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 MarchMARCH 31, 20002001
--------------
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)
Commission Registrant, State of Incorporation, IRS Employer
File Number Address, and Telephone Number Identification No.
- ----------- ----------------------------- ------------------
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
(859) 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, 2000.
Louisville Gas and Electric Company
-----------------------------------
21,294,223 shares, without par value, as of April 28, 2000,30, 2001,
all held by LG&E Energy Corp.
Kentucky Utilities Company
--------------------------
37,817,878 shares, without par value, as of April 28, 2000,30, 2001,
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 14
Statements of Comprehensive Income 15
Kentucky Utilities Company
Statements of Income 16
Balance Sheets 17
Statements of Cash Flows 19
Statements of Retained Earnings 20
Notes to Financial Statements 21
Item 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 26
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 32
PART II
Item 1 Legal Proceedings 33
Item 6 Exhibits and Reports on Form 8-K 34
Signatures 35
Item 1 Financial Statements
Louisville Gas and Electric Company and Subsidiary
Statements of Income................................................................ 1
Balance Sheets...................................................................... 2
Statements of Cash Flows............................................................ 4
Statements of Retained Earnings..................................................... 5
Statements of Comprehensive Income.................................................. 6
Kentucky Utilities Company and Subsidiary
Statements of Income................................................................ 7
Balance Sheets...................................................................... 8
Statements of Cash Flows............................................................ 10
Statements of Retained Earnings..................................................... 11
Statements of Comprehensive Income.................................................. 12
Notes to Financial Statements........................................................... 13
Item 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition...................................................... 17
Item 3 Quantitative and Qualitative Disclosures About
Market Risk............................................................................. 21
PART II
Item 1 Legal Proceedings........................................................................... 22
Item 6 Exhibits and Reports on Form 8-K............................................................ 22
Signatures ............................................................................... 23
Part I. Financial Information - Item 1. Financial Statements
LG&E Energy Corp. and SubsidiariesLOUISVILLE GAS AND ELECTRIC COMPANY AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited - Thousands(Unaudited)
(Thousands of $ Except Per Share Data)
Three Months
Ended
Mar. 31,
2000 1999
REVENUES:
Electric utility $365,890 $361,673
Gas utility 88,316 75,779
International and non-utility 171,184 161,813
Total revenues 625,390 599,265
OPERATING EXPENSES:
Operation and maintenance:
Fuel and power purchased 203,196 205,088
Gas supply expenses 119,228 95,064
Utility operation and
maintenance 103,858 103,705
International and non-utility
operation and maintenance 48,538 44,964
Depreciation and amortization 58,373 54,736
Non-recurring charges (Note 3) 20,713 -
Total operating expenses 553,906 503,557
Equity in earnings of uncon-
solidated ventures 5,930 21,656
OPERATING INCOME 77,414 117,364
Other income and (deductions) 5,009 6,388
Interest charges and preferred dividends 34,965 30,520
Minority interest 1,494 1,571
Income before income taxes 45,964 91,661
Income taxes 16,082 34,882
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 $ 29,882 $ 57,567
- 1 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income (cont.)
(Unaudited - Thousands of $ Except Per Share Data)
Three Months
Ended
Mar. 31,
2000 1999
Average common shares
outstanding 129,677 129,677
Earnings per share -
basic and diluted $.23 $.44$)
Three Months
Ended
Mar. 31,
2001 2000
---- ----
OPERATING REVENUES:
Electric (Note 8)....................................................................... $155,374 $161,326
Gas (Note 8)......................................................................... 157,897 88,316
-------- --------
Total operating revenues............................................................. 313,271 249,642
-------- --------
OPERATING EXPENSES:
Fuel for electric generation............................................................ 38,484 39,926
Power purchased......................................................................... 11,341 21,753
Gas supply expenses..................................................................... 125,237 63,394
Non-recurring charges (Note 4).......................................................... 144,385 8,141
Other operation expenses................................................................ 35,283 36,975
Maintenance............................................................................. 10,555 13,881
Depreciation and amortization........................................................... 25,267 24,149
Federal and state
income taxes......................................................................... (38,011) 9,668
Property and other taxes................................................................ 4,462 5,163
-------- --------
Total operating expenses............................................................. 357,003 223,050
-------- --------
NET OPERATING (LOSS) INCOME............................................................. (43,732) 26,592
Other income - net...................................................................... 996 1,519
Interest charges........................................................................ 11,379 10,690
-------- --------
NET (LOSS) INCOME....................................................................... (54,115) 17,421
Preferred stock dividends............................................................... 1,299 1,165
-------- --------
NET (LOSS) INCOME AVAILABLE
FOR COMMON STOCK..................................................................... $(55,414) $ 16,256
======== ========
The accompanying notes are an integral part of these financial statements.
- 2 -1
LG&E Energy Corp. and SubsidiariesLOUISVILLE GAS AND ELECTRIC COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
(Thousands of $)
ASSETS
(Unaudited)
Mar. 31, Dec. 31,
2000 1999
CURRENT ASSETS:
Cash and temporary cash investments $ 109,195 $ 91,413
Marketable securities 9,991 10,126
Accounts receivable - less reserve 270,362 318,914
Materials and supplies - primarily at average cost:
Fuel (predominantly coal) 78,967 91,931
Gas stored underground 23,289 49,038
Other 96,296 90,259
Prepayments and other 54,515 54,038
Total current assets 642,615 705,719
UTILITY PLANT:
At original cost 5,958,178 5,916,905
Less: reserve for depreciation 2,550,527 2,503,851
Net utility plant 3,407,651 3,413,054
OTHER PROPERTY AND INVESTMENTS - LESS RESERVES:
Investment in unconsolidated
ventures (Note 5) 242,949 249,455
Non-utility property and plant, net 475,137 477,442
Other 25,265 25,596
Total other property and investments 743,351 752,493
DEFERRED DEBITS AND OTHER ASSETS 275,757 262,491
Total assets $5,069,374 $5,133,757
(Unaudited)
Mar. 31, Dec. 31,
2001 2000
---- ----
UTILITY PLANT:
At original cost........................................................................ $3,246,026 $3,186,325
Less: reserve for depreciation......................................................... 1,315,833 1,296,865
---------- ----------
Net utility plant.................................................................... 1,930,193 1,889,460
---------- ----------
OTHER PROPERTY AND INVESTMENTS -
less reserve......................................................................... 1,188 1,357
---------- ----------
CURRENT ASSETS:
Cash ................................................................................. 6,995 2,495
Marketable securities................................................................... - 4,056
Accounts receivable - less reserve (Note 6)............................................. 89,724 170,852
Materials and supplies - at average cost:
Fuel (predominantly coal)............................................................ 16,860 9,325
Gas stored underground............................................................... 20,980 54,441
Other................................................................................ 30,823 31,685
Prepayments and other................................................................... 4,942 1,317
---------- ----------
Total current assets................................................................. 170,324 274,171
---------- ----------
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense................................................................ 5,709 5,784
Regulatory assets....................................................................... 34,849 36,808
Other ................................................................................. 48,792 18,504
---------- ----------
Total deferred debits and other assets............................................... 89,350 61,096
---------- ----------
Total assets............................................................................ $2,191,055 $2,226,084
========== ==========
The accompanying notes are an integral part of these financial statements.
- 3 -2
LG&E Energy Corp. and SubsidiariesLOUISVILLE GAS AND ELECTRIC COMPANY AND SUBSIDIARY
Consolidated Balance Sheets (cont.)
