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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 28, 1998
LG&E ENERGY CORP.
(Exact name of registrant as specified in its charter)
Kentucky 1-10568 61-1174555
- ----------------- ------- ----------
(State or other (Commission File No.) (I.R.S. Employer
jurisdiction Identification No.)
of incorporation)
220 West Main Street
P.O. Box 32030
Louisville, KY 40232
--------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (502) 627-2000
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 28, 1998, LG&E Energy Corp., a Kentucky corporation ("LG&E Energy"),
announced that it would discontinue its merchant energy trading and sales
business and the associated gas gathering and processing business. As a
result of the decision to discontinue these businesses, LG&E Energy will
record an after-tax loss on discontinued operations of $225.0
million in the second quarter of 1998.
A news release of LG&E Energy containing its second quarter 1998 earnings
information and describing the above decision is filed with this report as
Exhibit 99.1 and is incorporated herein by reference.
ITEM 5. OTHER EVENTS
On July 28, 1998, LG&E Energy also announced that its energy marketing
subsidiary, LG&E Energy Marketing Inc., an Oklahoma corporation ("LEM"),
intends to file an action against the City of Springfield, Illinois, City
Water, Light and Power Company ("Springfield CWLP"). The action will seek
damages for Springfield CWLP's failure, including in late June 1998,to sell
electric energy to LEM pursuant to a February 1997 Interchange Agreement and
transaction confirmations thereunder, as well as for other related claims.
LEM has estimated that its damages in this matter may be approximately $21
million.
ITEM 7(c). EXHIBITS FILED
99.1 News release dated as of July 28, 1998
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 hereunto duly authorized.
LG&E ENERGY CORP.
BY: /s/ John R. McCall
-------------------------
Executive Vice President,
General Counsel and
Corporate Secretary
Dated: July 28, 1998
2
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EXHIBIT INDEX
LG&E ENERGY CORP.
Current Report on Form 8-K
Dated July 28, 1998
EXHIBITS
EXHIBIT NO. DESCRIPTION
99.1 News release dated as of July 28, 1998
3
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For more information Grant Ringel, LG&E Energy
(502) 627-2877
For Immediate Release July 28, 1998
LG&E ENERGY REPORTS SECOND-QUARTER 1998 FINANCIAL RESULTS
LOUISVILLE, Ky. -- LG&E Energy Corp. (NYSE:LGE) today reported
second-quarter earnings from continuing operations before merger-related
expenses of 52 cents per share of common stock, compared with 25 cents per
share in the second quarter of 1997 (as adjusted to reflect the merger with
KU Energy), a 108 percent increase. The company had merger-related expenses
of 42 cents per share in the second quarter. In addition, the company
announced that, primarily due to its current portfolio of energy marketing
contracts, and the impact that recent volatility, instability and rising
prices in the power market have had on those contracts, it would discontinue
its merchant trading and sales business.
As a result of the decision to discontinue the merchant
trading and sales activity, and the related decision to sell the associated
gas gathering and processing business, LG&E Energy will record an after-tax
loss on discontinued operations of $225.0 million in the second quarter. The
loss on discontinued operations results primarily from several fixed-price
energy marketing contracts entered in 1996 and early 1997.
Exiting the merchant trading and sales business will enable
the company to focus on adding and optimizing physical assets, and will
eliminate the earnings impact of extreme market volatility on its current
portfolio of energy marketing contracts. The company will
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LG&E Energy Reports Second Quarter 1998 Financial Results
July 28, 1998
Page 2
maintain sufficient market knowledge, risk management skills, technical
systems and experienced personnel to maximize the value of power sales from
assets it owns or controls. Martyn Gallus, previously senior vice president
of the energy marketing and trading subsidiary, has been named to the newly
created position of vice president, energy marketing for LG&E, and will lead
this new organization.
The company expects future earnings to be enhanced by pursuing
an asset-based strategy, while eliminating its exposure to existing contracts
that could have a dampening effect on those earnings.
"Our portfolio of energy marketing contracts, coupled with
the events of the last several weeks, have demonstrated that financial
exposures can vary widely and unpredictably over a very short period of
time," said Roger W. Hale, LG&E Energy chairman and chief executive officer.
"We entered into many of these contracts in 1996 and early 1997 when we, and
our outside advisors, expected pricing trends in electricity to follow those
of similar commodities that have been deregulated. The power trading market
is evolving in a very different way, and the predictability of this business
has never been more uncertain than in the last few weeks. These recent
market events have made it clear that, for now, we lack the size and scale
necessary to manage the existing portfolio of contracts, and simultaneously
grow our energy marketing business in other areas.
