ky 263,636 238,000
E. W. Brown Burgin, Ky 739,534 668,000
Tyrone Tyrone, Ky 137,500 135,000
Pineville Four Mile, Ky 37,500 34,000
Hydro: Dix Dam &
Lock #7 Burgin, Ky 30,297 24,000
Gas/Oil Peaking: Haefling Lexington, Ky 62,100 59,000
3,496,627 3,164,000
</TABLE>
Substantially all properties are subject to the lien of Kentucky
Utilities' Mortgage Indenture.
Construction
The total construction expenditures of Kentucky Utilities for the years
1994 through 1998 are estimated at $631.6 million. Such expenditures
include an estimated $326.1 million for generating facilities,
$65.5 million for transmission facilities and $240.0 million for
distribution and general facilities. Included in total construction
expenditures for the 1994 - 1998 period are $137.8 million for 660-MW of
peak generating capacity to be added during 1994 - 1998 (220-MW in 1994,
and 110-MW in each year 1995-1998) and $152.3 million for environmental
compliance (of which $128.6 million is for compliance with the 1990 Clean
Air Act Amendments). All necessary permits and approvals for the three
units to go on line in 1994 and 1995 have been obtained. An application
for a Certificate of Convenience and Necessity to construct the peaking
unit to go on line in 1996 was filed with the PSC in December 1993.
Kentucky Utilities has no plans to install base load generating capacity
before 2010. Construction expenditures for the years 1989 through 1993
aggregated about $440.2 million. See Note 5 of the Notes to Financial
Statements for the estimated amounts of construction expenditures for
each of the years 1994 through 1998.
Kentucky Utilities frequently reviews its construction program and
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construction expenditures, which may be affected by numerous factors,
including the rate of load growth, changes in construction costs, changes
in environmental regulations, the adequacy of rate relief and Kentucky
Utilities' ability to raise necessary capital (See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations). Kentucky Utilities' planned additions to its electric
generating capacity are based on projections of its future load using
estimated load growth rates. Consideration is also given to projections
by neighboring utilities of their future loads and capacity. A major
effort in the industry is being made to control future construction
requirements by managing customer demand. However, forecasts of future
loads are subject to numerous uncertainties, including economic
conditions and effectiveness of energy conservation measures.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Executive Officers of the Registrant
Current
Positions Positions Held During at Least the
Name and Age Held Last 5 Years
John T. Newton Chairman and Chairman of the Board of Kentucky
Age 63 President, Utilities since November 1987, and
and Director President since January 1987.
Director of Kentucky Utilities
since December 1974.
O. M. Goodlett Senior Vice- Senior Vice-President of Kentucky
Age 46 President Utilities since November 1992.
Vice-President of Kentucky
Utilities from April 1982 to
November 1992.
James W. Tipton Senior Vice- Senior Vice-President of Kentucky
Age 50 President Utilities since November 1986.
Michael R. Whitley Senior Vice- Director of Kentucky Utilities
Age 50 President and since March 1992, and Senior Vice-
Director President since March 1987.
Secretary of Kentucky Utilities
from July 1978 to November 1992.
George S. Brooks II General Corporate Secretary of Kentucky
Age 43 Counsel and Utilities since November 1992, and
Corporate General Counsel since January 1988.
Secretary
James M. Allison Vice- Vice-President of Kentucky
Age 40 President Utilities since February 1993.
President and Chief Operating
Officer of Wheeling Power Company
from October 1989 to January 1993.
South Bend Division Manager of
Indiana Michigan Power Company from
January 1986 to October 1989.
Gary E. Blake Vice- Vice-President of Kentucky
Age 40 President Utilities since November 1992.
Western Division Manager of
Kentucky Utilities from October
1991 to November 1992. Assistant
Western Division Manager of
Kentucky Utilities from March 1990
to October 1991. Field Operations
Coordinator for Kentucky Utilities
from April 1986 to March 1990.
William E. Casebier Vice- Vice-President of Kentucky
Age 51 President Utilities since May 1988.
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Executive Officers of the Registrant (continued)
Current
Positions Positions Held During at Least the
Name and Age Held Last 5 Years
Robert M. Hewett Vice- Vice-President of Kentucky
Age 46 President Utilities since January 1982.
Wayne T. Lucas Vice- Vice-President of Kentucky
Age 46 President Utilities since November 1986.
Ronald L. Whitmer Vice- Vice-President of Kentucky
Age 61 President Utilities since November 1992.
Director of Production and
Generation Construction of Kentucky
Utilities from May 1985 to November
1992.
William N. English Treasurer Treasurer of Kentucky Utilities
Age 43 since April 1982.
Michael D. Robinson Controller Controller of Kentucky Utilities
Age 38 since August 1990. Assistant
Controller of Kentucky Utilities
from August 1983 to August 1990.
John J. Maloy, Jr. Assistant Assistant Treasurer of Kentucky
Age 39 Treasurer Utilities since August 1984.
(Not an Executive Officer)
Note: Officers are elected annually by the Board of Directors. There is
no family relationship between any executive officer and any other
executive officer or any director.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Since December 1, 1991, all of the outstanding common stock of Kentucky
Utilities has been held by KU Energy.
The following table sets forth the cash distributions (in thousands of
dollars) on common stock paid by Kentucky Utilities for the periods
indicated:
1993 1992
First Quarter $15,127 $64,749
Second Quarter $15,127 $14,749
Third Quarter $15,127 $14,749
Fourth Quarter $15,127 $14,749
The 1992 first quarter amount includes a $50 million special dividend to
the parent company, KU Energy.
See Note 6 of the Notes to Financial Statements.
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<TABLE>
Item 6. Selected Financial Data
<CAPTION>
Year ended December 31, 1993 1992 1991 1990 1989
(in thousands)
Operating Revenues:
<S> <C> <C> <C> <C> <C>
Residential $210,759 $ 194,817 $202,885 $ 187,100 $186,517
Commercial 138,271 133,519 137,653 131,990 127,158
Industrial 111,857 102,808 98,595 96,524 89,691
Mine power 34,977 36,696 37,093 37,877 37,056
Public authorities 48,142 45,570 46,332 43,125 41,967
Total sales to ultimate
consumers 544,006 513,410 522,558 496,616 482,389
Other electric utilities 62,463 58,979 61,542 53,295 45,910
Miscellaneous revenues and other 119 3,432 3,560 3,870 3,596
Total operating revenues 606,588 575,821 587,660 553,781 531,895
Operating Expenses:
Fuel used in generation 178,910 168,470 183,167 175,439 164,814
Electric power purchased 34,711 32,753 26,744 27,521 21,231
Other operating expenses 104,930 93,915 91,779 85,111 79,120
Maintenance 59,451 61,118 58,590 52,606 48,072
Depreciation 60,800 58,849 57,337 56,173 54,756
Federal and state income taxes 48,178 41,489 46,569 42,331 45,059
Other taxes 14,347 13,359 12,858 12,384 11,716
Total operating expenses 501,327 469,953 477,044 451,565 424,768
Net Operating Income 105,261 105,868 110,616 102,216 107,127
Other Income and Deductions 8,331 11,226 12,062 15,102 11,695
Income Before Interest Charges
and AFUDC 113,592 117,094 122,678 117,318 118,822
Interest Charges:
Interest on long-term debt 31,650 39,571 36,559 36,132 35,663
Other interest 1,249 1,394 1,626 1,219 912
Total interest charges 32,899 40,965 38,185 37,351 36,575
AFUDC 593 169 262 146 51
Income Before Cumulative Effect of
a Change in Accounting Principle 81,286 76,298 84,755 80,113 82,298
Cumulative Effect on Prior Years
of Accrual of Unbilled Revenues - - - - 11,470
Net Income $ 81,286 $ 76,298 $ 84,755 $ 80,113 $ 93,768
Preferred Stock Dividend
Requirements 2,558 2,518 3,031 5,513 5,847
Net Income Applicable to Common
Stock $ 78,728 $ 73,780 $ 81,724 $ 74,600 $ 87,921
Common Dividends $ 60,509 $ 108,996 $ 56,727 $ 55,214 $ 52,945
</TABLE>
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<TABLE>
Item 6. Selected Financial Data
(continued)
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Assets (in thousands) $1,559,052 $1,424,295 $1,427,530 $1,426,269 $1,390,294
Capitalization: (in thousands)
Bonds $ 441,830 $ 443,330 $ 407,330 $ 408,070 $ 395,860
Notes 107 128 149 171 192
Unamortized premium on
long-term debt 108 519 713 772 832
Preferred stock 40,000 40,000 40,000 40,000 40,000
Preferred stock with mandatory
redemption - - - - 31,000
Common stock equity 552,106 534,073 569,289 546,477 527,111
Total capitalization $1,034,151 $1,018,050 $1,017,481 $ 995,490 $ 994,995
% Total Capitalization
Represented by:
Long-term debt 42.7 43.6 40.1 41.1 39.9
Preferred stock 3.9 3.9 3.9 4.0 7.1
Common stock equity 53.4 52.5 56.0 54.9 53.0
Kilowatt-hours Generated,
Purchased and Sold:
(in thousands)
Power generated 14,934,839 13,700,313 14,183,713 13,024,722 12,635,905
Power purchased 1,926,299 2,032,110 1,464,812 1,425,899 1,299,908
Power interchanged - net 1,556 3,393 (10,725) 14,934 (9,029)
Total 16,862,694 15,735,816 15,637,800 14,465,555 13,926,784
Less - losses and company use 1,066,251 876,862 906,468 878,337 791,474
Remainder - kilowatt-hours
sold 15,796,443 14,858,954 14,731,332 13,587,218 13,135,310
Sales classified:
Residential 4,702,697 4,278,098 4,385,670 4,012,324 4,093,485
Commercial 3,217,504 3,080,045 3,122,156 2,968,049 2,888,661
Industrial 3,409,213 3,093,113 2,874,016 2,791,304 2,650,383
Mine power 933,317 977,032 955,410 983,778 978,363
Public authorities 1,199,893 1,123,494 1,133,176 1,048,483 1,047,461
Total sales to
ultimate consumers 13,462,624 12,551,782 12,470,428 11,803,938 11,658,353
Other electric utilities 2,333,819 2,307,172 2,260,904 1,783,280 1,476,957
Total 15,796,443 14,858,954 14,731,332 13,587,218 13,135,310
Average Number of Customers 432,636 425,403 419,340 413,843 408,331
Residential Sales (per customer):
Average kilowatt-hours 12,995 12,007 12,471 11,546 11,923
Average revenue $ 582.41 $ 546.80 $ 576.93 $ 538.43 $ 543.27
System Capability - Megawatts:
Kentucky Utilities' plants 3,164 3,163 3,162 3,150 3,158
Purchased contracts 365 293 254 251 232
Total system capability 3,529 3,456 3,416 3,401 3,390
Net System Maximum Demand -
Megawatts 3,176 2,845 2,894 2,835 2,919
Load Factor (%) 57.7 59.4 58.4 56.5 53.9
Heat Rate (BTU per KWH) (1) 10,367 10,344 10,350 10,449 10,426
Fuel - Average Cost per Ton(1) $ 28.31 $ 27.88 $ 29.67 $ 30.74 $ 28.93
Average Cost per Million BTU(1) $ 1.17 $ 1.18 $ 1.24 $ 1.28 $ 1.22
(1) Based on coal consumed
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Kentucky Utilities Company (Kentucky Utilities), an electric utility, is
a wholly owned subsidiary of KU Energy Corporation (KU Energy).
RESULTS OF OPERATIONS
Net Income Applicable to Common Stock
Net income applicable to common stock was $78.7 million in 1993 compared
to $73.8 million in 1992 and $81.7 million in 1991. The increase in 1993
was primarily due to weather-related growth in sales and lower interest
charges attributable to debt refinancings and redemptions. Earnings in
1993 were negatively impacted by an increase in other operating expenses
and a decline in interest and dividend income. The decline in 1992
earnings was due to unusually mild weather, increases in operating and
maintenance costs, and an increase in interest charges attributed to a
$35 million increase in long-term debt.
<TABLE>
Sales & Revenues
Increase (Decrease)
From Prior Years
<CAPTION>
1993 1992
kWh Revenues kWh Revenues
(%) (000's) (%) (000's)
<S> <C> <C> <C> <C>
Residential 10 $ 15,942 (2) $ (8,068)
Commercial 4 4,752 (1) (4,134)
Industrial 10 9,049 8 4,213
Mine Power & Public
Authorities 2 853 1 (1,159)
Total Retail Sales 7 30,596 1 (9,148)
Other Electric Utilities 1 3,484 2 (2,563)
Provision for Refund -
Litigation Settlement - (3,309) - -
Miscellaneous Revenues
and Other - (4) - (128)
Total 6 $ 30,767 1 $ (11,839)
</TABLE>
Sales increased 6% to 15.8 billion kilowatt-hours (kWh) in 1993. The
increase resulted primarily from increases in sales to residential and
industrial customers. The rise in residential sales reflects cooler
weather in the first and fourth quarters of 1993 and warmer weather
during the second and third quarters of 1993 as compared to the
corresponding periods of 1992. Due to the exceptionally warm weather in
the third quarter of 1993, Kentucky Utilities set an all-time peak demand
for electricity on July 28, 1993, of 3,176 megawatts. The increase in
industrial sales reflects the general strength of the service area
economy as well as an increase in the number of industrial customers. As
a result of the increase in sales, revenues rose 5% in 1993 to $606.6
million. Revenues in 1993 were reduced approximately $3.3 million as a
result of refunds to customers of amounts recovered from a litigation
settlement with a former coal supplier. The $3.3 million, which was
charged against revenue, represents $4.1 million of fuel savings less
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$.8 million for incurred litigation costs. See Note 2 of the Notes to
Financial Statements.
Despite declines in residential and commercial sales in 1992, total sales
increased due to greater sales to industrial customers. The decline in
residential and commercial sales was the result of cooler than normal
weather in the second and third quarters of 1992, compared to warmer than
normal weather in the corresponding periods of 1991. The decline in 1992
revenues was due primarily to lower average fuel costs passed on to
customers.
<TABLE>
Kilowatt-Hour Sales
<CAPTION>
Year Ended December 31, 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
kWh Sales (in millions) 15,796 14,859 14,731 13,587 13,135
</TABLE>
1993 Kilowatt-Hour Sales by Classification
Year Ended December 31, 1993
Residential 30%
Commercial 20%
Industrial 22%
Mine Power 6%
Public Authorities 8%
Other Electric Utilities 14%
Total 100%
Fuel and Purchased Power Expense
Fuel expense in 1993 totaled $178.9 million, a 6% increase over 1992.
The increase was largely attributable to greater coal consumption. Fuel
expense for 1993 reflects a $4.1 million reduction associated with the
refunding to customers of fuel cost savings resulting from the litigation
settlement with a former coal supplier. See Note 2 of the Notes to
Financial Statements. Purchased power expense increased $2.0 million
(6%) in 1993. The increase reflects greater demand charges associated
with a new short-term capacity contract with a neighboring utility,
partially offset by a 5% decline in power purchases. The decline in
power purchases was due to a reduction in the availability of Owensboro
Municipal Utilities' (OMU) generating units during scheduled maintenance
of those units in the second quarter of 1993. A contract between
Kentucky Utilities and OMU allows Kentucky Utilities to purchase, on an
economic basis, surplus power from a 400-megawatt generating station
owned by OMU.
Fuel expense in 1992 declined $14.7 million (8%) to $168.5 million. The
reduction was due to a lower average price per ton of coal consumed (6%)
and to a decline in coal consumption (2%). The decline in the average
price per ton was due to lower cost coal and to the completion in May
1992 of the amortization of buyout costs associated with a terminated
coal contract. Coal consumption in 1992 was reduced as a result of
increases in power purchases. Purchased power expense rose $6.0 million
(22%) in 1992 due to increased power purchases (39%), primarily under the
OMU contract. The increase in purchased power costs resulting from
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greater kWh purchases in 1992 was partially offset by a reduction in the
average price per kWh purchased.
Other Operating Expenses
Other operating expenses for 1993 increased $11.0 million (12%), $6.3
million of which resulted from the adoption of a new accounting standard.
See Note 4 (Other Postretirement Benefits) of the Notes to Financial
Statements.
Other Income and Deductions
Other income and deductions in 1993 declined $2.6 million. A reduction
in interest and dividend income resulted from lower levels of cash
investments.
Other income and deductions in 1992 were comparable to 1991. Additional
interest and dividend income associated with an increase in the average
amounts available for investment and bond proceeds deposited pending
retirement of existing debt issues were offset by lower available short-
term investment returns.
Interest Charges
Interest charges decreased $8.2 million (20%) in 1993. The decrease was
the result of the redemption of two debt issues near the beginning of the
second quarter of 1993 and the refinancing of several debt issues during
the second half of 1992 and early in the third quarter of 1993 at
significantly lower interest rates. See Note 5 of the Notes to Financial
Statements for information pertaining to Kentucky Utilities' refinancing
and redemption activities in 1993.
Interest charges in 1992 increased $2.8 million (7%). The interest
expense associated with the issuance of additional debt was partially
offset by the refinancing of higher cost existing debt. The effects of
the increase in interest expense were partially offset by the above
mentioned interest income on bond proceeds deposited.
LIQUIDITY & RESOURCES
Capital Structure
Kentucky Utilities continues to maintain a strong capital structure. At
the end of 1993, common stock equity represented 53.4% of total
capitalization while long-term debt stood at 42.7%, and preferred stock
was 3.9%.