(Thousands of $)
CAPITALCAPITALIZATION AND LIABILITIES
(Unaudited)
Mar. 31, Dec. 31,
2000 1999
CURRENT LIABILITIES:
Current portion of long-term debt $ 411,808 $ 411,810
Notes payable 443,520 449,578
Accounts payable 202,197 220,460
Net liabilities of discontinued opera-
tions (Note 4) 152,384 158,222
Other 254,844 248,841
Total current liabilities 1,464,753 1,488,911
Long-term debt 1,279,426 1,299,415
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 584,460 585,880
Investment tax credit, in
process of amortization 83,838 85,828
Regulatory liability 102,234 104,795
Other 178,598 182,357
Total deferred credits and other liabilities 949,130 958,860
Minority interests 111,133 109,952
Cumulative preferred stock 135,140 135,328
COMMON EQUITY:
Common stock, without par value -
129,677,030 shares outstanding 777,013 777,013
Other (2,165) (1,956)
Retained earnings 354,944 366,234
Total common equity 1,129,792 1,141,291
Total liabilities and capital $5,069,374 $5,133,757
(Unaudited)
Mar. 31, Dec. 31,
2001 2000
---- ----
CAPITALIZATION:
Common stock, without par value -
Outstanding 21,294,223 shares........................................................ $ 425,170 $ 425,170
Additional paid-in capital.............................................................. 40,000 40,000
Retained earnings....................................................................... 259,180 314,594
Other ................................................................................. (5,655) (836)
---------- ----------
Total common equity.................................................................. 718,695 778,928
Cumulative preferred stock.............................................................. 95,140 95,140
Long-term debt.......................................................................... 360,600 360,600
---------- ----------
Total capitalization................................................................. 1,174,435 1,234,668
---------- ----------
CURRENT LIABILITIES:
Current portion of long-term debt....................................................... 246,200 246,200
Notes payable........................................................................... 91,453 114,589
Accounts payable........................................................................ 106,214 136,892
Dividends declared...................................................................... 1,299 1,367
Accrued taxes........................................................................... 22,430 8,073
Accrued interest........................................................................ 4,720 6,350
Other ................................................................................. 16,235 15,826
---------- ----------
Total current liabilities............................................................ 488,551 529,297
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes................................................................................ 241,667 289,232
Investment tax credit, in
process of amortization.............................................................. 61,912 62,979
Accumulated provision for pensions
and related benefits (Note 4)........................................................ 127,894 31,257
Customer advances for construction...................................................... 9,489 9,578
Regulatory liabilities.................................................................. 52,359 55,152
Other ................................................................................. 34,748 13,921
---------- ----------
Total deferred credits and other liabilities......................................... 528,069 462,119
---------- ----------
Total capital and liabilities........................................................... $2,191,055 $2,226,084
========== ==========
The accompanying notes are an integral part of these financial statements.
- 4 -3
LG&E Energy Corp. and SubsidiariesLOUISVILLE GAS AND ELECTRIC COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited - Thousands(Unaudited)
(Thousands of $)
Three Months
Ended
Mar. 31,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,882 $ 57,567
Items not requiring cash currently:
Depreciation and amortization 58,373 54,736
Deferred income taxes - net (8,091) 4,694
Income from discontinued operations -
net of tax (Note 4) - (788)
Other (638) (17,627)
Change in net current assets 59,434 19,647
Other (15,718) (8,417)
Net cash flows from operating activities 123,242 109,812
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (242) (223)
Proceeds from sales of securities 132 3,075
Construction expenditures (53,716) (79,410)
Investments in unconsolidated
ventures - (74,250)
Proceeds from sale of investment
in affiliate (Note 5) 17,907 33,821
Net cash flows from investing activities (35,919) (116,987)
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of bonds (20,022) -
Short-term borrowings 2,170,510 416,174
Repayment of short-term borrowings (2,178,857) (346,174)
Redemption of preferred stock - (1,202)
Payment of common dividends (41,172) (39,876)
Net cash flows from financing activities (69,541) 28,922
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS 17,782 21,747
BEGINNING CASH AND TEMPORARY
CASH INVESTMENTS 91,413 105,604
ENDING CASH AND TEMPORARY
CASH INVESTMENTS $ 109,195 $ 127,351
- 5 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Cash Flows (cont.)
(Unaudited - Thousands of $)
Three Months
Ended
Mar. 31,
2000 1999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 4,410 $ 2,969
Interest on borrowed money 30,097 23,533
Three Months
Ended
Mar. 31,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income....................................................................... $(54,115) $ 17,421
Items not requiring cash currently:
Depreciation and amortization........................................................ 25,267 24,149
Deferred income taxes - net.......................................................... (50,358) (3,498)
Investment tax credit - net.......................................................... (1,067) (1,071)
Other................................................................................ 5,074 1,677
Changes in net current assets and liabilities........................................... 86,749 5,399
Other ................................................................................. 79,455 4,156
--------- ---------
Net cash flows from operating activities............................................. 91,005 48,233
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities................................................................. - (124)
Proceeds from sales of securities....................................................... 4,225 -
Construction expenditures............................................................... (66,227) (21,269)
--------- ---------
Net cash flows from investing activities............................................. (62,002) (21,393)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings................................................................... (23,136) 11,694
Retirement of first mortgage bonds...................................................... - (20,000)
Payment of dividends.................................................................... (1,367) (24,236)
-------- ---------
Net cash flows from financing activities............................................. (24,503) (32,542)
--------- ---------
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS..................................................................... 4,500 (5,702)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD.................................................................. 2,495 54,761
-------- ---------
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD........................................................................ $ 6,995 $ 49,059
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid (received) during the period for:
Income taxes....................................................................... $ (4,226) $ 3,184
Interest on borrowed money......................................................... 9,963 8,743
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 -4
LG&E Energy Corp. and SubsidiariesLOUISVILLE GAS AND ELECTRIC COMPANY AND SUBSIDIARY
Consolidated Statements of Retained Earnings
(Unaudited - Thousands(Unaudited)
(Thousands of $)
Three Months
Ended
Mar. 31,
2000 1999
Balance at beginning
of period $366,234 $466,279
Net income 29,882 57,567
Cash dividends declared on
common stock ($.3175 and
$.3075 per share) 41,172 39,876
Balance at end of period $354,944 $483,970
Three Months
Ended
Mar. 31,
2001 2000
---- ----
Balance at beginning
of period............................................................................ $314,594 $259,231
Net (loss) income....................................................................... (54,115) 17,421
-------- --------
Subtotal............................................................................. 260,479 276,652
-------- --------
Cash dividends declared on stock:
5% cumulative preferred................................................................. 269 269
Auction rate cumulative
preferred............................................................................ 663 529
$5.875 cumulative preferred............................................................. 367 367
Common ................................................................................. - 16,500
-------- --------
Subtotal............................................................................. 1,299 17,665
-------- --------
Balance at end of period................................................................ $259,180 $258,987
======== ========
The accompanying notes are an integral part of these financial statements.
- 7 -5
LG&E Energy Corp. and SubsidiariesLOUISVILLE GAS AND ELECTRIC COMPANY AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Unaudited - Thousands(Unaudited)
(Thousands of $)
Three Months
Ended
Mar. 31,
2000 1999
Net income $29,882 $57,567
Unrealized holding gains (losses)
on available-for-sale securities
arising during the period (312) 192
Reclassification adjustment for realized
gains and losses on available-for-sale
securities included in net income 14 5
Other comprehensive (loss) income,
before tax (298) 197
Income tax benefit (expense) related to items
of other comprehensive (loss) income 113 (64)
Comprehensive income $29,697 $57,700
Three Months
Ended
Mar. 31,
2001 2000
---- ----
Net (loss) income available for common stock............................................ $(55,414) $16,256
Cumulative effect of change in accounting principle -
Accounting for Derivative Instruments and
Hedging Activities (Note 5).......................................................... (5,998) -
(Losses) on Derivative Instruments and Hedging Activities
(Note 5)............................................................................... (2,035) -
Unrealized holding (losses) on
available-for-sale securities arising
during the period.................................................................... - (159)
-------- -------
Other comprehensive (loss),
before tax........................................................................... (8,033) (159)
Income tax benefit related to items
of other comprehensive (loss)........................................................ 3,213 64
-------- -------
Comprehensive (loss) income............................................................. $(60,234) $16,161
======== =======
The accompanying notes are an integral part of these financial statements.
- 8 -6
Louisville Gas and Electric CompanyKENTUCKY UTILITIES COMPANY AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
(Thousands of $)
Three Months
Ended
Mar. 31,
2000 1999
REVENUES:
Electric $161,326 $150,840
Gas 88,316 75,779
Total operating revenues 249,642 226,619
OPERATING EXPENSES:
Fuel for electric generation 39,926 32,457
Power purchased 21,753 23,026
Gas supply expenses 63,394 50,492
Non-recurring charges (Note 3) 8,141 -
Other operation expenses 36,975 40,192
Maintenance 13,881 14,702
Depreciation and amortization 24,149 24,144
Federal and state
income taxes 9,668 9,556
Property and other taxes 5,163 5,036
Total operating expenses 223,050 199,605
NET OPERATING INCOME 26,592 27,014
Other income and (deductions) 1,519 1,080
Interest charges 10,690 9,178
NET INCOME 17,421 18,916
Preferred stock dividends 1,165 1,089
NET INCOME AVAILABLE
FOR COMMON STOCK $ 16,256 $ 17,827
Three Months
Ended
Mar. 31,
2001 2000
---- ----
OPERATING REVENUES (Note 8)............................................................. $211,793 $217,778
-------- --------
OPERATING EXPENSES:
Fuel for electric generation............................................................ 55,928 55,615
Power purchased......................................................................... 32,885 38,845
Non-recurring charges (Note 4).......................................................... 63,788 11,030
Other operation expenses................................................................ 26,618 28,848
Maintenance............................................................................. 11,970 14,150
Depreciation and amortization........................................................... 23,828 24,331
Federal and state
income taxes......................................................................... (6,450) 11,366
Property and other taxes................................................................ 4,155 4,840
-------- --------
Total operating expenses............................................................. 212,722 189,025
-------- --------
NET OPERATING (LOSS) INCOME............................................................. (929) 28,753
Other income - net...................................................................... 1,793 1,325
Interest charges........................................................................ 8,117 9,904
-------- --------
NET (LOSS) INCOME before Cumulative Effect of Accounting
Change............................................................................... (7,253) 20,174
Cumulative Effect of Change in Accounting for Derivative
Instruments and Hedging Activities, net of tax (Note 5).............................. 136 -
-------- --------
NET (LOSS) INCOME....................................................................... (7,117) 20,174
Preferred stock dividends............................................................... 564 564
-------- --------
NET (LOSS) INCOME AVAILABLE
FOR COMMON STOCK..................................................................... $ (7,681) $ 19,610
======== ========
The accompanying notes are an integral part of these financial statements.
