UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission Registrant, State of Incorporation, IRS Employer
File Number Address, and Telephone Number Identification No.
1-10568 LG&E Energy Corp. 61-1174555
(A Kentucky Corporation)
220 West Main Street
P.O. Box 32030
Louisville, Ky. 40232
(502) 627-2000
2-26720 Louisville Gas and Electric Company 61-0264150
(A Kentucky Corporation)
220 West Main Street
P.O. Box 32010
Louisville, Ky. 40232
(502) 627-2000
1-3464 Kentucky Utilities Company 61-0247570
(A Kentucky and Virginia Corporation)
One Quality Street
Lexington, Kentucky 40507-1428
(606) 255-2100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
LG&E Energy Corp.
129,677,030 shares, without par value, as of April 28,July 31, 2000.
Louisville Gas and Electric Company
21,294,223 shares, without par value, as of April 28,July 31, 2000,
all held by LG&E Energy Corp.
Kentucky Utilities Company
37,817,878 shares, without par value, as of April 28,July 31, 2000,
all held by LG&E Energy Corp.
This combined Form 10-Q is separately filed by LG&E Energy Corp.,
Louisville Gas and Electric Company and Kentucky Utilities Company.
Information contained herein related to any individual registrant is filed
by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants. In
particular, information contained herein related to LG&E Energy Corp. or
any of its direct or indirect subsidiaries other than Louisville Gas and
Electric Company or Kentucky Utilities Company is provided solely by LG&E
Energy Corp., not Louisville Gas and Electric Company or Kentucky Utilities
Company, and shall be deemed not included in the Form 10-Q of Louisville
Gas and Electric Company or the Form 10-Q of Kentucky Utilities Company.
TABLE OF CONTENTS
PART I
Item 1 Financial Statements
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income 1
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 5
Consolidated Statements of Retained Earnings 7
Consolidated Statements of Comprehensive Income 8
Louisville Gas and Electric Company
Statements of Income 9
Balance Sheets 10
Statements of Cash Flows 12
Statements of Retained Earnings 1413
Statements of Comprehensive Income 1514
Kentucky Utilities Company
Statements of Income 1615
Balance Sheets 1716
Statements of Cash Flows 1918
Statements of Retained Earnings 2019
Notes to Financial Statements 2120
Item 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 2627
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 3237
PART II
Item 1 Legal Proceedings 3338
Item 4 Submission of Matters to a Vote of Security Holders 39
Item 6 Exhibits and Reports on Form 8-K 3440
Signatures 3541
Part I. Financial Information - Item 1. Financial Statements
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income
(Unaudited - Thousands of $ Except Per Share Data)
Three Months Six Months
Ended Mar. 31,Ended
June 30, June 30,
2000 1999 2000 1999
REVENUES:
Electric utility $365,890 $361,673$ 376,606 $ 406,258 $ 742,496 $ 767,931
Gas utility 88,316 75,77929,979 23,652 118,295 99,431
International and
non-utility 171,184 161,813
Total199,706 193,747 370,890 355,560
Net revenues 625,390 599,265606,291 623,657 1,231,681 1,222,922
OPERATING EXPENSES:
Operation and maintenance:
Fuel and power purchased 203,196 205,088206,509 250,994 409,705 456,082
Gas supply expenses 119,228 95,06488,675 56,920 207,903 151,984
Utility operation and
maintenance 103,858 103,70598,257 115,192 202,115 218,897
International and non-utilitynon-
utility operation
and maintenance 48,538 44,96456,210 47,434 104,748 92,398
Depreciation and
amortization 58,373 54,73656,802 53,479 115,175 108,215
Asset impairment charge
(Note 4) 45,000 - 45,000 -
Non-recurring charges
(Note(Notes 2 and 3) 20,71314,676 - 35,389 -
Total operating expenses 553,906 503,557566,129 524,019 1,120,035 1,027,576
Equity in earnings
of uncon-
solidatedunconsolidated
ventures 5,930 21,656(Note 6) 10,760 12,051 16,690 33,707
OPERATING INCOME 77,414 117,36450,922 111,689 128,336 229,053
Other income and (deductions) 5,009 6,3885,707 2,611 10,716 8,999
Interest charges and
preferred dividends 34,965 30,52036,919 32,243 71,884 62,763
Minority interest 1,494 1,5714,520 3,842 6,014 5,413
Income before income taxes 45,964 91,66115,190 78,215 61,154 169,876
Income taxes 16,082 34,8823,841 28,250 19,923 63,132
Income from continuing
operations 29,882 56,779
Income on disposal of dis-
continued operations, net of
income tax expense of $328 (Note 4) - 788
NET INCOME $ 29,88211,349 $ 57,56749,965 $ 41,231 $ 106,744
- 1 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income (cont.)
(Unaudited - Thousands of $ Except Per Share Data)
Three Months Six Months
Ended Mar. 31,Ended
June 30, June 30,
2000 1999 2000 1999
Income from continuing
operations $ 11,349 $ 49,965 $ 41,231 $ 106,744
(Loss) income from disposal of
discontinued operations, net of
income tax benefit (expense)
of $94,476 and ($328)
(Note 5) (155,000) - (155,000) 788
NET INCOME (LOSS) $(143,651) $ 49,965 $ (113,769)$ 107,532
Average common shares
outstanding 129,677 129,677 129,677 129,677
Earnings (loss) per share -
basic and diluted $.23 $.44diluted:
Continuing operations $ .09 $ .39 $ .32 $ .82
(Loss) income from dis-
posal of discontinued
operations (1.20) .00 (1.20) .01
Total $ (1.11) $ .39 $ (.88) $ .83
The accompanying notes are an integral part of these financial statements.
- 2 -
LG&E Energy Corp. and Subsidiaries
Consolidated Balance Sheets
(Thousands of $)
ASSETS
(Unaudited)
Mar. 31,June 30, Dec. 31,
2000 1999
CURRENT ASSETS:
Cash and temporary cash investments $ 109,19557,291 $ 91,413
Marketable securities 9,9918,558 10,126
Accounts receivable - less reserve 270,362313,139 318,914
Materials and supplies - primarily at average cost:
Fuel (predominantly coal) 78,96782,669 91,931
Gas stored underground 23,28925,340 49,038
Other 96,29696,186 90,259
Prepayments and other 54,51546,955 54,038
Total current assets 642,615630,138 705,719
UTILITY PLANT:
At original cost 5,958,1786,021,543 5,916,905
Less: reserve for depreciation 2,550,5272,603,334 2,503,851
Net utility plant 3,407,6513,418,209 3,413,054
OTHER PROPERTY AND INVESTMENTS - LESS RESERVES:
Investment in unconsolidated
ventures (Note 5) 242,9496) 243,948 249,455
Non-utility property and plant, net 475,137430,336 477,442
Other 25,26550,926 25,596
Total other property and investments 743,351725,210 752,493
DEFERRED DEBITS AND OTHER ASSETS 275,757263,805 262,491
Total assets $5,069,374$5,037,362 $5,133,757
The accompanying notes are an integral part of these financial statements.
- 3 -
LG&E Energy Corp. and Subsidiaries
Consolidated Balance Sheets (cont.)
(Thousands of $)
CAPITAL AND LIABILITIES
(Unaudited)
Mar. 31,June 30, Dec. 31,
2000 1999
CURRENT LIABILITIES:
Current portion of long-term debt $ 411,808375,506 $ 411,810
Notes payable 443,520413,660 449,578
Accounts payable 202,197192,382 220,460
Net liabilities of discontinued opera-
tions (Note 4) 152,3845) 291,905 158,222
Other 254,844226,031 248,841
Total current liabilities 1,464,7531,499,484 1,488,911
Long-term debt 1,279,4261,404,441 1,299,415
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 584,460587,722 585,880
Investment tax credit, in
process of amortization 83,83881,849 85,828
Regulatory liability 102,23496,799 104,795
Other 178,598172,840 182,357
Total deferred credits and other liabilities 949,130939,210 958,860
Minority interests 111,133106,379 109,952
Cumulative preferred stock 135,140142,640 135,328
COMMON EQUITY:
Common stock, without par value -
129,677,030 shares outstanding 777,013 777,013
Other (2,165)(1,926) (1,956)
Retained earnings 354,944170,121 366,234
Total common equity 1,129,792945,208 1,141,291
Total liabilities and capital $5,069,374$5,037,362 $5,133,757
The accompanying notes are an integral part of these financial statements.
- 4 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited - Thousands of $)
ThreeSix Months
Ended
Mar. 31,June 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 29,882 (113,769)$ 57,567107,532
Items not requiring cash currently:
Depreciation and amortization 58,373 54,736115,175 108,215
Deferred income taxes - net (8,091) 4,694
Income from discontinued operations -
net of tax(7,288) (2,157)
Asset impairment charge (Note 4) 45,000 -
Non-recurring charges (Notes 2 and 3) 35,389 -
Loss (income) from disposal of dis-
continued operations (Note 5) 155,000 (788)
Other (638) (17,627)(5,530) (24,170)
Change in net current assets 59,434 19,647(35,224) 40,018
Other (15,718) (8,417)(40,973) 26,223
Net cash flows from operating activities 123,242 109,812147,780 254,873
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (242) (223)(339) (652)
Proceeds from sales of securities 132 3,0751,635 7,871
Construction expenditures (53,716) (79,410)(157,273) (199,770)
Investments in unconsolidated
ventures - (74,250)(Note 6) (2,125) (74,498)
Proceeds from salesales of investmentinvestments
in affiliateaffiliates (Note 5) 17,9076) 22,507 33,821
Net cash flows from investing activities (35,919) (116,987)(135,595) (233,228)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt 187,900 150,000
Retirement of bonds (20,022)debt (120,913) -
Short-term borrowings 2,170,510 416,1745,031,905 756,132
Repayment of short-term borrowings (2,178,857) (346,174)(5,070,355) (813,132)
Issuance of preferred stock 7,500 -
Redemption of preferred stock - (1,202)
Payment of common dividends (41,172) (39,876)(82,344) (79,752)
Net cash flows from financing activities (69,541) 28,922(46,307) 12,046
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS 17,782 21,747(34,122) 33,691
BEGINNING CASH AND TEMPORARY
CASH INVESTMENTS 91,413 105,604
ENDING CASH AND TEMPORARY
CASH INVESTMENTS $ 109,19557,291 $ 127,351139,295
- 5 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Cash Flows (cont.)
(Unaudited - Thousands of $)
ThreeSix Months
Ended
Mar. 31,June 30,
2000 1999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 4,41031,985 $ 2,9699,375
Interest on borrowed money 30,097 23,53352,650 53,857
For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.
The accompanying notes are an integral part of these financial statements.
