SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-10944 KU Energy Corporation (Exact name of registrant as specified in its charter) Kentucky 61-1141273 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Quality Street, Lexington, Kentucky 40507 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 606-255-2100 Not Applicable Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Number of shares of Common Stock outstanding at May 5, 1994: 37,817,878 shares. -1- PART I. FINANCIAL INFORMATION KU ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands except for per share amounts) For the Three Months Ended March 31, 1994 1993 Operating Revenues $166,523 $154,273 Operating Expenses: Fuel, principally coal, used in generation 43,859 43,658 Electric power purchased 15,883 9,968 Other operating expenses 27,104 25,418 Maintenance 14,539 11,325 Depreciation 16,188 15,232 Federal and state income taxes 14,558 13,937 Other taxes 4,068 3,710 Total Operating Expenses 136,199 123,248 Net Operating Income 30,324 31,025 Other Income and Deductions: Interest and dividend income 2,155 1,375 Other income and deductions - net 1,377 1,250 Total Other Income and Deductions 3,532 2,625 Income Before Interest and Other Charges 33,856 33,650 Interest and Other Charges 8,837 9,801 Net Income $ 25,019 $ 23,849 Average Common Shares Outstanding 37,818 37,818 Earnings Per Common Share $ .66 $ .63 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. -2- KU ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars) For the Three Months Ended March 31, 1994 1993 Cash Flows from Operating Activities: Net Income $ 25,019 $ 23,849 Items not requiring (providing) cash currently: Depreciation 16,188 15,232 Deferred income taxes and investment tax credit (1,782) 1,766 Change in fuel inventory 4,644 (1,709) Change in accounts receivable 1,404 (6,780) Change in accounts payable (10,223) (2,114) Change in accrued taxes 17,882 12,560 Change in accrued utility revenues 4,788 2,567 Change in liability to ratepayers (519) 38,332 Change in escrow funds 507 (44,240) Other--net 787 6,684 Net Cash Provided by Operating Activities 58,695 46,147 Cash Flows from Investing Activities: Construction expenditures - utility (40,496) (17,928) Nonutility property - (5) Purchase of long-term investments (238) 328 Proceeds from leveraged lease investments 162 - Other 103 108 Net Cash Used by Investing Activities (40,469) (17,497) Cash Flows from Financing Activities: Short-term borrowings - net 3,500 - Funds deposited with trustee - net 9,000 - Retirement of long-term debt (21) (30,021) Retirement of preferred stock, incl. premium (20,302) - Payment of common stock dividends (15,505) (15,127) Net Cash Used by Financing Activities (23,328) (45,148) Net Decrease in Cash and Cash Equivalents (5,102) (16,498) Cash and Cash Equivalents Beginning of Period 32,500 122,802 Cash and Cash Equivalents End of Period $ 27,398 $106,304 Supplemental Disclosures Cash paid for: Interest on long-term debt $ 4,772 $ 9,612 Federal and state income taxes $ - $ - The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. -3- KU ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands of dollars) As of As of Mar. 31, Dec. 31, ASSETS 1994 1993 Utility Plant: Plant in service, at cost $2,012,198 $2,004,688 Less: Accumulated depreciation 896,527 879,960 1,115,671 1,124,728 Construction work in progress 191,530 158,829 1,307,201 1,283,557 Current Assets: Cash and cash equivalents 27,398 32,500 Escrow funds - coal contract litigation 37,245 37,752 Construction funds held by trustee 9,372 18,268 Accounts receivable 39,990 41,394 Accrued utility revenues 20,787 25,575 Fuel, principally coal, at average cost 26,429 31,073 Materials and supplies, at average cost 18,441 17,261 Other 8,912 7,808 188,574 211,631 Investments, Deferred Charges and Other Assets: Investment in marketable securities 16,352 16,397 Investment in leveraged leases 10,591 10,320 Accumulated deferred income taxes 39,293 36,418 Unamortized loss on reacquired debt 13,084 13,295 Other 38,344 37,994 117,664 114,424 Total Assets $1,613,439 $1,609,612 CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity $ 611,378 $ 602,503 Preferred stock of Subsidiary 40,000 40,000 Long-term debt of Subsidiary 442,021 442,045 1,093,399 1,084,548 Current Liabilities: Preferred stock and long-term debt due within one year 21 20,021 Short-term borrowings 3,500 - Accounts payable 33,671 43,894 Accrued interest 9,796 7,302 Accrued taxes 22,338 4,456 Customers' deposits 8,835 10,803 Accrued payroll and vacations 10,084 7,719 Liab. to ratepayers - coal contract litigation 36,348 36,867 Other 6,277 6,444 130,870 137,506 Deferred Credits and Other Liabilities: Accumulated deferred income taxes 250,807 248,369 Accumulated deferred investment tax credits 41,358 42,385 Regulatory liabilities 68,818 69,689 Other 28,187 27,115 389,170 387,558 Total Capitalization and Liabilities $1,613,439 $1,609,612 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. -4- KU ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. PRESENTATION OF CONDENSED INFORMATION Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information has been condensed and certain footnote disclosures have been omitted, which are normally included in financial statements prepared in accordance with generally accepted accounting principles. These financial statements should be read in conjunction with the financial statements and notes thereto in the KU Energy Corporation (KU Energy or the Company) Annual Report on Form 10-K for the year ended December 31, 1993 (1993 10-K). In the opinion of management, the information furnished herein reflects all adjustments which are necessary to present fairly the results of the periods shown and the disclosures which have been made are adequate to make the information not misleading. Results of interim periods are not necessarily indicative of results for any twelve-month period due to the seasonal nature of the business of the Company's principal subsidiary, Kentucky Utilities Company (Kentucky Utilities). 2. FINANCIAL INSTRUMENTS Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). This statement contains accounting and disclosure requirements associated with investments in equity securities that have readily determinable fair values and all investments in debt securities. -5- KU ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) This statement requires, among other things, classification of securities into one of three categories: held-to-maturity, available-for-sale or trading. Currently, the Company has no trading securities. The Company's temporary cash investments are classified as available-for-sale or held-to-maturity and are reported under the caption "Cash and cash equivalents" on the Consolidated Balance Sheet. The Company has investments in marketable securities which are classified as available-for-sale and are included in the caption "Investment in marketable securities" on the Consolidated Balance Sheet. The adoption of SFAS 115 did not have a material impact on financial condition or results of operations. Reference is made to the 1993 10-K for market value disclosures on these securities. 3. PREFERRED STOCK Kentucky Utilities issued $20 million of 6.53% preferred stock in December 1993. On February 1, 1994, Kentucky Utilities used the proceeds from this issue, together with other available funds, to redeem its 7.84% Preferred Stock at a total cost of $20.3 million (including a redemption premium of $.3 million). Kentucky Utilities announced its intention to redeem this preferred stock on December 22, 1993. -6- KU ENERGY CORPORATION AND SUBSIDIARIES MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS KU Energy Corporation is a holding company organized under the laws of Kentucky. KU Energy has two wholly owned subsidiaries, Kentucky Utilities Company, an electric utility, and KU Capital Corporation (KU Capital), a nonutility subsidiary. Kentucky Utilities is KU Energy's principal subsidiary. Material changes in the consolidated financial condition and operating results of KU Energy are based primarily upon the operations of Kentucky Utilities. LIQUIDITY & RESOURCES Kentucky Utilities' construction expenditures increased approximately $23 million during the three-month period ended March 31, 1994, when compared to the first quarter of 1993. The increase can be attributed primarily to expenditures for combustion turbine peaking units and for compliance with the 1990 Clean Air Act Amendments. Kentucky Utilities expects to fund the majority of its remaining 1994 construction expenditures from the issuance of long-term debt with the balance primarily from internal sources. In April 1994, KU Capital entered into agreements with Tenaska, Inc., (a developer of gas-fired cogeneration