- 9 -7
Louisville Gas and Electric CompanyKENTUCKY UTILITIES COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
(Thousands of $)
ASSETS
(Unaudited)
Mar. 31, Dec. 31,
2000 1999
UTILITY PLANT:
At original cost $3,086,048 $3,065,839
Less: reserve for depreciation 1,238,536 1,215,032
Net utility plant 1,847,512 1,850,807
OTHER PROPERTY AND INVESTMENTS -
less reserve 1,353 1,224
CURRENT ASSETS:
Cash and temporary cash investments 49,059 54,761
Marketable securities 6,902 6,936
Accounts receivable - less reserve 172,077 113,859
Materials and supplies - at average cost:
Fuel (predominantly coal) 17,472 17,350
Gas stored underground 15,754 38,780
Other 35,192 35,010
Prepayments 2,100 2,775
Total current assets 298,556 269,471
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 5,529 5,607
Regulatory assets 30,386 31,443
Other 10,010 12,900
Total deferred debits and other assets 45,925 49,950
Total assets $2,193,346 $2,171,452
(Unaudited)
Mar. 31, Dec. 31,
2001 2000
---- ----
UTILITY PLANT:
At original cost........................................................................ $2,989,937 $2,932,763
Less: reserve for depreciation......................................................... 1,399,851 1,378,283
---------- ----------
Net utility plant.................................................................... 1,590,086 1,554,480
---------- ----------
OTHER PROPERTY AND INVESTMENTS -
less reserve......................................................................... 12,731 14,538
---------- ----------
CURRENT ASSETS:
Cash and temporary cash investments..................................................... 4,180 314
Accounts receivable - less reserve (Note 6)............................................. 52,485 90,419
Materials and supplies - at average cost:
Fuel (predominantly coal)............................................................ 27,022 12,495
Other................................................................................ 25,995 25,812
Prepayments and other................................................................... 6,190 1,899
---------- ----------
Total current assets................................................................. 115,872 130,939
---------- ----------
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense................................................................ 4,576 4,651
Regulatory assets....................................................................... 24,243 26,441
Other ................................................................................. 16,930 8,469
---------- ----------
Total deferred debits and other assets............................................... 45,749 39,561
---------- ----------
Total assets............................................................................ $1,764,438 $1,739,518
========== ==========
The accompanying notes are an integral part of these financial statements.
- 10 -8
Louisville Gas and Electric CompanyKENTUCKY UTILITIES COMPANY AND SUBSIDIARY
Consolidated Balance Sheets (cont.)
(Thousands of $)
CAPITALIZATION AND LIABILITIES
(Unaudited)
Mar. 31, Dec. 31,
2000 1999
CAPITALIZATION:
Common stock, without par value -
Outstanding 21,294,223 shares $ 425,170 $ 425,170
Retained earnings 258,987 259,231
Other (1,120) (1,025)
Total common equity 683,037 683,376
Cumulative preferred stock 95,140 95,328
Long-term debt 360,600 380,600
Total capitalization 1,138,777 1,159,304
CURRENT LIABILITIES:
Current portion of long-term debt 246,200 246,200
Notes payable 131,791 120,097
Accounts payable 143,357 113,008
Provision for rate refunds 5,409 8,962
Dividends declared 17,665 24,236
Accrued taxes 37,814 23,759
Accrued interest 7,566 9,265
Other 16,795 15,725
Total current liabilities 606,597 561,252
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 257,422 255,910
Investment tax credit, in
process of amortization 66,182 67,253
Accumulated provision for pensions
and related benefits 40,741 38,431
Customer advances for construction 10,208 11,104
Regulatory liability 55,923 58,726
Other 17,496 19,472
Total deferred credits and other liabilities 447,972 450,896
Total capital and liabilities $2,193,346 $2,171,452
(Unaudited)
Mar. 31, Dec. 31,
2001 2000
---- ----
CAPITALIZATION:
Common stock, without par value -
Outstanding 37,817,878 shares........................................................ $ 308,140 $ 308,140
Additional paid-in capital.............................................................. 15,000 15,000
Retained earnings....................................................................... 339,557 347,238
Other ................................................................................. 994 (595)
---------- ----------
Total common equity.................................................................. 663,691 669,783
Cumulative preferred stock.............................................................. 40,000 40,000
Long-term debt.......................................................................... 432,496 430,830
---------- ----------
Total capitalization................................................................. 1,136,187 1,140,613
---------- ----------
CURRENT LIABILITIES:
Current portion of long-term debt....................................................... 54,000 54,000
Notes payable........................................................................... 46,190 61,239
Accounts payable........................................................................ 87,294 76,339
Dividends declared...................................................................... 188 188
Accrued taxes........................................................................... 38,534 19,622
Accrued interest........................................................................ 6,874 6,373
Other ................................................................................. 17,776 18,579
---------- ----------
Total current liabilities............................................................ 250,856 236,340
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes................................................................................ 219,888 246,680
Investment tax credit, in
process of amortization.............................................................. 14,039 14,901
Accumulated provision for pensions
and related benefits (Note 4)........................................................ 87,862 47,495
Customers' advances for construction.................................................... 1,517 1,540
Regulatory liabilities.................................................................. 37,033 38,392
Other ................................................................................. 17,056 13,557
---------- ----------
Total deferred credits and other liabilities......................................... 377,395 362,565
---------- ----------
Total capital and liabilities........................................................... $1,764,438 $1,739,518
========== ==========
The accompanying notes are an integral part of these financial statements.
- 11 -9
Louisville Gas and Electric CompanyKENTUCKY UTILITIES COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited - Thousands(Unaudited)
(Thousands of $)
Three Months
Ended
Mar. 31,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,421 $ 18,916
Items not requiring cash currently:
Depreciation and amortization 24,149 24,143
Deferred income taxes - net (3,498) 3,650
Investment tax credit - net (1,071) (1,072)
Other 1,677 1,772
Changes in net current assets and liabilities 5,399 (7,335)
Other 4,156 4,704
Net cash flows from operating activities 48,233 44,778
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (124) (223)
Proceeds from sales of securities - 3,065
Construction expenditures (21,269) (17,323)
Net cash flows from investing activities (21,393) (14,481)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings 11,694 -
Retirement of first mortgage bonds (20,000) -
Payment of dividends (24,236) (23,168)
Net cash flows from financing activities (32,542) (23,168)
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS (5,702) 7,129
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 54,761 31,730
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 49,059 $ 38,859
- 12 -
Louisville Gas and Electric Company
Statements of Cash Flows (cont.)
(Unaudited - Thousands of $)
Three Months
Ended
Mar. 31,
2000 1999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 3,184 $ 11,288
Interest on borrowed money 8,743 8,811
Three Months
Ended
Mar. 31,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income....................................................................... $ (7,117) $ 20,174
Items not requiring cash currently:
Depreciation and amortization........................................................ 23,828 24,331
Deferred income taxes - net.......................................................... (28,166) (4,602)
Investment tax credit - net.......................................................... (862) (919)
Other................................................................................ 1,654 (911)
Changes in net current assets and liabilities........................................... 48,498 2,222
Other ................................................................................. 41,947 (2,804)
-------- ---------
Net cash flows from operating activities............................................. 79,782 37,491
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures............................................................... (60,302) (23,530)
-------- --------
Net cash flows from investing activities............................................. (60,302) (23,530)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings................................................................... 99,325 -
Repayment of short-term borrowings...................................................... (114,375) -
Payment of dividends.................................................................... (564) (19,564)
-------- --------
Net cash flows from financing activities............................................. (15,614) (19,564)
-------- --------
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS..................................................................... 3,866 (5,603)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD.................................................................. 314 6,793
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD........................................................................ $ 4,180 $ 1,190
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid (received) during the period for:
Income taxes....................................................................... $ 3,894 $ (9,260)
Interest on borrowed money......................................................... 7,116 6,560
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.