- 6 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Retained Earnings
(Unaudited - Thousands of $)
Three Months Six Months
Ended Mar. 31,Ended
June 30, June 30,
2000 1999 2000 1999
Balance at beginning
of period $366,234 $466,279$ 354,944 $ 483,970 $ 366,234 $ 466,279
Net income 29,882 57,567(loss) (143,651) 49,965 (113,769) 107,532
Cash dividends declared on
common stock ($.3175, $.3075,
$.6350 and $.3075$.6150 per share) 41,172 39,876 82,344 79,752
Balance at end of period $354,944 $483,970$ 170,121 $ 494,059 $ 170,121 $ 494,059
The accompanying notes are an integral part of these financial statements.
- 7 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited - Thousands of $)
Three Months Six Months
Ended Mar. 31,Ended
June 30, June 30,
2000 1999 2000 1999
Net income $29,882 $57,567(loss) $(143,651) $ 49,965 $(113,769) $107,532
Unrealized holding gains (losses)
on available-for-sale securities
arising during the period (312) 192(205) (155) (517) 37
Reclassification adjustment for
realized gains and losses(losses) on
available-for-sale securities
included in net income 14 526 (163) 40 (158)
Other comprehensive (loss) income,loss,
before tax (298) 197(179) (318) (477) (121)
Income tax benefit (expense) related to
items of other comprehensive
(loss) income 113 (64)38 110 151 46
Comprehensive income $29,697 $57,700(loss) $(143,792) $ 49,757 $(114,095) $107,457
The accompanying notes are an integral part of these financial statements.
- 8 -
Louisville Gas and Electric Company
Statements of Income
(Unaudited)
(Thousands of $)
Three Months Six Months
Ended Mar. 31,Ended
June 30, June 30,
2000 1999 2000 1999
OPERATING REVENUES:
Electric $161,326 $150,840$179,752 $190,445 $341,079 $341,286
Gas 88,316 75,77929,979 23,652 118,295 99,431
Total operating revenues 249,642 226,619209,731 214,097 459,374 440,717
OPERATING EXPENSES:
Fuel for electric generation 39,926 32,45738,650 39,380 78,576 71,838
Power purchased 21,753 23,02624,346 30,858 46,100 53,884
Gas supply expenses 63,394 50,49218,688 13,395 82,082 63,887
Non-recurring charges (Note 3) - - 8,141 -
Other operation expenses 36,975 40,19230,547 39,457 67,522 79,649
Maintenance 13,881 14,70217,442 20,227 31,323 34,930
Depreciation and amortization 24,149 24,14423,901 24,143 48,050 48,285
Federal and state
income taxes 9,668 9,55614,397 12,079 24,066 21,634
Property and other taxes 5,163 5,0364,475 3,962 9,637 8,998
Total operating expenses 223,050 199,605172,446 183,501 395,497 383,105
NET OPERATING INCOME 26,592 27,01437,285 30,596 63,877 57,612
Other income and (deductions) 1,519 1,0801,850 234 3,369 1,312
Interest charges 10,690 9,17811,126 8,790 21,816 17,968
NET INCOME 17,421 18,91628,009 22,040 45,430 40,956
Preferred stock dividends 1,165 1,0891,317 1,086 2,482 2,176
NET INCOME AVAILABLE
FOR COMMON STOCK $ 16,25626,692 $ 17,82720,954 $ 42,948 $ 38,780
The accompanying notes are an integral part of these financial statements.
- 9 -
Louisville Gas and Electric Company
Balance Sheets
(Thousands of $)
ASSETS
(Unaudited)
Mar. 31,June 30, Dec. 31,
2000 1999
UTILITY PLANT:
At original cost $3,086,048$3,125,138 $3,065,839
Less: reserve for depreciation 1,238,5361,267,106 1,215,032
Net utility plant 1,847,5121,858,032 1,850,807
OTHER PROPERTY AND INVESTMENTS -
less reserve 1,3531,161 1,224
CURRENT ASSETS:
Cash and temporary cash investments 49,05939,579 54,761
Marketable securities 6,9025,527 6,936
Accounts receivable - less reserve 172,077107,534 113,859
Materials and supplies - at average cost:
Fuel (predominantly coal) 17,47215,964 17,350
Gas stored underground 15,75414,648 38,780
Other 35,19234,919 35,010
Prepayments 2,100and other 2,996 2,775
Total current assets 298,556221,167 269,471
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 5,5295,607 5,607
Regulatory assets 30,38629,999 31,443
Other 10,01018,682 12,900
Total deferred debits and other assets 45,92554,288 49,950
Total assets $2,193,346$2,134,648 $2,171,452
The accompanying notes are an integral part of these financial statements.
- 10 -
Louisville Gas and Electric Company
Balance Sheets (cont.)
(Thousands of $)
CAPITALIZATION AND LIABILITIES
(Unaudited)
Mar. 31,June 30, Dec. 31,
2000 1999
CAPITALIZATION:
Common stock, without par value -
Outstanding 21,294,223 shares $ 425,170 $ 425,170
Retained earnings 258,987269,179 259,231
Other (1,120)(1,184) (1,025)
Total common equity 683,037693,165 683,376
Cumulative preferred stock 95,140 95,328
Long-term debt 360,600335,600 380,600
Total capitalization 1,138,7771,123,905 1,159,304
CURRENT LIABILITIES:
Current portion of long-term debt 246,200271,200 246,200
Notes payable 131,791131,757 120,097
Accounts payable 143,35783,784 113,008
Provision for rate refunds 5,409- 8,962
Dividends declared 17,66517,817 24,236
Accrued taxes 37,81439,632 23,759
Accrued interest 7,5666,798 9,265
Other 16,79516,830 15,725
Total current liabilities 606,597567,818 561,252
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 257,422261,967 255,910
Investment tax credit, in
process of amortization 66,18265,111 67,253
Accumulated provision for pensions
and related benefits 40,74139,454 38,431
Customer advances for construction 10,2089,965 11,104
Regulatory liability 55,92355,080 58,726
Other 17,49611,348 19,472
Total deferred credits and other liabilities 447,972442,925 450,896
Total capital and liabilities $2,193,346$2,134,648 $2,171,452
The accompanying notes are an integral part of these financial statements.
- 11 -
Louisville Gas and Electric Company
Statements of Cash Flows
(Unaudited - Thousands of $)
ThreeSix Months
Ended
Mar. 31,June 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,42145,430 $ 18,91640,956
Items not requiring cash currently:
Depreciation and amortization 24,149 24,14348,050 48,285
Deferred income taxes - net (3,498) 3,650246 (3,982)
Investment tax credit - net (1,071) (1,072)(2,142) (2,145)
Other 1,677 1,7724,264 3,585
Changes in net current assets and liabilities 5,399 (7,335)8,036 10,050
Other 4,156 4,704(4,508) 6,319
Net cash flows from operating activities 48,233 44,77899,376 103,068
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (124) (223)(194) (495)
Proceeds from sales of securities - 3,0651,520 7,861
Construction expenditures (21,269) (17,323)(64,560) (59,757)
Net cash flows from investing activities (21,393) (14,481)(63,234) (52,391)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings 11,694Issuance of pollution control bonds 25,000 -
Retirement of first mortgage and
pollution control bonds (20,000)(46,083) -
Short-term borrowings 1,432,256 -
Repayment of short-term borrowings (1,420,596) -
Payment of dividends (24,236) (23,168)(41,901) (46,257)
Net cash flows from financing activities (32,542) (23,168)(51,324) (46,257)
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS (5,702) 7,129(15,182) 4,420
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 54,761 31,730
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 49,05939,579 $ 38,859
- 12 -
Louisville Gas and Electric Company
Statements of Cash Flows (cont.)
(Unaudited - Thousands of $)
Three Months
Ended
Mar. 31,
2000 199936,150
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:DISCLOSURES:
Cash paid during the period for:
Income taxes $ 3,1844,396 $ 11,28816,065
Interest on borrowed money 8,743 8,81117,876 16,657
For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.
The accompanying notes are an integral part of these financial statements.
- 1312 -
Louisville Gas and Electric Company
Statements of Retained Earnings
(Unaudited)
(Thousands of $)
Three Months Six Months
Ended Mar. 31,Ended
June 30, June 30,
2000 1999 2000 1999
Balance at beginning
of period $258,987 $243,288 $259,231 $247,462
Net income 17,421 18,91628,009 22,040 45,430 40,956
Subtotal 276,652 266,378286,996 265,328 304,661 288,418
Cash dividends declared on stock:
5% cumulative preferred 269 269 538 538
Auction rate cumulative
preferred 529 453681 450 1,210 904
$5.875 cumulative preferred 367 367 734 734
Common 16,500 22,000 33,000 44,000
Subtotal 17,665 23,08917,817 23,086 35,482 46,176
Balance at end of period $258,987 $243,289$269,179 $242,242 $269,179 $242,242
The accompanying notes are an integral part of these financial statements.
- 1413 -
Louisville Gas and Electric Company
Statements of Comprehensive Income
(Unaudited - Thousands of $)
Three Months Six Months
Ended Mar. 31,Ended
June 30, June 30,
2000 1999 2000 1999
Net income available
for common stock $16,256 $17,827$26,692 $20,954 $42,948 $38,780
Unrealized holding gains (losses)losses on
available-for-sale securities
arising during the period (159) 84
Other comprehensive (loss) income,
before tax (159) 84(107) (178) (266) (94)
Income tax benefit (expense) related
to items
of other comprehensive (loss) income 64 (34)unrealized holding
gains and losses 43 72 107 38
Comprehensive income $16,161 $17,877$26,628 $20,848 $42,789 $38,724
The accompanying notes are an integral part of these financial statements.
- 14 -
Kentucky Utilities Company
Statements of Income
(Unaudited)
(Thousands of $)
Three Months Six Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
OPERATING REVENUES $205,324 $225,794 $423,102 $443,143
OPERATING EXPENSES:
Fuel for electric generation 51,466 49,412 107,081 107,567
Power purchased 43,464 51,606 82,308 90,923
Non-recurring charges (Note 3) - - 11,030 -
Other operation expenses 24,167 31,812 53,015 58,955
Maintenance 17,078 15,944 31,228 28,464
Depreciation and amortization 24,493 22,158 48,825 44,149
Federal and state
income taxes 11,368 16,077 22,734 33,221
Property and other taxes 4,376 3,788 9,216 7,901
Total operating expenses 176,412 190,797 365,437 371,180
NET OPERATING INCOME 28,912 34,997 57,665 71,963
Other income 2,654 1,993 3,979 4,162
Interest charges 10,034 9,233 19,938 18,740
NET INCOME 21,532 27,757 41,706 57,385
Preferred stock dividends 564 564 1,128 1,128
NET INCOME AVAILABLE
FOR COMMON STOCK $ 20,968 $ 27,193 $ 40,578 $ 56,257
The accompanying notes are an integral part of these financial statements.
