<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10944
KU Energy Corporation
(Exact name of registrant as specified in its charter)
Kentucky 61-1141273
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Quality Street, Lexington, Kentucky 40507
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 606-255-2100
Not Applicable
Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No .
Number of shares of Common Stock outstanding at November 9, 1994:
37,817,878 shares.
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PART I. FINANCIAL INFORMATION
KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except for per share amounts)
For the Three
Months Ended
September 30,
1994 1993
Operating Revenues (See Note 3) $156,506 $160,609
Operating Expenses:
Fuel, principally coal,
used in generation (See Note 3) 33,972 44,860
Electric power purchased 15,603 10,689
Other operating expenses 28,331 27,454
Maintenance 15,211 12,758
Depreciation 16,309 15,191
Federal and state income taxes 14,010 15,800
Other taxes 3,626 3,417
Total Operating Expenses 127,062 130,169
Net Operating Income 29,444 30,440
Other Income and Deductions:
Interest and dividend income 1,187 1,296
Other income and deductions - net 1,170 1,329
Total Other Income and Deductions 2,357 2,625
Income Before Interest and Other Charges 31,801 33,065
Interest and Other Charges 9,150 8,618
Net Income $ 22,651 $ 24,447
Average Common Shares Outstanding 37,818 37,818
Earnings Per Common Share $ .60 $ .64
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except for per share amounts)
For the Nine
Months Ended
September 30,
1994 1993
Operating Revenues (See Note 3) $477,049 $454,785
Operating Expenses:
Fuel, principally coal,
used in generation (See Note 3) 121,203 132,385
Electric power purchased 47,842 26,128
Other operating expenses 83,397 78,491
Maintenance 48,645 39,223
Depreciation 48,648 45,616
Federal and state income taxes 36,349 38,757
Other taxes 11,386 10,651
Total Operating Expenses 397,470 371,251
Net Operating Income 79,579 83,534
Other Income and Deductions:
Interest and dividend income 4,580 3,822
Other income and deductions - net 4,550 4,380
Total Other Income and Deductions 9,130 8,202
Income Before Interest and Other Charges 88,709 91,736
Interest and Other Charges 26,754 27,004
Net Income $ 61,955 $ 64,732
Average Common Shares Outstanding 37,818 37,818
Earnings Per Common Share $ 1.64 $ 1.71
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the Nine Months
Ended September 30,
1994 1993
Cash Flows from Operating Activities:
Net Income $ 61,955 $ 64,732
Items not requiring (providing) cash currently:
Depreciation 48,648 45,616
Deferred income taxes and investment tax credit (4,535) 2,045
Change in fuel inventory (2,968) 3,853
Change in accounts receivable (1,691) (10,156)
Change in accounts payable 529 4,421
Change in accrued taxes 3,231 5,739
Change in accrued utility revenues 4,964 3,037
Change in liability to ratepayers (28,704) 34,889
Change in escrow funds 29,582 (38,001)
Other--net 3,276 10,033
Net Cash Provided by Operating Activities 114,287 126,208
Cash Flows from Investing Activities:
Construction expenditures - utility (130,035) (104,932)
Proceeds from sale of long-term investments 15,440 -
Investment in leveraged leases (6,609) (9,924)
Investment in independent power projects (12,533) -
Other 507 (497)
Net Cash Used by Investing Activities (133,230) (115,353)
Cash Flows from Financing Activities:
Short-term borrowings - net 59,100 -
Issuance of long-term debt - 123,500
Funds deposited with trustee - net 18,393 -
Retirement of long-term debt, incl. premiums (21) (180,677)
Retirement of preferred stock, incl. premium (20,302) -
Payment of common stock dividends (46,516) (45,382)
Net Cash Provided (Used) by Financing Activities 10,654 (102,559)
Net Decrease in Cash and Cash Equivalents (8,289) (91,704)
Cash and Cash Equivalents Beginning of Period 32,500 122,802
Cash and Cash Equivalents End of Period $ 24,211 $ 31,098
Supplemental Disclosures
Cash paid for:
Interest on long-term debt $ 20,063 $ 24,767
Federal and state income taxes $ 38,378 $ 32,957
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
Sept. 30, Dec. 31,
ASSETS 1994 1993
Utility Plant:
Plant in service, at cost $2,079,701 $2,004,688
Less: Accumulated depreciation 925,102 879,960
1,154,599 1,124,728
Construction work in progress 209,325 158,829
1,363,924 1,283,557
Current Assets:
Cash and cash equivalents 24,211 32,500
Escrow funds - coal contract litigation 8,170 37,752
Construction funds held by trustee 2 18,268
Accounts receivable 43,085 41,394
Accrued utility revenues 20,611 25,575
Fuel, principally coal, at average cost 34,041 31,073
Materials and supplies, at average cost 18,649 17,261
Other 7,588 7,808
156,357 211,631
Investments, Deferred Charges and Other Assets:
Investment in marketable securities 416 16,397
Investment in leveraged leases 17,891 10,320
Accumulated deferred income taxes 43,121 36,418
Unamortized loss on reacquired debt 12,578 13,295
Other 48,505 37,994
122,511 114,424
Total Assets $1,642,792 $1,609,612
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 617,676 $ 602,503
Preferred stock of Subsidiary 40,000 40,000
Long-term debt of Subsidiary 442,015 442,045
1,099,691 1,084,548
Current Liabilities:
Preferred stock and long-term debt
due within one year 21 20,021
Short-term borrowings 59,100 -
Accounts payable 44,423 43,894
Accrued interest 9,993 7,302
Accrued taxes 7,687 4,456
Customers' deposits 6,284 10,803
Accrued payroll and vacations 10,108 7,719
Liab. to ratepayers - coal contract litigation 8,163 36,867
Other 7,284 6,444
153,063 137,506
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 255,411 248,369
Accumulated deferred investment tax credits 39,302 42,385
Regulatory liabilities 65,946 69,689
Other 29,379 27,115
390,038 387,558
Total Capitalization and Liabilities $1,642,792 $1,609,612
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. PRESENTATION OF CONDENSED INFORMATION
Pursuant to the rules and regulations of the Securities and
Exchange Commission, certain information has been condensed and
certain footnote disclosures have been omitted, which are
normally included in financial statements prepared in accordance
with generally accepted accounting principles.
These financial statements should be read in conjunction
with the financial statements and notes thereto in the KU Energy
Corporation (KU Energy or the Company) Annual Report on Form 10-K
for the year ended December 31, 1993.
In the opinion of management, the information furnished
herein reflects all adjustments which are necessary to present
fairly the results of the periods shown and the disclosures which
have been made are adequate to make the information not
misleading. Results of interim periods are not necessarily
indicative of results for any twelve-month period due to the
seasonal nature of the business of the Company's principal
subsidiary, Kentucky Utilities Company (Kentucky Utilities).
2. PREFERRED STOCK
Kentucky Utilities issued $20 million of 6.53% preferred
stock in December 1993. On February 1, 1994, Kentucky Utilities
used the proceeds from this issue, together with other available
funds, to redeem its 7.84% Preferred Stock at a total cost of
$20.3 million (including a redemption premium of $.3 million).
Kentucky Utilities announced its intention to redeem this
preferred stock on December 22, 1993.
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KU ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. OPERATING REVENUES AND FUEL COSTS
Pursuant to regulatory orders, Kentucky Utilities has been
refunding fuel cost savings related to the resolution of a coal
contract dispute. Refunds to Kentucky retail customers commenced
in July 1994. Refunds were made to Virginia retail customers
during the period August 1993 through June 1994. Refunds were
made to wholesale customers under the jurisdiction of the Federal
Energy Regulatory Commission in lump sum payments in September
1993.
Operating revenues and fuel expense for the respective
periods were reduced by the following amounts resulting from the
above- mentioned refunds:
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1994 1993 1994 1993
(in thousands of dollars)
Reductions in:
Operating
Revenues $17,540 $4,312 $18,442 $4,312
Fuel, principally
coal, used in
generation $18,614 $5,098 $21,980 $5,098
The difference between the reduction in Operating Revenues
and the reduction in Fuel Expense is attributed to incurred
litigation costs, fuel costs savings related to off-system sales
and costs incurred to administer the refund plan. These amounts
were allowed to be retained by Kentucky Utilities pursuant to
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KU ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
regulatory orders.
KU Energy Corporation is a holding company organized under
the laws of Kentucky. KU Energy has two wholly owned
subsidiaries, Kentucky Utilities Company, an electric utility,
and KU Capital Corporation (KU Capital), a nonutility investment
company. Kentucky Utilities is KU Energy's principal subsidiary.
Material changes in the consolidated financial condition and
operating results of KU Energy are based primarily upon the
operations of Kentucky Utilities.
LIQUIDITY & RESOURCES
Kentucky Utilities' construction expenditures increased
approximately $26 million for the nine-month period ended
September 30, 1994 compared to the same period of 1993. The
increase is primarily attributable to expenditures for compliance
with the 1990 Clean Air Act Amendments.