<TABLE>
Total Capitalization
<CAPTION>
As of December 31, 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Capitalization (in millions) $1,034 $1,018 $1,017 $ 995 $ 995
Long-Term Debt 42.7% 43.6% 40.1% 41.1% 39.9%
Preferred Stock 3.9% 3.9% 3.9% 4.0% 7.1%
Common Stock Equity 53.4% 52.5% 56.0% 54.9% 53.0%
</TABLE>
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Cash Flow
In 1993, cash provided by operating activities accounted for 67% of total
cash requirements as compared to 68% in 1992 and 105% for 1991. Cash
requirements included in the above percentages exclude optional debt
refinancings and redemptions. At the end of 1993, cash and cash
equivalents totaled $8.8 million. Cash and cash equivalents were $94.3
million at the end of 1992 and $125.6 million at year-end 1991. Cash and
cash equivalents were utilized to redeem $55 million of first mortgage
bonds and to help meet expenditures for compliance with the 1990 Clean
Air Act Amendments and peaking unit construction, thus lowering cash
levels at the end of 1993.
Financing
During 1993, Kentucky Utilities continued to take advantage of
opportunities to reduce its embedded cost of long-term debt through
refinancings. A total of $120 million of first mortgage bonds was
refinanced in 1993 at significantly lower interest rates. Kentucky
Utilities has refinanced over $300 million of long-term debt over the
past year and a half. The reduction of interest expense on an annual
basis from these refinancings will total about $5.4 million. In 1992,
Kentucky Utilities refinanced $53 million of first mortgage bonds
(including a $3 million redemption premium) and $133.9 million of
pollution control bonds at significantly lower interest rates. As a
result of the foregoing activities, Kentucky Utilities' embedded cost of
long-term debt declined to 7.23% in 1993 as compared to 8.00% in 1992 and
8.94% in 1991.
In December 1993, $50 million of 5 3/4% Collateralized Solid Waste
Disposal Facility Revenue Bonds was issued to finance a portion of the
costs of environmental compliance facilities currently under
construction.
Kentucky Utilities also issued $20 million of 6.53% preferred stock in
December 1993. Proceeds from the sale of this issue were used to redeem
the utility's 7.84% Preferred Stock on February 1, 1994. See Note 5 of
the Notes to Financial Statements for additional information on 1993
financing activities.
<TABLE>
Embedded Cost of Long-Term Debt
<CAPTION>
As of December 31, 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Embedded Cost of Long-Term Debt 7.23% 8.00% 8.94% 8.93% 8.97%
</TABLE>
Construction
Construction expenditures totaled $177.1 million in 1993 as compared to
$86.1 million in 1992 and $65.6 million in 1991. The 1993 increase was
largely attributable to $48.7 million expended for compliance with the
1990 Clean Air Act Amendments and $55.5 million expended for construction
of peaking units.
Projected construction requirements for the 1994-1998 period are $631.6
million. Included in this amount are $152.3 million for environmental
compliance measures of which $128.6 million is for compliance with the
1990 Clean Air Act Amendments. Also included in the 1994-1998
construction total is $137.8 million for peaking units.
Kentucky Utilities expects to provide about 79% of its 1994-1998
construction requirements through internal sources of funds with the
balance primarily from long-term debt.
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<PAGE>
<TABLE>
Construction Expenditures by Function - Actual
<CAPTION>
(in millions of dollars) 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C>
Total Construction Expenditures $ 52.2 $ 59.2 $ 65.6 $ 86.1 $177.1
Generation 12.0% 25.7% 33.7% 42.1% 69.7%
Distribution 59.1% 53.6% 47.6% 36.3% 21.5%
Transmission and Other 28.9% 20.7% 18.7% 21.6% 8.8%
</TABLE>
<TABLE>
Construction Expenditures by Function - Projected
<CAPTION>
(in millions of dollars) 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Total Construction Expenditures $183.6 $109.1 $128.6 $125.0 $ 85.3
Generation 70.9% 46.6% 53.9% 48.1% 18.5%
Distribution 19.6% 33.6% 29.3% 33.0% 51.2%
Transmission and Other 9.5% 19.8% 16.8% 18.9% 30.3%
</TABLE>
Providing for Customer Growth
Kentucky Utilities utilizes a least cost planning strategy to ensure that
growth in customer demand is provided for in the most efficient and cost-
effective manner. The Kentucky Public Service Commission (PSC) requires
filing of an Integrated Resource Plan every two years. Kentucky
Utilities filed its 1993 Integrated Resource Plan in October 1993. This
plan includes a 15-year load forecast and description of existing and
planned conservation programs, load management programs and generation
facilities to meet forecasted requirements in a reliable manner at the
lowest reasonable costs. The PSC has initiated an informal review of the
plan according to existing regulations.
As outlined in Kentucky Utilities' 1993 Integrated Resource Plan, annual
growth in sales and customer peak demand is forecast at 1.8% and 1.9%,
respectively, over the next 15 years. The utility plans to provide for
customer growth in the '90s through purchased power and the addition of
combustion turbine peaking units. Three 110-megawatt peaking units are
currently under construction. Two of the units will be installed in 1994
and the other in 1995. An additional peaking unit may be required in
each year from 1996-1998. There are no plans for additional baseload
capacity before 2010.
ENVIRONMENTAL MATTERS
Clean Air Act Compliance
Kentucky Utilities' compliance strategy for the 1990 Clean Air Act
Amendments includes installing flue gas desulfurization systems
(scrubbers), low nitrogen oxide burners and continuous emission
monitoring devices as well as fuel switching to lower sulfur coal. The
key component of the utility's compliance plan for Phase I requirements,
which are effective January 1, 1995, is a scrubber under construction at
Ghent Unit 1. The flexible design of the Ghent Unit 1 scrubber provides
the option of installing equipment to scrub flue gas from Ghent Unit 2 at
an economical cost. Anticipated costs of implementing this option are
included in the total estimated 1994-1998 construction expenditures shown
above.
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<PAGE>
In 1993, Kentucky Utilities revised its previous cost estimates for
compliance to reflect lower than expected costs for construction of the
Ghent Unit 1 scrubber. Kentucky Utilities also deferred, until the 2005
time frame, an additional scrubber originally planned at Brown Unit 3 for
compliance with Phase II requirements, which are effective January 1,
2000. The utility had anticipated capital spending of about $359 million
through 2000 for the 1990 Clean Air Act Amendments ($166 million for
Phase I and $193 million for Phase II). With the above mentioned
revisions and the anticipated additional equipment to scrub Ghent Unit 2,
current estimates of the capital costs for compliance through the year
2000 are about $200 million (over two-thirds of which should be incurred
by January 1, 1995). Through December 31, 1993, about $70 million had
been spent for compliance.
Kentucky Utilities has purchased 12,900 Phase I emission allowances and
has been awarded about 114,000 additional allowances through
participation in the Environmental Protection Agency's Phase I Extension
Plan Program. The allowances give the utility additional flexibility in
implementing its compliance plans and will be incorporated into its
strategy to achieve the most economical means of compliance.
Kentucky Utilities will continue to review and revise its compliance
plans to ensure that its obligations are most effectively met.
Environmental Surcharge
In January 1994, Kentucky Utilities filed plans with the PSC to implement
an environmental surcharge. The surcharge will permit the utility to
recover certain ongoing operating and capital costs of compliance with
any federal, state or local environmental requirements associated with
the production of energy from coal, including the 1990 Clean Air Act
Amendments. Upon PSC approval, the proposed environmental surcharge
would begin August 1, 1994. Kentucky Utilities estimates that under the
proposed surcharge, it would recover about $15.5 million in environmental
costs during the first twelve months and about $23 million during the
second twelve months.
Other
In 1990, Kentucky Utilities received a letter from the Environmental
Protection Agency (EPA) identifying Kentucky Utilities and others as
potentially responsible parties under the Comprehensive Environmental
Response Compensation and Liability Act of 1980 for a disposal site in
Daviess County, Kentucky. The EPA has turned over responsibility for
investigation of the site and development of a remediation plan to a
group (not including Kentucky Utilities) originally named as potentially
responsible parties. Kentucky Utilities has entered into an agreement
with the group as to the portion of the investigation and development
costs to be borne by Kentucky Utilities in connection with the site. Any
remediation plan would be subject to approval of the EPA. Although a
final, approved plan has yet to be developed, Kentucky Utilities does not
believe that any liability with respect to the site will have a material
impact on its financial position or results of operations.
NATIONAL ENERGY POLICY ACT
The National Energy Policy Act of 1992 (Energy Act) promotes energy
efficiency, environmental protection and increased competition.
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Provisions of the Energy Act of most importance to electric utilities are
those that promote competition in the generation and transmission of
electricity. The Energy Act removes long-standing constraints on the
development of wholesale power generation by establishing a new class of
independent power producers which are exempt from traditional utility
regulation. The Energy Act also makes it easier for nonutility power
producers to gain access to utility-owned transmission networks by
allowing the Federal Energy Regulatory Commission to order wholesale
"wheeling" by public utilities. While the final impact of the Energy Act
is yet to be determined, Kentucky Utilities believes that it will
increase competition and may affect the traditional business strategies
of the utility industry. Kentucky Utilities further believes it is well
positioned for increased competition because Kentucky Utilities' rates
continue to be among the lowest in the nation.
IMPACT OF ACCOUNTING STANDARDS
Refer to Note 8 of the Notes to Financial Statements for information
concerning a new standard for accounting for investments in debt and
equity securities.
INFLATION
Kentucky Utilities' rates are designed to recover operating and
historical plant costs. Financial statements, which are prepared in
accordance with generally accepted accounting principles, report
operating results in terms of historic costs and do not evaluate the
impact of inflation. Inflation affects Kentucky Utilities' construction
costs, operating expenses and interest charges. Inflation can also
impact Kentucky Utilities' financial performance if rate relief is not
granted on a timely basis for increased operating costs.
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<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kentucky Utilities Company:
We have audited the accompanying balance sheets and statements of
capitalization of Kentucky Utilities Company (a Kentucky and Virginia
corporation) as of December 31, 1993 and 1992, and the related statements
of income and retained earnings, and cash flows for each of the three
years in the period ended December 31, 1993. These financial statements
and the schedules referred to below are the responsibility of Kentucky
Utilities' management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Kentucky
Utilities Company as of December 31, 1993 and 1992, and the results of
its operations and its cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As explained in Notes 3 and 4 to the financial statements, effective
January 1, 1993, Kentucky Utilities Company changed its method of
accounting for income taxes and postretirement benefits other than
pensions.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in Item
14(A)(2) are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state, in all material respects, the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ Arthur Andersen & Co.
Arthur Andersen & Co.
Chicago, Illinois
January 26, 1994
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<PAGE>
<TABLE>
Statements of
Income and
Retained
Earnings
Kentucky Utilities Company
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1993 1992 1991
<S> <C> <C> <C>
Operating Revenues $ 606,588 $ 575,821 $ 587,660
Operating Expenses:
Fuel, principally coal, used in generation 178,910 168,470 183,167
Electric power purchased 34,711 32,753 26,744
Other operating expenses 104,930 93,915 91,779
Maintenance 59,451 61,118 58,590
Depreciation 60,800 58,849 57,337
Federal and state income taxes 48,178 41,489 46,569
Other taxes 14,347 13,359 12,858
501,327 469,953 477,044
Net Operating Income 105,261 105,868 110,616
Other Income and Deductions:
Interest and dividend income 2,813 6,611 8,744
Other income and deductions - net 5,926 4,734 3,503
8,739 11,345 12,247
Income Before Interest Charges 114,000 117,213 122,863
Interest Charges:
Interest on long-term debt 31,650 39,571 36,559
Other interest charges 1,064 1,344 1,549
32,714 40,915 38,108
Net Income 81,286 76,298 84,755
Preferred Stock Dividend Requirements 2,558 2,518 3,031
Net Income Applicable to Common Stock $ 78,728 $ 73,780 $ 81,724
Retained Earnings Beginning of Year $ 226,210 $ 261,426 $ 238,614
Add Net Income 81,286 76,298 84,755
307,496 337,724 323,369
Deduct:
Dividends on preferred stock 2,558 2,518 3,031
Dividends on common stock 60,509 108,996 56,727
Preferred stock redemption expense and other - - 2,185
63,067 111,514 61,943
Retained Earnings End of Year $ 244,429 $ 226,210 $ 261,426
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
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<PAGE>
<TABLE>
Statements of
Cash Flows
Kentucky Utilities Company
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1993 1992 1991
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income $ 81,286 $ 76,298 $ 84,755
Items not requiring (providing) cash currently:
Depreciation 60,800 58,849 57,337
Deferred income taxes 5,725 3,974 272
Investment tax credit deferred (4,131) (4,149) (4,377)
Change in fuel inventory 7,694 (642) 15,836
Change in accounts receivable (9,331) 7,338 (1,845)
Change in accounts payable 22,768 (1,819) 5,495
Change in accrued utility revenues (2,019) (1,970) 883
Change in liability to ratepayers 36,867 - -
Change in escrow funds (37,752) - -
Other - net 2,743 (2,079) 8,741
Net Cash Provided by Operating Activities 164,650 135,800 167,097
Cash Flows from Investing Activities:
Construction expenditures - utility (177,069) (86,077) (65,649)
Nonutility property (4,956) - (135)
Other 380 801 504
Net Cash Used by Investing Activities (181,645) (85,276) (65,280)
Cash Flows from Financing Activities:
Issuance of long-term debt 173,500 219,930 -
Funds deposited with trustee - net (18,268) 528 6,311
Retirement of long-term debt, including premiums (180,677) (190,756) (711)
Retirement of preferred stock - - (32,732)
Issuance of preferred stock 20,000 - -
Payment of dividends (63,027) (111,514) (60,002)
Net Cash Used by Financing Activities (68,472) (81,812) (87,134)
Net Increase (Decrease) in Cash and Cash Equivalents (85,467) (31,288) 14,683
Cash and Cash Equivalents Beginning of Year 94,299 125,587 110,904
Cash and Cash Equivalents End of Year $ 8,832 $ 94,299 $ 125,587
Supplemental Disclosures
Cash paid for:
Interest on long-term debt $ 33,860 $ 41,912 $ 36,441
Federal and state income taxes $ 42,483 $ 39,091 $ 48,080
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
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<PAGE>
<TABLE>
Balance
Sheets
Kentucky Utilities Company
<CAPTION>
As of December 31, (in thousands of dollars) 1993 1992
Assets
Utility Plant:
<S> <C> <C>
Plant in service, at cost $ 2,004,688 $ 1,955,164
Less: Accumulated depreciation 879,960 823,502
1,124,728 1,131,662
Construction work in progress 158,829 37,422
1,283,557 1,169,084
Current Assets:
Cash and cash equivalents 8,832 94,299
Escrow funds - coal contract litigation 37,752 -
Construction funds held by trustee 18,268 -
Accounts receivable, net of allowance
for doubtful accounts 41,457 32,126
Accrued utility revenues 25,575 23,556
Fuel, principally coal, at average cost 31,073 38,767
Plant materials and operating supplies, at average cost 17,261 11,932
Other 7,804 1,947
188,022 202,627
Investments, Deferred Charges and Other Assets:
Accumulated deferred income taxes 35,778 15,842
Unamortized loss on reacquired debt 13,295 8,613
Other 38,400 28,129
87,473 52,584
$ 1,559,052 $ 1,424,295
Capitalization and Liabilities
Capitalization: (See Statements of Capitalization)
Common stock equity $ 552,106 $ 534,073
Preferred stock 40,000 40,000
Long-term debt 442,045 443,977
1,034,151 1,018,050
Current Liabilities:
Preferred stock and long-term debt due within one year 20,021 21
Accounts payable 44,006 21,238
Accrued interest 7,302 10,621
Accrued taxes 4,660 4,029
Customers' deposits 10,803 10,605
Accrued payroll and vacations 7,709 6,760
Liability to ratepayers - coal contract litigation 36,867 -
Other 6,434 5,993
137,802 59,267
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 248,103 280,631
Accumulated deferred investment tax credits 42,385 46,516
Regulatory liabilities 69,689 5,090
Other 26,922 14,741
387,099 346,978
$ 1,559,052 $ 1,424,295
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
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<PAGE>
<TABLE>
Statements of
Capitalization
Kentucky Utilities Company
<CAPTION>
As of December 31, (in thousands of dollars) 1993 1992
Common Stock Equity:
Common stock, without par value,
<S> <C> <C>
outstanding 37,817,878 shares $ 308,140 $ 308,140
Capital stock expense and other (463) (277)
Retained earnings 244,429 226,210
552,106 534,073
Preferred Stock, cumulative, without par value,$100 stated value
4 3/4%, outstanding 200,000 shares 20,000 20,000
6.53%, outstanding 200,000 shares 20,000 -
7.84%, outstanding 200,000 shares 20,000 20,000
Less: Amounts to be redeemed within one year 20,000 -
40,000 40,000
Long-Term Debt:
First mortgage bonds, substantially all of Kentucky
Utilities' utility plant is pledged as security
for these bonds 441,830 443,330
Unamortized premium 108 519
441,938 443,849
8% secured note, due January 5, 1999 128 149
Less: Amounts to be redeemed within one year 21 21
442,045 443,977
$ 1,034,151 $ 1,018,050
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
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<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
1. Summary of Significant Accounting Policies
General
Kentucky Utilities Company (Kentucky Utilities) is the principal
subsidiary of KU Energy Corporation.
Regulation
Kentucky Utilities is a public utility subject to regulation by the
Kentucky Public Service Commission (PSC), the Virginia State Corporation
Commission (SCC) and the Federal Energy Regulatory Commission (FERC).
With respect to accounting matters, Kentucky Utilities maintains its
accounts in accordance with the Uniform System of Accounts as defined by
these agencies. Its accounting policies conform to generally accepted
accounting principles applicable to rate regulated enterprises and
reflect the effects of the ratemaking process.
Utility Plant
Utility plant is stated at the original cost of construction. The cost
of repairs and minor renewals is charged to maintenance expense as
incurred. Property unit replacements are capitalized and the
depreciation reserve is charged with the cost, less net salvage, of units
retired.
