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,September 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,October 31, 2000.
Louisville Gas and Electric Company
21,294,223 shares, without par value, as of April 28,October 31, 2000,
all held by LG&E Energy Corp.
Kentucky Utilities Company
37,817,878 shares, without par value, as of April 28,October 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 6 Exhibits and Reports on Form 8-K 3439
Signatures 3540
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 Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
REVENUES:
Electric utility $365,890 $361,673$ 412,200 $ 550,376 $1,154,696 $1,318,307
Gas utility 88,316 75,77924,381 17,623 142,676 117,054
International and
non-utility 171,184 161,813
Total245,315 297,391 616,205 652,951
Net revenues 625,390 599,265681,896 865,390 1,913,577 2,088,312
OPERATING EXPENSES:
Operation and maintenance:
Fuel and power purchased 203,196 205,088203,308 413,713 613,013 869,795
Gas supply expenses 119,228 95,064117,835 82,248 325,738 234,232
Utility operation and
maintenance 103,858 103,70595,231 103,789 297,346 322,686
International and non-utilitynon-
utility operation
and maintenance 48,538 44,96449,639 48,905 154,387 141,303
Depreciation and
amortization 58,373 54,73654,732 54,664 169,907 162,879
Asset impairment charge
(Note 4) - - 45,000 -
Non-recurring charges
(Note(Notes 2 and 3) 20,7133,563 - 38,952 -
Total operating expenses 553,906 503,557524,308 703,319 1,644,343 1,730,895
Equity in earnings
of uncon-
solidatedunconsolidated
ventures 5,930 21,656(Note 6) 15,938 10,092 32,628 43,799
OPERATING INCOME 77,414 117,364173,526 172,163 301,862 401,216
Other income and (deductions) 5,009 6,3882,432 5,863 13,148 14,862
Interest charges and
preferred dividends 34,965 30,52038,976 32,414 110,860 95,177
Minority interest 1,494 1,5715,363 4,735 11,377 10,148
Income before income taxes 45,964 91,661131,619 140,877 192,773 310,753
Income taxes 16,082 34,88245,939 53,711 65,862 116,843
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 $ 29,88285,680 $ 57,56787,166 $ 126,911 $ 193,910
- 1 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income (cont.)
(Unaudited - Thousands of $ Except Per Share Data)
Three Months Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Income from continuing
operations $ 85,680 $ 87,166 $ 126,911 $ 193,910
(Loss) income from disposal of
discontinued operations, net of
income tax benefit (expense)
of $94,476 and ($328)
(Note 5) - - (155,000) 788
NET INCOME (LOSS) $ 85,680 $ 87,166 $ (28,089) $ 194,698
Average common shares
outstanding 129,677 129,677 129,677 129,677
Earnings (loss) per share -
basic and diluted $.23 $.44diluted:
Continuing operations $ .66 $ .67 $ .98 $ 1.49
(Loss) income from dis-
posal of discontinued
operations .00 .00 (1.20) .01
Total $ .66 $ .67 $ (.22) $ 1.50
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,Sep. 30, Dec. 31,
2000 1999
CURRENT ASSETS:
Cash and temporary cash investments $ 109,19516,974 $ 91,413
Marketable securities 9,9917,104 10,126
Accounts receivable - less reserve 270,362321,486 318,914
Materials and supplies - primarily at average cost:
Fuel (predominantly coal) 78,96758,904 91,931
Gas stored underground 23,28966,142 49,038
Other 96,29691,816 90,259
Prepayments and other 54,51525,875 54,038
Total current assets 642,615588,301 705,719
UTILITY PLANT:
At original cost 5,958,1786,071,791 5,916,905
Less: reserve for depreciation 2,550,5272,653,281 2,503,851
Net utility plant 3,407,6513,418,510 3,413,054
OTHER PROPERTY AND INVESTMENTS - LESS RESERVES:
Investment in unconsolidated
ventures (Note 5) 242,9496) 253,184 249,455
Non-utility property and plant, net 475,137431,358 477,442
Other 25,265136,396 25,596
Total other property and investments 743,351820,938 752,493
DEFERRED DEBITS AND OTHER ASSETS 275,757216,758 262,491
Total assets $5,069,374$5,044,507 $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,Sep. 30, Dec. 31,
2000 1999
CURRENT LIABILITIES:
Current portion of long-term debt $ 411,808434,372 $ 411,810
Notes payable 443,520550,184 449,578
Accounts payable 202,197195,461 220,460
Net liabilities of discontinued opera-
tions (Note 4) 152,3845) 205,506 158,222
Other 254,844167,336 248,841
Total current liabilities 1,464,7531,552,859 1,488,911
Long-term debt 1,279,4261,295,574 1,299,415
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 584,460610,834 585,880
Investment tax credit, in
process of amortization 83,83879,864 85,828
Regulatory liability 102,23494,637 104,795
Other 178,598168,339 182,357
Total deferred credits and other liabilities 949,130953,674 958,860
Minority interests 111,133111,396 109,952
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)(1,981) (1,956)
Retained earnings 354,944213,332 366,234
Total common equity 1,129,792988,364 1,141,291
Total liabilities and capital $5,069,374$5,044,507 $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 $)
ThreeNine Months
Ended
Mar. 31,Sep. 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 29,882(28,089) $ 57,567194,698
Items not requiring cash currently:
Depreciation and amortization 58,373 54,736169,907 162,879
Deferred income taxes - net (8,091) 4,694
Income from discontinued operations -
net of tax13,284 (9,227)
Asset impairment charge (Note 4) 45,000 -
Non-recurring charges (Notes 2 and 3) 38,952 -
Loss (income) from disposal of dis-
continued operations (Note 5) 155,000 (788)
Other (638) (17,627)(30,241) (17,480)
Change in net current assets 59,434 19,647(179,935) (78,631)
Other (15,718) (8,417)21,393 7,179
Net cash flows from operating activities 123,242 109,812205,271 258,630
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (242) (223)(1,433) (917)
Proceeds from sales of securities 132 3,0754,044 10,040
Construction expenditures (53,716) (79,410)(303,051) (291,942)
Investments in unconsolidated
ventures (Note 6) (2,125) (74,498)
Investment in subsidiary, net of cash
and temporary cash investments
acquired - (74,250)(39,693)
Proceeds from salesales of investmentinvestments
in affiliateaffiliates (Note 5) 17,907 33,8216) 22,507 53,384
Net cash flows from investing activities (35,919) (116,987)(280,058) (343,626)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt 162,900 200,000
Retirement of bonds (20,022) -debt (144,962) (35,268)
Short-term borrowings 2,170,510 416,1749,790,273 3,927,792
Repayment of short-term borrowings (2,178,857) (346,174)(9,691,847)(3,899,417)
Issuance of preferred stock 7,500 -
Redemption of preferred stock - (1,202)
Payment of common dividends (41,172) (39,876)(123,516) (119,628)
Net cash flows from financing activities (69,541) 28,922348 72,277
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS 17,782 21,747(74,439) (12,719)
BEGINNING CASH AND TEMPORARY
CASH INVESTMENTS 91,413 105,604
ENDING CASH AND TEMPORARY
CASH INVESTMENTS $ 109,19516,974 $ 127,35192,885
- 5 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Cash Flows (cont.)