- 15 -
Kentucky Utilities Company
Statements of Income
(Unaudited)Balance Sheets
(Thousands of $)
Three Months
Ended
Mar.ASSETS
(Unaudited)
June 30, Dec. 31,
2000 1999
OPERATING REVENUES $217,778 $217,349
OPERATING EXPENSES:UTILITY PLANT:
At original cost $2,896,405 $2,851,066
Less: reserve for depreciation 1,336,228 1,288,819
Net utility plant 1,560,177 1,562,247
OTHER PROPERTY AND INVESTMENTS -
less reserve 14,688 14,349
CURRENT ASSETS:
Cash and temporary cash investments 484 6,793
Accounts receivable - less reserve 96,165 88,549
Materials and supplies - at average cost:
Fuel for electric generation 55,615 58,155
Power purchased 38,845 39,317
Non-recurring charges (Note 3) 11,030 -(predominantly coal) 27,980 30,225
Other operation expenses 28,848 27,142
Maintenance 14,150 12,520
Depreciation and amortization 24,331 21,991
Federal and state
income taxes 11,366 17,144
Property28,015 26,213
Prepayments and other taxes 4,840 4,1133,106 3,743
Total operating expenses 189,025 180,382
NET OPERATING INCOME 28,753 36,967current assets 155,750 155,523
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 4,665 4,827
Regulatory assets 20,787 23,033
Other income26,118 25,111
Total deferred debits and (deductions) 1,325 2,168
Interest charges 9,904 9,507
NET INCOME 20,174 29,628
Preferred stock dividends 564 564
NET INCOME AVAILABLE
FOR COMMON STOCK $ 19,610 $ 29,064other assets 51,570 52,971
Total assets $1,782,185 $1,785,090
The accompanying notes are an integral part of these financial statements.
- 16 -
Kentucky Utilities Company
Balance Sheets (Thousands of $)
ASSETS
(Unaudited)
Mar. 31, Dec. 31,
2000 1999
UTILITY PLANT:
At original cost $2,872,130 $2,851,066
Less: reserve for depreciation 1,311,991 1,288,819
Net utility plant 1,560,139 1,562,247
OTHER PROPERTY AND INVESTMENTS -
less reserve 14,575 14,349
CURRENT ASSETS:
Cash and temporary cash investments 1,190 6,793
Accounts receivable - less reserve 93,211 88,549
Materials and supplies - at average cost:
Fuel (predominantly coal) 23,154 30,225
Other 27,496 26,213
Prepayments 2,322 3,743
Total current assets 147,373 155,523
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 4,727 4,827
Regulatory assets 21,738 23,033
Other 28,401 25,111
Total deferred debits and other assets 54,866 52,971
Total assets $1,776,953 $1,785,090
The accompanying notes are an integral part of these financial statements.
- 17 -
Kentucky Utilities Company
Balance Sheets (cont.)
(Thousands of $)
CAPITALIZATION AND LIABILITIES
(Unaudited)
Mar. 31,June 30, Dec. 31,
2000 1999
CAPITALIZATION:
Common stock, without par value -
Outstanding 37,817,878 shares $ 308,140 $ 308,140
Retained earnings 324,080320,048 329,470
Other (595) (595)
Total common equity 631,625627,593 637,015
Cumulative preferred stock 40,000 40,000
Long-term debt 430,830 430,830
Total capitalization 1,102,4551,098,423 1,107,845
CURRENT LIABILITIES:
Current portion of long-term debt 54,000 115,500
115,500Notes payable 29,931 -
Accounts payable 86,176144,792 116,546
Provision for rate refunds 13,9077,981 20,567
Dividends declared 25,188 19,150
Accrued taxes 38,08234,319 10,502
Accrued interest 9,8257,127 7,329
Other 19,20818,285 18,617
Total current liabilities 307,886321,623 308,211
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 240,678239,461 243,620
Investment tax credit, in
process of amortization 17,65616,738 18,575
Accumulated provision for pensions
and related benefits 48,26948,369 48,285
Regulatory liability 44,53941,161 46,069
Other 15,47016,410 12,485
Total deferred credits and other liabilities 366,612362,139 369,034
Total capital and liabilities $1,776,953$1,782,185 $1,785,090
The accompanying notes are an integral part of these financial statements.
- 1817 -
Kentucky Utilities Company
Statements of Cash Flows
(Unaudited - Thousands of $)
ThreeSix Months
Ended
Mar. 31,June 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,17441,706 $ 29,62857,385
Items not requiring cash currently:
Depreciation and amortization 24,331 21,99148,825 44,149
Deferred income taxes - net (4,602) (2,396)(7,478) (2,214)
Investment tax credit - net (919) (895)
Other (911) 1,556(1,837) (1,839)
Changes in net current assets and liabilities 2,222 (17,031)38,445 (23,820)
Other (2,804) 1,718(1,049) 7,658
Net cash flows from operating activities 37,491 34,571118,612 81,319
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (23,530) (18,240)(48,403) (44,282)
Net cash flows from investing activities (23,530) (18,240)(48,403) (44,282)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings 69,773 -
Repayment of short-term borrowings (39,842) -
Issuance of pollution control bonds 12,900 -
Retirement of pollution control bonds (74,785) -
Payment of dividends (19,564) (18,564)(44,564) (37,128)
Net cash flows from financing activities (19,564) (18,564)(76,518) (37,128)
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS (5,603) (2,233)(6,309) (91)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 6,793 59,071
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 1,190484 $ 56,83858,980
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:DISCLOSURES:
Cash paid (received) during the period for:
Income taxes $ (9,260)19,949 $ (904)30,273
Interest on borrowed money 6,560 6,07918,654 17,632
For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.
The accompanying notes are an integral part of these financial statements.
- 1918 -
Kentucky Utilities Company
Statements of Retained Earnings
(Unaudited)
(Thousands of $)
Three Months Six Months
Ended Mar. 31,Ended
June 30, June 30,
2000 1999 2000 1999
Balance at beginning
of period $324,080 $310,231 $329,470 $299,167
Net income 20,174 29,62821,532 27,757 41,706 57,385
Subtotal 349,644 328,795345,612 337,988 371,176 356,552
Cash dividends declared on stock:
4.75%4 75% preferred 237 237 475 475
6.53% preferred 327 327 653 653
Common 25,000 18,000 50,000 36,000
Subtotal 25,564 18,564 51,128 37,128
Balance at end of period $324,080 $310,231$320,048 $319,424 $320,048 $319,424
The accompanying notes are an integral part of these financial statements.
- 2019 -
LG&E Energy Corp. and Subsidiaries
Louisville Gas and Electric Company
Kentucky Utilities Company
Notes to Financial Statements
(Unaudited)
1. The unaudited consolidated financial statements include the accounts of
LG&E Energy Corp. and its wholly-owned subsidiaries (LG&E Energy or the
Company).subsidiaries. In the opinion of
management, all adjustments, including those of a normal recurring
nature, have been made to present fairly the consolidated financial
position, results of operations and cash flows for the periods
indicated. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to SEC rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading.
See the Company's, Louisville GasLG&E's and Electric Company's (LG&E's) and
Kentucky Utilities Company 's (KU's)KU's Reports on Form 10-K for 1999 for
information relevant to the accompanying financial statements,
including information as to the significant accounting policies of the
Company.
2. On February 28, 2000, the Company announced that its Board of Directors
accepted an offer to be acquired by PowerGenPowergen for cash of approximately
$3.2 billion or $24.85 per share and the assumption of $2.2 billion of
the Company's debt. Pursuant to the acquisition agreement, among other
things, LG&E Energy will become a wholly owned subsidiary of PowerGenPowergen
and its U.S. headquarters. The Utility Operations of the Company will
continue their separate identities and serve customers in Kentucky and
Virginia under their present names. The preferred stock and debt
securities of the Utility Operations will not be affected by this
transaction. The acquisition is expected to close 9 to 12 months from
the announcement, shortly after all of the conditions to consummation
of the acquisition are met. It is possible that the remaining
regulatory approvals may be received in time to permit a closing during
the fourth quarter of 2000. Those conditions include, without
limitation, the approval of the holders of a majority of the
outstanding shares of common stock of each of LG&E Energy and PowerGen,Powergen,
the receipt of all necessary governmental approvals and the making of
all necessary governmental filings, including approvals of various
regulators in Kentucky and Virginia under state utility laws, the
approval of the FERC under the FPA, the approval of the SEC under the
PUHCA of 1935, and the filing of requisite notifications with the
Federal Trade Commission and the Department of Justice under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act),
and with the Committee on Foreign Investment in the United States under
the Exon-Florio Provisions of the Omnibus Trade and Competitiveness Act
of 1988 (E-F Act) and the expiration of all applicable waiting periods
thereunder. Shareholder
meetings to vote upon the approval of the acquisition are scheduled to
be held in early June 2000 for both LG&E Energy and PowerGen. During
the first quarter of 2000, theThe Company expensed approximately $1.0$14.7 million relatingand $15.4
million related to the PowerGen transaction.Powergen transaction during the three- and six-
month periods ended June 30, 2000, respectively. The foregoing
description of the acquisition does not purport to be complete and is
qualified in its entirety by reference to LG&E Energy's current reports
on Form 8-K, filed February 29, 2000, with the SEC.
AsThrough mid-August 2000, a number of approval steps have been completed
by the Company and Powergen. Shareholders of the endCompany and of
April 2000Powergen approved the Company has filed applications for
approval with the U.S. Securities and Exchange Commission (under the
Public Utility Holding Company Act of 1935), the Kentucky Public
Service Commission, the Virginia State Corporation Commission and the
Federal Energy Regulatory Commission (under the Federal Power Act).
Hearings beforemerger transaction in separate meetings held in
June 2000. Further, approvals were received from the Kentucky
Commission were held April 19-21 and
submission of briefs and data requests have been completed. A decision
is expected on or aboutin May 152000, the FERC in June 2000 and the Company will have approximately
23 days fromVirginia
Commission in July 2000. The parties submitted the requisite filings
under the HSR Act and the E-F Act in late July and early August 2000,
respectively, which trigger 30 day waiting periods due to expire in
late August and early September, respectively, absent any orderfurther
inquiry or investigation by the applicable regulatory authority.
- 20 -
The parties' joint application for approval to the SEC under PUHCA was
submitted in which to file for rehearing, or approximately
33 days in which to file for appeal.April 2000. While the Company and PowerGenPowergen believe that
they will receive the requisite regulatory approvals for the merger in
sufficient time to complete the transaction on the schedule men
- 21 -
tionedmentioned
above, there can be no assurance as to the timing of such approvals or
the ability to obtain such approvals on satisfactory terms or
otherwise.
3. During the first quarter 2000, the Company took a $12.1 million ($.09)
after-tax charge for the continued "One Utility" integration of the
operations of LG&E and KU including their customer service centers and
certain administrative elements of their retail electric and gas
distribution operations. The result of this consolidation was the
elimination of approximately 400 positions most of which were taken by
employees through the Company's voluntary enhanced severance program.