Depreciation
Provision for depreciation of utility plant is based on straight-line
composite rates applied to the cost of depreciable property. The rates
approximated 3.3% in 1993, 1992 and 1991.
Cash and Cash Equivalents
For purposes of reporting cash flows, Kentucky Utilities considers highly
liquid investments with a maturity of three months or less from the date
of purchase to be cash equivalents.
Kentucky Utilities utilizes a cash management mechanism that funds
certain bank accounts for checks as they are presented to those banks.
Kentucky Utilities classified checks written but not presented to those
banks, which amounted to $9.9 million at December 31, 1993, in accounts
payable.
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<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
Unamortized Loss on Reacquired Debt
Kentucky Utilities defers costs (primarily call premiums) arising from
the reacquisition or retirement of long-term debt. Costs related to
refinanced debt are amortized over the lives of the new debt issues.
Costs related to retired debt not refinanced are amortized over the
period to the scheduled maturity of the retired debt.
Operating Revenues and Fuel Costs
Revenues are recorded based on services rendered to customers. Kentucky
Utilities accrues an estimate of revenues for electric service furnished
from the meter reading dates to the end of each accounting period. Cost
of fuel used in electric generation is charged to expense as the fuel is
consumed. The cost of fuel for 1991 and 1992 included an amortization of
buyout costs associated with the termination of a coal supply contract.
A fuel adjustment clause adjusts operating revenues for changes in the
level of fuel costs charged to expense.
2. Fuel Litigation Refund
Kentucky Utilities had been involved in litigation which began in 1984
with a former coal supplier over the price and other terms of the
parties' long-term contract for Ghent Unit 3. Pursuant to an order of
the Fayette (KY) Circuit Court, Kentucky Utilities deposited part of the
disputed coal prices with the Fayette Circuit Court pending a final
decision. During the course of the proceedings, the supplier filed for
relief under the Federal Bankruptcy Code. On February 1, 1993, the
Bankruptcy Court for the Eastern District of Kentucky approved a
settlement agreement disposing of all litigation and claims between
Kentucky Utilities and the supplier. All other actions and appeals
involving the various parties and claimants have been dismissed.
In March 1993, the deposited funds (totaling approximately $44 million,
including interest through that date) were released by the Fayette
Circuit Court to Kentucky Utilities and have been held by Kentucky
Utilities in a segregated escrow account pending disposition in
accordance with appropriate orders of regulatory agencies.
During 1993, Kentucky Utilities submitted plans to the FERC, PSC and SCC
for distributing a portion of the deposited funds to customers.
Kentucky Utilities' plan was approved by the SCC, as submitted, and
refunds of the Virginia retail portion of the deposited funds
(approximately $2.3 million), plus interest, are being made to Virginia
retail customers over 12 months beginning August 1, 1993. Kentucky
Utilities' plan was approved by the FERC, as submitted, and a refund of
that portion of the deposited funds (approximately $3.9 million) relating
to wholesale customers was made in lump sum payments in September 1993.
In an order which became final in February 1994, the PSC ordered Kentucky
Utilities to refund that portion of the deposited funds relating to
Kentucky retail customers (approximately $35.5 million), plus interest,
to customers on its system from April 1985 through December 1990. The
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<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
order allows Kentucky Utilities to retain $.8 million of incurred
litigation costs and $2.4 million for savings attributable to off-system
sales. The PSC order also allows Kentucky Utilities recovery of its
costs incurred in administering an approved refund plan. A refund plan
in accordance with the PSC order has been filed by Kentucky Utilities for
PSC approval.
The total escrow funds remaining after the above mentioned FERC and SCC
refunds and the withdrawals for savings attributable to off-system sales
($2.4 million) and incurred litigation costs ($.8 million) resulting from
the FERC and SCC orders are reflected on the Balance Sheet under the
caption "Escrow funds - coal contract litigation." The "Liability to
ratepayers - coal contract litigation" represents the fuel cost savings
(including interest) that will be credited to Kentucky and Virginia
retail customers. Approximately $3.2 million of "Other Deferred Credits"
represents the portion of savings attributable to off-system sales and
the Kentucky jurisdictional allowed litigation costs. Kentucky Utilities
will record a $3.2 million reduction of expense (for the off-system sales
and allowed litigation costs) in 1994.
3. Income Taxes
Effective January 1, 1993, Kentucky Utilities adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). This statement requires an asset and liability approach for
financial accounting and reporting for income taxes rather than the
deferred method. It requires Kentucky Utilities to establish deferred
tax assets and liabilities, as appropriate, for all temporary
differences, and to adjust deferred tax balances to reflect changes in
tax rates expected to be in effect during the periods the temporary
differences reverse. At the date of adoption, because of the effects of
rate regulation, Kentucky Utilities recorded an increase of $22 million
in deferred tax assets and a decrease of $53 million in deferred tax
liabilities, and established a corresponding regulatory liability of
$75 million, primarily to recognize the probable future reduction in
rates to flowback to customers amounts previously collected for deferred
taxes in excess of current statutory tax rates. The adoption of this
standard did not have a material impact on results of operation, cash
flows or financial position.
Kentucky Utilities is included in the consolidated federal tax return of
its parent company, KU Energy. Income taxes are allocated to the
individual companies, including Kentucky Utilities, based on their
respective taxable income or loss.
Investment tax credits result from provisions of the tax law which
permitted a reduction of Kentucky Utilities' tax liability based on
certain construction expenditures. Such credits have been deferred in
the accounts and are being amortized as reductions in income tax expense
over the life of the related property.
The accumulated deferred income taxes as set forth below and in the
Balance Sheet arise from the following temporary differences at
-144-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
December 31 and January 1, 1993:
<TABLE>
<CAPTION>
December 31 January 1
(in thousands of dollars) Deferred Deferred Deferred Deferred
Tax Assets Tax Liabilities Tax Assets Tax Liabilities
Accelerated depreciation
and other property
<S> <C> <C> <C> <C>
related differences $ 28,529 $ 241,893 $ 27,820 $ 224,441
Other 13,147 6,210 10,008 2,631
Total accumulated
deferred income taxes $ 41,676 $ 248,103 $ 37,828 $ 227,072
</TABLE>
Of the $3.8 million increase in deferred tax assets and the $21.0 million
increase in deferred tax liabilities, approximately $1.3 million and
$9.6 million, respectively, resulted from an increase in the federal
statutory corporate income tax rate from 34% to 35% effective January 1,
1993. This resulted in a net decrease of $8.3 million in the regulatory
liability.
-145-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
<TABLE>
The components of income tax expense are as follows:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1993 1992 1991
Income taxes charged to Operating Income:
<S> <C> <C> <C>
Current - federal $ 35,893 $ 30,838 $ 37,241
- state 9,484 7,951 9,252
45,377 38,789 46,493
Deferred - federal 2,837 2,269 570
- state 71 561 160
2,908 2,830 730
Deferred investment tax credit (107) (130) (654)
48,178 41,489 46,569
Income taxes charged to Other Income and Deductions:
Current - federal (2,056) (7) 1,581
- state (560) (217) 504
(2,616) (224) 2,085
Deferred - federal 2,261 909 (362)
- state 556 235 (96)
2,817 1,144 (458)
Amortization of deferred investment tax credit (4,024) (4,019) (3,723)
(3,823) (3,099) (2,096)
Total income tax expense $ 44,355 $ 38,390 $ 44,473
</TABLE>
<TABLE>
The provisions for deferred income taxes relate to the following items:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1993 1992 1991
Accelerated depreciation and other
<S> <C> <C> <C>
property related differences $ 5,600 $ 6,806 $ 5,658
Power plant inventory 418 (10) (3,564)
Loss on reacquired debt 3,459 1,165 (39)
Other (3,752) (3,987) (1,783)
Total provisions for deferred income taxes $ 5,725 $ 3,974 $ 272
</TABLE>
Kentucky Utilities' effective income tax rate, determined by dividing
income taxes by the sum of such taxes and net income, was 35.3% in 1993,
33.5% in 1992, and 34.4% in 1991. The difference between the effective
rate and the statutory federal income tax rate is attributable to the
following factors:
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1993 1992 1991
Federal income tax computed
<S> <C> <C> <C>
at 35%, 34% and 34%, respectively $ 43,974 $ 38,994 $ 43,938
Add (Deduct):
State income taxes, net of federal
income tax benefit 6,208 5,630 6,480
Amortization of deferred investment tax credit (4,131) (4,140) (3,857)
Other, net (1,696) (2,094) (2,088)
Total income tax expense $ 44,355 $ 38,390 $ 44,473
</TABLE>
-146-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
4. Retirement and Postemployment Benefits
Pensions
Kentucky Utilities has a noncontributory defined benefit pension plan
covering substantially all of its employees. Benefits under this plan
are based on years of service, final average base pay and age at
retirement. Kentucky Utilities' funding policy is to make such
contributions as are necessary to finance the benefits provided under the
plan. Kentucky Utilities' contributions meet the funding standards set
forth in the Employee Retirement Income Security Act of 1974. The plan
assets consist primarily of equity and fixed income investments.
Kentucky Utilities also has a Supplemental Security Plan for certain
management personnel. Retirement benefits under this plan are based on
years of service, earnings and age at retirement. The plan has no
advance funding. Benefit payments are made to retired employees or their
beneficiaries from the general assets of Kentucky Utilities.
<TABLE>
The reconciliation of the funded status of the retirement plans and the
pension liability is as follows:
<CAPTION>
As of December 31, (in thousands of dollars) 1993 1992
<S> <C> <C>
Fair value of plan assets $ 157,137 $ 147,235
Projected benefit obligation (169,309) (144,380)
Plan assets in excess of (less than)
projected benefit obligation (12,172) 2,855
Unrecognized net (gain)/loss from past
experience different than that assumed 6,361 (7,628)
Unrecognized prior service cost 4,966 5,334
Unrecognized net asset (1,949) (2,099)
Regulatory effect recorded (5,146) (5,090)
Pension liability $ (7,940) $ (6,628)
Accumulated benefit obligation (including vested benefits
of $128,779 and $105,442, respectively) $ 130,758 $ 107,503
</TABLE>
-147-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
<TABLE>
Components of Net Pension Cost:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1993 1992 1991
Service cost (benefits earned during the
<S> <C> <C> <C>
period) $ 5,036 $ 4,774 $ 4,307
Interest cost on projected benefit obligation 12,311 11,482 10,473
Actual return on plan assets (13,229) (11,384) (20,158)
Net amortization and deferral 1,785 350 10,941
Regulatory effect based on funding 56 705 1,139
Net pension cost $ 5,959 $ 5,927 $ 6,702
Assumptions Used in Determining Actuarial Valuations:
1993 1992 1991
Weighted average discount rate used to
determine the projected benefit obligation 7 1/2% 8 3/4% 8 3/4%
Rate of increase for compensation levels (1) 4 3/4% 6% 6%
Weighted average expected long-term rate
of return on assets 8 1/4% 8 3/4% 8 3/4%
(1) 5 1/4%, 6 1/2% and 6 1/2%, respectively, used for the Supplemental Security Plan
valuation.
</TABLE>
Other Postretirement Benefits
Effective January 1, 1993, Kentucky Utilities adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106). This standard
provides accounting and disclosure requirements associated with Kentucky
Utilities' obligation to provide postretirement benefits other than
pensions to present and future retirees. In accordance with this
standard, Kentucky Utilities will accrue, during the years that the
employee renders service, the expected cost of providing these benefits
for retired employees, their beneficiaries and covered dependents.
Kentucky Utilities previously recognized these costs on a pay-as-you-go
(cash) basis. Amounts paid for retirees for 1992 and 1991 amounted to
$2.3 million and $2.4 million, respectively.
Kentucky Utilities provides certain health care and life insurance
benefits to eligible retired employees and their dependents. The
postretirement health care plan is contributory for employees who retired
after December 31, 1992, with retiree contributions indexed annually
based upon the experience of retiree medical expenses for the preceding
year. Pre-1993 retirees are not required to contribute to the plan.
Kentucky Utilities' employees become eligible for retiree medical
benefits after 15 years of service and attainment of age 55. The life
insurance plan is noncontributory and is based on compensation levels
prior to retirement.
-148-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
Employees may purchase additional life insurance equal to the amount
provided by Kentucky Utilities.
In 1993, Kentucky Utilities began funding, in addition to current
requirements for benefit payments, the maximum tax-favored amount allowed
through certain tax deductible funding vehicles. Kentucky Utilities
anticipates making similar funding decisions in future years, but will
consider and make such funding decisions on the basis of tax, regulatory
and other relevant conditions in effect at such times.
The PSC issued a decision in December 1992 stating that the rate
treatment resulting from the adoption of SFAS 106 will be considered on a
case-by-case basis in the context of a general rate case. Based on
management's interpretation of this PSC Order, Kentucky Utilities is not
deferring the Kentucky jurisdictional portion of these costs. The FERC
and the SCC both have approved accrual of these costs for ratemaking
purposes in accordance with SFAS 106. Kentucky Utilities is deferring,
in accordance with the SCC and FERC Orders, the difference between costs
determined in accordance with SFAS 106 and the level currently reflected
in rates for the portion of costs associated with the Virginia and FERC
jurisdictions until the next general rate cases in the respective
jurisdictions as a result of the above mentioned Orders. The impact on
results of operations, after giving effect to the regulatory treatment
discussed above, is an increase in pre-tax expense for the year ended
December 31, 1993 of $6.3 million (net of capitalized payroll benefits).
-149-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
<TABLE>
The reconciliation of the funded status of the plans and the
postretirement benefit liability is as follows:
<CAPTION>
As of December 31, (in thousands of dollars) 1993
Accumulated postretirement benefit obligation:
<S> <C>
Retirees $ (38,331)
Fully eligible active plan participants (8,448)
Other active plan participants (28,813)
(75,592)
Plan assets at fair value 2,440
Accumulated postretirement benefit obligation
in excess of plan assets (73,152)
Unrecognized net loss from past
experience different from that assumed 3,230
Unrecognized transition obligation 63,483
Regulatory effect recorded 689
Accrued postretirement benefit liability $ (5,750)
Components of the net periodic postretirement benefit cost are as follows:
Year Ended December 31, (in thousands of dollars) 1993
Service cost (benefits attributed to service
during the period) $ 2,048
Interest cost on accumulated postretirement
benefit obligation 5,730
Amortization of transition obligation 3,341
Regulatory deferral (689)
Net periodic postretirement benefit cost $ 10,430
</TABLE>
For measurement purposes, a 10% annual rate of increase in the per capita
cost of covered health care benefits is assumed for 1994. The health
care cost trend rate is assumed to decrease gradually to 5.25% through
2004 and remain at that level thereafter over the projected payout period
of the benefits. Increasing the assumed health care cost trend rates by
1 percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1993, by $12 million
(16%) and the aggregate of the service and interest cost components of
the net periodic postretirement benefit cost for the year by $1.6 million
(20%).
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%. The weighted-average
discount rate used in determining the initial transition amount was
8.75%. The rate of increase for compensation levels was assumed to be
4.75%.
Other Postemployment Benefits
In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits". This statement establishes
standards of accounting and reporting for the estimated cost of benefits
-150-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
provided by an employer to former or inactive employees after employment
but before retirement. Kentucky Utilities provides medical and life
insurance benefits to disabled employees that are covered by this
statement. Kentucky Utilities adopted this standard effective in 1993.
The adoption of this standard did not have a material impact on financial
condition or results of operation.
5. Commitments and Contingencies
<TABLE>
The effects of certain commitments made by Kentucky Utilities are
estimated below:
<CAPTION>
(in thousands of dollars) 1994 1995 1996 1997 1998
Estimated Construction
<S> <C> <C> <C> <C> <C>
Expenditures $183,600 $ 109,100 $128,600 $ 125,000 $ 85,300
Estimated Contract
Obligations:
Fuel 153,400 92,500 66,300 54,200 12,500
Purchased power 25,000 23,300 25,500 26,300 26,100
Operating leases 3,100 3,100 3,000 3,000 3,000
Sinking Fund Requirements
and Redemptions:
First mortgage bonds 376 376 376 376 376
Preferred stock $ 20,000 $ - $ - $ - $ -
</TABLE>
Construction Program
Kentucky Utilities frequently reviews its construction program and may
revise its projections of related expenditures based on revisions to its
estimated load growth and projections of its future load.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations - Construction for a discussion of future
expenditures relating to compliance with the 1990 Clean Air Act
Amendments and construction of peaking units.
Coal Supply
Obligations under Kentucky Utilities' coal purchase contracts are stated
at prices effective January 1, 1994 and are subject to changes as defined
by the terms of the contracts.
Purchased Power Agreements
Kentucky Utilities has purchase power arrangements with Owensboro
Municipal Utilities (OMU), Electric Energy, Inc. (EEI) and Illinois Power
Company (IP). Under the OMU agreement, which expires on
January 1, 2020, Kentucky Utilities purchases, on an economic basis, all
of the output of a 400-MW generating station not required by OMU. The
amount of purchased power available to Kentucky Utilities during 1994-
1998, which is expected to be approximately 8% of Kentucky Utilities'
total kWh requirements, is dependent upon a number of factors including
the units' availability, maintenance schedules, fuel costs and OMU
-151-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
requirements. Payments are based on the total costs of the station
allocated per terms of the OMU agreement, which generally follows
delivered kWh. Included in the total costs is Kentucky Utilities'
proportionate share of debt service requirements on $30.1 million of
OMU bonds outstanding at December 31, 1993. The debt service is
allocated to Kentucky Utilities based on its annual allocated share of
capacity, which averaged approximately 51% in 1993. In 1995, Kentucky
Utilities' total costs will increase to include Kentucky Utilities'
proportionate share of debt service requirements on approximately
$171.5 million of additional OMU bonds issued to finance capital
improvements designed to enable OMU to comply with the 1990 Clean Air Act
Amendments.