(Unaudited - Thousands of $)
ThreeNine Months
Ended
Mar. 31,Sep. 30,
2000 1999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 4,41034,177 $ 2,96924,871
Interest on borrowed money 30,097 23,533110,451 78,483
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 Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Balance at beginning
of period $366,234 $466,279$ 170,121 $ 494,059 $ 366,234 $ 466,279
Net income 29,882 57,567(loss) 85,680 87,166 (28,089) 194,698
Cash dividends declared on
common stock ($.3175.3275, $.3175,
$.9625 and $.3075$.9325 per share) 42,469 41,172 39,876124,813 120,924
Balance at end of period $354,944 $483,970$ 213,332 $ 540,053 $ 213,332 $ 540,053
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 Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Net income $29,882 $57,567(loss) $ 85,680 $ 87,166 $(28,089) $194,698
Unrealized holding gains (losses)
on available-for-sale securities
arising during the period (312) 19244 (287) (473) (250)
Reclassification adjustment for
realized gains and losses(losses) on
available-for-sale securities
included in net income 14 5139 (89) 179 (247)
Other comprehensive income
(loss) income,, before tax (298) 197183 (376) (294) (497)
Income tax (expense) benefit (expense)
related to items of other
comprehensive (loss) income 113 (64)(40) 142 111 188
Comprehensive income $29,697 $57,700(loss) $ 85,823 $ 86,932 $(28,272) $194,389
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 Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
OPERATING REVENUES:
Electric $161,326 $150,840$205,259 $279,907 $544,494 $621,693
Gas 88,316 75,77924,381 17,623 142,676 117,054
Provision for rate
refunds - (1,135) 1,844 (1,635)
Total operating revenues 249,642 226,619229,640 296,395 689,014 737,112
OPERATING EXPENSES:
Fuel for electric generation 39,926 32,45741,854 45,361 120,430 117,199
Power purchased 21,753 23,02623,907 85,156 70,006 139,040
Gas supply expenses 63,394 50,49216,097 8,763 98,180 72,650
Non-recurring charges (Note 3) - - 8,141 -
Other operation expenses 36,975 40,19231,620 39,452 99,142 119,101
Maintenance 13,881 14,70214,804 12,800 46,127 47,730
Depreciation and amortization 24,149 24,14425,119 24,143 73,169 72,428
Federal and state
income taxes 9,668 9,55623,551 25,683 47,617 47,317
Property and other taxes 5,163 5,0364,527 4,001 14,164 12,999
Total operating expenses 223,050 199,605181,479 245,359 576,976 628,464
NET OPERATING INCOME 26,592 27,01448,161 51,036 112,038 108,648
Other income and (deductions) 1,519 1,0801,121 336 4,490 1,648
Interest charges 10,690 9,17811,165 9,668 32,981 27,636
NET INCOME 17,421 18,91638,117 41,704 83,547 82,660
Preferred stock dividends 1,165 1,0891,361 1,090 3,843 3,266
NET INCOME AVAILABLE
FOR COMMON STOCK $ 16,25636,756 $ 17,82740,614 $ 79,704 $ 79,394
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,Sep. 30, Dec. 31,
2000 1999
UTILITY PLANT:
At original cost $3,086,048$3,155,949 $3,065,839
Less: reserve for depreciation 1,238,5361,292,265 1,215,032
Net utility plant 1,847,5121,863,684 1,850,807
OTHER PROPERTY AND INVESTMENTS -
less reserve 1,3531,088 1,224
CURRENT ASSETS:
Cash and temporary cash investments 49,05940,986 54,761
Marketable securities 6,9024,081 6,936
Accounts receivable - less reserve 172,077107,421 113,859
Materials and supplies - at average cost:
Fuel (predominantly coal) 17,47211,900 17,350
Gas stored underground 15,75457,868 38,780
Other 35,19233,814 35,010
Prepayments 2,100and other 1,453 2,775
Total current assets 298,556257,523 269,471
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 5,5295,596 5,607
Regulatory assets 30,38631,492 31,443
Other 10,01020,232 12,900
Total deferred debits and other assets 45,92557,320 49,950
Total assets $2,193,346$2,179,615 $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,Sep. 30, Dec. 31,
2000 1999
CAPITALIZATION:
Common stock, without par value -
Outstanding 21,294,223 shares $ 425,170 $ 425,170
Retained earnings 258,987288,935 259,231
Other (1,120)(1,116) (1,025)
Total common equity 683,037712,989 683,376
Cumulative preferred stock 95,140 95,328
Long-term debt 360,600 380,600
Total capitalization 1,138,7771,168,729 1,159,304
CURRENT LIABILITIES:
Current portion of long-term debt 246,200 246,200
Notes payable 131,791131,623 120,097
Accounts payable 143,357103,701 113,008
Provision for rate refunds 5,409- 8,962
Dividends declared 17,66518,361 24,236
Accrued taxes 37,81430,648 23,759
Accrued interest 7,5664,147 9,265
Other 16,79516,835 15,725
Total current liabilities 606,597551,515 561,252
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 257,422281,287 255,910
Investment tax credit, in
process of amortization 66,18264,045 67,253
Accumulated provision for pensions
and related benefits 40,74140,204 38,431
Customer advances for construction 10,2089,632 11,104
Regulatory liability 55,92354,794 58,726
Other 17,4969,409 19,472
Total deferred credits and other liabilities 447,972459,371 450,896
Total capital and liabilities $2,193,346$2,179,615 $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 $)
ThreeNine Months
Ended
Mar. 31,Sep. 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,42183,547 $ 18,91682,660
Items not requiring cash currently:
Depreciation and amortization 24,149 24,14373,169 72,428
Deferred income taxes - net (3,498) 3,65022,907 (4,981)
Investment tax credit - net (1,071) (1,072)(3,208) (3,217)
Other 1,677 1,7725,899 5,255
Changes in net current assets and liabilities 5,399 (7,335)(20,070) 42,348
Other 4,156 4,704(9,221) (7,663)
Net cash flows from operating activities 48,233 44,778153,023 186,830
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (124) (223)(708) (668)
Proceeds from sales of securities - 3,0653,594 9,955
Construction expenditures (21,269) (17,323)(97,670) (141,932)
Net cash flows from investing activities (21,393) (14,481)(94,784) (132,645)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings 11,694Issuance of pollution control bonds 104,638 -
Retirement of pollution control bonds (108,335) -
Retirement of first mortgage bonds (20,000)(20,124) -
Short-term borrowings 1,959,012 -
Repayment of short-term borrowings (1,947,487) -
Payment of dividends (24,236) (23,168)(59,718) (69,343)
Net cash flows from financing activities (32,542) (23,168)(72,014) (69,343)
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS (5,702) 7,129(13,775) (15,158)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 54,761 31,730
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 49,05940,986 $ 38,859
- 12 -
Louisville Gas and Electric Company
Statements of Cash Flows (cont.)