- 13 -10
Louisville Gas and Electric CompanyKENTUCKY UTILITIES COMPANY AND SUBSIDIARY
Consolidated Statements of Retained Earnings
(Unaudited)
(Thousands of $)
Three Months
Ended
Mar. 31,
2000 1999
Balance at beginning
of period $259,231 $247,462
Net income 17,421 18,916
Subtotal 276,652 266,378
Cash dividends declared on stock:
5% cumulative preferred 269 269
Auction rate cumulative
preferred 529 453
$5.875 cumulative preferred 367 367
Common 16,500 22,000
Subtotal 17,665 23,089
Balance at end of period $258,987 $243,289
Three Months
Ended
Mar. 31,
2001 2000
---- ----
Balance at beginning
of period............................................................................ $347,238 $329,470
Net (loss) income....................................................................... (7,117) 20,174
-------- --------
Subtotal............................................................................. 340,121 349,644
-------- --------
Cash dividends declared on stock:
4.75% preferred......................................................................... 237 237
6.53% preferred......................................................................... 327 327
Common ................................................................................. - 25,000
-------- --------
Subtotal............................................................................. 564 25,564
-------- --------
Balance at end of period................................................................ $339,557 $324,080
======== ========
The accompanying notes are an integral part of these financial statements.
- 14 -11
Louisville Gas and Electric CompanyKENTUCKY UTILITIES COMPANY AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Unaudited - Thousands(Unaudited)
(Thousands of $)
Three Months
Ended
Mar. 31,
2000 1999
Net income available for common stock $16,256 $17,827
Unrealized holding gains (losses) on
available-for-sale securities arising
during the period (159) 84
Other comprehensive (loss) income,
before tax (159) 84
Income tax benefit (expense) related to items
of other comprehensive (loss) income 64 (34)
Comprehensive income $16,161 $17,877
Three Months
Ended
Mar. 31,
2001 2000
---- ----
Net (loss) income available for common stock............................................ $(7,681) $19,610
Cumulative effect of change in accounting principle -
Accounting for Derivative Instruments and
Hedging Activities (Note 5).......................................................... 2,647 -
------- ------
Other comprehensive income,
before tax........................................................................... 2,647 -
Income tax (expense) related to items
of other comprehensive income........................................................ (1,059) -
-------- ------
Comprehensive (loss) income............................................................. $(6,093) $19,610
======== =======
The accompanying notes are an integral part of these financial statements.
- 15 -12
Kentucky Utilities Company
Statements of Income
(Unaudited)
(Thousands of $)
Three Months
Ended
Mar. 31,
2000 1999
OPERATING REVENUES $217,778 $217,349
OPERATING EXPENSES:
Fuel for electric generation 55,615 58,155
Power purchased 38,845 39,317
Non-recurring charges (Note 3) 11,030 -
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
Property and other taxes 4,840 4,113
Total operating expenses 189,025 180,382
NET OPERATING INCOME 28,753 36,967
Other income 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 $ 29,064
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 PROPERTYLOUISVILLE GAS 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 DEBITSELECTRIC COMPANY 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 $)
CAPITALIZATIONSUBSIDIARY
KENTUCKY UTILITIES COMPANY AND LIABILITIES
(Unaudited)
Mar. 31, Dec. 31,
2000 1999
CAPITALIZATION:
Common stock, without par value -
Outstanding 37,817,878 shares $ 308,140 $ 308,140
Retained earnings 324,080 329,470
Other (595) (595)
Total common equity 631,625 637,015
Cumulative preferred stock 40,000 40,000
Long-term debt 430,830 430,830
Total capitalization 1,102,455 1,107,845
CURRENT LIABILITIES:
Current portion of long-term debt 115,500 115,500
Accounts payable 86,176 116,546
Provision for rate refunds 13,907 20,567
Dividends declared 25,188 19,150
Accrued taxes 38,082 10,502
Accrued interest 9,825 7,329
Other 19,208 18,617
Total current liabilities 307,886 308,211
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 240,678 243,620
Investment tax credit, in
process of amortization 17,656 18,575
Accumulated provision for pensions
and related benefits 48,269 48,285
Regulatory liability 44,539 46,069
Other 15,470 12,485
Total deferred credits and other liabilities 366,612 369,034
Total capital and liabilities $1,776,953 $1,785,090
The accompanying notes are an integral part of these financial statements.
- 18 -
Kentucky Utilities Company
Statements of Cash Flows
(Unaudited - Thousands of $)
Three Months
Ended
Mar. 31,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,174 $ 29,628
Items not requiring cash currently:
Depreciation and amortization 24,331 21,991
Deferred income taxes - net (4,602) (2,396)
Investment tax credit - net (919) (895)
Other (911) 1,556
Changes in net current assets and liabilities 2,222 (17,031)
Other (2,804) 1,718
Net cash flows from operating activities 37,491 34,571
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (23,530) (18,240)
Net cash flows from investing activities (23,530) (18,240)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (19,564) (18,564)
Net cash flows from financing activities (19,564) (18,564)
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS (5,603) (2,233)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 6,793 59,071
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 1,190 $ 56,838
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid (received) during the period for:
Income taxes $ (9,260) $ (904)
Interest on borrowed money 6,560 6,079
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.
- 19 -
Kentucky Utilities Company
Statements of Retained Earnings
(Unaudited)
(Thousands of $)
Three Months
Ended
Mar. 31,
2000 1999
Balance at beginning
of period $329,470 $299,167
Net income 20,174 29,628
Subtotal 349,644 328,795
Cash dividends declared on stock:
4.75% preferred 237 237
6.53% preferred 327 327
Common 25,000 18,000
Subtotal 25,564 18,564
Balance at end of period $324,080 $310,231
The accompanying notes are an integral part of these financial statements.
- 20 -
LG&E Energy Corp. and Subsidiaries
Louisville Gas and Electric Company
Kentucky Utilities CompanySUBSIDIARY
Notes to Financial Statements
(Unaudited)
1. The unaudited consolidated financial statements include the accounts of
Louisville Gas and Electric Company and Subsidiary and Kentucky Utilities
Company and Subsidiary ("LG&E" and "KU" or the Companies). LG&E and KU
are wholly owned subsidiaries of LG&E Energy Corp. and its wholly-owned subsidiaries (LGCorp ("LG&E Energy or the
Company)Energy"). 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 believesCompanies believe 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 19992000 for information
relevant to the accompanying financial statements, including information
as to the significant accounting policies of the Company.Companies.
2. OnEffective December 11, 2000, LG&E Energy was acquired by Powergen plc
("Powergen"). LG&E Energy had announced on February 28, 2000 the Company announced that its
Board of Directors accepted anthe 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'sLG&E Energy's debt. Pursuant to the acquisition agreement, among
other things, LG&E Energy will becomebecame a wholly owned subsidiary of PowerGenPowergen
and, its U.S. headquarters.as a result, LG&E and KU became indirect subsidiaries of Powergen.
The Utility Operationsutility operations (LG&E and KU) of the Company will
continueLG&E Energy have continued their
separate identities and continue to serve customers in Kentucky and
Virginia under their presentexisting names. The preferred stock and debt
securities of the Utility Operations willutility operations were not be affected by this
transaction. The acquisition is expectedtransaction and the utilities continue to close 9 to 12 months from
the announcement, shortly after all of the conditions to consummation
offile SEC reports. Following the
acquisition, are met. Those conditions include, without
limitation, the approval of the holders ofPowergen became 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 Virginiaregistered holding company 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 first quarter of 2000, the Company expensed approximately $1.0
million relating to the PowerGen transaction. 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.
As of the end of April 2000 the Company has filed applications for
approval with the U.S. Securities and Exchange Commission (under the Public
Utility Holding Company Act of 1935)1935 ("PUHCA"), and LG&E and KU, as
subsidiaries of a registered holding company, became subject to
additional regulation under PUHCA.
As a result of the Kentucky Public
Service Commission,Powergen acquisition and in order to comply with
PUHCA, LG&E Services Inc. ("LG&E Services") was formed and became
operational on January 1, 2001. LG&E Services provides certain services
to affiliated entities, including LG&E and KU, at cost, as required under
PUHCA. On January 1, 2001, approximately 1,000 employees, mainly from
LG&E Energy, LG&E and KU, were moved to LG&E Services.
3. On April 9, 2001, Germany's largest power company, E.ON AG, announced a
pre-conditional cash offer of (pound)5.1 billion ($7.3 billion) for
Powergen. The offer is subject to a number of conditions, including the
Virginia State Corporation Commissionreceipt of certain European and United States regulatory approvals. The
parties expect to obtain the Federal Energy Regulatory Commission (under the Federal Power Act).
