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 June 30, 1995
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 1-3464
Kentucky Utilities Company
(Exact name of registrant as specified in its charter)
Kentucky and Virginia 61-0247570
(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 August 9, 1995:
37,817,878 shares (owned by the parent-KU Energy Corporation).
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PART I. FINANCIAL INFORMATION
KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Three
Months Ended
June 30,
1995 1994
Operating Revenues (See Note 2) $154,757 $154,026
Operating Expenses:
Fuel, principally coal, used in
generation (See Note 2) 40,679 43,372
Electric power purchased 17,631 16,356
Other operating expenses 30,127 27,645
Maintenance 19,493 18,893
Depreciation 18,785 16,151
Federal and state income taxes 5,634 7,933
Other taxes 4,125 3,642
Total Operating Expenses 136,474 133,992
Net Operating Income 18,283 20,034
Other Income and Deductions:
Interest and dividend income 803 766
Other income and deductions - net 1,376 1,875
Total Other Income and Deductions 2,179 2,641
Income Before Interest Charges 20,462 22,675
Interest Charges 9,901 8,202
Net Income 10,561 14,473
Preferred Stock Dividend Requirements 564 564
Net Income Applicable to Common Stock $ 9,997 $ 13,909
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Six
Months Ended
June 30,
1995 1994
Operating Revenues (See Note 2) $321,905 $320,554
Operating Expenses:
Fuel, principally coal, used in
generation (See Note 2) 86,385 87,231
Electric power purchased 33,408 32,239
Other operating expenses 60,725 54,332
Maintenance 34,349 33,431
Depreciation 37,486 32,338
Federal and state income taxes 16,268 22,664
Other taxes 8,439 7,705
Total Operating Expenses 277,060 269,940
Net Operating Income 44,845 50,614
Other Income and Deductions:
Interest and dividend income 1,436 2,502
Other income and deductions - net 2,856 3,048
Total Other Income and Deductions 4,292 5,550
Income Before Interest Charges 49,137 56,164
Interest Charges 19,648 16,347
Net Income 29,489 39,817
Preferred Stock Dividend Requirements 1,128 1,256
Net Income Applicable to Common Stock $ 28,361 $ 38,561
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the Six Months
Ended June 30,
1995 1994
Cash Flows from Operating Activities:
Net Income $ 29,489 $ 39,817
Items not requiring (providing) cash currently:
Depreciation 37,486 32,338
Deferred income taxes and investment tax credit (1,097) (3,342)
Changes in current assets and liabilities:
Change in fuel inventory (2,199) 179
Change in accounts receivable 2,957 2,059
Change in accounts payable (11,075) (3,195)
Change in accrued taxes 4,737 2,998
Change in accrued utility revenues (628) 1,865
Other--net 1,201 (2,393)
Net Cash Provided by Operating Activities 60,871 70,326
Cash Flows from Investing Activities:
Construction expenditures - utility (54,480) (89,468)
Other 17 170
Cash Used by Investing Activities (54,463) (89,298)
Cash Flows from Financing Activities:
Short-term borrowings - net (31,300) 47,900
Issuance of long-term debt 50,000 -
Funds deposited with trustee - net 8,600 18,393
Retirement of long-term debt (21) (21)
Retirement of preferred stock, including premium - (20,302)
Payment of dividends (32,706) (32,139)
Net Cash Provided (Used) by Financing Activities (5,427) 13,831
Net Increase (Decrease) in Cash and Cash Equivalents 981 (5,141)
Cash and Cash Equivalents Beginning of Period 3,111 8,832
Cash and Cash Equivalents End of Period $ 4,092 $ 3,691
Supplemental Disclosures
Cash paid for:
Interest on short and long-term debt $ 18,622 $ 15,378
Federal and state income taxes $ 12,826 $ 25,378
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
June 30, Dec. 31,
1995 1994
ASSETS
Utility Plant:
Plant in service, at cost $2,286,014 $2,238,926
Less: Accumulated depreciation 970,974 933,394
1,315,040 1,305,532
Construction work in progress 112,268 104,385
1,427,308 1,409,917
Current Assets:
Cash and cash equivalents 4,092 3,111
Escrow funds - coal contract litigation 6,594 6,911