Kentucky Utilities has a 20% equity ownership in EEI, which is accounted
for on the equity method of accounting. Through 1993, the equity
ownership permitted Kentucky Utilities to share in the output of a 1,000-
MW station not needed by EEI. Kentucky Utilities' entitlement beginning
January 1, 1994, will be 20% of the available capacity of the station.
Payments are based on the total costs of the station allocated per terms
of an agreement among the owners, which generally follows delivered kWh.
Kentucky Utilities has contracted to purchase 75-MW of capacity from IP
for the period of January 1993 through March 1994, and 125-MW of capacity
from April 1994 through December 1994.
Sinking Fund Requirements and Redemptions
Annual sinking fund requirements for Kentucky Utilities' first mortgage
bonds may be met with cash or expenditures for bondable property as
provided in the Mortgage Indenture. Kentucky Utilities intends to meet
the 1994 sinking fund requirements with expenditures for bondable
property.
Kentucky Utilities redeemed all of the outstanding shares of its 7.84%
preferred stock on February 1, 1994, at a total price of $20.3 million.
Lines of Credit
Kentucky Utilities has aggregate bank lines of credit of $55 million, all
of which remained unused at December 31, 1993. These lines of credit may
not be withdrawn at the banks' option prior to September 30, 1994. In
support of these lines of credit, Kentucky Utilities compensates the
banks by paying a commitment fee.
Short-Term Borrowings
Kentucky Utilities' short-term financing requirements are satisfied
through the sale of commercial paper. Beginning November 1993, Kentucky
Utilities sold short-term commercial paper at interest rates varying from
3.10 to 3.25 percent. At December 31, 1993, Kentucky Utilities had no
short-term commercial paper borrowings outstanding.
-152-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
Long-Term Debt
<TABLE>
First Mortgage Bonds of Kentucky Utilities (including those
collateralizing pollution control revenue bonds) outstanding at
December 31, 1993 and 1992, were as follows:
<CAPTION>
(in thousands of dollars) 1993 1992
First Mortgage Bonds:
<S> <C> <C>
7 5/8% Series H, due May 1, 1999 $ - $ 25,000
8 3/4% Series I, due April 1, 2000 - 30,000
5.95% Series Q, due June 15, 2000 61,500 -
7 5/8% Series J, due September 1, 2001 - 35,000
7 3/8% Series K, due December 1, 2002 35,500 35,500
6.32% Series Q, due June 15, 2003 62,000 -
9 1/8% Series L, due April 1, 2004 - 25,000
9 1/4% Series M, due June 1, 2006 - 30,000
8 1/2% Series N, due April 1, 2007 - 30,000
7.92% Series P, due May 15, 2007 53,000 53,000
8.55% Series P, due May 15, 2027 33,000 33,000
245,000 296,500
First Mortgage Bonds, Pollution Control Series:
7 3/8% Pollution Control Series 7, due May 1, 2010 4,000 4,000
7.45% Pollution Control Series 8, due September 15, 2016 96,000 96,000
6 1/4% Pollution Control Series 1B, due February 1, 2018 20,930 20,930
6 1/4% Pollution Control Series 2B, due February 1, 2018 2,400 2,400
6 1/4% Pollution Control Series 3B, due February 1, 2018 7,200 7,200
6 1/4% Pollution Control Series 4B, due February 1, 2018 7,400 7,400
7.60% Pollution Control Series 7, due May 1, 2020 8,900 8,900
5 3/4% Pollution Control Series 9, due December 1, 2023 31,900 -
5 3/4% County of Carroll, Kentucky, Collateralized Solid
Waste Disposal Facility Revenue Bonds, due December 1, 2023 18,100 -
196,830 146,830
$ 441,830 $ 443,330
</TABLE>
Kentucky Utilities redeemed $30 million of Series M and $25 million of
Series L First Mortgage Bonds (including redemption premiums of
$1.4 million and $.9 million, respectively) in March and April of 1993,
respectively.
In June 1993, Kentucky Utilities issued $123.5 million of Series Q First
Mortgage Bonds. Proceeds of the issue were used to redeem $25 million of
Series H, $30 million of Series I, $35 million of Series J and
$30 million of Series N First Mortgage Bonds (plus redemption premiums
aggregating $3.3 million) in July 1993.
In 1993, Kentucky Utilities entered into a loan agreement with the County
of Carroll, Kentucky, to finance the construction of solid waste disposal
facilities. The County issued $50 million of the 5 3/4% revenue bonds,
with the proceeds held in a construction fund by a trustee. As the
construction funds held by the trustee are drawn down, Kentucky Utilities
Pollution Control Series 9 Bonds are delivered to the trustee in an
amount equal to the amount drawn down.
-153-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
6. Common Stock
Kentucky Utilities is subject to restrictions applicable to all
corporations under Kentucky and Virginia law on the use of retained
earnings for cash dividends on common stock, as well as those contained
in its Mortgage Indenture and Articles of Incorporation. At December 31,
1993, there were no restricted retained earnings.
7. Preferred Stock
Kentucky Utilities redeemed all 120,000 shares of its 8.65% preferred
stock and 180,000 shares of its 9.96% preferred stock on March 1, 1991,
and the remaining 10,000 shares of its 9.96% preferred stock on June 1,
1991 at a total price of $32.7 million.
In December 1993, Kentucky Utilities issued 200,000 shares of 6.53%
preferred stock. The proceeds were used to redeem 200,000 shares of
7.84% preferred stock on February 1, 1994.
<TABLE>
Each series of preferred stock is redeemable at the option of Kentucky
Utilities upon 30 days' written notice as follows:
<CAPTION>
Redemption Price per Share
Series (plus accrued and unpaid dividends, if any)
<S> <C>
4 3/4% $101.00
6.53% (Not redeemable prior to December 1, 2003.)
$103.265 through November 30, 2004, decreasing
approximately $.33 each twelve months thereafter
to $100 on or after December 1, 2013.
7.84% $101.50
</TABLE>
As of December 31, 1993, there were 5.3 million shares of Kentucky
Utilities preferred stock, having a maximum aggregate stated value of
$200 million, authorized for issuance.
8. Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
Cash and cash equivalents, escrow funds, construction funds and
customers' deposits carrying values approximate fair value because of the
short maturity of these amounts.
Long-term debt fair values are based on quoted market prices for Kentucky
Utilities' first mortgage bonds and on current rates available to
Kentucky Utilities for debt of the same remaining maturities for Kentucky
Utilities' pollution control bonds and promissory note.
-154-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
Kentucky Utilities has an interest rate swap agreement with a notional
amount of $70 million. Fair value of this instrument is the estimated
amount the counterparty would pay to Kentucky Utilities to terminate the
swap at the date of measurement.
<TABLE>
The estimated fair values of Kentucky Utilities' financial instruments at
December 31 are as follows:
<CAPTION>
1993 1992
Carrying Estimated Carrying Estimated
(in thousands of dollars) Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Interest rate swap $ - $ 2,550 $ - $ 3,260
Long-term debt $ 442,066 $ 489,042 $ 443,998 $ 471,278
</TABLE>
If the excess of fair value over carrying value of Kentucky Utilities'
long-term debt were settled at amounts approximating those above, the
anticipated regulatory treatment would allow recovery of these amounts in
rates over a prescribed amortization period. Accordingly, any settlement
would not have a significant impact on Kentucky Utilities' financial
position or results of operations.
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". This statement, which must be adopted on January 1, 1994,
addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and all investments
in debt securities. Kentucky Utilities does not anticipate that the new
standard will have a material impact on its financial condition or
results of operations.
-155-
<PAGE>
Supplementary
Quarterly
Financial
Information
(Unaudited)
Kentucky Utilities Company
Quarterly financial results for 1993 and 1992 are summarized below.
Generally, quarterly results may fluctuate due to seasonal variations,
changes in fuel costs and other factors.
<TABLE>
<CAPTION>
Quarter 4th 3rd 2nd 1st
(in thousands of dollars)
1993
<S> <C> <C> <C> <C>
Operating Revenues $ 151,828 $ 160,615 $ 139,909 $ 154,236
Net Operating Income 21,257 30,640 22,209 31,155
Net Income 15,526 24,790 16,422 24,548
Net Income Applicable
to Common Stock 14,856 24,161 15,792 23,919
1992
Operating Revenues $ 139,695 $ 151,888 $ 137,754 $ 146,484
Net Operating Income 20,943 31,176 24,293 29,456
Net Income 14,366 22,756 16,566 22,610
Net Income Applicable
to Common Stock 13,736 22,127 15,936 21,981
These quarterly amounts reflect, in Kentucky Utilities' opinion, all
adjustments (including only normal recurring adjustments) necessary for a
fair presentation.
</TABLE>
-156-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Refer to KU Energy's definitive proxy statement (the "Proxy Statement")
filed with the Securities and Exchange Commission in connection with its
1994 Annual Shareholder Meeting under the caption "Election of
Directors--General" for the information required by this item pertaining
to directors. Such information is incorporated herein by reference and
is also filed herewith as Exhibit 99B. Information required by this item
relating to executive officers of Kentucky Utilities is set forth under a
separate caption in Part I hereof.
Item 11. Executive Compensation
Refer to KU Energy's Proxy Statement under the caption Election of
Directors-- "Directors' Compensation", and -- "Executive Compensation"
(but excluding any information contained under the subheadings --"Report
of Compensation Committee on Executive Compensation", and --"Performance
Graph") for the information required by this item. Such
information is incorporated herein by reference and is also filed
herewith as Exhibit 99B.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Refer to KU Energy's Proxy Statement under the caption "Election of
Directors--Voting Securities Beneficially Owned by Directors, Nominees
and Executive Officers; Other Information" for the information required
by this item. Such information is incorporated herein by reference
and is also filed herewith as Exhibit 99B.
Item 13. Certain Relationships and Related Transactions
None.
-157-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) The following (1) financial statements, (2) schedules, and (3)
exhibits, are filed as a part of this Annual Report.
(1) Financial Statements
Report of Independent Public Accountants,
Statements of Income and Retained Earnings for the three
years ended December 31, 1993,
Statements of Cash Flows for the three years ended
December 31, 1993,
Balance Sheets as of December 31, 1993 and 1992,
Statements of Capitalization as of December 31, 1993 and
1992, and
Notes to Financial Statements.
(2) Schedules
Schedule V Property, plant and equipment.
Schedule VI Accumulated depreciation, depletion and
amortization of property, plant and
equipment.
Schedule VIII Valuation and qualifying accounts.
Schedule IX Short-term borrowings.
Schedule X Supplementary income statement information.
The following Schedules are omitted as not applicable or not
required under Regulation S-X:
I, II, III, IV, VII, XI, XII, XIII, XIV.
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(3) Exhibits
Number Description Page
3.A Amended and Restated Articles of Incorporation of
Kentucky Utilities Company. (Exhibits 4.03 and 4.04
to Form 8-K Current Report of Kentucky Utilities
Company, dated December 10, 1993). Incorporated by
reference. -
3.B By-laws of Kentucky Utilities Company dated December
14, 1992. (Exhibit 3B to Form 10-K Annual Report of
Kentucky Utilities Company for the year ended
December 31, 1992). Incorporated by reference. -
4.A Indenture of Mortgage or Deed of Trust dated May 1,
1947 between Kentucky Utilities Company and
Continental Illinois National Bank and Trust Company
of Chicago and Edmond B. Stofft, as Trustees (Amended
Exhibit 7(a) in File No. 2-7061), and Supplemental
Indentures thereto dated, respectively, January 1,
1949 (Second Amended Exhibit 7.02 in File No. 2-
7802), July 1, 1950 (Amended Exhibit 7.02 in File No.
2-8499), June 15, 1951 (Exhibit 7.02(a) in File No.
2-8499), June 1, 1952 (Amended Exhibit 4.02 in File
No. 2-9658), April 1, 1953 (Amended Exhibit 4.02 in
File No. 2-10120), April 1, 1955 (Amended Exhibit
4.02 in File No. 2-11476), April 1, 1956 (Amended
Exhibit 2.02 in File No. 2-12322), May 1, 1969
(Amended Exhibit 2.02 in File No. 2-32602), April 1,
1970 (Amended Exhibit 2.02 in File No. 2-36410),
September 1, 1971 (Amended Exhibit 2.02 in File No.
2-41467), December 1, 1972 (Amended Exhibit 2.02 in
File No. 2-46161), April 1, 1974 (Amended Exhibit
2.02 in File No. 2-50344), September 1, 1974 (Exhibit
2.04 in File No. 2-59328), July 1, 1975 (Exhibit 2.05
in File No. 2-59328), May 15, 1976 (Amended Exhibit
2.02 in File No. 2-56126), April 15, 1977 (Exhibit
2.06 in File No. 2-59328), August 1, 1979 (Exhibit
2.04 in File No. 2-64969), May 1, 1980 (Exhibit 2 to
Form 10-Q Quarterly Report of Kentucky Utilities for
the quarter ended June 30, 1980), September 15, 1982
(Exhibit 4.04 in File No. 2-79891), August 1, 1984
(Exhibit 4B to Form 10-K Annual Report of Kentucky
Utilities Company for the year ended December 31,
1984), June 1, 1985 (Exhibit 4 to Form 10-Q Quarterly
Report of Kentucky Utilities Company for the quarter
ended June 30, 1985), May 1, 1990 (Exhibit 4 to Form
10-Q Quarterly Report of Kentucky Utilities Company
for the quarter ended June 30, 1990), May 1, 1991
(Exhibit 4 to Form 10-Q Quarterly Report of Kentucky
Utilities Company for the quarter ended June 30,
1991), May 15, 1992 (Exhibit 4.02 to Form 8-K of
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Number Description Page
4.A Kentucky Utilities Company dated May 14, 1992),
(cont.) August 1, 1992 (Exhibit 4 to Form 10-Q Quarterly
Report of Kentucky Utilities Company for the quarter
ended September 30, 1992), June 15, 1993 (Exhibit
4.02 to Form 8-K of Kentucky Utilities Company dated
June 15, 1993) and December 1, 1993 (Exhibit 4.01 to
Form 8-K of Kentucky Utilities Company dated December
10, 1993). Incorporated by reference. -
4.B Supplemental Indenture dated March 1, 1992 between
Kentucky Utilities and Continental Bank, National
Association and M. J. Kruger, as Trustees, providing
for the conveyance of properties formerly held by Old
Dominion Power Company. (Exhibit 4B to Form 10-K
Annual Report of Kentucky Utilities Company for the
year ended December 31, 1992). Incorporated by
reference. -
10.A Kentucky Utilities' Amended and Restated Performance
Share Plan (Exhibit 10A to Form 10-Q Quarterly Report
of Kentucky Utilities Company for the quarter ended
June 30, 1993). Incorporated by reference. -
10.B Kentucky Utilities' Annual Performance Incentive Plan
(Exhibit 10B to Form 10-K Annual Report of Kentucky
Utilities Company for the year ended December 31,
1990). Incorporated by reference. -
10.C Amendment No. 1 to Kentucky Utilities' Annual
Performance Incentive Plan (Exhibit 10D to Form 10-K
Annual Report of Kentucky Utilities Company for the
year ended December 31, 1991). Incorporated by
reference. -
10.D Kentucky Utilities' Executive Optional Deferred
Compensation Plan (Exhibit 10C to Form 10-K Annual
Report of Kentucky Utilities Company for the year
ended December 31, 1990). Incorporated by reference. -
10.E Amendment No. 1 to Kentucky Utilities' Executive
Optional Deferred Compensation Plan (Exhibit 10F to
Form 10-K Annual Report of Kentucky Utilities Company
for the year ended December 31, 1991). Incorporated
by reference. -
10.F Kentucky Utilities' Director Retirement Retainer
Program, and Amendment No. 1 (Exhibit 10G to Form
10-K Annual Report of Kentucky Utilities Company for
the year ended December 31, 1991). Incorporated by
reference. -
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Number Description Page
10.G Kentucky Utilities' Supplemental Security Plan
(Exhibit 10I to Form 10-K Annual Report of Kentucky
Utilities Company for the year ended December 31,
1991). Incorporated by reference. -
10.H Amendment No. 2 to Kentucky Utilities' Annual
Performance Incentive Plan N/A
10.I Amendment No. 3 to Kentucky Utilities' Annual
Performance Incentive Plan N/A
10.J Amendment No. 2 to Kentucky Utilities' Executive
Optional Deferred Compensation Plan N/A
10.K Kentucky Utilities' Amended and Restated Director
Deferred Compensation Plan N/A
12 Computation of Ratio of Earnings to Fixed Charges N/A
21 List of Subsidiaries N/A
23 Consent of Independent Public Accountants N/A
99.A Description of Common Stock N/A
99.B Director and Executive Officer Information N/A
Note - Exhibit numbers 10.A through 10.K are management contracts
or compensatory plans or arrangements required to be filed as
exhibits to this Form 10-K.
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The following instruments defining the rights of holders of certain long-
term debt of Kentucky Utilities Company have not been filed with the
Securities and Exchange Commission but will be furnished to the
Commission upon request.
1. Loan Agreement dated as of May 1, 1990 between Kentucky Utili-
ties and the County of Mercer, Kentucky, in connection with
$12,900,000 County of Mercer, Kentucky, Collateralized Solid
Waste Disposal Facility Revenue Bonds (Kentucky Utilities
Company Project) 1990 Series A, due May 1, 2010 and May 1, 2020.
2. Loan Agreement dated as of May 1, 1991 between Kentucky Utili-
ties and the County of Carroll, Kentucky, in connection with
$96,000,000 County of Carroll, Kentucky, Collateralized
Pollution Control Revenue Bonds (Kentucky Utilities Company
Project) 1992 Series A, due September 15, 2016.
3. Loan Agreement dated as of August 1, 1992 between Kentucky
Utilities and the County of Carroll, Kentucky, in connection
with $2,400,000 County of Carroll, Kentucky, Collateralized
Pollution Control Revenue Bonds (Kentucky Utilities Company
Project) 1992 Series C, due February 1, 2018.