4. The Company previously announced its intention to sell its natural
gas gathering and processing business in the near term. Information
gathered to date indicates that the Company will realize proceeds from
the sale of this business below carrying value. As a result, the
Company recorded a pretax impairment charge of $45 million in the
second quarter of 2000 to reduce the carrying value of this business to
more appropriately reflect net realizable value.
5. Effective June 30, 1998, the Company discontinued its merchant energy
trading and sales business. This business consisted primarily of a
portfolio of energy marketing contracts entered into in 1996 and early
1997, nationwide deal origination and some level of speculative trading
activities, which were not directly supported by the Company's physical
assets. The Company's decision to discontinue these operations was
primarily based on the impact that volatility and rising prices in the
power market had on its portfolio of energy marketing contracts.
Exiting the merchant energy trading and sales business enabled the
Company to focus on optimizing the value of physical assets it owns or
controls, and reduced the earnings impact on continuing operations of
extreme market volatility in its portfolio of energy marketing
contracts. The Company continues to settle commitments that obligate
it to buy and sell natural gas and electric power. If the Company is
unable to dispose of these commitments or assets it will continue to
meet its obligations to buy and sell natural gas and electric power
under the terms of the contracts.contracts until disposition or expiration. The
Company, however, has maintained sufficient market knowledge, risk
management skills, technical systems and experienced personnel to
maximize the value of power sales from physical assets it owns or
controls, including LG&E, KU and WKE.
As a result of the Company's decision to discontinue its merchant
energy trading and sales activity, and the initial decision to sell the
associated gas gathering and processing business, the Company recorded
an after-tax loss on disposal of discontinued operations of $225
million in the second quarter of 1998. The loss on disposal of
discontinued operations resulted primarily from several fixed-price
energy marketing contracts entered into in 1996 and early 1997,
including the Company's long-term contract with OPC. Other components
of the write-off included costs relating to certain peaking options,
goodwill associated with the Company's 1995 purchase of merchant energy
trading and sales operations and exit costs.
In the fourth quarter of 1999, the Company received an adverse decision
from the arbitration panel considering its contract dispute with OPC,
which was commenced by the Company in April 1998. As a result of this
adverse decision, higher than anticipated commodity prices, increased
load demands, and other factors, the Company increased its after-tax
accrued loss on disposal of discontinued operations by $175 million.
The additional write-off included costs related to the remaining
commitments in its portfolio and exit costs expected to be incurred to
serve those commitments.
- 21 -
In the second quarter of 2000, the Company increased its after-tax
accrued loss on disposal of discontinued operations by an additional
$155 million primarily to reflect the most recent OPC load forecast,
coupled with the increased demand experienced this summer, and new
price forecasts for the OPC and other long-term contracts. Although
the Company used what it believes to be appropriate estimates for
future energy prices, among other factors, to calculate the net
realizable value of discontinued operations, there are inherent
limitations in models to accurately predict future commodity prices,
load demands and other events that could impact the amounts recorded by
the Company.
- 22 -
Operating results for the discontinued merchant energy trading and
sales business follow.
Three Months Six Months
Ended Mar. 31,Ended
June 30, June 30,
2000 1999 2000 1999
Revenues $ 74,698 $ 146,498$106,878 $156,345 $181,576 $289,782
Loss before taxes (1,389) (4,650)
Loss(32,944) (25,468) (43,559) (37,544)
Income (loss) from
discontinued opera-
tions,oper-
ations, net of incomein-
come taxes (1,389) (2,749)(20,469) (16,692) (27,063) (20,480)
Net liabilitiesassets of discontinued operations at March 31,June 30, 2000, follow.
Accounts receivable $ 24,80944,249
Price risk management assets 30,81628,346
Accounts payable and accruals (36,215)(77,633)
Other assets and liabilities,liab-
ilities, net (3,388)16,070
Net assets before accrued
loss on disposalbalance
of dis-
continuedreserve for discontinued
operations 16,02211,032
Accrued loss on disposal
of discontinued operations,
net of income tax benefit
of $102,647 (168,406)$184,647 (302,937)
Net liabilities of discon-
tinued operations $(152,384)$(291,905)
Total pretax charges against the accrued loss on disposal of
discontinued operations through March 31,June 30, 2000, include $260.6$288.6 million
for commitments prior to disposal, $69.6 million for transaction
settlements, $11.1 million for goodwill, and $31.5$36.5 million for other
exit costs. While the Company has been successful in settling portions
of its discontinued operations, significant assets, operations and
obligations remain. The Company continues to manage the remaining
portfolio and believes it has hedged certain of its future obligations
through various power purchase commitments and planned construction of
physical assets. Management cannot predict the ultimate effectiveness
of these hedges.
The pretax net fair value of the remaining commitments as of March 31,June 30,
2000, are currently estimated to be approximately $41.3$112 million in 2000,
$33.0$61 million to $57.8$98 million each year in 2001 through 2004 and $9.7$17
million in the aggregate thereafter.
- 22 -
As of March 31,June 30, 2000, the Company's discontinued operations were under
various contracts to buy and sell power and gas with net notional
amounts of 16.324.4 million Mwh's of power and 21.924.9 million Mmbtu's of
natural gas with a volumetric weighted-average period of approximately
3834 and 4138 months, respectively. These notional amounts are based on
estimated loads since various commitments do not include specified firm
volumes. The Company is also under contract to buy or sell coal and
SO2 allowances in support of its power contracts. Notional amounts
reflect the nominal volume of transactions included in the Company's
price risk management commitments, but do not reflect actual amounts of
cash, financial instruments, or quantities of the underlying commodity
which may ultimately be exchanged between the parties.
- 23 -
As of May 9,July 27, 2000, the Company estimates that a $1 change in
electricity prices and a 10-cent change in natural gas prices across
all geographic areas and time periods could change the value of the
Company's remaining energy portfolio by approximately $2.6$10.8 million.
In addition to price risk, the value of the Company's remaining energy
portfolio is subject to operational and event risks including, among
others, increases in load demand, regulatory changes, and forced
outages at units providing supply for the Company. As of May 9,July 27,
2000, the Company estimates that a 1% change in the forecasted load
demand could change the value of the Company's remaining energy
portfolio by $11.7 million.
The Company's discontinued operations maintain policies intended to
minimize credit risk and revalue credit exposures daily to monitor
compliance with those policies. As of March 31,June 30, 2000, over 95%94% of the
Company's price risk management commitments were with counterparties
rated BBB equivalent or better. As of March 31,June 30, 2000, six
counterparties represented 88%76% of the Company's price risk management
commitments.
5.6. In March 2000, the Company sold its interest in CEC-APL L.P., a
partnership in which the Company owned a 49% interest, for
approximately $18 million. TheThis sale resulted in a pretax gain of
approximately $2 million. In March 1999, LG&E-Westmoreland Rensselaer,
a California general partnershipJune 2000, the Company sold its interest
in KUCC Cleburne Corporation, through which the Company ownsowned a
50%minority interest sold substantially allin one of the assets and major contracts of its
79 MW gas-fired cogeneration facilityTenaska limited partnerships, for $4.6
million. This sale resulted in Rensselaer, New York, with net
proceeds to the Companya pretax gain of approximately $34$1.3
million.
6. In February, 2000, the Commission acknowledged that the PBR Order
issued on January 7, 2000, contained an error and issued an Order
changing the KU annual base rate reduction from $36.5 million to $33.9
million. The Commission also ordered rehearing on several issues and
subsequently held hearings in April 2000. The Commission is expected
to issue a Final Order on Rehearing by June 2000. The outcome of these
hearings are not anticipated to have a material effect on the
consolidated financial results of the Company.7. In March 2000, the 2000 Kentucky General Assembly passed House Bill 897
that established requirements for cost allocations, affiliate
transactions and a code of conduct governing the relationship between
utilities and their non-utility operations and affiliates. Management
does not expect this matter to have a material adverse effect on the
Company's financial position or results of operations.
In March 2000, LG&E filed a Notice and Statement with the Kentucky
Public Service Commission requesting an adjustment in LG&E's gas rates. LG&E asked
for a general adjustment in gas rates for a test year for the twelve
months ended December 31, 1999. The revenue increase applied for is $27.9was
$26.4 million. The Commission subsequently suspended the effective
date of the proposed new rates are expectedtariffs, and held hearings August 2, 2000,
through August 4, 2000. Under Kentucky law the Commission must issue a
decision on LG&E's application no later than September 28, 2000.
In May 2000, the Court upheld the Commission's February 1999 order that
LG&E make FAC refunds, but reversed the Commission's determination that
it was not appropriate to go into
effect October 1, 2000.require LG&E to pay interest on the amounts
to be refunded. The increase isCourt remanded the case to recover higher coststhe Commission for providing servicea
determination of whether interest should be awarded to natural gas customers.compensate
ratepayers for LG&E's use of the money to be refunded. On June 2,
2000, LG&E filed a Notice of Appeal to the Kentucky Court of Appeals
from the Franklin Circuit Court decision.
- 2423 -
7.In June 2000, the Commission acknowledged that the PBR Order issued in
January 2000 contained errors and issued its Orders on rehearing which
revised the rate reductions it had previously ordered. LG&E's rate
reduction was lowered to $26.3 million, and KU's reduction was lowered
to $30.4 million. No parties filed appeals from the Commission's
orders within the time allowed by statute.
8. In May 2000, LG&E and KU issued new variable-rate pollution-control
bonds for $25 million and $12.9 million, respectively. At June 30,
2000, the interest rates paid on the bonds equaled 4.40% for LG&E and
4.45% for KU. The new bonds replaced LG&E's 7.45% Series P bonds and
KU's 7.375% Series 7 and 7.60% Series 7 bonds. LG&E and KU called the
old bonds in June 2000.
In June 2000, Capital Corp. issued $150 million of floating-rate medium-
term notes due June 2001. The notes bear an interest rate of 7.4925%
through September 18, 2000, and a rate equal to the three-month LIBOR
plus 70 basis points thereafter.
In August 2000, LG&E issued $83.3 million of variable-rate pollution-
control bonds. At August 9, 2000, the interest rates paid on the bonds
equaled 4.40%. The new bonds replaced LG&E's 7.625% Series Q bonds.
LG&E fully defeased the Series Q bonds on August 9, 2000.