Construction funds held by trustee 10,108 18,553
Accounts receivable 38,755 41,712
Accrued utility revenues 24,855 24,227
Fuel, principally coal, at average cost 37,851 35,652
Materials and supplies, at average cost 22,123 20,081
Other 13,818 10,616
158,196 160,863
Investments, Deferred Charges and Other Assets:
Unamortized loss on reacquired debt 11,814 12,324
Other 35,006 34,996
46,820 47,320
Total Assets $1,632,324 $1,618,100
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 561,984 $ 565,201
Preferred stock 40,000 40,000
Long-term debt 545,984 496,012
1,147,968 1,101,213
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 45,000 76,300
Accounts payable 38,442 49,517
Accrued interest 7,499 7,328
Accrued taxes 14,159 9,422
Customers' deposits 6,535 6,423
Accrued payroll and vacations 9,194 8,207
Liab. to ratepayers - coal contract litigation 6,595 6,909
Other 6,317 6,275
133,762 170,402
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 216,893 214,892
Accumulated deferred investment tax credits 36,227 38,275
Regulatory tax liability 59,482 60,788
Other 37,992 32,530
350,594 346,485
Total Capitalization and Liabilities $1,632,324 $1,618,100
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
NOTES TO 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 normal-
ly 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 Kentucky
Utilities Company (KU) Annual Report on Form 10-K for the year
ended December 31, 1994 (1994 10K).
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 mislead-
ing. Results of interim periods are not necessarily indicative
of results for any twelve-month period due to the seasonal nature
of KU's business.
2. OPERATING REVENUES AND FUEL COSTS
Pursuant to regulatory orders, KU has been refunding fuel
cost savings related to the resolution of a coal contract
dispute. Refunds to Kentucky retail customers commenced in July
1994. Refunds were made to Virginia retail customers during the
period August 1993 through June 1994. Refunds were made to
wholesale customers under the jurisdiction of the Federal Energy
Regulatory Commission in lump sum payments in September 1993.
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KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Operating revenues for the three-month and six-month periods
ended June 30, 1994 were reduced by $.4 million and $.9 million,
respectively, resulting from the above-mentioned refund. The
refund also resulted in a reduction of fuel expense for the
three-month and six-month periods ended June 30, 1994 of
$.4 million and $3.4 million, respectively. The difference
between the reduction in operating revenues and the reduction in
fuel expense is attributed to incurred litigation costs and fuel
costs savings related to off-system sales. These amounts were
allowed to be retained by KU pursuant to regulatory orders.
3. FINANCING
In June 1995, KU issued $50 million of Series R First
Mortgage Bonds which will mature June 1, 2025 and bear interest
at 7.55%. The proceeds were used primarily to refinance short-
term indebtedness incurred to finance ongoing construction
expenditures and general corporate requirements.
4. ENVIRONMENTAL COST RECOVERY
In July 1994, the Kentucky Public Service Commission (PSC)
approved KU's January 1994 application to implement an
environmental surcharge. The surcharge, authorized by a Kentucky
statute enacted in 1992, is designed to recover certain operating
and capital costs related to compliance with federal, state or
local environmental requirements associated with the production
of energy from coal, including the 1990 Clean Air Act Amendments.
KU's environmental surcharge was implemented in August 1994 and
is described in Item 1 of the 1994 10K. The initial six-month
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KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
review and hearing process was completed in June of 1995, and KU
is awaiting an order from the PSC. The typical customer's
monthly bill during the six-month review period increased by
about 2% as a result of the surcharge.