4. Loan Agreement dated as of August 1, 1992 between Kentucky
Utilities and the County of Muhlenberg, Kentucky, in connection
with $7,200,000 County of Muhlenberg, Kentucky, Collateralized
Pollution Control Revenue Bonds (Kentucky Utilities Company
Project) 1992 Series A, due February 1, 2018.
5. Loan Agreement dated as of August 1, 1992 between Kentucky
Utilities and the County of Mercer, Kentucky, in connection with
$7,400,000 County of Mercer, Kentucky, Collateralized Pollution
Control Revenue Bonds (Kentucky Utilities Company Project) 1992
Series A, due February 1, 2018.
6. Loan Agreement dated as of August 1, 1992 between Kentucky
Utilities and the County of Carroll, Kentucky, in connection
with $20,930,000 County of Carroll, Kentucky, Collateralized
Pollution Control Revenue Bonds (Kentucky Utilities Company
Project) 1992 Series B, due February 1, 2018.
7. Loan Agreement dated as of December 1, 1993, between Kentucky
Utilities and the County of Carroll, Kentucky, in connection
with $50,000,000 County of Carroll, Kentucky, Collateralized
Solid Waste Disposal Facilities Revenue Bonds (Kentucky
Utilities Company Project) 1993 Series A due December 1, 2023.
(B) On December 10, 1993, Kentucky Utilities filed a form 8-K which filed
as exhibits the Underwriting Agreement, Amended and Restated Articles
of Incorporation, and the Amendment to the Articles of Incorporation
establishing a new series of preferred stock. Also filed as an
exhibit was a Supplemental Indenture associated with First Mortgage
Bonds, Pollution Control Series 9.
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<TABLE>
SCHEDULE V
KENTUCKY UTILITIES COMPANY
PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Retirements
Balance or Sales at Other Balance
Jan. 1, Additions Original Changes Dec. 31,
1991 At Cost Cost (a) 1991
Electric Plant (in thousands)
<S> <C> <C> <C> <C> <C>
Intangible $ 102 $ 2 $ (1) $ - $ 103
Production
Steam 948,164 30,254 (11) - 978,407
Hydro 8,905 1,278 - - 10,183
Other 4,662 - - - 4,662
Transmission 344,239 4,250 (384) 83 348,188
Distribution 473,938 28,885 (5,963) (83) 496,777
General 54,152 4,699 (1,937) - 56,914
Plant in Service 1,834,162 69,368 (8,296) - 1,895,234
Construction Work
in Progress 25,311 (3,456) - - 21,855
Total $1,859,473 $ 65,912 $ (8,296) $ - $ 1,917,089
Retirements
Balance or Sales at Other Balance
Jan. 1, Additions Original Changes Dec. 31,
1992 At Cost Cost (a) 1992
Electric Plant (in thousands)
Intangible $ 103 $ - $ - $ - $ 103
Production
Steam 978,407 17,329 (3,437) - 992,299
Hydro 10,183 395 (3) - 10,575
Other 4,662 99 - - 4,761
Transmission 348,188 13,647 (473) 1,126 362,488
Distribution 496,777 33,224 (5,200) (1,087) 523,714
General 56,914 5,984 (1,635) (39) 61,224
Plant in Service 1,895,234 70,678 (10,748) - 1,955,164
Construction Work
in Progress 21,855 15,567 - - 37,422
Total $1,917,089 $ 86,245 $ (10,748) $ - $ 1,992,586
Retirements
Balance or Sales at Other Balance
Jan. 1, Additions Original Changes Dec. 31,
1993 At Cost Cost (a) 1993
Electric Plant (in thousands)
Intangible $ 103 $ 6 $ (4) $ - $ 105
Production
Steam 992,299 11,596 (122) (753) 1,003,020
Hydro 10,575 18 - - 10,593
Other 4,761 327 - - 5,088
Transmission 362,488 6,339 (356) (85) 368,386
Distribution 523,714 32,791 (4,826) 85 551,764
General 61,224 5,178 (1,752) 1,310 65,960
Plant in Service 1,955,164 56,255 (7,060) 557 2,004,916
Plant - Purchased
or Sold - - - (228) (228)
Total Plant 1,955,164 56,255 (7,060) 329 2,004,688
Construction Work
in Progress 37,422 121,407 - - 158,829
Total $1,992,586 $ 177,662 $ (7,060) $ 329 $ 2,163,517
( ) Denotes deduction.
Note-Refer to Note 1 of the Notes to Financial Statements for information as to Kentucky
Utilities depreciation method and rates and to Management's Discussion and Analysis -
Construction for information concerning 1993 additions.
(a) Amounts in Other Changes column represent transfers between plant accounts, the
transfer of nonutility property to utility property and entries related to the disposition of
an asset.
</TABLE>
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<TABLE>
SCHEDULE VI
KENTUCKY UTILITIES COMPANY
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Property, Plant and Equipment Intangibles
Total Electric Vehicles Franchises
(in thousands)
<S> <C> <C> <C> <C>
Balance January 1, 1991 $ 718,715 $ 707,774 $ 10,916 $ 25
Additions:
Provision charged to--
Depreciation expense $ 57,337 $ 57,335 $ - $ 2
Transportation expense clearing 2,318 - 2,318 -
Fuel inventory 3 3 - -
Other(1) 2,243 2,208 35 -
61,901 59,546 2,353 2
Deductions:
Retirements (8,296) (6,468) (1,827) (1)
Removal costs, net of salvage (1,276) (1,276) - -
(9,572) (7,744) (1,827) (1)
Balance January 1, 1992 $ 771,044 $ 759,576 $ 11,442 $ 26
Additions:
Provision charged to--
Depreciation expense $ 58,849 $ 58,847 $ - $ 2
Transportation expense clearing 2,393 - 2,393 -
Fuel inventory 379 379 - -
Other(1) 2,556 2,514 42 -
64,177 61,740 2,435 2
Deductions:
Retirements (10,748) (9,165) (1,583) -
Removal costs, net of salvage (971) (971) - -
(11,719) (10,136) (1,583) -
Balance January 1, 1993 $ 823,502 $ 811,180 $ 12,294 $ 28
Additions:
Provision charged to--
Depreciation expense $ 60,800 $ 60,798 $ - $ 2
Transportation expense clearing 2,524 - 2,524 -
Fuel inventory 382 382 - -
Other(1) 1,791 1,768 23 -
65,497 62,948 2,547 2
Deductions:
Retirements (7,060) (5,419) (1,637) (4)
Removal costs, net of salvage (1,979) (1,988) 9 -
(9,039) (7,407) (1,628) (4)
Balance December 31, 1993 $ 879,960 $ 866,721 $ 13,213 $ 26
(1) Includes reimbursement for relocation of properties and the accumulated depreciation
applicable to minor properties acquired.
</TABLE>
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<TABLE>
SCHEDULE VIII
KENTUCKY UTILITIES COMPANY
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Year Ended December 31, 1993 1992 1991
(in thousands)
Accumulated Provision for Uncollectible Accounts Receivable
<S> <C> <C> <C>
Balance at beginning of year $1,033 $ 1,132 $ 1,013
Balance at end of year $ 923 $ 1,033 $ 1,132
____________
Note-Other valuation and qualifying accounts are not significant.
</TABLE>
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<TABLE>
SCHEDULE IX
KENTUCKY UTILITIES COMPANY
SHORT-TERM BORROWINGS
<CAPTION>
As of December 31, Year Ended December 31,
Weighted Amount Outstanding Weighted
Average (in thousands) Average
Balance Interest Month End Weighted Interest
Year (in thousands) Rate Maximum Average(1) Rate(2)
Commercial Paper
<S> <C> <C> <C> <C> <C>
1991 $ - - $ - $ - -
1992 $ - - - - -
1993 $ - - $ 14,900 $ 1,916 3.22%
(1) Based on a daily weighting of total short-term borrowings outstanding.
(2) Based on the percentage relationship that total annual interest expense bears to the
total annual weighted average amount outstanding.
</TABLE>
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<PAGE>
<TABLE>
SCHEDULE X
KENTUCKY UTILITIES COMPANY
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<CAPTION>
Year Ended December 31, 1993 1992 1991
(in thousands)
Other Taxes
<S> <C> <C> <C>
Real estate and personal property $ 6,873 $ 6,197 $ 6,250
Payroll 5,584 5,261 4,727
Other 1,890 1,901 1,881
Total $ 14,347 $ 13,359 $ 12,858
____________
Note-The amounts of depreciation and taxes charged to other income and balance sheet
accounts are not significant. The amounts charged to the respective accounts for rents,
royalties, advertising costs, and research and development aggregated less than one
percent of total revenues.
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on
on March 14, 1994.
KENTUCKY UTILITIES COMPANY
/s/ John T. Newton
John T. Newton
Chairman and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant in the capacities and on the date indicated.
Signature Title
/s/ John T. Newton
John T. Newton Chairman and President (Principal Executive
Officer) and Director
/s/ Michael R. Whitley
Michael R. Whitley Senior Vice-President (Principal Financial
Officer) and Director
/s/ Michael D. Robinson
Michael D. Robinson Controller (Principal Accounting Officer)
/s/ Mira S. Ball
Mira S. Ball Director
/s/ W. B. Bechanan
W. B. Bechanan Director
/s/ Harry M. Hoe
Harry M. Hoe Director
/s/ Milton W. Hudson
Milton W. Hudson Director
/s/ Frank V. Ramsey, Jr.
Frank V. Ramsey, Jr. Director
/s/ Warren W. Rosenthal
Warren W. Rosenthal Director
/s/ William L. Rouse, Jr.
William L. Rouse, Jr. Director
/s/ Charles L. Shearer
Charles L. Shearer Director
March 14, 1994
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<PAGE>
EXHIBIT 10.H
AMENDMENT NO. 2 TO
KENTUCKY UTILITIES COMPANY
ANNUAL PERFORMANCE INCENTIVE PLAN
The Kentucky Utilities Company Annual Performance
Incentive Plan, as heretofore amended (the "Plan"), is hereby
amended, effective as of January 1, 1993, in the following
respects:
1. By deleting Section 2.1 of the Plan and inserting
in lieu thereof the following:
"2.1 "Base Salary" -- Annualized base salary
paid to a Participant as of January 1st
of each Plan Year or as of such later
date during a Plan Year as of which the
Executive becomes a Participant in the
Plan, except that if an executive
becomes a Participant as of a date other
than January 1st of a Plan Year, such
amount shall be prorated in proportion
to the portion of the Plan Year in which
that Executive will be a Participant."
2. By deleting the word "compatible" in the first
sentence of Section 2.5 of the Plan and inserting in lieu thereof
the word "incompatible".
3. By adding a new sentence at the end of Article III
of the Plan as follows:
"The Committee may employ such counsel (who
may be counsel for any Employer), consultants
and/or agents and may arrange for such
services as it may determine to be necessary
or appropriate in the administration of the
Plan. All expenses incurred by the Committee
in administering the Plan shall be paid by
the Employers."
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<PAGE>
4. By adding a new sentence after the third sentence
of Article IV of the Plan as follows:
"From time to time during a Plan Year
management may also recommend proposed
additional Participants for such Plan Year
and the award opportunities and performance
criteria for such individuals."
5. By deleting the first sentence of Article VII of
the Plan and inserting in lieu thereof the following:
"Prior to the beginning of each Plan Year (or
as soon as possible after an Executive is
added as a Participant during a Plan Year),
management shall recommend to the Committee
threshold, target, and maximum performance
goals for each performance criterion defined
below applicable to each Participant."
6. By deleting Section 9.1 of the Plan and inserting
in lieu thereof the following:
"In the event of termination of employment
with the Employer and Affiliates during a
Plan Year by reason of Retirement, Disability
or death of the Participant, the Participant,
in the case of Disability or Retirement, or
the Participant's Beneficiary, in the case of
the Participant's death, shall earn an
Incentive Award based on actual salary earned
prior to termination during the Plan Year,
and actual performance against established
targets. The transfer of employment from the
Employer to an Affiliate during Plan Year
shall not be deemed a termination of
employment for purposes of the Plan."
7. By adding the words "and Affiliates" after the
word "Employer" in Section 9.2 of the Plan.
8. By deleting Section 12.1 of the Plan and inserting
the following in lieu thereof:
"12.1 By acceptance of any Incentive Award
under the Plan, each Participant
agrees that benefit calculations
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under all other plans of the Employer
will exclude, unless otherwise
expressly provided in any such plan,
the Incentive Awards under the Plan."
IN WITNESS WHEREOF, Kentucky Utilities Company has
caused this instrument to be executed in its name by its
President and its Corporate Seal to be hereunto affixed,
attested by its Secretary, as of the 19th day of
February, 1993.
KENTUCKY UTILITIES COMPANY
By: /s/ John T. Newton
President
[CORPORATE SEAL]
ATTEST:
/s/ George S. Brooks II
Secretary
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<PAGE>
EXHIBIT 10.I
AMENDMENT NO. 3 TO
KENTUCKY UTILITIES COMPANY
ANNUAL PERFORMANCE INCENTIVE PLAN
The Kentucky Utilities Company Annual Performance
Incentive Plan, (the "Plan"), is hereby amended, effective as of
January 1, 1994, in the following respects:
1. By renumbering Section 7.3 and Section 7.4 of the
Plan as Section 7.4 and Section 7.5, respectively, and by adding
a new Section 7.3 after Section 7.2 as follows:
"7.3 Safety Criterion
A measure, determined by commonly accepted practices
or procedures, that reflects the number and/or
severity of occupational injuries and illnesses."
IN WITNESS WHEREOF, Kentucky Utilities Company has caused
this instrument to be executed in its name by its President and
its Corporate Seal to be hereunto affixed, attested by its
Secretary, as of the 13th day of December, 1993.
KENTUCKY UTILITIES COMPANY
By: /s/ John T. Newton
[CORPORATE SEAL] Chairman and President
ATTEST:
/s/ George S. Brooks II
Secretary
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<PAGE>
EXHIBIT 10.J
AMENDMENT NO. 2 TO
EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN OF
KENTUCKY UTILITIES COMPANY
The Executive Optional Deferred Compensation Plan of
Kentucky Utilities Company, as heretofore amended (the "Plan"),
is hereby amended, effective as of January 1, 1993, in the
following respects:
1. By deleting the word "compatible" in the first
sentence of Section 2.9 of the Plan and inserting in lieu thereof
the word "incompatible".
2. By adding a new sentence at the end of Article III
of the Plan as follows:
"The Committee may employ such counsel (who
may be counsel for any Employer), consultants
and/or agents and may arrange for such
services as it may determine to be necessary
or appropriate in the administration of the
Plan. All expenses incurred by the Committee
in administering the Plan shall be paid by
the Employers."
3. By adding a new sentence after the second sentence
of Section 4.2 of the Plan as follows:
"In addition, if an Executive becomes a
participant in the Company's Annual
Performance Incentive Plan for a Performance
Cycle as of a date other than January 1st, he
may deliver such notice to the Committee
within 30 days of the date as of which that
Executive becomes a participant in the Annual
Performance Incentive Plan."
4. By deleting the words "each calendar quarter" at
the end of Article VI of the Plan and inserting in lieu thereof
the words "that calendar quarter".
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<PAGE>
5. By deleting the words "Deferred Election Form(s)"
in Article VII of the Plan and inserting in lieu thereof the
words "Deferral Election Form(s)".
6. By deleting the words "Deferral Compensation
Account" in Section 8.2 of the Plan and inserting in lieu thereof
the words "Deferred Compensation Account".
IN WITNESS WHEREOF, Kentucky Utilities Company has
caused this instrument to be executed in its name by its
President and its Corporate Seal to be hereunto affixed,
attested by its Secretary, as of the 19th day of
February, 1993.
KENTUCKY UTILITIES COMPANY
By: /s/ John T. Newton
President
[CORPORATE SEAL]
ATTEST:
/s/ George S. Brooks II
Secretary
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<PAGE>
EXHIBIT 10.K
KENTUCKY UTILITIES COMPANY
DIRECTOR DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective As Of May 1, 1992)
ARTICLE I
Purpose
The Kentucky Utilities Company Director Deferred
Compensation Plan (the "Plan") was established, effective June 1,
1989, to provide eligible directors of Kentucky Utilities Company
with the opportunity to defer some or all of the compensation
which may be payable to them for services to be performed as
members of the Board of Directors of Kentucky Utilities Company.
The terms and conditions of the Plan, as amended and restated
effective as of May 1, 1992, are set forth below.
ARTICLE II
Definitions
The following words and phrases shall have the meanings
set forth below unless a different meaning is clearly required by
the context:
(a) Account: The account maintained for each
Participant showing his or her interest under the Plan as
provided in Section 4.1.
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<PAGE>
(b) Accounting Date: Each March 31, June 30,
September 30 and December 31 of each calendar year. The first
Accounting Date under the Plan was June 30, 1989.
(c) Beneficiary: The person or persons (natural or
otherwise) designated, in accordance with Section 5.4, to receive
the distribution of a Participant's Account balance in the event
of the Participant's death.
(d) Board: The Board of Directors of the Company.
(e) Change in Control: A change in control as more
fully defined in Section 5.6.
(f) Committee: The Compensation Committee of the
Board.
(g) Company: Kentucky Utilities Company, a
corporation organized and existing under the laws of the
Commonwealth of Kentucky.
(h) Compensation: Any retainer and meeting fees
payable to the Director by the Company for services rendered as a
member of the Board or any committee thereof.
(i) Director: Any member of the Board on or after the
Effective Date who is separately compensated for his or her
services as a member of the Board.
(j) Effective Date: June 1, 1989.
(k) Parent: KU Energy Corporation or any successor
thereto.