9. External and intersegment revenues and income from continuing
operations by business segment for the three months ended March 31,June 30,
2000, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $155,119$175,420 $ 6,2074,333 $ 16,30526,773
LG&E gas 88,31629,979 - (49)(80)
KU electric 210,771 7,007 19,610201,186 4,139 20,968
Independent Power
Operations 4,6765,938 - 6,8278,037
Western Kentucky
Energy 60,75466,975 - (501)3,002
Argentine Gas
Distribution 30,74249,017 - (731)6,723
Other Non-Utility
Operations 75,012Capital Corp. 77,776 - (9,990)(37,073)
All Other - (13,214) (1,589)(8,472) (17,001)
Consolidated $625,390$606,291 $ - $ 29,88211,349
- 24 -
External and intersegment revenues and income from continuing
operations by business segment for the six months ended June 30, 2000,
follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $ 330,539 $ 10,540 $ 43,078
LG&E gas 118,295 - (129)
KU electric 411,957 11,146 40,578
Independent Power
Operations 10,614 - 14,864
Western Kentucky
Energy 127,729 - 2,501
Argentine Gas
Distribution 79,759 - 5,992
Other Capital Corp. 152,788 - (47,063)
All Other - (21,686) (18,590)
Consolidated $1,231,681 $ - $ 41,231
External and intersegment revenues and income from continuing
operations by business segment for the three months ended March 31,June 30,
1999, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $148,326$185,519 $ 2,5144,927 $ 17,61320,740
LG&E gas 75,77923,652 - 214213
KU electric 213,347 4,002 29,064220,739 5,055 27,193
Independent Power
Operations 6,9046,197 - 14,1807,097
Western Kentucky
Energy 59,97869,050 - (1,024)(464)
Argentine Gas
Distribution 29,79745,146 - 3574,796
Other Non-Utility
Operations 65,134Capital Corp. 73,354 - 888(6,484)
All Other - (6,516) (4,513)(9,982) (3,126)
Consolidated $599,265$623,657 $ - $ 56,779
8. Reference49,965
- 25 -
External and intersegment revenues and income from continuing
operations by business segment for the six months ended June 30, 1999,
follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $ 333,845 $ 7,441 $ 38,353
LG&E gas 99,431 - 427
KU electric 434,086 9,057 56,257
Independent Power
Operations 13,101 - 21,277
Western Kentucky
Energy 129,028 - (1,488)
Argentine Gas
Distribution 74,943 - 5,153
Other Capital Corp. 138,488 - (5,596)
All Other - (16,498) (7,639)
Consolidated $1,222,922 $ - $106,744
10.Reference is made to Part II, Legal Proceedings, below and Part I, Item
3, Legal Proceedings, of the Company's, KU Energy's, LG&E's and KU's (and NoteNotes 18
and 22 of the Company's Notes to Financial Statements) Annual Reports
on Form 10-K for the year ended December 31, 1999.1999, and Part II, Item 1,
Legal Proceedings, of the Form 10-Q for the quarter ended March 31,
2000.
- 2526 -
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
General
The Company's principal subsidiaries are LG&E, an electric and gas utility,
KU, an electric utility, LEM and LG&E Capital Corp. (Capital Corp.), the holding company for all
non-utility investments other than trading operations. LG&E's and KU's
results of operations and liquidity and capital resources are important
factors affecting the Company's consolidated results of operations and
capital resources and liquidity.
On February 28, 2000, the Company announced that its Board of Directors
accepted an offer to be acquired by PowerGenPowergen for cash of approximately $3.2
billion or $24.85 per share and the assumption of $2.2 billion of the
Company's debt. For more information, see Note 2 of Notes to Financial
Statements under Item 1.
Some of the matters discussed in the Notes to Consolidated Financial
Statements and Management's Discussion and Analysis may contain forward-
looking statements that are subject to certain risks, uncertainties and
assumptions. Actual results may vary materially. Factors that could cause
actual results to differ materially include, but are not limited to:
general economic conditions; business and competitive conditions in the
energy industry; future prices of power and natural gas; unusual weather;
regulatory decisions; and other factors described from time to time in the
Company's reports to the Securities and Exchange Commission, including
Exhibit 99.01 to the Form 10-K for the year ended December 31, 1999.
Results of Operations
The results of operations for LG&E, KU and Capital Corp.'s Argentine gas
distribution and WKE operations are affected by seasonal fluctuations in
temperature and other weather-related factors. Because of these and other
factors, the results of one interim period are not necessarily indicative
of results or trends to be expected for the full year.
Three Months Ended March 31,June 30, 2000, Compared to
Three Months Ended March 31,June 30, 1999
The Company's primary and diluted earnings per share from continuing
operations decreased to $.23$.09 in 2000 from $.44$.39 in 1999. The decrease
resulted from recording non-
recurring after-tax charges of $12.5 millionan asset impairment charge taken on the Company's natural gas
gathering and processing business ($.10 per share) in March
2000,.21) and from recognizing one-time after-tax gains totaling $10.3recording expenses
related to the Powergen acquisition ($.09). Excluding these nonrecurring
items, earnings per share from continuing operations remained unchanged at
$.39 as higher earnings at LG&E and WKE offset lower earnings at KU, an
increase in corporate expenses, and higher interest expense at Capital
Corp.
Including discontinued operations, the Company incurred a loss of $1.11 per
share in the second quarter of 2000. These results include a $155 million
($.08 per share) in 1999. The non-recurring after-tax charges represent
$12.1 million of costs associated with the integration(after tax) charge related to an adjustment of the Company's two
utilitiesreserve for
discontinued operations, (the One-Utility Program) and $0.4 million of merger
costs incurred byprimarily reflecting the Company relating to its proposed merger with PowerGen
plc. The gains in 1999 resulted from selling the Company's interest in the
Rensselaer, New York, project ($8.9 million, or $.07 per share) and a
bankruptcy settlement received in connectionmost recent OPC load
forecast, coupled with the Company's windpower
partnerships ($1.4 million, or $.01 per share).increased demand experienced this summer, and
new price forecasts for the OPC and other long-term contracts.
LG&E Results:
LG&E's net income decreased $1.6increased $6.0 million (9%(27%) for the quarter ended March
31,June
30, 2000, as compared to the quarter ended March 31,June 30, 1999, primarily because
of mild weather, as the region recorded its mildest winter since
1931, increases in gas supply expenses, fuel for electric generation,lower operations and administrative and general operating expenses including a $4.9 million net
of tax one-time charge for the Company's One-Utility Program.maintenance expenses. These expensesexpense savings were
partially offset by increased gas sales to ultimate
consumers, off-systema decrease in electric sales, andretail rates ordered by the
reversal of a rate refund of
$.5 million net of tax. Excluding these one-time charges, LG&E's net
income would have increased $2.8 million.Kentucky Commission.
- 2627 -
A comparison of LG&E's revenues for the quarter ended March 31,June 30, 2000, with
the quarter ended March 31,June 30, 1999, excluding the reversal of an FAC refund
of $1.1 million which was offset by an additional accrual for performance-
based ratemaking of $.3 million, reflects increases and (decreases)decreases which
have been segregated by the following principal causes (thousands(in thousands of $):
Electric Gas
Cause Revenues Revenues
Retail sales:
Fuel and gas supply adjustments $ 1,112 $10,006664 $4,022
Environmental cost recovery surcharge (310) -
Performance based rate reduction (1,179)(1,096) -
Electric rate refunds (1,156)reduction (5,398) -
Merger surcredit (481) -
Variation in sales volume, merger
surcredit, etc. (4,065) (2,443)3,186 806
Total retail sales (5,288) 7,563
Wholesale sales 15,786 4,720(3,435) 4,828
Sales for resale (7,958) 1,733
Gas transportation - net - 189(26)
Other (12) 65700 (208)
Total $10,486 $12,537$(10,693) $6,327
In January 2000, the Kentucky Commission ordered the termination of LG&E's
proposed PBR mechanism. As a result, LG&E refunded certain amounts
collected from its customers during the nine months ended March 31, 2000.
The electric rate reduction resulted from the Kentucky Commission's January
2000 PBR order reducing LG&E's base electric rates.
Electric sales for resale decreased $8 million due to decreases in brokered
sales activities.
Fuel for electric generation and gas supply expenses comprise a large
componentsegment of LG&E's total operating expenses. LG&E's electric and gas rates
contain a fuel adjustment clause and a gas supply clause, respectively,
whereby increases or decreases in the cost of fuel and gas supply may be
reflected in retail rates, subject to the approval of the Public ServiceKentucky
Commission. Fuel for electric generation decreased $.7 million (2%) for
the quarter because of a lower cost of coal burned ($.9 million) partially
offset by an increase in volume of generation ($.2 million). Gas supply
expenses increased $5.3 million (40%) due to an increase in the volume of
gas delivered to the distribution system ($2.6 million) and an increase in
net gas supply cost ($2.7 million).
Power purchased decreased $6.5 million primarily because of a decrease in
brokered sales activities ($10.1 million), partially offset by increased
purchases to support sales to other utilities ($3.6 million).
Other operations expenses decreased $8.9 million (22.5%) in 2000, as
compared to 1999, primarily as a result of lower administrative expenses
($6.8 million) and steam production costs ($2 million).
Maintenance expenses decreased $2.8 million (13.8%) in 2000 mainly due to
decreases in scheduled outages at the Mill Creek and Cane Run generating
stations ($2.8 million).
Other income and deductions increased $1.6 million (690%) due to gains on
the sale of non-utility property.
- 28 -
Variations in income tax expense are largely attributable to changes in pre-
tax income.
Interest charges increased $2.3 million (27%) due to increased borrowings
through the issuance of commercial paper.
KU Results:
KU's net income decreased $6.2 million (23%) for the quarter ended June 30,
2000, as compared to the quarter ended June 30, 1999. The decrease was
mainly due to retail rate reductions ordered by the Kentucky Commission
early this year and lower wholesale sales.
A comparison of Kentucky.KU's revenues for the quarter ended June 30, 2000, with the
quarter ended June 30, 1999, reflects increases and (decreases) which have
been segregated by the following principal causes (in thousands of $):
Sales to ultimate consumers:
Fuel supply adjustments $ (1,707)
Environmental cost recovery surcharge (1,342)
Performance based rate reduction (839)
Merger surcredit (299)
Electric rate reduction (8,061)
Variation in sales volume, etc. 6,846
Total retail sales (5,402)
Wholesale sales (18,060)
Other 2,992
Total $(20,470)
The environmental cost recovery surcharges are costs recovered from retail
customers for investments KU made in facilities for compliance with clean
air regulations. As shown above, KU recovered $1.3 million less as
compared with the same quarter 1999.
In January 2000, the Kentucky Commission ordered the termination of KU's
proposed PBR mechanism. As a result, KU refunded certain amounts collected
from its customers during the nine months ended March 31, 2000.
The electric rate reduction resulted from the Kentucky Commission's January
2000 PBR order reducing KU's base electric rates.
On May 4, 1998, LG&E Energy and KU Energy merged. As a result of merger,
the Kentucky Commission approved a surcredit for savings achieved from the
merger to be passed to the ultimate consumer over a five-year period. The
reduction to retail sales for the merger surcredit is a reflection of that
rate reduction.
The variation in sales volumes for the quarter ended June 30, 2000,
compared with the quarter ended June 30, 1999, is attributable to higher
volumes resulting from cooler weather early in the quarter and warmer
weather at the end of the quarter.
The decrease in wholesale sales is due to fewer brokered sales marketing
opportunities and the reduced availability of power because of planned
outages at the electric generating plants.