Kentucky Utilities plans to issue $54 million of tax-exempt
debt during the 4th quarter of 1994 to fund certain solid waste
disposal facilities' expenditures.
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended September 30, 1994, compared
to the Quarter ended September 30, 1993
Increase (Decrease)
From Prior Year
Three Months
Ended Sept. 30, 1994
kWh Revenues
(%) (000's)
Residential (9) $ (3,017)
Commercial (1) 489
Industrial 9 3,114
Mine Power & Public Authorities 6 1,718
Total Retail Sales - 2,304
Other Electric Utilities 59 7,403
Miscellaneous Revenues & Other - (582)
Total Before Refund 9 9,125
Provision for Refund -
Litigation Settlement - (13,228)
Total 9 $ (4,103)
Operating revenues were impacted by refunds to customers of
fuel cost savings associated with the resolution of a coal
contract dispute. Refer to Note 3 of the Notes to Consolidated
Financial Statements for further discussion. Operating revenues,
before the impact of the refunds to customers, increased $9.1
million (6%) primarily as a result of a 9% increase in kilowatt-
hour sales. The increase in kilowatt-hour sales is primarily
attributable to increases in industrial and off-system sales
partially offset by a decrease in residential sales. The
increase in industrial sales reflects the continued improvement
of the manufacturing segment of the service area. About 40% of
the increase in industrial sales is due to greater sales to
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Toyota Motor Manufacturing U.S.A., Inc. (TMM), Kentucky
Utilities' largest customer. TMM completed an $800 million
assembly plant expansion in March 1994. The increase in off-
system sales is attributable to an increase in demand for power
at neighboring utilities. The decrease in residential sales
resulted from the mild weather experienced during the third
quarter of 1994.
Fuel expense was also impacted by the previously mentioned
refunds to customers. Refer to Note 3 of the Notes to
Consolidated Financial Statements for further discussion. Fuel
expense, excluding the effect of the refunds to customers,
increased $2.6 million (5%). This increase reflects a 4%
increase in tons of coal consumed and a 1% increase in the
average price per ton of coal consumed. Purchased power expense
increased by $4.9 million (46%) due to higher demand costs ($3.6
million) and greater kilowatt-hour purchases ($1.3 million). The
increase in demand costs is primarily due to the permanent
increase in capacity entitlement, effective January 1994, from
Electric Energy, Inc. (EEI). The increased kilowatt-hour
purchases were primarily from EEI. A contract between Kentucky
Utilities and EEI allows Kentucky Utilities to purchase, on an
economic basis, 20% of the available capacity from a 1,000-
megawatt generating station owned by EEI. Maintenance expenses
increased $2.5 million (19%), primarily due to the timing of
scheduled maintenance at Kentucky Utilities' generating stations.
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months ended September 30, 1994, compared
to the Nine Months ended September 30, 1993
Increase (Decrease)
From Prior Year
Nine Months
Ended Sept. 30, 1994
kWh Revenues
(%) (000's)
Residential 2 $ 4,790
Commercial 3 3,698
Industrial 8 6,591
Mine Power & Public Authorities 5 3,170
Total Retail Sales 4 18,249
Other Electric Utilities 52 17,890
Miscellaneous Revenues & Other - 255
Total Before Refund 11 36,394
Provision for Refund -
Litigation Settlement - (14,130)
Total 11 $ 22,264
Operating revenues were impacted by refunds to customers of
fuel cost savings associated with the resolution of a coal
contract dispute. Refer to Note 3 of the Notes to Consolidated
Financial Statements for further discussion. Operating revenues,
before the impact of the refunds to customers, increased $36.4
million (8%) primarily as a result of an 11% increase in
kilowatt-hour sales. The increase in kilowatt-hour sales is
primarily attributable to increases in residential, commercial,
industrial and off-system sales. The increase in industrial
sales reflects the continued improvement of the manufacturing
segment of the service area. About 40% of the increase in
industrial sales is attributable to greater sales to TMM due its
to recent plant expansion. The increase in off-system sales is
attributable to an increase in demand for power due to
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
maintenance programs at neighboring utilities and to warm weather
during the second quarter of 1994.
Fuel expense was also impacted by the previously mentioned
refunds to customers. Refer to Note 3 of the Notes to
Consolidated Financial Statements for further discussion. Fuel
expense, excluding the effect of the refunds to customers,
increased $5.7 million (4%). This increase reflects a 3%
increase in the average price per ton of coal consumed and a 1%
increase in the tons of coal consumed. Purchased power expense
increased $21.7 million (83%) due to higher demand costs ($10
million) and to greater kilowatt-hour purchases ($11.7 million).