(l) Participant: A Director participating in the Plan
in accordance with the provisions of Section 3.2, or a former
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<PAGE>
Director whose Account balance under the Plan has not been paid
in full.
(m) Plan: The Kentucky Utilities Company Director
Deferred Compensation Plan set forth in this instrument, as it
may be amended from time to time.
(n) Service: An individual's service on the Board and
on the boards of the Parent or any Subsidiary.
(o) Subsidiary: An entity in which the Company or the
Parent directly or indirectly beneficially owns 50% or more of
the voting securities.
ARTICLE III
Eligibility and Participation
3.1 Eligibility: Each member of the Board who was a
Director on the Effective Date was eligible to participate in the
Plan as of the Effective Date. Each other Director shall be
eligible to participate in the Plan as of the first day of the
month next following the date he or she becomes a Director.
3.2 Participation: A Director may elect to
participate in the Plan effective as of the date the Director
first becomes eligible to participate as provided in Section 3.1,
or effective as of the January 1st of any calendar year beginning
after such date, by filing written notice of such election with
the Company prior to the effective date of such election. Such
notice shall be accompanied by (i) an election to defer
Compensation as provided in Section 3.4 and (ii) an election as
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to the method of payment as provided in Section 5.1. Upon filing
such election notice, the Director shall become a Participant in
the Plan effective as of the date elected as permitted in this
Section 3.2.
3.3 Crediting of Compensation: Commencing on the
effective date of a Participant's participation in the Plan and
continuing during the period that Compensation is to be credited
to the Participant's Account under the Plan, the Company shall
defer payment of and credit to the Participant's Account all or
such portion, as elected by the Participant under Section 3.4, of
the Compensation that the Participant would have received for
services rendered by the Participant during such period as a
member of the Board but for his participation in the Plan, such
credits to be made as provided in Section 4.2(a).
3.4 Election to Defer: At the time a Director elects
to become a Participant, the Director shall elect to have from
10% to 100%, in specified multiples of 10%, of his or her
Compensation for services rendered subsequent to the date the
Director becomes a Participant deferred under the Plan and
credited to his or her Account as provided in Section 3.3. Such
election shall remain in effect until changed or terminated as
hereinafter provided.
A Participant may change his or her election under this
Section 3.4 effective as of the January 1st of any calendar year
with respect to Compensation for services to be rendered as a
Director on or subsequent to such January 1st, by giving the
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Company written notice of such change at least 15 days prior to
such January 1st. Any change may (i) increase or decrease,
within the limits prescribed in the preceding paragraph, the
portion of Compensation to be deferred and credited to the
Participant's Account as provided in Section 3.3, (ii) terminate
an election to defer Compensation under this Section 3.4 or
(iii) resume the deferral of Compensation under the Plan within
the limits prescribed in the preceding paragraph. A change in
the portion of Compensation deferred or the termination of a
Participant's election to defer Compensation shall not entitle
the Participant to receive payment of his or her Account balance,
which shall be payable only as provided in Article V.
Any election or change in election under this
Section 3.4 shall be made on a form provided or prescribed by the
Company.
ARTICLE IV
Participants' Accounts
4.1 Individual Accounts: A separate Account shall be
maintained by the Company on its books for each Participant.
Effective on and after May 1, 1992, such Accounts (i) shall no
longer be divided into subaccounts to identify the portion of the
Accounts subject to the different methods of earnings adjustment
available under the Plan prior to this amendment and restatement
and (ii) shall be adjusted for earnings only as provided in this
Plan. All elections with respect to subaccount adjustments as
provided under the Plan as in effect prior to this amendment and
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restatement shall be null and void and without effect on and
after May 1, 1992.
4.2 Accounting Procedures: Each Participant's Account
shall be adjusted as of each Accounting Date as follows and in
the following order:
(a) Each Participant's Account shall be
credited with the amount of Compensation to
be credited to his or her Account as provided
in Section 3.3 during the calendar quarter
ending on such Accounting Date. Credits
shall be made as of the last business day of
the respective calendar months in which such
Compensation would have been paid to the
Participant by the Company but for his or her
participation in the Plan.
(b) Each Participant's Account shall
next be charged as of such Accounting Date
with the amount of any distributions under
the Plan to the Participant or to his or her
Beneficiary effective as of such Accounting
Date.
(c) Unless (i) a Change in Control has
occurred during the calendar quarter ending
on such Accounting Date and the last
paragraph of Section 5.1 is applicable to the
Participant or (ii) a Participant has
terminated his Service during the calendar
quarter ending on such Accounting Date and
Section 5.5 is applicable to the Participant,
each Participant's Account shall next be
credited with the amount equivalent to
interest to be added to the Participant's
Account as of such Accounting Date. The
interest equivalent to be credited as of an
Accounting Date shall be equal to the
interest that would be earned on the average
of the balances in the Participant's Account
at the end of each calendar month during the
calendar quarter ending on such Accounting
Date, at a rate per annum which equals the
average prime rate charged by banks as
reported in the Federal Reserve Bulletin
published on or next prior to such Accounting
Date.
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ARTICLE V
Distribution of Benefits
5.1 Termination Prior to a Change in Control For
Reasons Other Than Death: Within 15 days after the Accounting
Date coincident with or next following the date on which the
Participant terminates his or her Service prior to the date on
which a Change in Control occurs for any reason other than death,
the Company shall pay, or commence to pay, to the Participant in
cash the amount credited to his or her Account. Payment shall be
made in accordance with Payment Method I, Payment Method II or
Payment Method III, below, as elected by the Director at the time
the Director elects to become a Participant:
(a) Payment Method I - By payment in a
lump sum of the amount credited to the
Participant's Account as of the Accounting
Date coincident with or next following the
date on which the Participant terminates his
or her Service.
(b) Payment Method II - By payment in
quarterly installments, the number of which
shall be the lesser of (i) 40 or (ii) the
aggregate number of full calendar quarters
during which compensation was credited to the
Participant's Account under the Plan and to
his or her account under any similar plan of
the Parent or a Subsidiary (but not counting
any such calendar quarter more than once).
The amount of each installment shall be equal
to the quotient obtained by dividing the
balance credited to Participant's Account as
of the Accounting Date coincident with or
next preceding the date of such installment
payment by the number of installment payments
remaining to be made to such Participant at
the time of such calculation.
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(c) Payment Method III - By payment in
annual installments, the number of which
shall be the lesser of (i) 10 or (ii) the
aggregate number of full calendar years (but
not less than one) during which compensation
was credited to the Participant's Account
under the Plan and to his or her account
under any similar plan of the Parent or a
Subsidiary (but not counting any such
calendar year more than once). The amount of
each installment shall be equal to the
quotient obtained by dividing the balance
credited to Participant's Account as of the
Accounting Date coincident with or next
preceding the date of such installment
payment by the number of installment payments
remaining to be made to such Participant at
the time of such calculation.
An election under this Section 5.1 shall be made on a form
provided or prescribed by the Company and once made shall be
irrevocable.
Notwithstanding a Participant's election under, or the
foregoing provisions of, this Section 5.1, if a Change in Control
occurs after a Participant terminates his or her Service but
prior to the complete distribution under the Plan of the balance
credited to his or her Account, the amount credited to the
Participant's Account as of the date the Change in Control occurs
increased by the amount of any Compensation deferred under the
Plan by the Participant subsequent to the Accounting Date on or
next preceding the date on which the Change in Control occurs
(the "undistributed amount"), plus an amount equivalent to
interest as provided below, shall be paid in cash in a lump sum
to the Participant (or, in the event of the Participant's death
after his termination of Service, to his or her Beneficiary)
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within 15 days after the date on which the Change in Control
occurs. The interest equivalent to be paid pursuant to the
preceding sentence shall be equal to the interest that would be
earned on the undistributed amount during the period from the
Accounting Date on or next preceding the date on which the Change
in Control occurs to the date of distribution, at the rate per
annum used under Section 4.2(c) as of the Accounting Date on or
next preceding the date on which the Change in Control occurs.
5.2 Death: Upon the death of a Participant, whether
before or after termination as a member of the Board, prior to
the complete distribution of the balance credited to his or her
Account, any undistributed amount credited to the Participant's
Account as of the Accounting Date coincident with or next
following the Participant's date of death shall be paid in cash
in a lump sum to the Participant's Beneficiary within 15 days
after such Accounting Date; provided, however, if a Change in
Control shall occur either before or after the Participant's
death but prior to the complete distribution of the balance
credited to the Participant's Account, distribution shall be made
to the Beneficiary as provided in the last paragraph of Section
5.1 or in Section 5.5, whichever is applicable, rather than as
provided in this Section 5.2.
5.3 Hardship Distribution: With the written consent
of the Committee, a Participant may withdraw from his or her
Account as of an Accounting Date a cash amount not in excess of
the balance credited to the Participant's Account as of such
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Accounting Date. The Committee, in its sole discretion, may
consent to such withdrawal but only if the withdrawal is
necessary, upon demonstration by or on behalf of the Participant,
because of a substantial financial hardship of the Participant as
a result of accident, illness or disability. The Committee, in
its sole discretion, shall determine the amount of such a
distribution that is needed to meet the need created by the
hardship. Any such distribution shall be charged to the
Participant's Account.
5.4 Beneficiary: As used in the Plan, the term
"Beneficiary" means:
(a) The last person designated as
Beneficiary by the Participant in a written
notice on a form prescribed by and filed with
the Company;
(b) If there is no designated
Beneficiary or if the person so designated
shall not survive the Participant, such
Participant's spouse; or
(c) If no such designated Beneficiary
and no such spouse is living upon the death
of a Participant, or if all such persons die
prior to the full distribution of the
Participant's Account, then the legal
representative of the last survivor of the
Participant and such persons, or, if the
Company shall not receive notice of the
appointment of any such legal representative
within one year after such death, the heirs-
at-law of such survivor (in the proportions
in which they would inherit his intestate
personal property) shall be the Beneficiaries
to whom the then remaining balance of the
Participant's Account shall be distributed.
Any Beneficiary designation may be changed from time to time by
like notice similarly delivered. No notice given under this
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Section shall be effective unless and until the Company actually
receives such notice and enters it in its records.
5.5 Termination On or After a Change in Control: If a
Participant terminates his or her Service on or after the date on
which a Change in Control occurs, the amount credited to the
Participant's Account as of the Accounting Date on or next
preceding the date on which the Participant terminates his or her
Service increased by the amount of any Compensation deferred
under the Plan by the Participant subsequent such Accounting Date
(the "undistributed amount"), plus an amount equivalent to
interest as provided below, shall be paid in cash in a lump sum
to the Participant (or, in the event of the Participant's death,
to his or her Beneficiary) within 15 days after the Participant's
termination of Service. The interest equivalent to be paid
pursuant to the preceding sentence shall be equal to the interest
that would be earned on the undistributed amount during the
period from the Accounting Date on or next preceding the
Participant's termination of Service to the date of distribution,
at the rate per annum used under Section 4.2(c) as of the
Accounting Date on or next preceding the date of termination.
5.6 Change in Control: For purposes of the Plan, a
"Change in Control" shall have occurred if at any time any of the
following events shall occur:
(a) The Company or the Parent is merged
or consolidated or reorganized into or with
another corporation or other legal person,
and as a result of such merger, consolidation
or reorganization less than a majority of the
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combined voting power of the then-outstanding
securities of such corporation or person
immediately after such transaction is held in
the aggregate by the holders of the then-
outstanding securities entitled to vote
generally in the election of directors (the
"Voting Stock") of the Parent immediately
prior to such transaction;
(b) The Company or Parent sells or
otherwise transfers all or substantially all
of its assets to any other corporation or
other legal entity, and as a result of such
sale or transfer less than a majority of the
combined voting power of the then-outstanding
securities of such other corporation or
entity immediately after such sale or
transfer is held in the aggregate by the
holders of Voting Stock of the Parent,
immediately prior to such sale or transfer;
(c) There is a report filed on Schedule
13D or Schedule 14D-1 (or any successor
schedule, form or report or item therein),
each as promulgated pursuant to the
Securities Exchange Act of 1934, as amended
(the "Exchange Act"), disclosing that any
person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner
(as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange
Act) of securities representing 10% or more
of the combined voting power of the Voting
Stock of the Company or the Voting Stock of
the Parent;
(d) The Company or the Parent files a
report or proxy statement with the Securities
and Exchange Commission pursuant to the
Exchange Act disclosing in response to Form
8-K or Schedule 14A (or any successor
schedule, form or report or item therein)
that a change in control of the Company or
the Parent has or may have occurred or will
or may occur in the future pursuant to any
then-existing contract or transaction; or
(e) If at any time during any period of
two consecutive years, individuals who at the
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beginning of any such period constitute the
directors of the Company or the Parent cease
for any reason to constitute at least a
majority thereof, unless the election, or the
nomination for election by such company's
stockholders, of each director of such
company first elected during such period was
approved by a vote of at least two-thirds of
the directors of such company then still in
office who were directors of such company at
the beginning of any such period.
Notwithstanding the foregoing provisions of paragraph
(c) or (d) above, unless otherwise determined in a specific case
by majority vote of the Board of Directors of the Company and the
Parent, a "Change in Control" shall not be deemed to have
occurred for purposes of the Plan solely because (i) the Parent,
(ii) a Subsidiary or (iii) any Company-sponsored, Parent-
sponsored or Subsidiary-sponsored employee stock ownership plan
or any other employee benefit plan of the Company, the Parent or
Subsidiary, either files or becomes obligated to file a report or
a proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Exchange Act,
disclosing beneficial ownership by it of shares of Voting Stock
of the Company or the Parent, whether in excess of 10% or
otherwise, or because the Company, the Parent or a Subsidiary
reports that a change in control of the Company or the Parent has
or may have occurred or will or may occur in the future by reason
of such beneficial ownership. Notwithstanding the foregoing
provisions of this Section 5.6, a "Change in Control" shall not
be deemed to have occurred by reason of the Reorganization.
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'Reorganization' shall mean the corporate reorganization whereby
the Parent became the holding company of the Company as approved
by the Board of Directors of the Company on May 16, 1988 and
May 27, 1988.
ARTICLE VI
Financing of Benefits
The Plan shall be a nonqualified and unfunded plan.
Benefit payments under the Plan shall represent an unsecured
general obligation of the Company and shall be paid by the
Company from its general assets. No special fund or trust shall
be created or held for the financing of benefits under the Plan.
ARTICLE VII
Facility of Payment
Whenever a person entitled to receive any payment under
the Plan is a person under legal disability or a person not
adjudicated incompetent but who, by reason of illness or mental
or physical disability, is in the opinion of the Committee unable
properly to manage his or her affairs, then such payments shall
be paid in such of the following ways as the Committee deems
best: (a) to such person directly; (b) to the legally appointed
guardian or conservator of such person; (c) to some relative or
friend of such person for his or her benefit; (d) for the benefit
of such person in such manner as the Committee considers
advisable. Any payment made in accordance with the provisions of
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this Article shall be a complete discharge of any liability for
the making of such payment under the Plan, and the distributee's
receipt shall be a sufficient discharge to the Company.
ARTICLE VIII
Administration
The Plan shall be administered by the Compensation
Committee of the Board. The Committee shall have such duties and
powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, to construe and
interpret the Plan, decide all questions of eligibility and
determine the amount and time of payment of benefits hereunder.
The Committee shall have no power to add to, subtract from or
modify any of the terms of the Plan, or to change or add to any
benefits provided under the Plan, or to waive or fail to apply
any requirements of eligibility for a benefit under the Plan. No
Participant who is a member of such Committee may vote on any
question relating specifically to himself or herself.
ARTICLE IX
Miscellaneous
9.1 Other Agreements. The Plan shall not affect in
any way the rights or obligations of a Director under any
deferred compensation or other agreement between the Director and
the Company or the Parent, including, but not limited to, the
KU Energy Corporation Director Retirement Retainer Program.
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9.2 Successors. The Company shall require any
successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or sub-
stantially all of the business and/or assets of the Company
expressly to assume and to agree to perform this Plan in the same
manner and to the same extent the Company would be required to
perform if no such succession had taken place. This Plan shall
be binding upon and inure to the benefit of the Company and any
successor of or to the Company, including without limitation any
persons acquiring directly or indirectly all or substantially all
of the business and/or assets of the Company whether by sale,
merger, consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed the "Company" for the
purposes of this Plan), and the heirs, executors and adminis-
trators of each Director.
9.3 Interests Not Transferable. No person shall have
any right to commute, encumber, pledge or dispose of any right to
receive payments hereunder, nor shall such payments be subject to
seizure, attachment or garnishment for the payments of any debts,
judgments, alimony or separate maintenance obligations or be
transferable by operation of law in the event of bankruptcy,
insolvency or otherwise, all payments and rights hereunder being
expressly declared to be nonassignable and nontransferable.
9.4 Amendment and Termination. The Plan may be
amended from time to time or terminated by the Board at any time,
but no amendment or termination may adversely affect the rights
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of any person without his or her prior written consent.
9.5 Applicable Law. This Plan shall be construed in
accordance with and governed by the laws of the Commonwealth of
Kentucky.
9.6 Notices. For all purposes of this Plan, all
communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered or five business
days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the Secretary of
the Company) at its principal executive office and to a
Participant at his or her principal residence, or to such other
address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
9.7 Severability: Each section, subsection and lesser
section of this Plan constitutes a separate and distinct under-
taking, covenant and/or provision hereof. Whenever possible,
each provision of this Plan shall be interpreted in such manner
as to be effective and valid under applicable law. In the event
that any provision of this Plan shall finally be determined to be
unlawful, such provision shall be deemed severed from this Plan,
but every other provision of this Plan shall remain in full force
and effect, and in substitution for any such provision held
unlawful, there shall be substituted a provision of similar
import reflecting the original intention of the parties hereto to
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the extent permissible under law.
9.8 Withholding of Taxes: The Company may withhold
from any amounts payable under this Plan all federal, state, city
and other taxes as shall be legally required.