Fuel for electric generation comprises a large segment of KU's total
operating expenses. KU's electric rates contain an FAC, whereby increases
or decreases in the cost of fuel are reflected in retail rates, subject to
the approval of the Kentucky Commission, the Virginia Commission, and the
FERC.
- 29 -
Fuel for electric generation increased $7.5$2.1 million (23%(4%) for the quarter
because of an increase in generation ($11.5 million), partially offset by a lower and the cost of coal
burned ($3.51.5 million).
Gas supplyPower purchased decreased $8.1 million (16%) because there were fewer
opportunities in the brokered sales market as mentioned above.
Other operating expenses decreased by $7.6 million (24%). The decrease was
mainly attributable to lower administrative and general expenses ($4.8
million) as well as decreased customer service and information expenses
($1.3 million), which were the result of further integration of customer
functions.
Maintenance expenses increased $12.9by $1.1 million (26%(7%) due to increasesincreased
maintenance at the generating plants ($2.5 million) offset by decreases in
net gas supply cost.
Power Purchased decreased $1.3 million (6%)transmission maintenance ($1.0 million) and distribution maintenance ($.3
million).
Depreciation and amortization increased due to a decreaseadditional utility plant in
purchases
for wholesale sales ($3.0 million), partially offset by higher purchases to
support off-system sales ($1.7 million).
Non-recurring charges of $5.0 million, after tax, include the costs
associated with the Company's One-Utility Program.
Other operation expenses decreased $3.2 million as compared to 1999. This
decrease resulted from decreases in pension expense, $1.2 million, and
various other administrative and general activities, $2 million.
Maintenance expenses decreased $.8 million (6%) in 2000 primarily due to
decreases in scheduled outages of $1.5 million, and electric distribution
maintenance, $.6 million, partially offset by an increase in software and
communication equipment maintenance, $1.3 million.service.
Variations in income tax expense are largely attributable to changes in
pretax income.
LG&E Capital Corp. and Other Results:
Power Operations
Power Operations' equity in earnings of unconsolidated ventures decreased
from $8.6 million in 1999 to $6.5 million in 2000. The decrease reflects
proceeds received from bankruptcy settlements related to the Company's
windpower partnerships in the second quarter of 1999.
Power Operations' other income increased from $.1 million expense in 1999
to $1.4 million income in 2000. The increase resulted from recognizing a
gain on the sale of KUCC Cleburne in the second quarter of 2000. Interest
income increased from $2.4 million in 1999 to $3.7 million in 2000 due to
an increase in cash resulting from asset sales.
Western Kentucky Energy
WKE's revenues decreased from $69.1 million in 1999 to $67.0 million in
2000 due mainly to lower off-system sales. WKE's cost of revenues
decreased from $41.3 million in 1999 to $35.8 million in 2000 due to a
decrease in purchased power.
WKE's operation and maintenance expenses decreased from $26.6 million in
1999 to $24.3 million in 2000 due mainly to a decrease in payroll-related
benefits expenses.
Argentine Gas Distribution
The Argentine Gas Distribution companies' net income increased from $4.8
million in 1999 to $6.7 million in 2000 due mainly to an increase in net
revenues and higher equity in the earnings of Gas BAN.
Other
Other revenues increased from $73.4 million in 1999 to $77.8 million in
2000. The increase resulted from acquiring CRC-Evans in July 1999 and from
increased sales in the Company's natural gas gathering and processing
business, partially offset by a decrease in Retail Access Services'
revenues and lower energy marketing revenues.
Other cost of revenues decreased from $64.8 million in 1999 to $62.3
million in 2000. The decrease resulted from a decrease at Retail Access
Services and lower energy marketing
- 30 -
cost of revenues, partially offset by an increase resulting from acquiring
CRC-Evans in July 1999 and increased sales in the Company's natural gas
gathering and processing business.
The Company recorded asset-impairment and other non-recurring charges
totaling $59.7 million during the second quarter of 2000. See Notes 2 and
4 of Notes to Financial Statements under Item 1 for more information.
Other income for Capital Corp. and Other increased from $1.3 million in
1999 to $2.7 million in 2000. The increase resulted from recognizing the
gain on the sale of the Company's interest in KUCC Cleburne in the second
quarter of 2000.
Capital Corp. and Other interest expense increased from $13.0 million in
1999 to $14.6 million in 2000. The increase resulted from funding
discontinued operations, corporate operating expenses, and the Gas BAN and
CRC acquisitions. The Company's consolidated effective income tax rate
decreased from 36.1% in 1999 to 25.3% in 2000 due to an increase in
investment and wind tax credits as a percent of pretax income.
Six Months Ended June 30, 2000, Compared to
Six Months Ended June 30, 1999
The Company's primary and diluted earnings per share from continuing
operations decreased to $.32 in 2000 from $.82 in 1999. The decrease
resulted from an asset impairment charge taken on the Company's natural gas
gathering and processing business ($.21), recognizing expenses associated
with the integration of the Company's two utilities ($.09), and from
recording expenses related to the Powergen acquisition ($.09). Excluding
these nonrecurring items, earnings per share from continuing operations
decreased from $.82 in 1999 to $.71 in 2000. This decrease resulted from
lower earnings at KU, decreases resulting from recognizing one-time items
in 1999, a decrease resulting from acquiring CRC-Evans in July 1999, and
higher interest expense at Capital Corp. Higher earnings at LG&E and WKE
partially offset these decreases. The one-time items recognized in 1999
consisted of a gain on the sale of the Company's interest in the Rensselaer
project, proceeds from bankruptcy settlements related to the Company's
windpower partnerships, and fees related to the development of an
independent power project in Gregory, Texas.
LG&E Results:
LG&E's net income increased $4.5 million (11%) for the first six months of
2000, as compared to the first six months of 1999, primarily because of
lower operations and maintenance expenses, a decrease in power purchased
and an increase in electric sales to other utilities. These expenses are
partially offset by a decrease in electric rates, a decline in brokered
sales transactions, a nonrecurring net of tax charge of $4.9 million for
costs associated with further integration of KU and LG&E, and the reversal
of various rate refunds of $1.4 million net of tax. Excluding the one-time
charges for the One-Utility Program and the reversal of provisions for
certain rate refunds, LG&E's net income would have increased $8.0 million.
- 31 -
A comparison of LG&E's revenues for the six months ended June 30, 2000,
with the six months ended June 30, 1999, excluding the reversal of
provisions for certain rate refunds of $2.3 million, reflects increases and
decreases which have been segregated by the following principal causes (in
thousands of $):
Electric Gas
Cause Revenues Revenues
Retail sales:
Fuel and gas supply adjustments $ (1,820) $14,029
Environmental cost recovery surcharge (724) -
Performance based rate reduction (2,275) -
Electric rate reduction (7,005) -
Merger surcredit (931) -
Variation in sales volume, etc. 1,687 (1,638)
Total retail sales (11,068) 12,391
Sales for resale 7,828 6,453
Gas transportation - net - 163
Other 689 (143)
Total $ (2,551) $18,864
In January 2000, the Kentucky Commission ordered the termination of LG&E's
proposed PBR mechanism. As a result, LG&E refunded certain amounts
collected from its customers during the nine months ended March 31, 2000.
The electric rate reduction resulted from the Kentucky Commission's January
2000 PBR order reducing LG&E's base electric rates.
Sales for resale increased due to increased sales to other utilities.
Fuel for electric generation increased $6.7 million (9%) for the six months
because of an increase in generation ($11 million) partially offset by
lower cost of coal burned ($4.3 million).
Gas supply expenses increased $18.2 million (28%) due to an increase in gas
prices ($19.2 million) partially offset by a decrease in the volume of gas
delivered to the distribution system ($1 million).
Power purchased decreased $7.8 million primarily because of a decrease in
brokered sales activities ($13.1 million), partially offset by increased
sales to other utilities ($5.3 million).
Other operation expenses decreased $4 million (5%) primarily as a result of
lower administrative expenses ($10.3 million) and steam production costs
($1.3 million) partially offset by a one-time expense of $8.1 million for
the Company's One-Utility Program.
Maintenance expenses for the first six months of 2000 decreased $3.6
million (10%) primarily due to decreases in scheduled outages at the Mill
Creek and the Cane Run generating stations ($4.3 million), and electric
distribution maintenance ($1.1 million), partially offset by increased
software maintenance costs ($1.9 million).
Other income and deductions increased $2.1 million (157%) due to gains on
the sale of non-utility property.
- 32 -
Variations in income tax expense are largely attributable to changes in pre-
tax income.
Interest charges increased $3.8 million (21%) due to the issuance of
commercial paper.
KU Results:
KU's net income decreased $9.5$15.7 million (32%(28%) for the quartersix months ended March
31,June
30, 2000 as compared to the quartersix months ended March 31,June 30, 1999. The decrease
was mainlypartially due to a non-recurring charge of $6.6 million, after tax,
made in the first quarter of 2000 for costs associated - 27 -
with further
integration of KU and LG&E. Excluding this non-recurring charge, net
income decreased $2.9 million.$9.2 million, mainly due to rate reductions ordered by the
Kentucky Commission early in 2000 and lower wholesale sales.
A comparison of KU's revenues for the quartersix months ended March 31,June 30, 2000, with
the quartersix months ended March 31,June 30, 1999, and reflects increases and (decreases)
which have been segregated by the following principal causes (thousands(in thousands
of $):
Sales to ultimate consumers:
Fuel clausesupply adjustments $ 867(840)
Environmental cost recovery (1,272)surcharge (2,614)
Performance based rate reduction (893)(1,732)
Merger surcredit (452)(733)
Electric rate refunds (3,389)reduction (12,140)
Variation in sales volume, etc. 4,60112,119
Total retail sales (538)(5,940)
Wholesale sales 1,309(16,751)
Other (342)2,651
Total $ 429
Fuel$(20,040)
The environmental cost recovery surcharges are costs recovered from retail
customers for electric generation comprises a large segmentinvestments KU made in facilities for compliance with clean
air regulations. As shown above, KU recovered $2.6 million less for the
six months ended June 30, 2000 as compared with the six months ended June
30, 1999.
In January 2000, the Kentucky Commission ordered the termination of KU's
total
operating expenses.proposed PBR mechanism. As a result, KU refunded certain amounts collected
from its customers during the nine months ended March 31, 2000.
The electric rate reduction resulted from the Kentucky Commission's January
2000 PBR order reducing KU's base electric rates containrates.
On May 4, 1998, LG&E Energy and KU Energy merged. As a fuel adjustment clause
(FAC), whereby increases or decreasesresult of merger,
the Kentucky Commission approved a surcredit for savings achieved from the
merger to be passed to the ultimate consumer over a five-year period. The
reduction to retail sales for the merger surcredit is a reflection of that
rate reduction.