Hearings before the Kentucky Commission were held April 19-21 and
submission 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. While the Company and PowerGen
believe that they will receive the requisitenecessary regulatory approvals for
the merger in sufficient timeby early 2002
and they expect to complete the transaction in the spring of 2002. See
Powergen's schedule 14D-9 and associated schedules to such filing, filed
with the Securities and Exchange Commission on April 9, 2001.
4. During the schedule men
- 21 -
tioned above, there can be no assurance as tofirst quarter 2001, the timingCompanies took a $124.1 million after
tax charge (LG&E $86.1 million, and KU $38 million) for a workforce
reduction program. Primary components of such approvals
or the ability to obtain such approvals on satisfactory terms or
otherwise.
3.charges were separation
benefits, enhanced early retirement benefits, and health care benefits.
The result of this workforce reduction was the elimination of
approximately 950 positions most of which were taken by employees through
the Companies' voluntary enhanced severance program. During the first
quarter 2000,
13
the CompanyCompanies' took a $12.1an $11.4 million ($.09) after-tax charge for the
continued integration of the operations of LG&E and KU including their
customer service centers and their retail electric and gas operations.
The result of this consolidation was the elimination of approximately
400 positions most of which were taken by employees through the
Company'sCompanies' voluntary enhanced severance program.
4. Effective June 30, 1998, the Company discontinued its merchant energy
trading5. SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, establishes accounting and sales business. This business consisted primarily of a
portfolio of energy marketing contracts entered intoreporting standards requiring that
every derivative instrument (including certain derivative instruments
embedded 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 basedother contracts) be recorded on the impactbalance sheet as either
an asset or a liability measured at its fair value. SFAS No. 133 requires
that volatility and rising priceschanges in the power market hadderivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on its portfoliothe hedged item in the income statement, and
requires that LG&E and KU must formally document, designate, and assess
the effectiveness of energy marketing contracts.
Exitingtransactions that receive hedge accounting. SFAS No.
133 could increase 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 portfolioearnings and other comprehensive
income. SFAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES -- DEFERRAL OF THE EFFECTIVE DATE OF SFAS NO. 133, deferred
the effective date of energy marketing
contracts.SFAS No. 133 until January 1, 2001. LG&E and KU
adopted SFAS No. 133 on January 1, 2001. The Company continues to settle commitments that obligate
it to buy and sell natural gas and electric power. If the Company is
unable to dispose of these commitments or assets it will continue to
meet its obligations under the terms of the contracts. 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 resulteffect of this adverse decision, higher than anticipated commodity prices, increased
load demands,statement was
a charge to LG&E of $3.6 million and a credit to KU of $1.6 million to
cumulative effect of change in accounting principle (net of tax) in other
factors, the Company increased its after-tax
accrued loss on disposal of discontinued operations by $175 million.comprehensive income.
The additional write-off included costs relatedcompanies use interest rate swaps to the remaining
commitmentshedge exposure to market
fluctuations in its portfolio and exit costs expected to be incurred to
serve those commitments. Although the Company used what it believes to
be appropriate estimates for future energy prices, among other factors,
to calculate the net realizable value of discontinued operations, there
are inherent limitations in models to accurately predict future
commodity prices, load demands and other events that could impact the
amounts recorded by the Company.
- 22 -
Operating results for the discontinued merchant energy trading and
sales business follow.
Three Months
Ended
Mar. 31,
2000 1999
Revenues $ 74,698 $ 146,498
Loss before taxes (1,389) (4,650)
Loss from discontinued opera-
tions, net of income taxes (1,389) (2,749)
Net liabilities of discontinued operations at March 31, 2000, follow.
Accounts receivable $ 24,809
Price risk management assets 30,816
Accounts payable and accruals (36,215)
Other assets and liabilities, net (3,388)
Net assets before accrued
loss on disposal of dis-
continued operations 16,022
Accrued loss on disposal
of discontinued operations,
net of income tax benefit
of $102,647 (168,406)
Net liabilities of discon-
tinued operations $(152,384)
Total pretax charges against the accrued loss on disposal of
discontinued operations through March 31, 2000, include $260.6 million
for commitments prior to disposal, $69.6 million for transaction
settlements, $11.1 million for goodwill, and $31.5 million for other
exit costs. While the Company has been successful in settling portions
of its discontinued operations, significant assets, operations and
obligations remain. The Company continues to manage the remaining
portfolio and believes it has hedged certain of its future obligations
through various power purchase commitments and planned construction of
physical assets. Management cannot predict the ultimate effectivenessdebt instruments. Pursuant to company
policy, use of these hedges.
The pretaxfinancial instruments is intended to mitigate risk
and earnings volatility and are not speculative in nature. Management has
designated all of the companies' interest rate swaps as hedge
instruments. Financial instruments designated as cash flow hedges have
resulting gains and losses recorded within other comprehensive income and
stockholders' equity. To the extent a financial instrument or the
underlying item being hedged is prematurely terminated or the hedge
becomes ineffective, the resulting gains or losses are reclassified from
other comprehensive income to net income. Financial instruments
designated as fair value hedges are periodically marked-to-market with
the resulting gains and losses recorded directly into net income to
correspond with income or expense recognized from changes in market value
of the remaining commitments as of March 31,
2000, are currently estimated to be approximately $41.3 million in
2000, $33.0 million to $57.8 million each year in 2001 through 2004 and
$9.7 million in the aggregate thereafter.items being hedged.
As of March 31, 2000, the Company's discontinued operations were under
various contracts to buy and sell power and gas with net2001, LG&E had fixed rate swaps covering $217,335,000 in
notional amounts of 16.3 million Mwh'svariable rate debt and with fixed rates ranging from
3.560% to 5.495%. The average variable rate on the debt during the
quarter was 4.44%. The swaps have been designated as cash flow hedges and
expire on various dates from September 2001 through November 2020. During
the quarter ended March 31, 2001, the hedges were deemed to be fully
effective resulting in pretax charges of power and 21.9 million Mmbtu's of
natural gas with a volumetric weighted-average period of approximately
38 and 41 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$2,035,000 recorded in support of its power contracts. Notional amounts
reflect the nominal volume of transactions included in the Company's
price risk management commitments, but do not reflect actual amounts of
cash, financial instruments, or quantities of the underlying commodity
which may ultimately be exchanged between the parties.
- 23 -
As of May 9, 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 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, 2000,
the Company estimates that a 1% change in the forecasted load demand
could change the value of the Company's remaining energy portfolio by
$11.7 million.
The Company's discontinued operations maintain policies intended to
minimize credit risk and revalue credit exposures daily to monitor
compliance with those policies.other
comprehensive income.
As of March 31, 2000, over 95%2001, KU had variable rate swaps covering $153,000,000 in
notional amounts of fixed rate debt. The average variable rate on these
swaps during the quarter was 5.61%. The underlying debt has fixed rates
ranging from 5.873% to 7.920%. The swaps have been designated as fair
value hedges and expire on various dates from May 2007 through June 2025.
During the quarter ended March 31, 2001, the effect of marking these
financial instruments and the underlying debt to market resulted in
pretax gains of $1,463,000 recorded as a reduction in interest expense.
6. SFAS No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS
AND EXTINGUISHMENTS OF LIABILITIES, revises the standards for accounting
for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, and provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. The Companies adopted SFAS No.
14
140 in the first quarter of 2001, when LG&E and KU entered into an
accounts receivable securitization transaction.
On February 6, 2001, LG&E and KU each sold accounts receivables to two
wholly-owned subsidiaries, LG&E Receivables LLC (LGE-R) and KU
Receivables LLC (KU-R), respectively. Simultaneously, LGE-R and KU-R
entered into two separate three-year accounts receivables securitization
facilities with two financial institutions and their affiliates whereby
LGE-R and KU-R can sell, on a revolving basis, an undivided interest in
certain of their receivables and receive up to $75 million and $50
million, respectively, from an unrelated third party purchaser at a cost
of funds linked to commercial paper rates plus a charge for
administrative and credit support services. Furthermore, LG&E and KU
retain the servicing rights of the Company's price risk management commitments were with counterparties
rated BBB equivalent or better.sold receivables through two separate
servicing agreements between the third party purchaser and each utility.
Under these agreements, LG&E and KU receive a fee for servicing the sold
receivables on behalf of the third party purchaser. As of March 31, 2000, six
counterparties represented 88% of the Company's price risk management
commitments.
5. 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 $182001,
LG&E's outstanding program balance was $75 million and KU's balance was
$50 million.
The sale resulted inallowance for doubtful accounts associated with the eligible
securitized receivables was $1 million for LG&E and $.4 million for KU at
March 31, 2001. Charge offs were immaterial for LG&E and KU. The risk of
uncollectibility associated with the sold receivables is minimal. Through
March 31, approximately .15%, or $698,000, of total receivables for LG&E
and KU were uncollectible. Moreover, each securitization facility
contains a pretax gain of
approximately $2 million.fully funded reserve for uncollectible receivables.