(Unaudited - Thousands of $)
Three Months
Ended
Mar. 31,
2000 199916,572
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:DISCLOSURES:
Cash paid during the period for:
Income taxes $ 3,18417,641 $ 11,28853,326
Interest on borrowed money 8,743 8,81135,903 25,497
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 Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Balance at beginning
of period $269,179 $242,242 $259,231 $247,462
Net income 17,421 18,91638,117 41,704 83,547 82,660
Subtotal 276,652 266,378307,296 283,946 342,778 330,122
Cash dividends declared on stock:
5% cumulative preferred 269 269 807 807
Auction rate cumulative
preferred 529 453725 454 1,935 1,358
$5.875 cumulative preferred 367 367 1,101 1,101
Common 16,500 22,00017,000 23,000 50,000 67,000
Subtotal 17,665 23,08918,361 24,090 53,843 70,266
Balance at end of period $258,987 $243,289$288,935 $259,856 $288,935 $259,856
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 Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Net income available
for common stock $16,256 $17,827$36,756 $40,614 $79,704 $79,394
Unrealized holding gains (losses)
on available-for-sale securities
arising during the period (159) 84
Other comprehensive (loss) income,
before tax (159) 84113 (199) (153) (293)
Income tax benefit (expense)
related to items
of other comprehensive (loss) income 64 (34)unrealized holding
gains and losses (45) 80 62 118
Comprehensive income $16,161 $17,877$36,824 $40,495 $79,613 $79,219
The accompanying notes are an integral part of these financial statements.
- 14 -
Kentucky Utilities Company
Statements of Income
(Unaudited)
(Thousands of $)
Three Months Nine Months
Ended Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
OPERATING REVENUES:
Electric $215,984 $287,703 $639,087 $730,846
Provision for rate
refunds - (6,200) - (6,200)
Net operating revenues 215,984 281,503 639,087 724,646
OPERATING EXPENSES:
Fuel for electric generation 56,012 60,770 163,093 168,338
Power purchased 39,880 104,213 122,188 195,136
Non-recurring charges (Note 3) - - 11,030 -
Other operation expenses 26,092 30,403 79,107 89,359
Maintenance 14,374 13,649 45,602 42,113
Depreciation and amortization 24,532 22,546 73,356 66,694
Federal and state
income taxes 14,119 13,910 36,854 47,130
Property and other taxes 3,814 3,483 13,031 11,384
Total operating expenses 178,823 248,974 544,261 620,154
NET OPERATING INCOME 37,161 32,529 94,826 104,492
Other income 1,322 1,604 5,301 5,767
Interest charges 10,000 9,707 29,938 28,448
NET INCOME 28,483 24,426 70,189 81,811
Preferred stock dividends 564 564 1,692 1,692
NET INCOME AVAILABLE
FOR COMMON STOCK $ 27,919 $ 23,862 $ 68,497 $ 80,119
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)
Sep. 30, Dec. 31,
2000 1999
OPERATING REVENUES $217,778 $217,349
OPERATING EXPENSES:UTILITY PLANT:
At original cost $2,915,842 $2,851,066
Less: reserve for depreciation 1,361,016 1,288,819
Net utility plant 1,554,826 1,562,247
OTHER PROPERTY AND INVESTMENTS -
less reserve 14,364 14,349
CURRENT ASSETS:
Cash and temporary cash investments 3,113 6,793
Accounts receivable - less reserve 92,166 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) 16,825 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
Property27,434 26,213
Prepayments and other taxes 4,840 4,1132,608 3,743
Total operating expenses 189,025 180,382
NET OPERATING INCOME 28,753 36,967current assets 142,146 155,523
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 4,696 4,827
Regulatory assets 19,509 23,033
Other income8,194 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 32,399 52,971
Total assets $1,743,735 $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,Sep. 30, Dec. 31,
2000 1999
CAPITALIZATION:
Common stock, without par value -
Outstanding 37,817,878 shares $ 308,140 $ 308,140
Retained earnings 324,080322,467 329,470
Other (595) (595)
Total common equity 631,625630,012 637,015
Cumulative preferred stock 40,000 40,000
Long-term debt 430,830484,830 430,830
Total capitalization 1,102,4551,154,842 1,107,845
CURRENT LIABILITIES:
Current portion of long-term debt - 115,500
115,500Notes payable 29,942 -
Accounts payable 86,176108,412 116,546
Provision for rate refunds 13,907- 20,567
Dividends declared 25,18825,688 19,150
Accrued taxes 38,08230,006 10,502
Accrued interest 9,8258,499 7,329
Other 19,20818,783 18,617
Total current liabilities 307,886221,330 308,211
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 240,678244,769 243,620
Investment tax credit, in
process of amortization 17,65615,819 18,575
Accumulated provision for pensions
and related benefits 48,26948,409 48,285
Regulatory liability 44,53939,843 46,069
Other 15,47018,723 12,485
Total deferred credits and other liabilities 366,612367,563 369,034
Total capital and liabilities $1,776,953$1,743,735 $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 $)
ThreeNine Months
Ended
Mar. 31,Sep. 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,17470,189 $ 29,62881,811
Items not requiring cash currently:
Depreciation and amortization 24,331 21,99173,356 66,694
Deferred income taxes - net (4,602) (2,396)(3,829) (9,174)
Investment tax credit - net (919) (895)
Other (911) 1,556(2,755) (2,783)
Changes in net current assets and liabilities 2,222 (17,031)8,360 (14,089)
Other (2,804) 1,71827,503 10,200
Net cash flows from operating activities 37,491 34,571172,824 132,659
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (23,530) (18,240)(74,434) (145,671)
Net cash flows from investing activities (23,530) (18,240)(74,434) (145,671)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings 159,256 46,667
Repayment of short-term borrowings (129,313) -
Issuance of pollution control bonds 12,900 -
Retirement of pollution control bonds (74,785) -
Payment of dividends (19,564) (18,564)(70,128) (55,597)
Net cash flows from financing activities (19,564) (18,564)(102,070) (8,930)
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS (5,603) (2,233)(3,680) (21,942)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 6,793 59,07158,949
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 1,1903,113 $ 56,83837,007
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:DISCLOSURES:
Cash paid (received) during the period for:
Income taxes $ (9,260)26,544 $ (904)53,778
Interest on borrowed money 6,560 6,07925,417 24,078
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 Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Balance at beginning
of period $320,048 $319,424 $329,470 $299,167
Net income 20,174 29,62828,483 24,426 70,189 81,811
Subtotal 349,644 328,795348,531 343,850 399,659 380,978
Cash dividends declared on stock:
4.75%4 75% preferred 237 237 711 711
6.53% preferred 327 327 981 981
Common 25,000 18,00025,500 19,000 75,500 55,000
Subtotal 25,564 18,56426,064 19,564 77,192 56,692
Balance at end of period $324,080 $310,231$322,467 $324,286 $322,467 $324,286
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 billionall 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. Those conditions include, without
limitation,It is possible that the approval ofremaining
regulatory approvals may be received in time to permit a closing during
the holders of a majority of the
outstanding shares of common stock of each of LG&E Energy and 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, 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 firstfourth quarter of 2000, the2000. The Company expensed approximately $1.0$3.5
million relatingand $18.9 million related to the PowerGen transaction.Powergen transaction during
the three- and nine-month periods ended September 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.
AsShareholders 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 from any orderVirginia Commission in whichJuly 2000. Required waiting
periods with respect to filefederal antitrust and federal foreign
investment laws were each terminated in August 2000. The parties'
joint application for rehearing, or approximately
33 daysapproval to the SEC under PUHCA was submitted in
which to file for appeal.April 2000 and is currently under review by the SEC. While the Company
and PowerGenPowergen believe that they will receive the requisite remaining
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.
- 20 -
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 continueswill continue to settle commitments that obligate
itmeet its obligations 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 obligationspower 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.
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.
- 2221 -
Operating results for the discontinued merchant energy trading and
sales business follow.
Three Months Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
Revenues $ 74,698 $ 146,498$190,555 $386,038 $372,131 $675,820
Loss before taxes (1,389) (4,650)
Loss(131,221) (166,185) (174,780) (203,729)
Income (loss) from
discontinued opera-
tions,oper-
ations, net of incomein-
come taxes (1,389) (2,749)(81,528) (100,190) (108,591) (120,670)
Net liabilitiesassets of discontinued operations at March 31,September 30, 2000, follow.
Accounts receivable $ 24,80943,138
Price risk management assets 30,8164,899
Accounts payable and accruals (36,215)(69,138)
Other assets and liabilities,liab-
ilities, net (3,388)37,004
Net assets before accrued
loss on disposalbalance
of dis-
continuedreserve for discontinued
operations 16,02215,903
Accrued loss on disposal
of discontinued operations,
net of income tax benefit
of $102,647 (168,406)$134,954 (221,409)
Net liabilities of discon-
tinued operations $(152,384)$(205,506)
Total pretax charges against the accrued loss on disposal of
discontinued operations through March 31,September 30, 2000, include $260.6$418.4
million for commitments prior to disposal, $69.6 million for
transaction settlements, $11.1 million for goodwill, and $31.5$37.9 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,September
30, 2000, are currently estimated to be approximately $41.3$13 million in
2000, $33.0$50 million to $57.8$105 million each year in 2001 through 2004 and
$9.7$19 million in the aggregate thereafter.
As of March 31,September 30, 2000, the Company's discontinued operations were
under various contracts to buy and sell power and gas with net notional
amounts of 16.324.7 million Mwh's of power and 21.96.2 million Mmbtu's of
natural gas with a volumetric weighted-average period of approximately
3830 and 4156 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,
- 22 -
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,October 26, 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$9.8 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,October 26,
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$12.0 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,September 30, 2000, over 95%97% of
the Company's price risk management commitments were with
counterparties rated BBB equivalent or better. As of March 31,September 30,
2000, six counterparties represented 88%85% 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 expected to go into
effect October 1,tariffs, and held hearings during August 2000.
On September 27, 2000, the Commission granted LG&E an annual increase
in its base gas revenues of $20.2 million effective September 28, 2000.
The increase isCommission authorized a return on equity of 11.25%. The Commission
approved the Company's proposal for a weather normalization billing
adjustment mechanism that will normalize the effect of weather on
revenues from gas sales. On October 19, 2000, the Kentucky Attorney
General requested that the Commission grant rehearing on a single
revenue requirements issue (normalization of forfeited discounts) on
the grounds that the September 27 Order did not rule on or otherwise
discuss the issue. On November 2, 2000, the Commission granted the
Attorney General's request for rehearing, rejected the Attorney
General's proposed adjustment to recover higher costsnormalize the level of forfeited
discounts, and ordered that its September 27, 2000 Order be modified to
reflect its findings on the issue.
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 require LG&E to pay interest on the amounts
to be refunded. The Court remanded the case to the 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. On October 31, 2000, the
Franklin Circuit Court issued its rul
- 2423 -
7.ing in KU's appeal of the Commission's orders in several FAC review cases
which required KU to refund $6.7 million it previously collected
through its FAC. The Court upheld the Commission's orders in all
respects but one, and reversed the Commission's findings that the
Commission could not award interest on the refund amounts. The Court
remanded the cases to the Commission for further proceedings. On
November 2, 2000, KU filed a Notice of Appeal of the Franklin Circuit
Court's decision to the Kentucky Court of Appeals.
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 September
30, 2000, the interest rates paid on the bonds equaled 4.35% 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 had an interest rate of 7.4925%
through September 18, 2000, and a rate equal to the three-month LIBOR
plus 70 basis points thereafter. At September 30, 2000, the interest
rate on the notes equaled 7.36%.