Variation in sales volumes is mainly due to higher volumes this year as
compared to the same period last year. The higher volumes (288,137 Mwh)
are attributable to an increase in the costnumber of fuel are reflected in
retail rates, subjectcustomers served as well
as warmer weather this period as compared to the approval of the Public Service Commission of
Kentucky,same period last year.
The Virginia State Corporation Commission,decrease in wholesale sales is due to fewer brokered sales marketing
opportunities and the Federal Energy
Regulatory Commission.reduced availability of power because of planned
outages at the electric generating plants.
- 33 -
Fuel for electric generation decreased $2.5$0.5 million (4%(.5%) for the quarter because of a
decrease in generation ($1.51.0 million) andwhich was partially offset by the
lowerincreased cost of coal burned ($1.5 million).
Power purchased decreased $8.6 million (9.5%) because there were fewer
opportunities in the brokered sales market as mentioned above.
Non-recurring charges of $6.6 million, after tax, include the costs
associated with the Company's One-Utility Program.
Other operating expenses increaseddecreased by $1.7$5.9 million (6%(10%). The increasedecrease was
primarilymainly attributable to increased transmissiona decrease in administration and general expenses
($.64.2 million) and distribution ($.4 million) system operating expenditures as well as
increased salescustomer service and marketinginformation expenses ($.51.1
million).
Maintenance expenses increased by $1.6$2.7 million (13%(10%) due primarily to increased
maintenance at the steam generating plants ($1.33.4 million) which was offset
by decreases in transmission ($1.1 million) and the
distribution system ($.5 million).
maintenance.
Depreciation and amortization increased by $2.3 million (11%) due to additional utility plant in
service.
Variations in income tax expense are largely attributable to changes in
pretax income.
LG&E Capital Corp. and Other Results:
Power Operations
Power Operations' revenues decreased from $6.9$13.1 million in 1999 to $4.7$10.6
million in 2000. The decrease resulted mainly from recognizing revenues in
1999 related to the Rensselaer project, which the Company sold in March
1999.
Power Operations' operation and maintenance expense decreased from $3.6$5.5
million in 1999 to $1.6$3.4 million in 2000. The decrease resulted primarily
from writing off assets related to the Rensselaer project in 1999.
- 28 -
Power Operations' equity in earnings of unconsolidated ventures decreased
from $21.4$30.0 million in 1999 to $5.8$12.2 million in 2000, due mainly to recognizing a
pretax gain or $14.5of $15.4 million on the sale of the Rensselaer project in 1999
and to receiving proceeds from bankruptcy settlements related to the
Company's windpower partnerships in the second quarter of 1999.
Western Kentucky Energy
Western Kentucky Energy Corp.'s (WKE's)WKE's revenues were approximately the
samedecreased from $129.0 million in 1999 to $127.7 million in
2000 and 1999, $60.1 million and 60.0 million, respectively.
Higher smelter sales were offset bydue mainly to lower off-system sales, resulting from
lower volumes and prices.partially offset by higher sales
to industrial customers. WKE's cost of revenues were approximately the samedecreased from $77.0
million in 1999 to $71.0 million in 2000 due to a decrease in purchased
power.
WKE's operation and maintenance expenses decreased from $50.6 million in
1999 $35.3to $48.8 million and $35.7 million, respectively.
WKE's operating expenses increased slightly in 2000 due mainly to $25.8 milliona decrease in payroll-related
benefits expenses. WKE's depreciation and amortization expense increased
from $24.7$1.5 million in 1999. The increase was1999 to $2.9 million in 2000 due to more unit outagesincreased
expenditures for information systems conversions.
WKE's interest income increased from $.4 million in 1999 to $1.4 million in
2000 and higher depreciation expense.due to an increase in the note receivable from Big Rivers.
- 34 -
Argentine Gas Distribution
The Argentine Gas Distribution companies' revenues of $30.7net income increased from $5.2
million cost of
revenues of $16.9 million and operation and maintenance expenses of $5.7in 1999 to $6.0 million in 2000 were slightlydue mainly to an increase in net
revenues and higher than 1999 due to higher consumption
per customer.equity in the earnings of Gas BAN.
Other
Other revenues increased from $65.1$138.5 million in 1999 to $75.0$152.8 million in
2000. The increasesincrease resulted from acquiring CRC-Evans in July 1999 and from
increased sales in the Company's natural gas gathering and processing
and
energy marketing businesses,business, partially offset by a decrease in Retail Access Services'
revenues and a decrease resulting from recognizing feeslower energy marketing revenues. Fees received in 1999
related to the development of an independent power project in Gregory,
Texas.Texas, partially offset the increases also.
Other cost of revenues increased from $47.9$112.7 million in 1999 to $60.6$123.0
million in 2000. The increasesincrease resulted from acquiring CRC-Evans in July
1999 and from increased sales in the Company's natural gas gathering and
processing and energy marketing businesses,business, partially offset by a decrease at Retail Access
Services.Services and lower energy marketing cost of revenues.
The Company recorded asset-impairment and other non-recurring charges
totaling $80.4 million during the six months ended June 30, 2000. See
Notes 2, 3 and 4 of Notes to Financial Statements under Item 1 for more
information.
Other income for Capital Corp. and Other increased from $3.3$4.6 million in
1999 to $4.2$6.9 million in 2000. The increase resulted from higherrecognizing the
gain on the sale of the Company's interest incomein KUCC Cleburne in the second
quarter of 2000 and the gain on the sale of the Company's interest in CEC-APLCEC-
APL L.P. in the first quarter of 2000. Higher interest income also
contributed to the increase. Decreases resulting from payments received in
1999 related to the Rensselaer sale and the initial settlement of a claim
on an undeveloped independent power project in California partially offset
the increases.
Capital Corp. and Other interest expense increased from $10.2$23.2 million in
1999 to $13.2$27.8 million in 2000. The increase resulted from funding
discontinued operations, corporate operating expenses, and the Gas BAN and
CRC acquisitions. The Company's consolidated effective income tax rate
decreased from 38.1%37.2% in 1999 to 35.0%32.6% in 2000 due to an increase in
investment and wind tax credits as a percent of pretax income.
Liquidity and Capital Resources
The Company's need for capital funds is largely related to the construction
of plant and equipment necessary to meet the needs of electric and gas
utility customers and equity investments in connection with independent
power production projects and other energy-related growth or acquisition
opportunities among the non-utility businesses. Capital funds are also
needed for the Company's capital obligations under the Big Rivers lease
arrangements, losses incurred in connection with the discontinuance of the
merchant energy trading and sales business, information system
enhancements, and other business develop
- 29 -
mentdevelopment opportunities. Fluctuations
in the Company's discontinued energy marketing and trading activities also
affected liquidity throughout the quarter. Lines of credit and commercial
paper programs are maintained to fund these temporary capital requirements.
Construction expenditures for the threesix months ended March 31,June 30, 2000, of $53.7$157.3
million were financed with internally generated funds and commercial paper.
The Company's combined cash and marketable securities balance increased
$17.6decreased
$35.7 million during the threesix months ended March 31,June 30, 2000. The increasedecrease
reflects construction expenditures
- 35 -
and dividends paid, partially offset by cash flows from operations,
and the proceeds received from the salesales of CEC-APL L.P., partially offset by construction expenditures, debt
repaymentsinvestments in affiliates, and dividends paid.a net
increase in debt.
Variations in accounts receivable, accounts payable and materials and
supplies are generally not significant indicators of the Company's
liquidity. Such variations are primarily attributable to fluctuations in
weather, which have a direct effect on sales of electricity and natural
gas. The decreasesdecrease in accounts receivable during the six months ended June
30, 2000, resulted mainly from seasonal fluctuations at LG&E and WKE, and a
decrease in the balance at Retail Access Services, partially offset by
seasonal fluctuations at the Company's natural gas gathering and processing
business and an increase in Centro's balance. The decrease in accounts
payable resulted mainly from seasonal fluctuations at LG&E, KU and WKE, and
a decrease in the balance at Retail Access Services, partially offset by
seasonal fluctuations at the Company's natural gas gathering and processing
business.business and an increase in Centro's balance. The decrease in fuel resulted from
seasonal fluctuations at KU and WKE, and the decrease in gas stored
underground resulted from seasonal fluctuations at LG&E&E.
The decrease in non-utility property and plant resulted from recording an
impairment charge in the natural gas
gatheringsecond quarter of 2000. See Note 4 of Notes to
Financial Statements under Item 1 for more information. The increase in
other property and processing business.investments resulted from expenditures related to the
purchase of combustion turbines by Capital Corp.
The increase in net liabilities of discontinued operations resulted from an
increase in the Company's accrued loss on disposal of discontinued
operations.
Long-term debt decreased(including current portion) increased by $20$68.7 million due
to the redemptionCapital Corp.'s issuing $150 million of medium-term notes in June 2000,
partially offset by LG&E's redeeming its first mortgage bonds 7.5% series
due July 1, 2002, in January 2000, and by KU's redeeming its Series Q 5.95%
bonds due June 15, 2000, in June 2000.
At March 31,June 30, 2000, unused capacity under the Company's lines of credit
totaled $415.4$469.3 million after considering commercial paper support and
approximately $40.0$47.0 million in letters of credit securing on- and off-
balance sheet commitments. In March 2000, KU finalizedmaintains an uncommitted lineborrowing facility
of credit for $60$100 million.
Standard and Poor's downgraded LG&E's, KU's and Capital Corp.'s debt
ratings on February 28, 2000. The downgrades reflect S&P's opinion of the
credit quality of the Companies following the impact of the PBRKentucky
Commission rate reduction and the OPC decision. S&P, Moody's and Duff and PhelpsFitch
continue to have the debt of the Companies on credit watch pending review
of the financial condition following consummation of the merger of the
Company with PowerGen.Powergen.
In July 2000, Fitch (formerly Duff and Phelps) downgraded the long-term
debt of Capital Corp. to BBB+ following the announcement of the increase in
the discontinued operations reserve. Also during the second quarter of
2000, Capital Corp.'s commercial paper rating changed from D-1- to F-2 as a
result of the merger of Fitch and Duff and Phelps.
Also in July 2000, the Company announced plans to build up to ten natural
gas fired combustion turbines. The Company will build the turbines in
Kentucky and Georgia to meet the native load commitments of its two
utilities and to mitigate its exposure related to the OPC contract. The
Company has not arranged, but has under consideration, several possible
methods of financing the construction of the turbines, including the use of
new short- or long-term credit facilities or the use of project or lease
financing.
Certain of Capital Corp.'s long-term debt agreements require the Company to
maintain a debt-to-capitalization ratio not greater than 65%. The
Company's debt-to-capitalization ratio at June 30, 2000, as defined in
those agreements, equaled an amount just under 65%. Capital Corp. is
pursuing a variety of actions to avoid any event of default under the
- 36 -
agreements, including selling the gas facilities business and certain asset
securitization programs to reduce working capital requirements and debt,
and is working with the financial institutions to obtain standstill
agreements or waivers of the 65% debt-to-capitalization limit.