The increase in demand costs is primarily due to the permanent
increase in capacity entitlement, effective January 1994, from
EEI. The increased kilowatt-hour purchases were primarily from
EEI.
Maintenance expenses increased $9.4 million (24%). The
increase is the result of distribution utility line maintenance
costs incurred as a result of extensive ice storm damage during
the first quarter of 1994, as well as the timing of scheduled
maintenance at Kentucky Utilities' generating stations.
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PART II. OTHER INFORMATION
KU ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
By order of July 19, 1994, the Kentucky Public Service
Commission (PSC) approved Kentucky Utilities' plan for
environmental surcharge adjustments to customer billings
beginning in August 1994. The surcharge, authorized by a
Kentucky statute enacted in 1992, is designed to recover certain
ongoing operating and capital costs, not already included in
existing rates, related to compliance with federal, state or
local environmental requirements associated with the production
of energy from coal, including the 1990 Clean Air Act Amendments.
Surcharge billings are subject to periodic PSC review to confirm
the level of environmental expenditures and to reconcile previous
surcharge billings with actual costs.
Two requests for rehearing were filed by interveners before
the PSC. The PSC denied those requests for rehearings.
On September 9, 1994, the Attorney General of the Commonwealth
of Kentucky (Attorney General) filed an action in the Franklin
County (KY) Circuit Court challenging the constitutionality of
the Kentucky surcharge statute and seeking to vacate the PSC
order of July 19, 1994 on the ground, among others, that the
environmental surcharge approved by the PSC will deprive Kentucky
Utilities' customers of their property without due process of
law. Management believes that, based on its review of the
circumstances, the surcharge statute is constitutional and it is
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probable that the PSC order of July 19, 1994 approving the
surcharge will be upheld. In the remote occurrence that the
statute is declared unconstitutional, amounts collected pursuant
to the PSC order may be subject to refund.
By motion filed November 8, 1994, the Attorney General and two
interveners are seeking to have surcharge collections deposited
with the court pending the outcome of the litigation. Kentucky
Utilities believes that the motion is without merit and should be
denied.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibit is filed as part of this report:
Exhibit
Number Description
27 Financial Data Schedule (required for electronic
filing only in accordance with Item 601(c)(1) of
Regulation S-K.)
(b) Reports on Form 8-K.
None.
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KU ENERGY CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
KU ENERGY CORPORATION
(Registrant)
Date November 9, 1994 /s/ John T. Newton
John T. Newton
Chairman of the Board and
Chief Executive Officer
Date November 9, 1994 /s/ Michael D. Robinson
Michael D. Robinson
Controller
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<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet as of September 30, 1994 and the Income Statement for the period ended
September 30, 1994 and is qualified in its entirety by reference to such Form
10-Q Quarterly Report.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,363,924
<OTHER-PROPERTY-AND-INVEST> 43,529
<TOTAL-CURRENT-ASSETS> 156,357
<TOTAL-DEFERRED-CHARGES> 76,884
<OTHER-ASSETS> 2,098
<TOTAL-ASSETS> 1,642,792
<COMMON> 308,140
<CAPITAL-SURPLUS-PAID-IN> (594)
<RETAINED-EARNINGS> 310,130
<TOTAL-COMMON-STOCKHOLDERS-EQ> 617,676
0
40,000
<LONG-TERM-DEBT-NET> 442,015
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 59,100
<LONG-TERM-DEBT-CURRENT-PORT> 21
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 483,980
<TOT-CAPITALIZATION-AND-LIAB> 1,642,792
<GROSS-OPERATING-REVENUE> 477,049<F1>
<INCOME-TAX-EXPENSE> 36,349
<OTHER-OPERATING-EXPENSES> 361,121
<TOTAL-OPERATING-EXPENSES> 397,470
<OPERATING-INCOME-LOSS> 79,579
<OTHER-INCOME-NET> 9,130
<INCOME-BEFORE-INTEREST-EXPEN> 88,709
<TOTAL-INTEREST-EXPENSE> 26,754
<NET-INCOME> 61,955
0
<EARNINGS-AVAILABLE-FOR-COMM> 61,955
<COMMON-STOCK-DIVIDENDS> 46,516
<TOTAL-INTEREST-ON-BONDS> 23,959
<CASH-FLOW-OPERATIONS> 114,287
<EPS-PRIMARY> 1.64
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<FN>
<F1>See Note 3 of the Notes to Consolidated Financial Statements.
</FN>
</TABLE>