7. In March 1999, LG&E-Westmoreland Rensselaer,
a California general partnership in which the Company owns a 50%
interest, sold substantially all the assets and major contracts of its
79 MW gas-fired cogeneration facility in Rensselaer, New York, with net
proceeds to the Company of approximately $34 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.
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 MarchOctober 2000, LG&E and KU each filed a Notice and Statementan application with the
Kentucky Public Service Commission requesting("Kentucky Commission") to amend its
Environmental Compliance Plan to reflect the addition of Nitrogen Oxide
(NOx) reduction technology projects and to amend its Environmental Cost
Recovery Tariff (ECR) to include an adjustmentoverall rate of return on capital
investments. The NOx reduction technology will allow LG&E and KU to meet
new Environmental Protection Agency NOx requirements that take effect in
LG&E's gas rates.
LG&E asked for a general adjustment2003-2004. The Kentucky Commission issued an order on April 18, 2001 that
approved the amended environmental compliance plan and the use of an
overall rate of return, including an 11.5% return on equity, effective
May 1, 2001. Costs associated with the amended compliance plan may be
recovered by the Companies as incurred, subject to review and approval by
the Kentucky Commission in gas rates for a test yearperiodic regulatory reviews.
8. External and intersegment revenues and income from continuing operations
by business segment for the twelvethree months ended DecemberMarch 31, 1999. The revenue increase
applied for is $27.9 million. The new rates are expected to go into
effect October 1, 2000. The increase is to recover higher costs for
providing service to natural gas customers.
- 24 -
7.2001, follow:
Net
(Loss)
Inter- Avail.
External segment For
Revenues Revenues Common
LG&E electric $148,361 $ 7,013 $ (44,443)
LG&E gas 157,897 - (10,971)
-------- -------- --------
Total $306,258 $ 7,013 $(55,414)
======== ======== ========
KU electric $206,111 $ 5,682 $ (7,681)
======== ======== ========
External and intersegment revenues and income from continuing operations
by business segment for the three months ended March 31, 2000, follow:
Income
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $155,119 $ 6,207 $ 16,305
LG&E gas 88,316 - (49)
KU electric 210,771 7,007 19,610
Power Operations 4,676 - 6,827
Western Kentucky
Energy 60,754 - (501)
Argentine Gas
Distribution 30,742 - (731)
Other Non-Utility
Operations 75,012 - (9,990)
All Other - (13,214) (1,589)
Consolidated $625,390 $ - $ 29,882
External and intersegment revenues and income from continuing
operations by business segment for the three months ended March 31,
1999, follow:
Income
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $148,326 $ 2,514 $ 17,613
LG&E gas 75,779 - 214
KU electric 213,347 4,002 29,064
Power Operations 6,904 - 14,180
Western Kentucky
Energy 59,978 - (1,024)
Argentine Gas
Distribution 29,797 - 357
Other Non-Utility
Operations 65,134 - 888
All Other - (6,516) (4,513)
Consolidated $599,265 $ - $ 56,779
8.15
Net
Income/
(Loss)
Inter- Avail.
External segment For
Revenues Revenues Common
LG&E electric $155,119 $ 6,207 $ 16,305
LG&E gas 88,316 - (49)
-------- -------- --------
Total $243,435 $ 6,207 $ 16,256
======== ======== ========
KU electric $210,771 $ 7,007 $ 19,610
======== ======== ========--
9. 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 Note 18 of the Company's Notes to Financial Statements) Annual Reports on Form 10-K for
the year ended December 31, 1999.
- 25 -2000.
16
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
GeneralGENERAL
The Company's principal subsidiaries are LG&E, an electricfollowing discussion and gas utility,
KU, an electric utility, and LG&E Capital Corp. (Capital Corp.), the
holding company for all non-utility investments other than trading
operations.analysis by management focuses on those factors
that had a material effect on LG&E's and KU's financial results of operations
and liquidityfinancial condition during 2001 and capital resources are important factors affectingshould be read in connection with the
Company's
consolidated results of operationsfinancial statements and capital resources and liquidity.
On February 28, 2000, the Company announced that its Board of Directors
accepted an offer to be acquired by PowerGen for cash of approximately $3.2
billion or $24.85 per share and the assumption of $2.2 billion of the
Company's debt. For more information, see Note 2 of Notes to Financial
Statements under Item 1.notes thereto.
Some of the matters discussed in the Notes to Consolidated Financial
Statements and Management's Discussion and Analysisfollowing discussion may contain forward-
lookingforward-looking statements that are
subject to certain risks, uncertainties and assumptions. Such forward-looking
statements are intended to be identified in this document by the words
"anticipate," "expect," "estimate," "objective," "possible," "potential" and
similar expressions. Actual results may vary materially. Factors that could
cause actual results to differ materially include, but are not limited to:include: general economic conditions;
business and competitive conditions in the energy industry; future prices of power and natural gas;changes in federal
or state legislation; unusual weather; actions by state or federal regulatory
decisions;agencies; and other factors described from time to time in the
Company'sLG&E's and KU's
reports to the Securities and Exchange Commission, including Exhibit No. 99.01
to the report on Form 10-K for the year ended December 31, 1999.
Results of Operations2000.
RESULTS OF OPERATIONS
The results of operations for LG&E KU and Capital Corp.'s Argentine gas
distribution and WKEKU 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 MarchTHREE MONTHS ENDED MARCH 31, 2001, COMPARED TO
THREE MONTHS ENDED MARCH 31, 2000
Compared to
Three Months Ended March 31, 1999
The Company's earnings per share from continuing operations decreased to
$.23 in 2000 from $.44 in 1999. The decrease resulted from recording non-
recurring after-tax charges of $12.5 million ($.10 per share) in March
2000, 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 with the integration of 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).
LG&E Results:RESULTS:
LG&E's net income decreased $1.6$71.5 million (9%) for the quarter ended March 31, 2000,2001,
as compared to the quarter ended March 31, 1999,2000, primarily because of mild weather, as the region recorded its mildest winter since
1931, increases in gas supply expenses, fuel for electric generation, and
administrative and general operating expenses including a $4.9$86.1
million net of tax one-time charge for the Company's One-Utility Program.LG&E's workforce reduction program. These
expenses were partially offset by increased gas sales to ultimate
consumers, off-system electric sales, and the reversal of a rate refund of
$.5$4.8 million net of tax.tax one-time charge
incurred in the first quarter of 2000 for LG&E's One-Utility Program. See Note 4
of Notes to Financial Statements. Excluding these one-time charges, LG&E's net
income would have increased $2.8 million.
- 26 -
$9.8 million primarily due to increased gas sales to
retail consumers and lower operations and maintenance expenses.
A comparison of LG&E's revenues for the quarter ended March 31, 2000,2001, with the
quarter ended March 31, 1999, excluding2000, (excluding the reversal of an FACa Fuel Adjustment
Clause ("FAC") refund of $1.1 million which was offset by an additional accrual
for performance-
basedperformance-based ratemaking of $.3 million in 2000), reflects increases and
(decreases) which have been segregated by the following principal causes
(thousands of $):
Electric Gas
Cause Revenues Revenues
Retail sales:
Fuel and gas supply adjustments $ 1,112 $10,006
Performance based rate reduction (1,179) -
Electric rate refunds (1,156) -
Variation in sales volume, merger
surcredit, etc. (4,065) (2,443)
Total retail sales (5,288) 7,563
Wholesale sales 15,786 4,720
Gas transportation - net - 189
Other (12) 65
Total $10,486 $12,53717
Electric Gas
Cause Revenues Revenues
- ----- -------- ---------
Retail sales:
Fuel and gas supply adjustments...................................................... $ 1,939 $64,815
Merger surcredit..................................................................... (834) -
Performance based rate............................................................... 1,179 -
Environmental cost recovery surcharge................................................ (58) -
Gas rate increase.................................................................... - 7,609
Weather normalization................................................................ - (2,194)
Electric rate reduction.............................................................. (3,671) -
Variation in sales volume, etc....................................................... 5,031 6,815
------- -------
Total retail sales................................................................... 3,586 77,045
Wholesale sales......................................................................... (9,073) (7,406)
Gas transportation - net................................................................ - (395)
Other ................................................................................. 378 337
------- -------
Total ................................................................................. $(5,109) $69,581
======= =======
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 $1.4 million (23%(4%) for the quarter because
of an increasea decrease in generation ($112.4 million), partially offset by a lowerhigher cost of
coal burned ($3.51 million). Gas supply expenses increased $12.9$61.8 million (26%(98%) due
to increases in net gas supply cost.cost ($58.5 million) and increases in the volume
of gas delivered to the distribution system ($3.3 million).
Power Purchased decreased $1.3$10.4 million (6%(48%) in 2001 primarily due to adecreased
brokered sales activity in the wholesale electric market.