In August 2000, LG&E issued $83.3 million of variable-rate pollution-
control bonds. At September 30, 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,September 30,
2000, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $155,119$200,560 $ 6,2074,699 $ 16,30522,758
LG&E gas 88,31624,381 - (49)13,998
KU electric 210,771 7,007 19,610211,640 4,344 27,919
Independent Power
Operations 4,6764,786 - 6,8271,454
Western Kentucky
Energy 60,75482,151 - (501)16,086
Argentine Gas
Distribution 30,74254,797 - (731)10,764
Other Non-Utility
Operations 75,012Capital Corp. 103,581 - (9,990)(1,095)
All Other - (13,214) (1,589)(9,043) (6,204)
Consolidated $625,390$681,896 $ - $ 29,88285,680
- 24 -
External and intersegment revenues and income from continuing
operations by business segment for the nine months ended September 30,
2000, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $ 531,099 $ 15,239 $ 65,835
LG&E gas 142,676 - 13,869
KU electric 623,597 15,490 68,497
Independent Power
Operations 15,400 - 16,318
Western Kentucky
Energy 209,880 - 18,587
Argentine Gas
Distribution 134,556 - 16,756
Other Capital Corp. 256,369 - (48,158)
All Other - (30,729) (24,793)
Consolidated $1,913,577 $ - $126,911
External and intersegment revenues and income from continuing
operations by business segment for the three months ended March 31,September 30,
1999, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $148,326$273,836 $ 2,5144,936 $ 17,61339,771
LG&E gas 75,77917,623 - 214843
KU electric 213,347 4,002 29,064276,540 4,963 23,862
Independent Power
Operations 6,9045,366 - 14,1805,573
Western Kentucky
Energy 59,978144,434 - (1,024)12,377
Argentine Gas
Distribution 29,79748,479 - 3576,632
Other Non-Utility
Operations 65,134Capital Corp. 99,112 - 8881,754
All Other - (6,516) (4,513)(9,899) (3,646)
Consolidated $599,265$865,390 $ - $ 56,779
8. Reference87,166
- 25 -
External and intersegment revenues and income from continuing
operations by business segment for the nine months ended September 30,
1999, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $ 607,681 $ 12,377 $ 78,124
LG&E gas 117,054 - 1,270
KU electric 710,626 14,020 80,119
Independent Power
Operations 18,467 - 26,850
Western Kentucky
Energy 273,462 - 10,889
Argentine Gas
Distribution 123,422 - 11,785
Other Capital Corp. 237,600 - (3,842)
All Other - (26,397) (11,285)
Consolidated $2,088,312 $ - $193,910
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 Forms 10-Q for the quarters ended March 31,
2000, and June 30, 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 billionall 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,September 30, 2000, Compared to
Three Months Ended March 31,September 30, 1999
The Company's primary and diluted earnings per share from continuing
operations decreased to $.23$.66 in 2000 from $.44$.67 in 1999. The decrease
resulted from recording non-
recurring after-tax charges of $12.5 million ($.10 per share) in March
2000,lower earnings at CRC, Power Operations and LG&E, and from
recognizing one-time after-tax gains totaling $10.3 million
($.08 per share) in 1999. The non-recurring after-tax charges represent
$12.1 million of costs associated withrecording expenses related to the integration ofPowergen acquisition. Higher earnings at
KU, WKE and at the Company's two
utilities operations (the One-Utility Program) and $0.4 million of merger
costs incurred by 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 connection with the Company's windpower
partnerships ($1.4 million, or $.01 per share).Argentine Gas Distribution companies partially offset
these decreases.
LG&E Results:
LG&E's net income decreased $1.6$3.6 million (9%(8.6%) for the quarter ended
March
31,September 30, 2000, as compared to the quarter ended March 31,September 30, 1999,
primarily because of mild weather, as the region recorded its mildest winter since
1931, increasesdue to decreased electric sales resulting from a 25% decrease in
gas supplycooling degree days and from an electric rate reduction in 2000. Decreased
operation expenses fuel for electric generation, and
administrative and general operating expenses including a $4.9 million net
of tax one-time charge for the Company's One-Utility Program. These
expenses were partially offset by increased gas sales to ultimate
consumers, off-systemthe decrease in electric sales, and 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.revenues.
- 2627 -
A comparison of LG&E's revenues for the quarter ended March 31,September 30, 2000,
with the quarter ended March 31,September 30, 1999, excluding the reversal of an FAC refundprovision for rate
refunds of $1.1 million which was offset by an additional accrual for performance-
based ratemaking of $.3 million,in 1999, 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 $10,006(3,045) $4,100
Merger surcredit (711) -
Performance based rate reduction (1,179)rates 2,625 -
Environmental cost recovery (482) -
Electric rate refunds (1,156)reduction (8,333) -
Variation in sales volume, merger
surcredit, etc. (4,065) (2,443)(10,046) 1,575
Total retail sales (5,288) 7,563
Wholesale sales 15,786 4,720(19,992) 5,675
Sales for resale (55,338) 1,319
Gas transportation - net - 18917
Other (12) 65682 (253)
Total $10,486 $12,537$(74,648) $6,758
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.
Electric sales for resale decreased $55.3 million (61.5%) primarily due to
decreases in brokered sales activities.
Fuel for electric generation and gas supply expenses comprise a large
component 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 Service Commission of Kentucky.Kentucky Commission. Fuel for electric generation increased $7.5decreased $3.5 million
(23%(7.7%) for the quarter because of an increasedecrease in generation due to mild
weather ($111.4 million), partially offset byand a lowerdecrease in the cost of coal burned ($3.52.1
million). Gas supply expenses increased $12.9$7.3 million (26%)primarily due to increasesan
increase in the net gas supply cost.cost ($6.6 million) due to higher prices and
increased purchases for wholesale sales ($1.1 million).
Power Purchasedpurchased decreased $1.3$61.2 million (6%)primarily due to a decrease in
purchases
for wholesalebrokered sales activities ($3.053.1 million), partially offset by higher and purchases to support off-system sales
for resale ($1.78.1 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$7.8 million (19.9%) primarily due to
decreased administrative costs ($4 million) resulting from decreased
pension and Year-2000 costs and decreased steam power production costs
($2.5 million).
Maintenance expenses increased $2 million (15.7%) in 2000 mainly due to
increases in software maintenance agreements, ($1.3 million) and steam
production maintenance ($.4 million).