"We continue to believe that energy trading will be a critical
component of the successful energy services companies in the 21st century,"
Hale continued. "Our present portfolio of obligations, however, makes our
continued participation in our existing energy
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LG&E Energy Reports Second Quarter 1998 Financial Results
July 28, 1998
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trading and sales business an uncertain proposition. We will, however,
continue to explore opportunities through acquisition or merger to add the
assets necessary to prudently grow the company and manage all aspects of its
business.
"For now, we will focus on the marketing of power from
generating assets we own or control, including LG&E, KU and Big Rivers," Hale
said. "We have built a portfolio of some of the lowest-cost generation
supply in the nation. By optimizing these assets and eliminating merchant
energy trading and sales, I am confident in our ability to generate strong
earnings growth in the future. As a result, we do not plan to alter our
dividend policy. We will continue our practice of increasing dividends each
year, consistent with sound financial practice."
A significant part of the write-off for discontinuing the
merchant trading and sales business is associated with the estimated cost of
LG&E Energy's long-term contract with Oglethorpe Power Corporation (OPC).
The company continues in settlement negotiations with OPC over load
projections provided by OPC as an inducement for LG&E Energy to enter into
the contract in 1996. Absent an amicable settlement with OPC, the company
will pursue legal remedies.
The company posted second quarter net income from continuing
operations before one-time merger-related expenses of $67.1 million, compared
with $32.8 million in the second quarter of 1997 (as adjusted to reflect the
merger with KU Energy). During the second quarter of 1998, the merger of
LG&E Energy Corp. and KU Energy Corporation was
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LG&E Energy Reports Second Quarter 1998 Financial Results
July 28, 1998
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completed. The company had merger-related expenses of $53.8 million
(after-tax) in the second quarter. These expenses relate primarily to the
cost of implementing voluntary severance and early retirement programs,
transaction-related costs, and other items necessary to effect the
combination of these two companies. Including the effect of merger-related
expenses, the company posted net income from continuing operations of $13.3
million. After giving effect to the merger-related expenses and discontinued
operations, the company posted a loss of $231.8 million for the second
quarter of 1998.
The company's two utility subsidiaries, Kentucky Utilities and
Louisville Gas and Electric Company, both recorded significant improvements,
after excluding the effects of the merger-related expenses.
Kentucky Utilities contributed 15 cents per share to
consolidated earnings before merger-related expenses for the quarter,
compared with 9 cents in the second quarter of 1997, an increase of
approximately 67 percent. The improvement was based on a substantial
increase in sales to retail and wholesale customers, compared with the same
period in 1997. During the second quarter last year, sales were restrained
because of unseasonably mild weather in the service territory.
Louisville Gas and Electric Company contributed 18 cents per
share to consolidated earnings before merger-related expenses for the second
quarter, up from 16 cents per share in the same period last year. The
increase was due primarily to an increase in electric sales to retail
customers as a result of unusually warm weather in the service
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LG&E Energy Reports Second Quarter 1998 Financial Results
July 28, 1998
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territory during much of the quarter. The increase in earnings came despite
expenses incurred as a result of severe storms that caused significant damage
to LG&E's distribution system.
LG&E Capital Corp. contributed 19 cents to earnings from
continuing operations for the second quarter of 1998, compared with 2 cents
in the same period of 1997. The increase in earnings resulted primarily from
a $21.0 million after-tax gain related to the restructuring of contracts
between Niagara Mohawk Power Corporation and the Rensselaer Power Project.
The company previously reported the sale of one-half of its interest in the
Rensselaer Power Project. As a result of a settlement among the parties,
LG&E Capital Corp. retained its 50 percent ownership interest in the project.
In addition, the company experienced improved earnings from ownership
interests in its other independent power projects.
The company's ownership interest in two local gas distribution
companies in Argentina also had a successful quarter. Earnings from these
projects increased 80 percent from the second quarter of 1997.
The company posted net income from continuing operations
before one-time merger-related expenses of $113.7 million for the six months
ended June 30, 1998, compared with $80.3 million for the same period last
year (as adjusted to reflect the merger with KU Energy). Including the
effect of merger-related expenses, the company posted net
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LG&E Energy Reports Second Quarter 1998 Financial Results
July 28, 1998
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income from continuing operations of $60.0 million for the six months ended
June 30. After giving effect to the merger-related expenses and discontinued
operations, the company posted a loss of $188.6 million for the six months
ended June 30.