and independent power generation projects in the United States and Canada) and affiliates to purchase limited partnership interests in the ownership and development of certain independent power generation projects. Under the agreements, which are subject to the completion of formal legal documentation, KU Capital will become a limited partner in two operating cogeneration projects -7- KU ENERGY CORPORATION AND SUBSIDIARIES MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and in two independent power projects being developed under the leadership of Tenaska. KU Capital estimates that its investment in the four Tenaska-sponsored projects will be about $12 million over the 1994-1997 period. KU Capital has also agreed to participate in funding the development of future Tenaska- sponsored independent power projects in North America. KU Capital will fund about $10 million of project development expenditures over the 1994-1996 time frame. This funding commitment will provide KU Capital with the opportunity to invest in future development projects. RESULTS OF OPERATIONS Quarter ended March 31, 1994, compared to the Quarter ended March 31, 1993 Increase (Decrease) From Prior Year Three Months Ended Mar. 31, 1994 kWh Revenues (%) (000's) Residential 11 $ 5,412 Commercial 6 1,680 Industrial 7 1,291 Mine Power & Public Authorities 4 569 Total Retail Sales 8 8,952 Other Electric Utilities 36 3,450 Provision for Refund - Litigation Settlement - (537) Miscellaneous Revenues & Other - 385 Total 11 $12,250 Operating revenues increased $12.3 million (8%). The increase can be attributed to an 11% increase in kilowatt-hour sales. The increase in kilowatt-hour sales is primarily attributable to increases in residential, commercial, industrial -8- KU ENERGY CORPORATION AND SUBSIDIARIES MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and off-system sales. The increases in residential and commercial sales reflect colder weather during the first quarter of 1994. Kentucky Utilities set a new record winter peak demand of 3,092 megawatts on January 19, 1994. The increase in industrial sales reflects the general strength of the service area economy as well as an increase in the number of industrial customers. The increase in off-system sales is attributable to an increase in demand for power due to extreme weather conditions and maintenance programs at neighboring utilities during the first quarter of 1994. Revenues were reduced by approximately $.5 million resulting from refunds to customers of amounts recovered from a litigation settlement with a former coal supplier. The $.5 million, which was charged against revenue, represents $2.9 million of fuel savings less $2.4 million for incurred litigation costs and off-system sales which Kentucky Utilities was allowed to retain pursuant to a regulatory order. Fuel and purchased power expense increased $6.1 million (11%). Fuel expense for the first quarter of 1994 reflects a $2.9 million reduction associated with the refunding to customers of fuel cost savings related to the resolution of a coal contract dispute. This reduction in fuel expense was offset by a $3.1 million increase resulting from a 4% increase in coal consumption as well as a 3% increase in the average price per ton of coal consumed. Purchased power expense increased by $5.9 million due to greater kilowatt-hour purchases ($3.2 million) and higher demand costs ($2.7 million). The -9- KU ENERGY CORPORATION AND SUBSIDIARIES MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS increase is attributable to a permanent increase in capacity entitlement, effective January 1994, under an existing purchased power contract with Electric Energy, Inc. The increases in tons of coal consumed and kilowatt-hour purchases are the result of the previously discussed sales increases. Maintenance expenses increased $3.2 million (28%), primarily due to distribution utility line maintenance costs incurred as a result of extensive ice storm damage during the first quarter of 1994. -10- PART II. OTHER INFORMATION KU ENERGY CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None. (b) Reports on Form 8-K. None. -11- KU ENERGY CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KU ENERGY CORPORATION (Registrant) Date May 5, 1994 /s/ John T. Newton John T. Newton Chairman and President Date May 5, 1994 /s/ Michael D. Robinson Michael D. Robinson Controller -12-