The increase in non-recurring charges of $136.2 million, $81.2 million after
tax, is due to the costs associated with LG&E's workforce reduction initiatives.
See Note 4 of Notes to Financial Statements.
Other operation expenses decreased $1.7 million (5%) as compared to 2000. This
decrease in purchases
for wholesale salesresulted from decreased steam power production expenses ($3.02.3 million),
partially offset by higher purchases to
support off-system sales ($1.7 million).
Non-recurring charges of $5.0 million, after tax, include the costs
associated with the Company's One-Utility Program.
Other operation expenses decreased $3.2 million as compared to 1999. This
decrease resulted from decreases in pension expense, $1.2 million, and
various otherincreased administrative and general activities, $2 million.expenses, ($.6
million).
Maintenance expenses decreased $.8$3.3 million (6%(24%) in 20002001 primarily due to
decreases in scheduled outagessteam production maintenance of $1.5 million,($1.5 million), and electric distribution
maintenance, $.6 million, partially offset by an increase in software and
communication equipment maintenance, $1.3 million.($1.6 million).
Depreciation and amortization increased $1.1 million (5%) due to an increase
in depreciable plant in service and higher depreciation rates. A depreciation
study was completed in late 2000 with new depreciation rates going into
effect in the first quarter 2001. The new rates, as compared to rates in
effect for 2000, are expected to increase LG&E's depreciation expense by
about $.9 million in 2001.
Property and other taxes decreased $.7 million (14%) in 2001 primarily due to
decreases in
18
payroll taxes as a result of lower employee head count in conjunction with
LG&E's workforce reductions.
Variations in income tax expense are largely attributable to changes in pretax
income.
Other income - net, decreased $.5 million (34%) in 2001 primarily due to
decreases in the gain on sale of non-utility property, and lower interest
income.
Interest charges increased $.7 million (6%) in 2001 primarily due to increased
interest expense associated with LG&E's accounts receivable securitization
program ($1.6 million), partially offset by a decrease in interest on notes
payable ($1.1 million).
KU Results:RESULTS:
KU's net income decreased $9.5$27.3 million (32%) for the quarter ended March 31, 2000,2001, as
compared to the quarter ended March 31, 1999.2000. The decrease was mainly due to a
non-recurring charge of $6.6$38 million, afternet of tax, made in the first quarter of
20002001 for costs associated - 27 -
with further integrationthe KU workforce reduction program. These
expenses were partially offset by a $6.6 million non-recurring net of KU and LG&E.tax charge
in the same period in 2000 for KU's One Utility Program. See Note 4 of Notes to
Financial Statements. Excluding this non-recurring
charge,these one-time charges, net income increased
$4.1 million, due largely to decreased $2.9 million.operations and maintenance expense.
A comparison of KU's revenues for the quarter ended March 31, 2000,2001, with the
quarter ended March 31, 1999,2000, reflects increases and (decreases) which have been
segregated by the following principal causes (thousands of $):
Sales to ultimate consumers:
Fuel clause adjustments $ 867
Environmental cost recovery (1,272)
Performance based rate reduction (893)
Merger surcredit (452)
Electric rate refunds (3,389)
Variation in sales volume, etc. 4,601
Total retail sales (538)
Wholesale sales 1,309
Other (342)
Total $ 429
Sales to ultimate consumers:
Fuel clause adjustments.............................................................. $ 2,404
Environmental cost recovery surcharge................................................ (729)
Performance based rate .............................................................. 893
Merger surcredit..................................................................... (1,089)
Electric rate reduction.............................................................. (5,395)
Variation in sales volume, etc....................................................... 6,513
------
Total retail sales................................................................... 2,597
Wholesale sales......................................................................... (9,082)
Other ................................................................................. 500
---------
Total ................................................................................. $ (5,985)
==========
Fuel for electric generation comprises a large segment of KU's total operating
expenses. KU's electric rates contain a fuel adjustment clause
(FAC),FAC, whereby increases or decreases in
the cost of fuel are reflected in retail rates, subject to the approval of the
Public ServiceKentucky Commission, of
Kentucky, Thethe Virginia State Corporation Commission, and the Federal
Energy Regulatory Commission.
Fuel for electric generation decreased $2.5increased $.3 million (4%) for the first quarter because of 2001
as compared to the first quarter of 2000, with a decrease in generation ($1.5 million) and the lower$2.1 million increase due to
higher cost of coal burned ($1 million).partially offset by a $1.8 million decrease in volume
burned.
Power purchased decreased $6 million (15%) in 2001 primarily due to decreased
brokered sales activities in the wholesale electric market.
Non-recurring charges of $6.6increased $52.8 million, $31.4 million after tax, include thetax. These
costs associated with the Company's One-Utility Program.are due to KU's workforce reduction program. See Note 4 of Notes to
Financial Statements.
19
Other operating expenses increaseddecreased by $1.7$2.2 million (6%(8%). The increasedecrease was
primarily attributable to increased transmissiondecreased customer accounting and service and
marketing expense ($.63.4 million) and steam, transmission and distribution ($.4.2
million) system operating expenditures as well as
increased salespartially offset by an increase in administrative and marketinggeneral expenses
($.51.4 million).
Maintenance expenses increaseddecreased by $1.6$2.2 million (13%(15%) due primarily to increaseddecreased
maintenance at the steam generating plants ($1.3.9 million) and, the distribution
system ($.5.6 million), and the general plant ($.6 million).
Depreciation and amortization increased by $2.3decreased $.5 million (11%(2%) due to additional utility planta decrease in
service.depreciation rates. A depreciation study was completed in late 2000 with new
depreciation rates going into effect in the first quarter 2001. The new rates,
as compared to rates in effect for 2000, are expected to decrease KU's
depreciation expense by about $6 million in 2001.
Property and other taxes decreased $.7 million (14%) in 2001 primarily due to
decreases in payroll taxes as a result of KU's workforce reductions.
Variations in income tax expense are largely attributable to changes in pretax
income.
LG&E Capital Corp. and Other Results:
Power Operations
Power Operations' revenues decreased from $6.9income- net, increased $.5 million in 1999 to $4.7
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
million in 1999 to $1.6 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 million in 1999 to $5.8 million in 2000, due mainly to
recognizing a pretax gain or $14.5 million on the sale of the Rensselaer
project in 1999.
Western Kentucky Energy
Western Kentucky Energy Corp.'s (WKE's) revenues were approximately the
same in 2000 and 1999, $60.1 million and 60.0 million, respectively.
Higher smelter sales were offset by lower off-system sales resulting from
lower volumes and prices.
WKE's cost of revenues were approximately the same in 2000 and 1999, $35.3
million and $35.7 million, respectively.
WKE's operating expenses increased slightly in 2000 to $25.8 million from
$24.7 million in 1999. The increase was2001 due to more unit outages in 2000
and higher depreciation expense.
Argentine Gas Distribution
The Argentine Distribution companies' revenues of $30.7 million, cost of
revenues of $16.9 million and operation and maintenance expenses of $5.7
million in 2000 were slightly higher than 1999 due to higher consumption
per customer.
Other
Other revenues increased from $65.1 million in 1999 to $75.0 million in
2000. The increases resulted from acquiring CRC-Evans in July 1999 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 fees in
1999 relatedother
income expenses.
Interest charges decreased $1.8 million (18%) for the first quarter 2001 as
compared to the development of an independent power project in Gregory,
Texas.
Other cost of revenues increased from $47.9 million in 1999 to $60.6
million in 2000. The increases resulted from acquiring CRC-Evans in July
1999 and increased sales in the Company's natural gas gathering and
processing and energy marketing businesses, partially offset by a decrease
at Retail Access Services.
Other income for Capital Corp. and Other increased from $3.3 million in
1999 to $4.2 million in 2000. The increase resulted from higher interest
income and the gain on the sale of the Company's interest in CEC-APL L.P.
Decreases resulting from payments received in 1999 related to the
Rensselaer sale and the initial settlement of a claim on an undeveloped
independent power project in California partially offset the increases.
Capital Corp. and Other interest expense increased from $10.2 million in
1999 to $13.2 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% in 1999 to 35.0% infirst quarter 2000 due to an increase in
investmentimplementation of SFAS 133, Accounting for
Derivative Instruments and wind tax credits as a percentHedging Activities. See Note 5 of pretax income.
LiquidityNotes to Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
LG&E's and Capital Resources
The Company'sKU's need for capital funds isare 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 -
ment opportunities. Fluctuations in the Company's discontinued energy
marketing and trading activities also affected liquidity throughout the
quarter.customers. Lines of credit and commercial paper programs are maintained to fund these
temporary capital requirements.
Construction expenditures for the three months ended March 31, 2000,2001, of $53.7$66.3
million for LG&E and $60.3 million for KU, primarily for the purchase of two
jointly owned combustion turbines, were financed with internally generated funds
and commercial
paper.