LG&E Energy Corp., a Fortune 500 company headquartered in
Louisville, Ky., is a diversified energy services company with businesses in
power generation and project development; retail gas and electric utility
services; and asset-based energy marketing. The company owns and operates
Louisville Gas and Electric Company, a regulated electric and gas utility
serving Louisville, Ky. and 16 surrounding counties, and Kentucky Utilities
Company, a regulated electric utility, based in Lexington, Ky., which serves
77 Kentucky counties and five counties in Virginia. LG&E Energy also owns
equity in and operates power plants in seven states as well as in Spain, and
owns interests in two natural gas distribution companies in Argentina.
Statements made in this release that state the Company's or
management's intentions, expectations or predictions of the future are
forward looking statements. The Company's actual results could differ
materially from those projected in the forward looking statements, and there
can be no assurance that estimates of future results will be achieved. The
Company's SEC filings contain additional information concerning factors that
could cause actual results to differ materially from those in the forward
looking statements.
# # #
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LG&E ENERGY CORP. AND SUBSIDIARIES
Income Statements
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
----------------------- ----------------------- -------------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Electric utility $358,471 $309,085 $682,266 $616,820 $1,397,015 $1,289,490
Gas utility 26,540 34,191 119,299 130,929 219,381 224,930
Argentine gas distribution and other 56,126 45,262 90,296 63,862 177,273 73,799
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Total revenues 441,137 388,538 891,861 811,611 1,793,669 1,588,219
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COST OF REVENUES:
Fuel and power purchased 126,560 99,619 238,536 196,954 469,255 408,889
Gas supply expenses 16,282 21,144 80,358 88,969 150,318 152,567
Argentine gas distribution and other 32,248 26,200 51,675 37,594 98,954 44,105
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Total cost of revenues 175,090 146,963 370,569 323,517 718,527 605,561
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Gross profit 266,047 241,575 521,292 488,094 1,075,142 982,658
OPERATING EXPENSES:
Operation and maintenance:
Utility 110,081 110,752 213,064 210,995 417,951 417,312
Argentine gas distribution and other 18,881 14,482 32,202 22,903 62,522 37,706
Depreciation and amortization 48,999 46,523 99,071 91,891 193,729 177,615
Non-recurring charges - - - - - 4,013
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Total operating expenses 177,961 171,757 344,337 325,789 674,202 636,646
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Equity in earnings of joint ventures 50,882 6,127 56,863 9,730 70,070 20,210
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OPERATING INCOME 138,968 75,945 233,818 172,035 471,010 366,222
Merger cost to achieve 65,318 - 65,318 - 65,318 -
Other income and (deductions) (4,971) 4,515 (2,268) 7,886 10,816 12,933
Interest charges and
preferred dividends 25,888 26,696 51,945 51,219 105,153 97,572
Minority interest 3,302 3,121 4,645 3,689 9,991 3,689
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Income before income taxes 39,489 50,643 109,642 125,013 301,364 277,894
Income taxes 26,195 17,859 49,674 44,699 120,447 95,654
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Income from continuing operations 13,294 32,784 59,968 80,314 180,917 182,240
Income from discontinued opera-
tions, net of income taxes (20,093) 883 (23,599) (545) (41,321) (9,828)
Loss on disposal of discontinued
operations, net of income taxes (225,000) - (225,000) - (225,000) -
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NET INCOME
($231,799) $33,667 ($188,631) $79,769 ($85,404) $172,412
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Average common shares outstanding 129,683 129,647 129,683 129,589 129,673 129,534
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LG&E ENERGY CORP. AND SUBSIDIARIES
Income Statements
(In thousands of dollars, except per share data)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
----------------------- ----------------------- -------------------------
1998 1997 1998 1997 1998 1997
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<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
From continuing operations $0.10 $0.25 $0.46 $0.62 $1.40 $1.41
From discontinued operations (0.15) 0.01 (0.17) - (0.32) (0.08)
Loss on disposal of discontinued
operations (1.74) - (1.74) - (1.74) -
----------------------- ----------------------- -------------------------
Total ($1.79) $0.26 ($1.45) $0.62 ($0.66) $1.33
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Diluted earnings per share:
From continuing operations $0.10 $0.25 $0.46 $0.62 $1.39 $1.40
From discontinued operations (0.15) 0.01 (0.17) - (0.31) (0.07)
Loss on disposal of discontinued
operations (1.74) - (1.74) - (1.74) -
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Total ($1.79) $0.26 ($1.45) $0.62 ($0.66) $1.33
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