The constitutionality of the surcharge was challenged in the
Franklin County (Kentucky) Circuit Court (Circuit Court) in an
action brought against KU and the PSC by the Attorney General of
Kentucky and representatives of customer groups. In July 1995,
the Circuit Court entered judgment upholding the
constitutionality of the surcharge but vacating that part of the
PSC order allowing KU to recover costs associated with
environmental expenditures incurred before January 1, 1993, the
effective date of the surcharge statute, and remanding to the PSC
for determination in accordance with the judgment. On August 7,
1995, KU filed a motion requesting the Circuit Court to amend its
judgment and sustain the PSC order in its entirety. If the
judgment is ultimately upheld as entered, KU estimates the amount
it would be required to refund for surcharge collections through
June 1995 would be approximately $4 million. At this time, KU
cannot predict the outcome of this proceeding.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY & RESOURCES
KU's construction expenditures decreased approximately
$35 million during the six-month period ending June 30, 1995
compared to the same period of 1994. The decrease is
attributable primarily to planned reductions in expenditures for
combustion turbine peaking units and for compliance with the 1990
Clean Air Act Amendments.
Refer to Note 3 of the Notes to Financial Statements for a
discussion of KU's financing activities.
RESULTS OF OPERATIONS
Quarter ended June 30, 1995, compared
to the Quarter ended June 30, 1994
Net Income applicable to common stock for the three-month
period ended June 30, 1995 was $10 million compared to
$13.9 million for the corresponding period of 1994. The decrease
reflects milder weather and a decline in off-system sales during
the second quarter of 1995 compared to 1994 as well as increases
in interest, depreciation and other operating expenses as further
discussed below.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Increase (Decrease)
From Prior Year
Three Months
Ended June 30, 1995
kWh Revenues
(%) (000's)
Residential (2) $ 639
Commercial 1 1,376
Industrial 5 2,209
Mine Power & Public Authorities (1) 580
Total Retail Sales 1 4,804
Other Electric Utilities (25) (5,007)
Miscellaneous Revenues & Other - 569
Total Before Refund (5) 366
Provision for Refund -
Litigation Settlement - 365
Total (5) $ 731
Operating revenues, before the impact of the refunds to
customers during 1994, increased $.4 million. (Refer to Note 2 of
the Notes to Financial Statements, "Operating Revenues and Fuel
Costs", for a discussion of the refunds to customers resulting
from the resolution of a coal contract dispute and the impact on
1994 operating results). A 5% decrease in kilowatt-hour sales was
offset by $4.3 million recovered under the environmental
surcharge. (Refer to Note 4 of the Notes to Financial
Statements, Environmental Cost Recovery, for an update of
environmental surcharge legal proceedings.) The decrease in
kilowatt-hour sales is attributable to a decline in residential
and off-system sales, partially offset by an increase in
industrial sales. The increase in industrial sales reflects
continued economic growth in the manufacturing sector of KU's
service area. About 35% of the industrial sales increase was due
to greater sales to Toyota Motor Manufacturing
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
U.S.A., Inc. (TMM), KU's largest customer. The decrease in off-
system sales is attributable to a decrease in demand for power at
neighboring utilities. The decline in residential sales reflects
milder weather during the second quarter of 1995 compared to
1994. However, KU set an all-time peak demand for electricity on
July 14, 1995 of 3,250 megawatts.
Fuel expense, excluding the effect of the refunds to
customers, decreased $3.1 million (7%). This decrease reflects a
3% decrease in tons of coal consumed as well as a 4% decrease in
the average price per ton of coal consumed. Purchased power
expense increased $1.3 million (8%) due to increases in demand
($1 million) and energy costs ($.3 million). A 6% decline in
kilowatt-hour purchases, resulting from the previously mentioned
decline in kilowatt-hour sales, was offset by less favorable
pricing.
Other operating expenses increased by $2.5 million (9%) due
to increased generating plant operations expenses (primarily
attributable to costs associated with environmental compliance),
advertising and marketing program expenses and timing of
administrative and general expenditures.