The Company'sthe accounts receivable securitization program. See Note 6 of Notes to
Financial Statements concerning accounts receivable securitization.
LG&E's and KU's combined cash and marketable securitiestemporary cash investment balance increased
$17.6$8.4 million (LG&E $4.5 million, KU $3.9 million) during the three months ended
March 31, 2000.2001. The increase reflects cash flows from operations, and the proceeds received from the sale
of CEC-APL L.P., partially
offset by construction expenditures and debt repayments and dividends paid.repayments.
Variations in accounts receivable, accounts payable and materials and supplies
are generally not significant indicators of the Company'sLG&E's and KU's liquidity. Such
variations are primarily attributable to fluctuations in weather, which have a
direct effect on sales of electricity and natural gas. The decreases in accounts
receivable and accounts payable resulted mainly from seasonal fluctuations and the accounts
receivable securitization program started at LG&E KU and the Company's natural gas
gathering and processing business.KU. See Note 6 of Notes to
Financial Statements. The decreaseincrease in fuel resulted from seasonal fluctuations
at KULG&E and WKE,KU, and the decrease in LG&E's gas stored underground resulted from
seasonal fluctuations at LG&E and the natural gas
gathering and processing business.
Long-term debt decreased by $20 million due to the redemption of LG&E's
first mortgage bonds 7.5% series due July 1, 2002, in January 2000.fluctuations.
At March 31, 2000,2001, unused capacity under the Company'sLG&E's lines of credit totaled $415.4 million after considering commercial paper support and
approximately $40.0 million in letters$200
million. KU had no committed lines of credit securing on- and off-
balance sheet commitments. Inat March 2000, KU finalized an uncommitted line
of credit for $60 million.
Standard and Poor's downgraded31, 2001.
LG&E's KU's and Capital Corp.'s debt ratings on February 28, 2000.as of April 9, 2001, were:
20
MOODY'S S&P FITCH
------- --- -----
First mortgage bonds A1 A- A+
Unsecured debt A2 BBB A
Preferred stock a2 BBB- A-
Commercial paper P-1 A-2 F-1
KU's debt ratings as of April 9, 2001, were:
MOODY'S S&P FITCH
------- --- -----
First mortgage bonds A1 A- A+
Preferred stock a2 BBB- A-
Commercial paper P-1 A-2 F-1
The downgrades reflectMoody's and S&P's opinionratings of LG&E's and KU's debt securities are on Credit
Watch for upgrade as the result of the credit quality of the Companies following the impact of the PBRE.ON bid. Fitch has placed LG&E and the OPC
decision. S&P, Moody's and Duff and Phelps continue to have the debt of
the CompaniesKU on
credit watch pending reviewevolving following the E.ON bid. These ratings reflect the views of
Moody's, S&P and Fitch. A security rating is not a recommendation to buy, sell
or hold securities and is subject to revision or withdrawal at any time by the
financial condition
following consummation of the merger of the Company with PowerGen.
The Company's capitalization ratios at March 31, 2000, and December 31,
1999, follow:
Mar. 31, Dec. 31,
2000 1999
Long-term debt (including current portion) 49.8% 49.8%
Notes payable 13.0 13.1
Preferred stock 4.0 3.9
Common equity 33.2 33.2
Total 100.0% 100.0%rating agency.
LG&E's capitalization ratios at March 31, 2000,2001, and December 31, 1999,2000, follow:
Mar. 31, Dec. 31,
2000 1999
Long-term debt (including current portion) 40.0% 41.1%
Notes payable 8.7 7.9
Preferred stock 6.3 6.2
Common equity 45.0 44.8
Total 100.0% 100.0%
- 30 -
Mar. 31, Dec. 31,
2001 2000
---- ----
Long-term debt (including current portion) 40.1% 38.0%
Notes payable 6.0 7.2
Preferred stock 6.3 6.0
Common equity 47.6 48.8
----- -----
Total 100.0% 100.0%
===== =====
KU's capitalization ratios at March 31, 2000,2001, and December 31, 1999,2000, follow:
Mar. 31, Dec. 31,
2000 1999
Long-term debt (including current portion) 44.9% 44.7%
Preferred stock 3.3 3.3
Common equity 51.8 52.0
Mar. 31, Dec. 31,
2001 2000
---- ----
Long-term debt (including current portion) 39.4% 38.6%
Notes payable 3.7 4.9
Preferred stock 3.2 3.2
Common equity 53.7 53.3
----- -----
Total 100.0% 100.0%
===== =====
For a description of significant contingencies that may affect the Company,
LG&E and KU,
reference is made to Part I, Item 3, Legal Proceedings of LG&E's and KU's Annual
Reports on form 10-K For the year ended December 31, 2000 and to Part II herein
- - Item 1, Legal Proceedings.
- 31 -
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
LG&E Energy isand KU are exposed to market risks in both its regulated and non-
utility operations.risks. 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.prices. To mitigate changes
in cash flows attributable
21
to these exposures, the Company
hasCompanies have 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'sCompanies' unswapped debt did not change materially in the first
quarter of 2000.2001. The potential changes in the fair values of the Company's
interest-rate swaps resulting from changes in interest rates and the yield curve
also did not change materially in the first quarter of 2000.2001. The Company's
exposure to market risks from changes in commodity prices and foreign exchange rates remained immaterial in
the first quarter of 2000.
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2001.
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
the Company's, LG&E's and KU's respective combined Annual Report on Form 10-K for the year
ended December 31, 1999:2000: Item 1, Business; Item 3, Legal Proceedings; Item 7,
Management's Discussion and Analysis of Results of Operations and Financial
Condition; Notes 2, 6, 183 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 1411 of KU's Notes to Financial Statements under Item 8. 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.
PowerGen Merger Regulatory FilingsE.ON - POWERGEN TRANSACTION
On February 28, 2000,April 9, 2001, E.On AG announced a conditional offer to purchase all the
Company announcedcommon shares of Powergen plc, the signingindirect corporate parent of a definitive
merger agreement with PowerGen plc of the United Kingdom, wherein, upon
closing, the Company will become a wholly-owned subsidiary of PowerGenLG&E and shareholders of the Company will receive $24.85 per share of Company common
stock.KU. The
transaction is scheduled to be completed nine to twelve months
from announcement, subject to a number of conditions precedent, including the
receipt of required regulatory approvals from European and other conditionsUnited States governmental
bodies, in form satisfactory to consummation. Applications for approval were filed
withthe parties. Among the primary United States
regulatory approvals are: the Kentucky Public Service Commission, the Virginia
State Corporation Commission, the Securities and the FERC (under the Federal Power Act) in March 2000, and with the SEC
(under the Public Utility Holding Company Act of 1935) in April 2000.
Approval applications or notice filings will also be made to the Tennessee
Regulatory Authority, to the Department of JusticeExchange Commission, and the
Federal Trade
Commission (under the Hart-Scott-Rodino Antitrust Improvements ActEnergy Regulatory Commission. The parties anticipate that these
approvals may be received by early 2002 to permit completion 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. While the Company and PowerGen believe that they
will receive the requisite regulatory approvals for the merger in
sufficient time to complete the transaction
on the schedule mentioned
above,in early spring 2002. However, there can be no assurance as to the timing ofthat such approvals
will be obtained in form or the
ability to obtaintiming sufficient for such approvals on satisfactory terms or otherwise. See
Item 1, PowerGen Merger and Note 22 to the Company's Notes to Financial
Statements under Item 8 of its Annual Report on Form 10-K for the year
ended December 31, 1999 for further discussion of this matter.
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dates.
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.None.
Item 6(b). Reports on Form 8-K.
On January 6, 2000, the CompanyApril 30, 2001, LG&E and KU filed a reportCurrent Report on Form 8-K announcing 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, 2000, it issued a statement regarding the Kentucky
Commission's decisionchange in the PBR case involving its two utility
subsidiaries, LG&E and KU.
On February 29, 2000, the Company filed a report on Form 8-K announcing
that on February 27, 2000, it and PowerGen entered into an Agreement and
Plan of Merger.
- 34 -companies certifying accountants.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LG&E Energy Corp.
Registrant
Date: May 15, 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 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, 20002001 /s/ Michael D. Robinson
Michael D. RobinsonS. Bradford Rives
---------------------
S. Bradford Rives
Senior Vice President - Finance
and Controller (On behalf of the registrant in
his capacity as Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Kentucky Utilities Company
- --------------------------
Registrant
Date: May 15, 20002001 /s/ Michael D. Robinson
Michael D. RobinsonS. Bradford Rives
---------------------
S. Bradford Rives
Senior Vice President - Finance
and Controller (On behalf of the registrant in
his capacity as Principal Accounting Officer)
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23