Depreciation and amortization increased $1 million in 2000 because of
additional utility plant in service.
Variations in income tax expense are largely attributable to changes in pre-
tax income.
- 28 -
Interest expenses increased $1.5 million for the quarter ended September
30, 2000 over the quarter ended September 30, 1999 due to increased short
term borrowings.
KU Results:
KU's net income increased $4.1 million (16.6%) for the quarter ended
September 30, 2000, as compared to the quarter ended September 30, 1999.
This
decreaseThe increase was primarily the result of higher off-system sales and lower
operation and maintenance expenses, which offset the effects of mild
weather and the effect of retail rate reductions.
A comparison of KU's revenues for the quarter ended September 30, 2000,
with the quarter ended September 30, 1999, excluding the provision for rate
refunds of $6.2 million recorded in 1999, reflects increases and decreases
which have been segregated by the following principal causes:
Sales to ultimate consumers:
Fuel supply adjustments $ 5,418
Environmental cost recovery (1,980)
Performance based rate reduction 2,528
Merger surcredit (658)
Electric rate reduction (8,133)
Variation in sales volume, etc. (3,413)
Total retail sales (6,238)
Wholesale sales (65,437)
Other (44)
Total $(71,719)
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 $2.0 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 decrease in wholesale sales is due to fewer brokered sales marketing
opportunities and reduced revenue resulting from more moderate summer
prices compared to recent summers.
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 pension expense, $1.2the cost of fuel are reflected in retail rates, subject to
the approval of the Kentucky Commission, the Virginia Commission, and the
FERC.
Fuel for electric generation decreased $4.8 million (7.8%) for the quarter
because of a decrease in generation ($1.5 million) and various otherthe cost of coal
burned ($3.3 million).
- 29 -
Power purchased decreased $64.3 million (61.7%) because there were fewer
opportunities in the brokered sales market as mentioned above.
Other operating expenses decreased by $4.3 million (14.2%). The decrease
was mainly attributable to lower administrative and general activities, $2 million.
Maintenance expenses decreased $.8 million (6%) in 2000 primarily($3.0
million) and customer service and information expenses ($1 million), which
were the result of further integration of customer functions.
Depreciation and amortization increased due to decreasesadditional utility plant 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 and to recording federal and state tax adjustments.
LG&E Capital Corp. and Other Results:
Power Operations
Power Operations' equity in earnings of unconsolidated ventures increased
from $5.4 million in 1999 to $9.3 million in 2000. The increase resulted
from reversing maintenance reserves in 2000 and from starting operations at
the project in Gregory, Texas, in July 2000.
Western Kentucky Energy
WKE's revenues decreased from $144.4 million in 1999 to $82.2 million in
2000 due mainly to lower off-system sales. WKE's cost of revenues
decreased from $100.8 million in 1999 to $32.4 million in 2000 due mainly
to a decrease in the amount of power purchased to sell off-system.
Argentine Gas Distribution
The Argentine Gas Distribution companies' net income increased from $6.6
million in 1999 to $10.8 million in 2000 due mainly to higher equity in the
earnings of Gas BAN and Centro and a decrease in the effective tax rate.
Other
Other revenues increased from $99.1 million in 1999 to $103.6 million in
2000. The increase resulted from increased sales in the Company's natural
gas gathering and processing business and higher energy marketing revenues,
partially offset by decreases in revenues at Retail Access Services and CRC-
Evans.
Other cost of revenues increased from $73.1 million in 1999 to $88.1
million in 2000. The increase resulted from increased sales in the
Company's natural gas gathering and processing business and higher energy
marketing cost of revenues, partially offset by a decrease at Retail Access
Services.
The Company recorded non-recurring charges totaling $3.6 million during the
third quarter of 2000. See Note 2 of Notes to Financial Statements under
Item 1 for more information.
Other income for Capital Corp. and Other decreased from $4.6 million in
1999 to $2.8 million in 2000. The decrease resulted from receiving a claim
related to an undeveloped independent power project in California in the
third quarter of 1999, partially offset by an increase in interest income.
Capital Corp. and Other interest expense increased from $12.0 million in
1999 to $17.1 million in 2000. The increase resulted from funding
discontinued operations and corporate
- 30 -
operating expenses. The Company's consolidated effective income tax rate
decreased from 38.1% in 1999 to 34.9% in 2000 due mainly to recording
foreign and state tax adjustments.
Nine Months Ended September 30, 2000, Compared to
Nine Months Ended September 30, 1999
The Company's primary and diluted earnings per share from continuing
operations decreased to $.98 in 2000 from $1.49 in 1999. The decrease
resulted primarily from an asset impairment charge taken on the Company's
natural gas gathering and processing business ($.21), recognizing expenses
associated with the integration of the Company's two utilities ($.09), and
from recording expenses related to the Powergen acquisition ($.12).
Excluding these nonrecurring items, earnings per share from continuing
operations decreased from $1.49 in 1999 to $1.40 in 2000. This decrease
resulted from lower earnings at KU and CRC-Evans, decreases resulting from
recognizing one-time items in 1999, and higher interest expense at Capital
Corp. Higher earnings at LG&E, WKE and the Argentine Gas Distribution
companies 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 $.9 million (1.1%) for the first nine months of
2000, as compared to the first nine months of 1999, primarily because of
decreases in operation expenses. This was partially offset by a decrease
in operating revenues. The decrease in operating revenues resulted from
a decrease in cooling degree days and an electric rate reduction.
A comparison of LG&E's revenues for the nine months ended September 30,
2000, with the nine months ended September 30, 1999, excluding the
provision for rate refunds, 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 $ (1,270) $14,029
Merger surcredit (1,642) -
Performance based rates 350 -
Environmental cost recovery (1,206) -
Electric rate reductions (15,683) -
Variation in sales volume, etc. (11,609) 4,038
Total retail sales (31,060) 18,067
Sales for resale (47,510) 7,772
Gas transportation - net - 180
Other 1,371 (397)
Total $(77,199) $25,622
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.
- 31 -
Electric sales for resale decreased $47.5 million (28.4%) primarily due to
decreases in brokered sales activities.
Fuel for electric generation increased $3.2 million (2.8%) year-to-date
because of an increase in generation ($9.3 million), partially offset by a
decrease in the cost of coal burned ($6.1 million). Gas supply expenses
increased $25.5 million (35.1%) primarily due to an increase in the net
gas supply cost ($20 million) and increased purchases for wholesale sales
($7.1 million).