Depreciation expense increased $2.6 million (16%) resulting
from the Ghent Unit 1 scrubber and two combustion turbine peaking
units being placed into service late in 1994 and early 1995.
Interest charges increased $1.7 million (21%) reflecting the
issuance of $54 million of long-term debt in the fourth quarter
of 1994 and an increase in the average amount of short-term debt
outstanding compared to the corresponding quarter of 1994.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Federal and state operating income taxes decreased
$2.3 million (29%), primarily due to lower pre-tax income.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months ended June 30, 1995, compared
to the Six Months ended June 30, 1994
Net income applicable to common stock for the six-month
period ended June 30, 1995 was $28.4 million as compared to
$38.6 million for the corresponding period of 1994. The decrease
reflects milder weather and a decline in off-system sales during
the six-month period ending June 30, 1995 as compared to the same
period in 1994 as well as increases in interest, depreciation and
other operating expenses as further discussed below. Net income
applicable to common stock for the first quarter of 1994 included
a one-time recovery of about $1.9 million from the resolution of
a coal contract dispute. For additional information concerning
the refunds resulting from resolution of the dispute and the
impact on 1994 operating results, refer to Note 2 of the Notes to
Financial Statements, "Operating Revenues and Fuel Costs."
Increase (Decrease)
From Prior Year
Six Months
Ended June 30, 1995
kWh Revenues
(%) (000's)
Residential (4) $ (616)
Commercial - 2,436
Industrial 5 4,508
Mine Power & Public Authorities (2) 1,246
Total Retail Sales (1) 7,574
Other Electric Utilities (23) (7,484)
Miscellaneous Revenues & Other - 359
Total Before Refund (5) 449
Provision for Refund -
Litigation Settlement - 902
Total (5) $ 1,351
Operating revenues, before the impact of the refunds to
customers, increased $.4 million. A 5% decrease in kilowatt-hour
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
sales was offset by $8.1 million recovered under the
environmental surcharge. (Refer to Note 4 of the Notes to
Financial Statements, Environmental Cost Recovery, for an update
of environmental surcharge legal proceedings.) The decrease in
kilowatt-hour sales is attributable to a decline in residential
and off-system sales, partially offset by an increase in
industrial sales. The increase in industrial sales reflects
continued economic growth in the manufacturing sector of KU's
service area. About 33% of the industrial sales increase is due
to greater sales to TMM. The decrease in off-system sales is
attributable to a decrease in demand for power at neighboring
utilities. The decline in residential sales reflects milder
weather during the six-month period ended June 30, 1995 as
compared to the same period of 1994.
Fuel expense, excluding the effect of the refunds to
customers, decreased $4.2 million (5%). This decrease primarily
reflects a 4% decrease in tons of coal consumed. Purchased power
expense increased $1.2 million (4%) due to an increase in demand
costs ($2.2 million) partially offset by a decrease in kilowatt-
hour purchases ($1.0 million). The decrease in kilowatt-hour
purchases is due to the previously mentioned decline in kilowatt-
hour sales.
Other operating expenses increased $6.4 million (12%) due to
increased generating plant operations expenses (primarily
attributable to costs associated with environmental compliance),
advertising and marketing program expenses and timing of
administrative and general expenditures.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Maintenance expense increased $.9 million (3%) due to an
increase in production maintenance resulting from the timing of
scheduled maintenance at KU's generating stations. This increase
was substantially offset by a decrease in distribution
maintenance in 1995. Extensive ice storm damage in the first
quarter of 1994 increased distribution maintenance in that
period.
Depreciation expense increased $5.1 million (16%) resulting
from the Ghent Unit 1 scrubber and two combustion turbine peaking
units being placed into service late in 1994 and early 1995.