IN WITNESS WHEREOF, Kentucky Utilities Company has
caused this instrument to be executed in its name by its
President and its Corporate Seal to be hereunto affixed, attested
by its Secretary, on this 19th day of May, 1992.
KENTUCKY UTILITIES COMPANY
By /s/ John T. Newton
President
[Corporate Seal]
ATTEST:
/s/ Michael R. Whitley
Secretary
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<TABLE>
EXHIBIT 12
KENTUCKY UTILITIES COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31, 1993 1992 1991 1990 1989
(in thousands except ratios)
Earnings
Income Before Cumulative
Effect of a Change in
<S> <C> <C> <C> <C> <C>
Accounting Principle $ 81,286 $ 76,298 $ 84,755 $ 80,113 $ 82,298
Adjustments
Fixed charges 32,899 40,965 38,185 37,351 36,575
Income taxes
Current Federal 35,893 30,838 37,241 30,618 23,674
Current State 9,484 7,951 9,252 8,866 4,665
Deferred Federal--Net 2,837 2,269 570 3,024 12,766
Deferred State--Net 71 561 160 (26) 4,115
Deferred investment
tax credit--Net (107) (130) (654) (151) (161)
Income taxes included
in Other Income
and Deductions
Current Fed and State (2,616) (224) 2,085 4,167 3,697
Deferred Fed and State 2,817 1,144 (458) (535) (825)
Amortization of
investment credit (4,024) (4,019) (3,723) (4,039) (4,127)
Undistributed income of
Electric Energy, Inc (38) (53) 5 76 (101)
Total Earnings $158,502 $155,600 $167,418 $159,464 $162,576
Fixed Charges
Int on long-term debt $ 31,650 $ 39,571 $ 36,559 $ 36,132 $ 35,663
Other interest charges 1,249 1,394 1,626 1,219 912
Total Fixed Charges $ 32,899 $ 40,965 $ 38,185 $ 37,351 $ 36,575
Ratio of Earnings
to Fixed Charges 4.82 3.80 4.38 4.27 4.45
____________
Note--Rentals are not material and have not been included in fixed
charges.
</TABLE>
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EXHIBIT 21
KENTUCKY UTILITIES COMPANY
LIST OF SUBSIDIARIES
Electric Energy, Inc., an Illinois corporation--Kentucky Utilities owns
20% of EEI's common stock.
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EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in the previously filed Form S-8 Registration
Statement of KU Energy Corporation and Kentucky Utilities Company (File
No. 33-44234) and Kentucky Utilities Company's previously filed Form S-3
Registration Statement (File No. 33-69852) of our report dated January 26,
1994, included in Kentucky Utilities Company's Form 10-K for the year
ended December 31, 1993.
/s/ Arthur Andersen & Co.
Arthur Andersen & Co.
Chicago, Illinois
March 14, 1994
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EXHIBIT 99.A
DESCRIPTION OF COMMON STOCK
General. The authorized capital stock of Kentucky Utilities consists of
5,300,000 shares of Preferred Stock, cumulative, without par value,
issuable in series, of which 600,000 shares were outstanding at
December 31, 1993, 2,000,000 shares of Preference Stock, cumulative,
without par value, issuable in series, and 80,000,000 shares of Common
Stock, without par value of which 37,817,878 shares were outstanding (all
of which were held by KU Energy) at December 31, 1993. No shares of
Preference Stock are issued or outstanding.
The following statements, unless the context otherwise indicates, are
brief summaries of the substance or general effect of certain provisions
of Kentucky Utilities' Restated Articles of Incorporation and resolutions
and amendments establishing series of Preferred Stock (collectively, the
"Articles") and of Kentucky Utilities' Mortgage Indenture, as amended,
securing its first mortgage bonds (the "Indenture"). The statements make
use of defined terms, are not complete and do not give effect to statutory
or common law.
Dividend Rights. The Board of Directors of Kentucky Utilities may declare
dividends on the Common Stock out of any surplus or net profits of
Kentucky Utilities legally available for the purpose, provided full
cumulative dividends on the Preferred Stock and the Preference Stock for
the current and all past quarterly dividend periods shall have been paid
or declared and set apart for payment and Kentucky Utilities is not in
arrears in its sinking fund obligations in respect of any shares of
Preferred Stock or Preference Stock.
Limitations on Dividends on Common Stock. The Indenture provides that, so
long as certain currently outstanding series of First Mortgage Bonds are
outstanding, Kentucky Utilities will not declare or pay any dividends on
its Common Stock or make any other distribution on or purchase any of its
Common Stock unless the amounts expended by Kentucky Utilities for
maintenance and repairs and provided for depreciation subsequent to
April 30, 1947, plus Kentucky Utilities' earned surplus (retained
earnings) for such period and remaining after any such payment,
distribution or purchase, shall aggregate not less than 15% of the gross
operating revenues of Kentucky Utilities for the period. The Articles
provide, in effect, that, so long as any of the Preferred Stock is
outstanding, the total amount of all dividends or other distributions on
Common Stock and purchases of such stock that may be paid or made during
any 12-month period shall not exceed (a) 75% of the "net income available
for dividends on common stock" if the ratio of "common stock equity" to
"total capital" (each as defined) of Kentucky Utilities shall be 20% to
25%, or (b) 50% of such net income if such ratio shall be less than 20%.
When such ratio is 25% or more, no such dividends, distributions or
purchases may be paid or made which would reduce such ratio to less than
25% except to the extent permitted by clauses (a) and (b) above. As of
December 31, 1993, no amount of retained earnings was restricted under the
Indenture or Articles.
Voting Rights. Each share of Common Stock is entitled to one vote on each
matter voted on at stockholders' meetings, except as otherwise provided in
the Articles, and to cumulative voting rights in the election of
directors. Shares of Preferred Stock and Preference Stock are not
entitled to vote for the election of directors or in respect of any other
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matters, except as expressly provided in the Articles or as may be
required by law. The Articles give to holders of Preferred Stock and
Preference Stock certain special voting rights designed to protect their
interest with respect to specified corporate action. In addition, in
certain events relating to dividends in default on Preferred Stock,
holders of Preferred Stock as a class are entitled to elect a majority of
the full Board of Directors; and in certain events relating to dividends
in default on the Preference Stock, holders of Preference Stock as a class
are entitled to elect two directors.
Liquidation Rights. Upon the liquidation or dissolution of Kentucky
Utilities, the holders of Preferred Stock and the Preference Stock are
entitled to be paid designated amounts out of the net assets of Kentucky
Utilities in preference to the Common Stock. After such payment to
holders of Preferred Stock and Preference Stock, the remaining assets and
profits shall be distributed to the holders of Common Stock.
Board of Directors. Kentucky Utilities' Bylaws provide for a Board of
Directors comprised of from nine to eleven members as determined from time
to time by the Board. The Board currently has ten members. Kentucky
Utilities' Articles provide for the classification of the Board of
Directors into groups with directors being elected for three-year terms
subject to certain rights of holders of Preferred Stock and Preference
Stock to elect directors.
Preemptive Rights. Holders of Kentucky Utilities' Stock have no
preemptive right to subscribe for stock or securities of Kentucky
Utilities.
Call of Special Meetings. Kentucky Utilities' Articles provide that no
meeting of shareholders (except for certain meetings called by holders of
Preferred Stock or Preference Stock) may be called by shareholders unless
called by the holders of at least 51 percent of all the votes entitled to
be cast on each issue proposed to be considered at the special meeting.
Miscellaneous. The outstanding shares of Common Stock of Kentucky
Utilities are fully paid and non-assessable.
Under Kentucky and Virginia law, Kentucky Utilities may amend the Articles
to increase, decrease or adjust its capital stock or any class thereof or
otherwise amend any provision of the Articles or any amendment thereto, in
the manner permitted by law, subject, however, to the limitations
prescribed in the Articles; and all rights conferred on stockholders in
the Articles or any amendment thereto are subject to the foregoing.
The Transfer Agents of the Common Stock are Illinois Stock Transfer
Company, Chicago, Illinois, and Harris Trust and Savings Bank, Chicago,
Illinois; and the Registrar is Harris Trust and Savings Bank, Chicago,
Illinois.
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EXHIBIT 99.B
be counted in determining whether a quorum is in attendance. An abstention is
not the equivalent of a "no" vote on a proposition.
Shareholders may vote either in person or by duly authorized proxy. The
giving of a proxy will not prevent a shareholder from voting in person at the
meeting. A proxy may be revoked by a shareholder at any time prior to the
voting thereof by giving written notice to the Secretary of the Company prior
to such voting. All shares entitled to vote and represented by effective
proxies on the enclosed form, received by the Company, will be voted at the
meeting (or any adjourned session thereof) in accordance with the terms of such
proxies.
Each Participant in the Company's Automatic Dividend Reinvestment and Stock
Purchase Plan (the "Reinvestment Plan"), Kentucky Utilities' Employee Stock
Ownership Plan (the "ESOP") or the Kentucky Utilities Employee Savings Plan
(the "Savings Plan") will receive a form of proxy by which such Participant may
direct the agent or trustee under such Plans as to the manner of voting shares
credited to the Participant's accounts under such Plans. Shareholders of record
who are participants in the Reinvestment Plan will receive only one form of
proxy which will be deemed to include shares held of record and shares, if any,
held under such Plan. A Participant of any of such Plans wishing to vote in
person at the meeting may obtain a proxy for shares credited to his account
under such Plans by making a written request therefor by April 11, 1994, as
follows: for the Reinvestment Plan, to George S. Brooks II, Secretary of the
Company, at the address stated on page 2; for the ESOP, to Liberty National
Bank and Trust, PO Box 32500, Louisville, Kentucky 40232, Attention: Kennedy H.
Clark, Jr., Trust Investment Division; and for the Savings Plan, to National
City Bank, Kentucky, PO Box 36010, Louisville, Kentucky 40233, Attention:
Judith E. Meany.
Election of Directors
General. Three directors are to be elected at the meeting. Barring unforeseen
circumstances and in the absence of contrary directions, the proxies solicited
herewith will be voted for the election of Milton W. Hudson, John T. Newton and
William L. Rouse, Jr. as directors of the Company, to hold office until the
1997 Annual Meeting of Shareholders of the Company or until their respective
successors shall have been duly elected and qualified. The proxies may also be
voted for a substitute nominee or nominees in the event any one or more of said
persons shall be unable to serve for any reason or be withdrawn from
nomination, an occurrence not now anticipated. Except as otherwise indicated,
each nominee has been engaged in his present principal occupation for at least
the past five years. All information regarding share ownership is as of January
31, 1994.
The following information is given with respect to the nominees for election
as directors:
MILTON W. HUDSON, 66, has been an economic consultant
- ------------ (Washington, D.C.) since 1991. He was Managing Director and
- ------------ Senior Economic Advisor of Morgan Guaranty Trust Company of New
York from January 1990 until his retirement in June 1991. He was
Senior Vice President and Senior Economic Adviser for Morgan
Guaranty from 1988 to 1990. He has been a director of the
Company since 1991 and a director of Kentucky Utilities since
1990. Mr. Hudson beneficially owns 1,013 shares of Common Stock
of the Company.
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<PAGE>
- ------------ JOHN T. NEWTON, 63, is Chairman of the Board, President and
- ------------ Chief Executive Officer of the Company and Kentucky Utilities.
He has been a director of the Company since 1988 and a director
of Kentucky Utilities since 1974. Mr. Newton beneficially owns
25,538 shares of Common Stock of the Company which include 9,817
shares held jointly with his wife.
WILLIAM L. ROUSE, JR., 61, was Chairman of the Board and Chief
- ------------ Executive Officer and a director of First Security Corporation
- ------------ of Kentucky, a multi-bank holding company, prior to his
retirement in 1992. Mr. Rouse is a director of Ashland Oil,
Incorporated. He has been a director of the Company since 1991
and a director of Kentucky Utilities since 1989. Mr. Rouse
beneficially owns 1,000 shares of Common Stock of the Company.
Information with respect to those directors whose terms are not expiring is
as follows:
MIRA S. BALL, 59, is Secretary-Treasurer and Chief Financial
- ------------ Officer of Ball Homes, Inc., a single-family residential
- ------------ developer and property management company. She has been a
director of the Company and Kentucky Utilities since 1992. Ms.
Ball beneficially owns 5,053 shares of Common Stock of the
Company. Her term expires in 1996.
W. B. BECHANAN, 68, retired in 1987 as Chairman of the Board and
- ------------ Chief Executive Officer of Kentucky Utilities. He has been a
- ------------ director of the Company since 1991 and a director of Kentucky
Utilities since 1978. Mr. Bechanan beneficially owns 25,974
shares of Common Stock of the Company which include 22,389
shares held pursuant to family trusts under which Mr. Bechanan
has shared investment power. His term expires in 1995.
HARRY M. HOE, 68, is President and a director of J. R. Hoe &
- ------------ Sons, Inc., Middlesboro, Kentucky, a foundry and casting
- ------------ company. He has been a director of the Company since 1991 and a
director of Kentucky Utilities since 1979. Mr. Hoe beneficially
owns 14,018 shares of Common Stock of the Company which include
4,516 shares held solely by his wife. His term expires in 1995.
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<PAGE>
- ------------ FRANK V. RAMSEY, JR., 62, is President and Director of Dixon
- ------------ Bank, Dixon, Kentucky, and a farm owner and operator. He has
been a director of the Company since 1991 and a director of
Kentucky Utilities since 1986. Mr. Ramsey beneficially owns
1,400 shares of Common Stock of the Company. His term expires in
1996.
WARREN W. ROSENTHAL, 70, is a private investor and the owner of
- ------------ Patchen Wilkes Farm, Lexington, Kentucky (a thoroughbred horse
- ------------ breeding operation). Prior to September, 1989, he was Chairman
of the Board and a director of Jerrico, Inc., Lexington,
Kentucky, an operator of a national restaurant chain. Mr.
Rosenthal is a director of Immununomedics, Inc. He has been a
director of the Company since 1991 and a director of Kentucky
Utilities since 1976. Mr. Rosenthal beneficially owns 17,400
shares of Common Stock of the Company. His term expires in 1996.
CHARLES L. SHEARER, PH.D., 51, is President of Transylvania
- ------------ University, Lexington, Kentucky. He has been a director of the
- ------------ Company since 1991 and a director of Kentucky Utilities since
1987. Dr. Shearer beneficially owns 1,255 shares of Common Stock
of the Company which include 200 shares held solely by his wife
and 12 shares held by his children. His term expires in 1996.
MICHAEL R. WHITLEY, 51, has been Senior Vice President of the
- ------------ Company since 1988 and of Kentucky Utilities since 1987. Mr.
- ------------ Whitley was Secretary of Kentucky Utilities from 1978 until 1992
and of the Company from 1988 until 1992. Mr. Whitley has been a
director of the Company and Kentucky Utilities since 1992. Mr.
Whitley beneficially owns 13,562 shares of the Common Stock of
the Company which include 337 shares held solely by his wife.
His term expires in 1995.
Voting Securities Beneficially Owned by Directors, Nominees and Executive
Officers; Other Information. The directors, nominees and executive officers of
the Company and Kentucky Utilities owned beneficially at February 1, 1994 an
aggregate of 157,619 shares of Common Stock of the Company, representing in the
aggregate .4% of such stock.
On January 12, 1993, a report on Form 4 (due January 10, 1993) was filed on
behalf of John T. Newton, Chairman, President and CEO of the Company, with the
Securities and Exchange Commission reporting a purchase of Company Common
Stock.
Meetings and Committees of the Board of Directors. All members of the
Company's Board of Directors are currently members of Kentucky Utilities' Board
of Directors. The Board of Directors of the Company and the Board of Directors
of Kentucky Utilities have each established five committees: the Executive
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<PAGE>
Directors' Compensation. Each director of the Company is also a director of
its principal subsidiary, Kentucky Utilities. Each director who is not an
employee of the Company is paid an annual retainer of $15,000. This retainer is
reduced by any retainer paid from a Company subsidiary. Kentucky Utilities pays
non-employee directors an annual retainer of $12,600. Thus, the net annual
Company retainer paid to such directors is $2,400 but the aggregate paid for
serving on both Boards is $15,000.
In addition to an annual retainer, the Company and Kentucky Utilities pay
each non-employee director a $750 fee for each meeting of a Board or a
particular committee attended; provided that if the Boards of the Company and
Kentucky Utilities meet on the same day, only one $750 fee is paid for both
meetings and if the same committee of the Boards of the Company and Kentucky
Utilities meet on the same day, only one $750 fee is paid for both meetings.
Out-of-pocket travel expenses are paid to directors for all meetings attended.
All eligible directors of the Company and Kentucky Utilities are entitled to
participate in the Director Retirement Retainer Programs (the "Director
Retirement Plans") of the Company and Kentucky Utilities. Directors who are
not, and have not previously been, an officer of Kentucky Utilities, the
Company, or their affiliated companies ("outside directors") are eligible to
participate. An outside director who is 65 years of age and has completed at
least five consecutive years of service on the Company's and/or Kentucky
Utilities' Board will receive, upon termination of service from a Board for any
reason other than death, an annual retirement benefit equal to the annual
retainer paid to such Board's directors in effect as of such termination,
payable monthly over a period of years equal to the number of full years such
director served on the Board, but not in excess of 10 years. Such payments
cease, however, if the director dies before all such payments are made. In the
event of a change in control of the Company or Kentucky Utilities, any person
then receiving a retirement benefit would be paid, within 30 days of the change
in control, a lump sum payment equal to the discounted present value of all
then unpaid installments of the director's retirement benefit. In the event of
a change in control, each outside director in office immediately prior to such
change in control will be eligible to receive an accelerated retirement benefit
if the director terminates service from a Board for any reason other than death
within three years of the date of the change in control. Such accelerated
retirement benefit would be paid in a lump sum within 30 days of such
termination and would be equal to the discounted present value of the
retirement benefit which such director would have received if the director had
retired from the Board at age 70 (or for certain directors, 72) and lived to
collect the full benefit otherwise payable under the applicable Director
Retirement Plan. Such benefit would be based on the higher of the annual
retainer in effect immediately prior to the change in control or immediately
prior to such director's termination of service. Change in control is broadly
defined under the Director Retirement Plans and includes any merger,
consolidation, reorganization or sale of substantially all of the assets of the
Company or Kentucky Utilities which results in less than a majority of the
voting power of the resulting entity being owned by the holders of the Common
Stock of the Company prior to the transaction; a change in the majority of the
Board of Directors of the Company or Kentucky Utilities over a two-year period
which is not approved by two-thirds of the incumbent directors; and the
acquisition by any person or group of persons of beneficial ownership of 10% or
more of the Common Stock of the Company or Kentucky Utilities. The annual
retainer in effect upon the director's termination from a Board will be
calculated as described in the first paragraph under this caption.