Power purchased decreased $69 million (49.7%) primarily due to a decrease
in brokered sales activities ($66.2 million) and purchases to support sales
for resale ($2.8 million).
Other operation expenses decreased $20.0 million (16.8%) for the nine
months ended September 2000 as compared to same period ended September 1999
primarily due to lower administrative costs ($14.1 million) resulting from
lower pension and Year-2000 expenses, and to lower steam and other power
production expenses ($4.8 million).
Non-recurring charges in 2000 of $8.1 million include the costs associated
with the Company's One-Utility Program.
Maintenance expenses for the first nine months of 2000 decreased $1.6
million (3.4%) primarily due to decreases in scheduled outages at the Mill
Creek and Cane Run generating station ($4.3 million) and electric
distribution maintenance ($1 million), partially offset by an increase in
software maintenance costs ($3.4 million)
Depreciation and amortization increased $.7 million in 2000 because of
additional utility plant in service.
Other income and deductions increased $2.8 million (172.5%) due to gains on
the sale of non-utility property.
Variations in income tax expense are largely attributable to changes in pre-
tax income.
Interest expense increased $5.3 million (19.3%) for the first nine months
of 2000 due to increased short term borrowings.
KU Results:
KU's net income decreased $9.5$11.6 million (32%(14.2%) for the quarternine months ended
March
31,September 30, 2000 as compared to the quarternine months ended March 31,September 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.$5 million, mainly due to rate reductions ordered by
the Kentucky Commission early in 2000, partially offset by decreased
operation expenses.
- 32 -
A comparison of KU's revenues for the quarternine months ended March 31,September 30, 2000,
with the nine months ended September 30, 2000, excluding the provision for
rate refunds of $6.2 million recorded in the third quarter ended March 31,of 1999,
reflects increases and (decreases)decreases which have been segregated by the
following principal causes (thousands of $):causes:
Sales to ultimate consumers:
Fuel clausesupply adjustments $ 8673,618
Environmental cost recovery (1,272)surcharge (5,062)
Performance based rate reduction (893)795
Merger surcredit (452)(1,389)
Electric rate refunds (3,389)reduction (20,273)
Variation in sales volume, etc. 4,60110,134
Total retail sales (538)(12,177)
Wholesale sales 1,309(82,189)
Other (342)2,607
Total $ 429
Fuel$(91,759)
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 $5.1 million less for the
nine months ended September 30, 2000 as compared with the nine months ended
September 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 decreases inresult of merger,
the cost of fuel are reflected in
retail rates, subjectKentucky Commission approved a surcredit for savings achieved from the
merger to be passed to the approvalultimate consumer over a five-year period. The
reduction to retail sales for the merger surcredit is a reflection of the Public Service Commission of
Kentucky,that
rate reduction.
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.
Fuel for electric generation decreased $2.5$5.2 million (4%(3.1%) for the quarter because of a
decrease in generation ($1.52.5 million) and a decrease in the lower cost of coal
burned ($12.7 million).
Power purchased decreased $72.9 million (37.4%) 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$10.3 million (6%(11.5%). The increasedecrease
was primarilymainly attributable to increased transmission ($.6 million)a decrease in administration and distribution ($.4 million) system operating expenditures as well as
increased sales and marketing expenses ($.5 million).general
expenses.
Maintenance expenses increased by $1.6$3.5 million (13%(8.3%) due primarily to
increased maintenance at the steam generating plants ($1.3 million) and the
distribution system ($.5 million).plants.
Depreciation and amortization increased by $2.3 million (11%) due to additional utility plant in
service.
- 33 -
Variations in income tax expense are largely attributable to changes in
pretax income.income and to recording federal and state tax adjustments.
LG&E Capital Corp. and Other Results:
Power Operations
Power Operations' revenues decreased from $6.9$18.5 million in 1999 to $4.7$15.4
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$7.5
million in 1999 to $1.6$5.3 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$35.4 million in 1999 to $5.8$21.6 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 $273.5 million in 1999 to $209.9 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 $177.9
million in 1999 to $103.4 million in 2000 mainly due to a decrease in
purchased power.
WKE's operation and maintenance expenses decreased from $72.1 million in
1999 $35.3to $70.4 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$2.3 million in 1999. The increase was1999 to $4.5 million in 2000 due to more unit outagesincreased
expenditures for information systems conversions.
WKE's interest income increased from $.8 million in 1999 to $2.2 million in
2000 and higher depreciation expense.due to an increase in the note receivable from Big Rivers.
Argentine Gas Distribution
The Argentine Gas Distribution companies' net income increased from $11.8
million in 1999 to $16.8 million in 2000 due mainly to an increase in net
revenues, increased equity in the earnings of $30.7 million, cost of
revenues of $16.9 millionGas BAN and Centro, and a
decrease in the effective tax rate, partially offset by an increase in
operation and maintenance expenses of $5.7
million in 2000 were slightly higher than 1999 due to higher consumption
per customer.expenses.
Other
Other revenues increased from $65.1$237.6 million in 1999 to $75.0$256.4 million in
2000. The increasesincrease resulted from acquiring CRC-Evans in July 1999, and
from higher energy marketing revenues and increased sales in the Company's
natural gas gathering and processing and
energy marketing businesses, partially offset by a decrease in Retail
Access Services' revenues and a decrease resulting from recognizing feesbusiness. Fees received in 1999
related to the development of an independent power project in Gregory,
Texas.Texas, and a decrease in Retail Access Services' revenues partially offset
the increases.
Other cost of revenues increased from $47.9$185.9 million in 1999 to $60.6$211.1
million in 2000. The increasesincrease resulted from acquiring CRC-Evans in July
1999, and from higher energy marketing revenues and increased sales in the
Company's natural gas gathering and processing and energy marketing businesses,business. A decrease in
Retail Access Services' revenues partially offset by a decrease
at Retail Access Services.the increases.
- 34 -
The Company recorded asset-impairment and other non-recurring charges
totaling $84.0 million during the nine months ended September 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$9.2 million in
1999 to $4.2$9.7 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. Decreasesin the first quarter of 2000. Higher interest income also
contributed to the increase. This increase was partially offset by
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.California.
Capital Corp. and Other interest expense increased from $10.2$35.2 million in
1999 to $13.2$44.9 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%37.6% in 1999 to 35.0%34.2% in 2000 due to an increase in
investment and wind tax credits as a percent of pretax income.income and to
recording foreign and state tax adjustments.