The Company's capitalization ratios at March 31, 2000, and December 31,
1999, follow:
Mar. 31,June 30, Dec. 31,
2000 1999
Long-term debt (including current portion) 49.8%54.3% 49.8%
Notes payable 13.012.6 13.1
Preferred stock 4.04.3 3.9
Common equity 33.228.8 33.2
Total 100.0% 100.0%
LG&E's capitalization ratios at March 31, 2000, and December 31, 1999,
follow:
Mar. 31,June 30, Dec. 31,
2000 1999
Long-term debt (including current portion) 40.0%39.7% 41.1%
Notes payable 8.78.6 7.9
Preferred stock 6.36.2 6.2
Common equity 45.045.5 44.8
Total 100.0% 100.0%
- 30 -
KU's capitalization ratios at March 31, 2000, and December 31, 1999,
follow:
Mar. 31,June 30, Dec. 31,
2000 1999
Long-term debt (including current portion) 44.9%41.0% 44.7%
Notes payable 2.5 0.0
Preferred stock 3.33.4 3.3
Common equity 51.853.1 52.0
Total 100.0% 100.0%
For a description of significantcertain contingencies that may affect the Company,
LG&E and KU, reference is made to Part II herein - Item 1, Legal
Proceedings.
- 31 -
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
LG&E Energy is exposed to market risks in both its regulated and non-
utility operations. Both operations are exposed to market risks from
changes in interest rates and commodity prices, while the non-utility
operations are also exposed to changes in foreign exchange rates. To
mitigate changes in cash flows attributable to these exposures, the Company
has entered into various derivative instruments. Derivative positions are
monitored using techniques that include market value and sensitivity
analysis.
The potential change in interest expense resulting from changes in base
interest rates of the Company's unswapped debt did not change materially
induring the first quarter ofthree- and six-month periods ended June 30, 2000. The potential
changes in the fair values of the Company's interest-rate swaps resulting
from changes in interest rates and the yield curve also did not change
materially in the first quarter ofthree- and six-month periods ended June 30, 2000. The Company's
exposure to market risks from changes in commodity prices and foreign
exchange rates remained immaterial in the first quarter
ofthree- and six-month periods ended June
30, 2000.
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Part II. Other Information
Item 1. Legal Proceedings.
For a description of the significant legal proceedings involving the
Company, LG&E and KU, reference is made to the information under the
following items and captions of (a) the Company's, LG&E's and KU's
respective combined Annual Report on Form 10-K for the year ended December
31, 1999: Item 1, Business; Item 3, Legal Proceedings; Item 7,
Management's Discussion and Analysis of Results of Operations and Financial
Condition; Notes 2, 6, 18 and 22 of the Company's Notes to Financial
Statements under Item 8; Notes 3, 12 and 16 of LG&E's Notes to Financial
Statements under Item 8 and Notes 3, 11 and 14 of KU's Notes to Financial
Statements under Item 8.8 and (b) the Company's, LG&E's and KU's respective
combined Quarterly Report on Form 10-Q for the quarter ended March 31,
2000: Part III, Item 1, Legal Proceedings. Except as described herein, to
date, the proceedings reported in the Company's, LG&E's and KU's respective
combined Annual Report on Form 10-
K10-K have not changed materially.
PowerGenPowergen Merger Regulatory Filings
On February 28, 2000, the Company announced the signing of a definitive
merger agreement with PowerGenPowergen plc of the United Kingdom, wherein, upon
closing, the Company will become a wholly-owned subsidiary of PowerGenPowergen and
shareholders of the Company will receive $24.85 per share of Company common
stock. The transaction is scheduledexpected to be completed nine9 to twelve12 months from
announcement, subject to receipt of required regulatory approvals and other
conditions to consummation. It is possible that the remaining regulatory
approvals may be received in time to permit a closing during the fourth
quarter of 2000 Applications for approval were filed with the Kentucky
Commission, the Virginia State Corporation Commission and the FERC (under the Federal Power
Act) in March 2000, and with the SEC (under the Public Utility Holding
Company Act of 1935) in April 2000. Approval applications or noticeNotice filings will also bewere made to the
Tennessee Regulatory Authority in the second quarter of 2000, to the
Department of Justice and the Federal Trade Commission (under the Hart-Scott-RodinoHart-
Scott-Rodino Antitrust Improvements Act of 1976)1976 (the HSR Act)) in July 2000
and as required under the "Exon-Florio" US Omnibus Trade and
Competitiveness Act of 1988. PowerGen1988 (the E-F Act) in August 2000. Powergen has
made standard filings with the United Kingdom Office of Fair Trading under
the Fair Trading Act of 1973, which implements a voluntary regulatory
regime.
Hearings beforeThrough mid-August 2000, a number of approval steps have been completed by
the Company and Powergen. Shareholders of the Company and of Powergen
approved the merger transaction in separate meetings held in June 2000.
Further, approvals were received from the Kentucky Commission were held April 19-21 and
submissions of briefs and data requests have been completed. A decision is
expected on or aboutin May 152000,
the FERC in June 2000 and the Company will have approximately 23 days
fromVirginia Commission in July 2000. The
parties submitted the requisite filings under the HSR Act and the E-F Act
in late July and early August 2000, respectively, which trigger 30 day
waiting periods due to expire in late August and early September,
respectively, absent any orderfurther inquiry or investigation by the applicable
regulatory authority. The parties joint application for approval to the
SEC under PUHCA was submitted in which to file for rehearing, or approximately 33 days in
which to file for appeal.April 2000. While the Company and
PowerGenPowergen believe that they will receive the requisite regulatory approvals
for the merger in sufficient time to complete the transaction on the
schedule mentioned above, there can be no assurance as to the timing of
such approvals or the ability to obtain such approvals on satisfactory
terms or otherwise. See Item 1, PowerGenPowergen Merger and Note 22 to the
Company's Notes to Financial Statements under Item 8 of its Annual Report
on Form 10-K for the year ended December 31, 1999 for further discussion of
this matter.
Gas Rate Increase Proceeding
In August 2000, hearings were held before the Kentucky Commission regarding
LG&E's March 2000 application for an general adjustment in gas rates. The
requested increase of approximately $26.4 million, the first major non-fuel-
related adjustment requested by LG&E
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to gas rates in 10 years, is designed to reflect higher service and
distribution costs to natural gas customers. A final decision in the
matter is expected in late September 2000 from the Kentucky Commission,
whose decision may include possible changes to the amount of any approved
increases. An October 2000 effective date for the new rates has been
suspended.
Item 4. Submission of Matters to a Vote of Security Holders.
a) LG&E Energy's, LG&E's and KU's Annual Meetings of Shareholders were
held on June 7, 2000.
b) Not applicable.
c) The matters voted upon and the results of the voting at the Annual
Meetings are set forth below:
1. LG&E Energy:
i) The shareholders voted 85,066,839 common shares in favor of and
8,118,348 shares against the Merger Agreement and related transactions
with Powergen. Holders of 2,154,339 common shares abstained from
voting on this matter.
ii) The shareholders voted to elect LG&E Energy's nominees for election to
the Board of Directors as follows:
William C. Ballard, Jr. - 106,760,854 common shares cast in favor of
election and 4,442,532 shares withheld.
T. Ballard Morton, Jr. - 106,719,738 common shares cast in favor of
election and 4,483,648 shares withheld.
William L. Rouse, Jr. - 106,617,016 common shares cast in favor of
election and 4,586,370 shares withheld.
Charles L. Shearer - 106,735,367 common shares cast in favor of
election and 4,468,019 shares withheld.
Holders of 3,725,775 common shares abstained from voting on this
matter.
iii) The shareholders voted 108,358,737 common shares in favor of and
1,440,846 shares against the approval of Arthur Andersen LLP as
independent auditors for 2000. Holders of 1,403,803 common shares
abstained from voting on this matter.
2. LG&E:
i) The shareholders voted to elect LG&E's nominees for election to the
Board of Directors as follows:
William C. Ballard, Jr. - 21,294,223 common shares and 582,318
preferred shares cast in favor of election and 17,408 preferred shares
withheld.
T. Ballard Morton, Jr. - 21,294,223 common shares and 586,296 preferred
shares cast in favor of election and 13,430 preferred shares withheld.
William L. Rouse, Jr. - 21,294,223 common shares and 586,105 preferred
shares cast in favor of election and 13,621 preferred shares withheld.
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Charles L. Shearer - 21,294,223 common shares and 586,832 preferred
shares cast in favor of election and 12,894 preferred shares withheld.
Holders of no common or preferred shares abstained from voting on this
matter.
ii) The shareholders voted 21,294,223 common shares and 587,072 preferred
shares in favor of and 2,373 preferred shares against the approval of
Arthur Andersen LLP as independent auditors for 2000. Holders of
10,281 preferred shares abstained from voting on this matter.
3. KU:
i) The sole shareholder voted to elect KU's nominees for election to the
Board of Directors as follows:
37,817,878 common shares cast in favor of election and no shares
withheld for each of William C. Ballard, Jr., T. Ballard Morton, Jr.,
William L. Rouse, Jr., and Charles L. Shearer, respectively.
ii) The sole shareholder voted 37,817,878 common shares in favor of and no
shares against the approval of Arthur Andersen LLP as independent
auditors for 2000.
Holders of no common shares abstained from voting on these matters.
d) Not applicable.
Item 6(a). Exhibits.
Exhibit
Number Description
27 Financial Data Schedules for LG&E Energy Corp.,
Louisville Gas and Electric Company, and Kentucky
Utilities Company.
Item 6(b). Reports on Form 8-K.
On January 6,August 14, 2000, the Company filed a report on Form 8-K announcingstating that on
December 21, 1999, it received an adverse order from the arbitration
panel considering its contract dispute with OPC.
On January 25, 2000, the Company filed a report on Form 8-K announcing that
on January 7,July 28, 2000, it issued a statement regarding the Kentucky
Commission's decision in the PBR case involvingannounced that it had increased its two utility
subsidiaries, LG&E and KU.
On February 29, 2000, the Company filed a reportafter-tax loss on
Form 8-K announcing
that on February 27, 2000, it and PowerGen entered intodisposal of discontinued operations by an Agreement and
Plan of Merger.additional $155 million.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LG&E Energy Corp.
Registrant
Date: May 15,August 14, 2000 /s/ Michael D. Robinson
Michael D. Robinson
Vice President and Controller
(On behalf of the registrant in his
capacity as Principal Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Louisville Gas and Electric Company
Registrant
Date: May 15,August 14, 2000 /s/ Michael D. Robinson
Michael D. Robinson
Vice President and Controller
(On behalf of the registrant in his
capacity as Principal Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Kentucky Utilities Company
Registrant
Date: May 15,August 14, 2000 /s/ Michael D. Robinson
Michael D. Robinson
Vice President and Controller
(On behalf of the registrant in his
capacity as Principal Accounting Officer)
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