Directors may elect to have all or a specified portion of their director's
fees deferred under the Director Deferred Compensation Plans (the "Director
Deferred Compensation Plans") of the Company and Kentucky Utilities. Amounts
deferred will be maintained in unfunded accounts for each participant, which
bear interest at a floating rate based upon the average prime rate charged by
banks as reported in the Federal Reserve
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<PAGE>
Bulletin. Amounts credited under the Director Deferred Compensation Plans will
be paid to the participant upon termination as a director for any reason other
than death in a single payment or, with interest, quarterly over a period of
not to exceed 40 calendar quarters, or, with interest, annually over a period
of not to exceed 10 years. In the event of a participant's death, payment of
any remaining balance of credited amounts will be made in a single payment to a
designated beneficiary. In certain cases, directors may receive a distribution
of deferred amounts in the event of substantial financial hardship. In the
event of a change in control of the Company or Kentucky Utilities, any director
who terminated prior to the change in control whose deferred amounts have not
been distributed would receive, within 15 days of the change in control, a lump
sum payment of the undistributed amounts. In the event of a change in control,
each director who terminates thereafter would be paid, within 15 days after
termination, a lump sum payment of the director's deferred amounts. Change in
control has essentially the same meaning as under the Director Retirement Plans
described above. Because officers of the Company and Kentucky Utilities receive
no compensation for services as directors, any director who is an officer is
not eligible to participate in the plans.
Executive Compensation. The following table contains information with respect
to the compensation paid by (or earned from) the Company and Kentucky
Utilities, for all services rendered during 1991 through 1993 in all
capacities, to the Chief Executive Officer and the four most highly compensated
executive officers of the Company and Kentucky Utilities:
Summary Compensation Table
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION PAYOUTS
----------------------------------- ------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION LTIP PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(1) ($)(2) ($) ($)(3)
--------- ---- ------ ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
JOHN T. NEWTON; 1993 $424,237 $144,362 $11,886 $ 0 $8,444
Chairman of the
Board, 1992 414,909 99,075 11,161 -- 4,870
President, Chief 1991 361,212 121,295 9,998 -- 3,299
Executive
Officer &
Director of the
Company
& Kentucky
Utilities
MICHAEL R.
WHITLEY; 1993 219,529 62,164 1,258 0 6,045
Senior Vice
President 1992 210,682 41,834 21 -- 3,574
& Director of
the 1991 187,913 53,605 0 -- 2,748
Company &
Kentucky
Utilities
JAMES W. TIPTON; 1993 204,042 60,331 1,201 0 5,712
Senior Vice
President 1992 205,199 41,834 18 -- 3,346
of Kentucky
Utilities 1991 187,913 53,605 0 -- 2,643
O. M. GOODLETT; 1993 188,724 54,257 0 0 4,497
Senior Vice
President of 1992 160,215 24,736 0 -- 2,182
Kentucky
Utilities 1991 136,610 29,640 0 -- 1,968
ROBERT M.
HEWETT; 1993 144,850 32,514 0 0 4,180
Vice President
of 1992 139,730 24,011 0 -- 2,065
Kentucky
Utilities 1991 124,235 28,468 0 -- 1,856
</TABLE>
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<PAGE>
- --------
(1) Bonuses are paid under the Annual Performance Incentive Plan. Any bonus
earned but deferred under the Executive Deferred Compensation Plan is
included in the Table.
(2) Other annual compensation consists of amounts for group term life insurance
and related taxes.
(3) All other compensation includes above market rate interest earned on
deferred compensation and the employer matching contribution made to the
officer's account in the 401(k) Employee Savings Plan. Such amounts for
1993 are shown in the following table.
<TABLE>
<CAPTION>
INTEREST ON 401(K)
EXECUTIVE DEFERRED MATCHING
OFFICER COMPENSATION CONTRIBUTION
--------- ------------ ------------
<S> <C> <C>
John T. Newton................................ $3,947 $4,497
Michael R. Whitley............................ 1,548 4,497
James W. Tipton............................... 1,215 4,497
O. M. Goodlett................................ 0 4,497
Robert M. Hewett.............................. 0 4,180
</TABLE>
Performance Shares contingently awarded under the Company's and Kentucky
Utilities' Performance Share Plans in 1993 are reported in the Long Term
Incentive Plan awards table below. Normally only Long-Term Incentive Awards for
the most recently completed fiscal year are disclosed. Because in 1993 the
Company submitted for approval by its shareholders the adoption of the KUE
Performance Share Plan and amendment of the Kentucky Utilities Performance
Share Plan, applicable rules required disclosure in the Company's 1993 proxy
materials of awards made in 1992 and 1993. Accordingly, the awards shown below
under the Kentucky Utilities Performance Share Plan under "Number of Units or
Other Rights" are the same awards as shown in last year's proxy statement under
"Number of Performance Shares" and "Year of Contingent Grant--1993." However,
amounts shown below under "Estimated Future Payouts Under Non-Stock Price-Based
Plans" have been recalculated based on the price of the Company's Common Stock
on December 31, 1993. A description of how awards are determined is presented
under "Report of Compensation Committee on Executive Compensation." A
description of the scale by which performance targets are set follows the
table.
Long Term Incentive Plan--Awards In Last Fiscal Year
<TABLE>
<CAPTION>
NUMBER PERFORMANCE
OF OR OTHER
UNITS PERIOD
OR UNTIL ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
OTHER MATURATION PRICE-BASED PLANS(3)
RIGHTS OR ----------------------------------------------
NAME (#)(1) PAYOUT(2) THRESHOLD ($) TARGET ($) MAXIMUM ($)
---- ------ ----------- ------------- -------------------- -----------
<S> <C> <C> <C> <C> <C>
John T. Newton.......... 7,110 3 $ 0 $103,095 or $154,642 $206,190
Michael R. Whitley...... 2,915 3 0 42,267 or 63,401 84,535
James W. Tipton......... 2,845 3 0 41,252 or 61,878 82,505
O. M. Goodlett.......... 1,920 3 0 27,840 or 41,760 55,680
Robert M. Hewett........ 1,210 3 0 17,545 or 26,317 35,090
</TABLE>
- --------
(1) Constitutes Performance Shares contingently granted under the Kentucky
Utilities Performance Share Plan in 1993.
(2) Number of years in Performance Cycle.
(3) See description below for the scale that determines which amount would be
applicable.
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<PAGE>
Under the Kentucky Utilities Performance Share Plan, which commenced in 1990
and is described under "Report of Compensation Committee on Executive
Compensation," above, Performance Shares have been contingently granted each
year since 1990 in each case for a three-year Performance Cycle. For the
Performance Cycle commencing in 1990, it has been determined that there is a
zero payout. Shares of Common Stock are awarded under the plan only after the
end of the Performance Cycle and if the performance goals have been met.
Participants will not be able to sell such Common Stock for a designated
period, expected to be seven years, or until earlier retirement, death or as
otherwise provided in the Performance Share Plan.
For the Performance Cycles commencing in 1992 and prior years, payouts of
awards will be based on the extent to which Kentucky Utilities' growth in
earnings per share compares to 19 selected utilities (including Kentucky
Utilities). The scale that determines if awards are earned is as follows: if
Kentucky Utilities ranks in the top three, the payout will be 100% of the
contingent grant (the Maximum shown in the table), if its rank is fourth
through sixth, 75%, if its rank is seventh or eighth, 50% (the two figures
shown as Target in the table) and if Kentucky Utilities ranks ninth or below,
no shares will be awarded for that Performance Cycle (shown as the Threshold in
the table). The dollar amounts of the Threshold, Target and Maximum awards are
calculated assuming shares are awarded and based on the price of the Common
Stock on December 31, 1993 ($29). The actual value of the shares awarded, if
any, may be higher or lower.
Payouts for the 1993-1995 Cycle will be determined by calculating the average
return on equity for the Performance Cycle of Kentucky Utilities compared to
the average return on equity for the Performance Cycle of the comparable
utilities. The returns will then be ranked in descending order, and the payout
will be determined in accordance with the scale of Kentucky Utilities' rank
described above (i.e. top 3=100%; 4-6=75%; 7-8=50%; 9 or below=0).
The KU Energy Performance Share Plan, which commenced in 1993, operates
similarly to the Kentucky Utilities Performance Share Plan described above. The
group of 19 comparative companies is selected from among utility holding
companies. Payouts will be determined based on average return on equity of KU
Energy compared to the average return on equity for the Performance Cycle of
the comparable utility holding companies.
Each of the officers of the Company and Kentucky Utilities is entitled to
participate in the Kentucky Utilities employee retirement plans described
below.
Executive officers, like other employees, are eligible to participate in
Kentucky Utilities' Retirement Plan, and all eligible persons whose
compensation is reported in the Summary Compensation Table participated in the
Retirement Plan. Contributions to the Retirement Plan are determined
actuarially and cannot be readily calculated as applied to any individual
participant or small group of participants. Generally, compensation for
Retirement Plan purposes means base compensation while a participant, excluding
overtime pay, commissions, performance incentive compensation or other
extraordinary compensation. The compensation for Retirement Plan purposes of
the individuals named in the foregoing table is substantially equivalent to the
base salary reported in the Summary Compensation Table. As of December 31,
1993, the credited years of service under the Retirement Plan for such persons
were as follows: Mr. Newton, 35 years; Mr. Whitley, 29 years; Mr. Tipton, 26
years; Mr. Goodlett, 23 years; and Mr. Hewett, 24 years. Retirement Plan
benefits depend upon length of service, age at retirement and amount of
compensation (determined in accordance with the Retirement Plan).
Although higher amounts are determined under the Retirement Plan and shown in
the table below, in most cases, pension benefits under the Retirement Plan or
compensation used to measure such benefits will
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<PAGE>
be reduced to comply with maximum limitations imposed by the Internal Revenue
Code. Under such limitations effective in 1994, no base compensation above
$150,000 may be used to calculate a benefit, except in the case of certain
executive officers to preserve benefits accrued under previously applicable
rules. In addition, no annual benefit derived from employer contributions may
exceed $118,800. Assuming retirement at age 65, a Retirement Plan participant
would be eligible at retirement for a maximum annual pension benefit (without
taking into account the Internal Revenue Code limitations referred to above)
set forth in the following table. However, assuming retirement at age 65,
assuming 1993 base compensation and taking into account the Internal Revenue
Code limitations, the annual pension benefit under the Retirement Plan for the
executive officers named in the Summary Compensation Table would be as follows:
Mr. Newton, $120,818, Mr. Whitley, $102,545, Mr. Tipton, $93,978, Mr. Goodlett,
$84,578, and Mr. Hewett, $87,098.
<TABLE>
<CAPTION>
ANNUAL BENEFIT AFTER SPECIFIED YEARS OF SERVICE(2)
FINAL AVERAGE -------------------------------------------------------------
BASE PAY(1) 15 20 25 30 35 40 45
- ------------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$125,000 $24,999 $ 33,333 $ 41,666 $ 49,999 $ 58,332 $ 66,665 $ 74,998
150,000......... $29,999 $ 39,999 $ 49,999 $ 59,999 $ 69,998 $ 79,998 $ 89,998
200,000......... $39,999 $ 53,332 $ 66,665 $ 79,998 $ 93,331 $106,664 $119,997
250,000......... $49,999 $ 66,665 $ 83,331 $ 99,998 $116,664 $133,330 $149,996
300,000......... $59,999 $ 79,998 $ 99,998 $119,997 $139,997 $159,996 $179,996
350,000......... $69,998 $ 93,331 $116,664 $139,997 $163,329 $186,662 $209,995
400,000......... $79,998 $106,664 $133,330 $159,996 $186,662 $213,328 $239,994
450,000......... $89,998 $119,997 $149,996 $179,996 $209,995 $239,994 $269,993
500,000......... $99,998 $133,330 $166,663 $199,995 $233,328 $266,660 $299,993
</TABLE>
- --------
(1) "Final average base pay" generally means the average annual compensation
during the 60 consecutive months of highest pay during the period of
employment.
(2) Annual benefits shown are on a straight life annuity basis. Amounts shown
are not subject to any deduction for Social Security benefits or other
offset amounts. Benefits may be reduced by Internal Revenue Code
limitations described above.
Executive officers and certain other employees of the Company and Kentucky
Utilities are eligible to be members in Kentucky Utilities' Supplemental
Security Plan which provides retirement, disability and death benefits as well
as a change in control retirement benefit and a change in control severance
benefit. As to executive officers, upon retirement at age 65, an eligible
member will receive 15 annual payments of an amount equal to 75% of basic
compensation, offset by benefits payable from any defined benefit plan of the
Company or an affiliate (such as Kentucky Utilities' Retirement Plan) and
social security benefits. Basic compensation is the annualized base monthly
salary of the member, exclusive of performance incentive compensation or other
extraordinary compensation, in effect at termination of employment by
retirement, disability or death. Upon termination of employment by death prior
to age 65, the member's beneficiary will receive an annual benefit equal to 50%
of basic compensation until the later of the date such member would have
attained age 65 or completion of 15 annual payments. Upon termination of
employment by disability, the member will receive the "retirement benefit" if
the member lives to retirement age and is then disabled or the "death benefit"
if the member dies prior to retirement age and is disabled at death. Benefits
will be paid from the general funds of the employer. The estimated annual
benefits from Kentucky Utilities' Supplemental Security Plan that would be
payable upon retirement at normal retirement age for the individuals named in
the Summary Compensation Table (assuming 1993 basic salary) are as follows: Mr.
Newton, $180,550; Mr. Whitley, $48,121; Mr. Tipton, $49,182; Mr. Goodlett,
$42,376; and Mr. Hewett, $5,737. Under the terms of the Supplemental Security
Plan, the foregoing amounts increased from those reported in 1993 because of
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<PAGE>
reductions in amounts that will be payable under the Retirement Plan resulting
from the Internal Revenue Code limitations described above. To assist in
providing funds to pay such benefits when they become payable, insurance is
purchased on the lives of the members of the Supplemental Security Plan.
Under the Supplemental Security Plan, members are entitled to change in
control severance benefits in the following circumstances: (i) involuntary
termination of the individual's employment within two years following the
change in control for reasons other than cause, death, permanent disability or
attainment of age 65, (ii) resignation within two years of the change in
control for good reason (as defined in the plan) and (iii) in respect of the
Chairman of the Board, the President, the Chief Financial Officer or, if such
positions are filled by less than three persons, the Executive Vice President,
in each case of Kentucky Utilities, termination of employment for any reason
during the 30-day period commencing on the first anniversary of the change in
control. In such circumstances, the employee will be entitled to a change in
control severance payment equal to a certain percentage (300% in the case of
executive officers of the Company or Kentucky Utilities) of the sum of (i) the
employee's basic compensation and (ii) the employee's target annual performance
incentive compensation. In addition, the employee will be entitled to
continuation of certain employee welfare benefits for up to three years
following termination of employment, subject to an offset for comparable
benefits. Under the Supplemental Security Plan, the employee is entitled to
receive additional payments, if necessary, to reimburse the employee for
certain federal excise tax liabilities.The Supplemental Security Plan's change
in control retirement benefit provides that, upon termination of employment,
other than for cause (as defined in the Supplemental Security Plan) following a
change in control, an eligible member will receive a lump sum amount equal to
the present value of the retirement benefit (described in the preceding
paragraph and assuming the member is then 65 but prorated if the member then
has less than 15 years of service, including an assumed three additional years
of service for executive officers); provided that, if the termination is more
than two years from the change in control, the calculation of years of service
will not include the assumed additional three years and the compensation upon
which the benefit is calculated will be the actual compensation in effect at
termination (rather than the compensation in effect at the change in control
which, if higher, would be used if termination occurred within two years of the
change in control). The change in control severance benefits and change in
control retirement benefits are effective for a minimum of five years, which is
automatically extended from year to year unless Kentucky Utilities gives notice
that it does not wish to extend the period of effectiveness. Change in control
has essentially the same meaning as under the Director Retirement Plans
described under "Directors' Compensation."
The Performance Share Plans and Executive Deferred Compensation Plans contain
provisions relating to a change in control. Under each of these plans a change
in control has essentially the same meaning as under the Director Retirement
Plans described under "Directors' Compensation." Under the Performance Share
Plans, if a participant's employment is terminated voluntarily or involuntarily
after a change in control, such participant will have the right to an immediate
cash payment for all Performance Cycles in which the participant is currently
participating. The amount payable to a participant in the event of termination
in connection with a change in control will be determined in accordance with
the formula specified in the Performance Share Plan. In addition, after a
change in control, whether or not the participant is terminated, under the
Executive Deferred Compensation Plans, all amounts held under such plans will
be paid to the participant. The Incentive Plans do not contain any change in
control provisions.
General
Independent Public Accountants. The Audit Committee of the Board has selected
the firm of Arthur Andersen & Co. as independent public accountants to examine
the financial statements of the Company and
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