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 threenine months ended March 31,September 30, 2000, of
$53.7$303.1 million were financed with internally generated funds and commercial
paper.
The Company's combined cash and marketable securities balance increased
$17.6decreased
$77.5 million during the threenine months ended March 31,September 30, 2000. The increasedecrease
reflects construction expenditures 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 decreasesincrease in accounts receivable and accounts payableduring the nine months ended
September 30, 2000, resulted mainly from seasonal fluctuationsincreases at LG&E, KU and the Company's natural
gas gathering and processing business.business and at Centro, partially offset by
decreases at LG&E and WKE. The decrease in accounts payable also resulted
from decreases at LG&E, KU and WKE, partially offset by increases at the
Company's natural gas gathering and processing business and at Centro. The
decrease in fuel resulted from seasonal fluctuationsdecreases at LG&E, KU and WKE, and
the decreaseincrease in gas stored underground resulted from a seasonal fluctuationsincrease at
LG&E&E.
The decrease in prepayments and other resulted mainly from reclassifying
costs related to the purchase of combustion turbines at Capital Corp. from
current to noncurrent.
The decrease in non-utility property and plant resulted from recording an
impairment charge in the second quarter of 2000. See Note 4 of Notes to
Financial Statements under Item 1 for more information. The increase in
other property and investments resulted from
- 35 -
expenditures related to the purchase of combustion turbines by Capital
Corp. The decrease in deferred debits and other assets resulted mainly
from writing off the goodwill associated with the Company's natural gas
gathering and processing business.business and a decrease in the cash surrender
value of life insurance at KU.
The increase in net liabilities of discontinued operations resulted from an
increase in the Company's accrued loss on disposal of discontinued
operations, partially offset by payments and operating losses.
The decrease in other current liabilities resulted from differences in the
timing of estimated tax payments and a decrease in the provision for rate
refunds.
Long-term debt decreased(including current portion) increased by $20$18.7 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. Capital Corp.'s redemption of $50
million of medium-term notes due September 7, 2000, in September 2000 also
offset the increase.
At March 31,September 30, 2000, unused capacity under the Company's lines of credit
totaled $415.4$276.0 million after considering commercial paper support and
approximately $40.0$55.2 million in letters of credit securing on- and off-
balance sheet commitments. In March 2000, KU finalized an uncommitted line
of credit for $60 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.
Before the third quarter of 2000, certain of Capital Corp.'s long-term debt
and lease agreements required the Company to maintain a debt-to-
capitalization ratio not greater than 65%. Capital Corp. and its financial
institutions changed the agreements during the third quarter, and the
agreements now require the Company to maintain a debt-to-capitalization
ratio not greater than 70%. On March 1, 2001, the debt-to-capitalization
ratio required by the agreements will drop back to 65%. The Company's debt-
to-capitalization ratio at September 30, 2000, as defined in the
agreements, equaled an amount just under 65%.
- 36 -
The Company's capitalization ratios at March 31, 2000, and December 31,
1999, follow:
Mar. 31,Sep. 30, Dec. 31,
2000 1999
Long-term debt (including current portion) 49.8%50.7% 49.8%
Notes payable 13.016.1 13.1
Preferred stock 4.04.2 3.9
Common equity 33.229.0 33.2
Total 100.0% 100.0%
LG&E's capitalization ratios at March 31, 2000, and December 31, 1999,
follow:
Mar. 31,Sep. 30, Dec. 31,
2000 1999
Long-term debt (including current portion) 40.0%39.2% 41.1%
Notes payable 8.78.5 7.9
Preferred stock 6.36.2 6.2
Common equity 45.046.1 44.8
Total 100.0% 100.0%
- 30 -
KU's capitalization ratios at March 31, 2000, and December 31, 1999,
follow:
Mar. 31,Sep. 30, Dec. 31,
2000 1999
Long-term debt (including current portion) 44.9%40.9% 44.7%
Notes payable 2.5 0.0
Preferred stock 3.33.4 3.3
Common equity 51.853.2 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.
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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 nine-month periods ended September 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 induring the first quarter ofthree- and nine-month periods ended September
30, 2000. The Company's exposure to market risks from changes in commodity
prices and foreign exchange rates remained immaterial induring the first quarter
ofthree- and
nine-month periods ended September 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 Reports on Form 10-Q for the quarters ended March 31,
2000, and June 30, 2000: Part II, 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 PowerGen plcPowergen 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. Applications for approvalIt is possible that the remaining regulatory
approvals may be received in time to permit a closing during the fourth
quarter of 2000.
Shareholders of the Company and of Powergen approved the merger transaction
in separate meetings held in June 2000. Further, approvals were filed
withreceived
from the Kentucky Commission in May 2000, the FERC in June 2000 and the
Virginia State Corporation Commission in July 2000. Required waiting periods with respect to
federal antitrust and federal foreign investment laws were each terminated
in August 2000. The parties joint application for approval to the FERC (under the Federal Power Act)SEC
under PUHCA was submitted in MarchApril 2000 and withis currently under review by
the SEC
(under the Public Utility Holding Company Act of 1935) in April 2000.
Approval applications or notice filings will also be made to the Tennessee
Regulatory Authority, to the Department of Justice and the Federal Trade
Commission (under the Hart-Scott-Rodino Antitrust Improvements Act of 1976)
and as required under the "Exon-Florio" US Omnibus Trade and
Competitiveness Act of 1988. 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 before the Kentucky Commission were held April 19-21 and
submissions of briefs and data requests have been completed. A decision is
expected on or about May 15 and the Company will have approximately 23 days
from any order in which to file for rehearing, or approximately 33 days in
which to file for appeal.SEC. While the Company and PowerGenPowergen believe that they will receive the
requisite remaining 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. SeeFor further discussion
of this matter, see Note 2, Notes to Financial Statements, in Part I of
this Quarterly Report on Form 10-Q and 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, 19991999.
Gas Rate Increase Proceeding
In August 2000, hearings were held before the Kentucky Commission regarding
LG&E's March 2000 application for further discussionan general adjustment in gas rates. The
requested increase of this matter.approximately $26.4 million, the first major non-fuel-
related adjustment requested by LG&E to gas rates in 10 years, is designed
to reflect higher service and distribution costs to natural gas customers.
On September 27, 2000, the Kentucky Commission granted LG&E an annual
increase in its base gas rates of $20.2 million, with an authorized return
on equity of 11.25%.
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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,November 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,November 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,November 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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