Interest charges increased $3.3 million (20%) reflecting the
issuance of $54 million of long-term debt in the fourth quarter
of 1994 and an increase in the average amount of short-term debt
outstanding.
Federal and state operating income taxes decreased
$6.4 million (28%), primarily due to lower pre-tax income.
CAPACITY REQUIREMENTS
In May 1995, a 110-megawatt (MW) combustion turbine
generating unit, which was placed in commercial operation during
the first quarter of 1995, was taken out of service due to a
turbine blade problem. In addition to this unit, KU has decided
not to operate another similar combustion turbine unit placed in
commercial operation in 1994 and has temporarily discontinued
testing of a third similar unit scheduled for commercial
operation later in 1995 until the turbine blade problem can be
identified and corrected. KU is currently analyzing the
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
situation in cooperation with the vendor of the three 110 MW
generating units. Although KU cannot predict the outcome of this
matter, KU does not believe this will have a significant impact
on its results of operations or its ability to meet customer
requirements.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UTILITY ISSUES - COMPETITION
In March 1995, the Federal Energy Regulatory Commission
(FERC) issued a Notice of Proposed Rulemaking (NOPR) by which the
FERC will require public utilities that own or control facilities
used for the transmission of electric energy in interstate
commerce to offer "open access" transmission service on a
nondiscriminatory basis. The FERC also proposes to allow, in
certain circumstances, the collection of charges for the recovery
of stranded costs when customers change power suppliers. The
FERC expects to issue final rules by February 1996.
KU filed a Transmission Services (TS) Tariff and Power
Services (PS) Tariff on September 30, 1994 (refer to Management's
Discussion and Analysis in the 1994 Annual Report on Form 10-K
under the heading "Utility Issues - Competition" for a discussion
of the TS Tariff and PS Tariff filed by KU). The FERC accepted
the TS Tariff, subject to refund, effective December 1, 1994, but
did not approve the PS Tariff. KU revised the TS Tariff in a
filing made on March 31, 1995 with the FERC in order to meet
certain provisions of the NOPR and reaffirmed its request for the
market-based PS Tariff. On May 31, 1995, the FERC issued an
order which approved the revised TS Tariff, subject to refund,
and approved the PS Tariff subject to KU making a compliance
filing which addressed certain aspects of the TS and PS Tariffs.
On June 30, 1995, KU made the compliance filing with the FERC and
the PS Tariff became effective on that date.
Although KU does not expect either of these new tariffs to
have a material impact on its 1995 revenues or income, they are
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
indicative of the increasingly competitive environment in which
KU and other utilities operate.
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PART II. OTHER INFORMATION
KENTUCKY UTILITIES COMPANY
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL COST RECOVERY
See Note 4 of the Notes to Financial Statements, Environmental
Cost Recovery, for an update of environmental surcharge legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the April 25, 1995 Annual Meeting of Shareholders, the
following proposal was acted upon and approved.
(1) To elect three Directors to the Board of Directors of
Kentucky Utilities Company.
Votes
Votes for Withheld
William B. Bechanan 37,817,878 0
Harry M. Hoe 37,817,878 0
Michael R. Whitley 37,817,878 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed as part of this report:
Exhibit
Number Description
4 Supplemental Indenture dated June 1, 1995 between
Kentucky Utilities Company and Bank of America
Illinois and Robert J. Donahue, as Trustees,
providing for First Mortgage Bonds Series R of
Kentucky Utilities Company.
27 Financial Data Schedule (required for electronic
filing only in accordance with Item 601(c)(1) of
Regulation S-K).
(b) Reports on Form 8-K.
None.
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KENTUCKY UTILITIES COMPANY
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.
KENTUCKY UTILITIES COMPANY
(Registrant)
Date August 9, 1995 /s/ Michael R. Whitley
Michael R. Whitley
Chairman of the Board and
Chief Executive Officer
Date August 9, 1995 /s/ Michael D. Robinson
Michael D. Robinson
Controller
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