UNITED STATES 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, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-10944 KU Energy Corporation 61-1141273
(A Kentucky Corporation)
One Quality Street
Lexington, Kentucky 40507-1428
(606) 255-2100
1-3464 Kentucky Utilities Company 61-0247570
(A Kentucky and Virginia Corporation)
One Quality Street
Lexington, Kentucky 40507-1428
(606) 255-2100
Indicate by check mark whether the Registrants (1) have 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 such Registrants were required to file such
reports) and (2) have been subject to such filing requirements for the
past 90 days.
Yes X No .
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of the latest practicable date:
KU Energy Corporation: Common stock, no par value, 37,817,878
shares outstanding at August 2, 1996
Kentucky Utilities Company: Common stock, no par value, 37,817,878
shares outstanding and held by KU Energy
Corporation at August 2, 1996
-1-
KU ENERGY CORPORATION
AND
KENTUCKY UTILITIES COMPANY
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996
CONTENTS
PART I. FINANCIAL INFORMATION Page No.
Item 1: Financial Statements
KU ENERGY CORPORATION
Consolidated Statements of Income 3-4
Consolidated Statements of Cash Flows 5
Consolidated Balance Sheets 6
KENTUCKY UTILITIES COMPANY
Statements of Income 7-8
Statements of Cash Flows 9
Balance Sheets 10
CONDENSED NOTES TO FINANCIAL STATEMENTS OF KU ENERGY
CORPORATION AND KENTUCKY UTILITIES COMPANY 11-15
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
KU ENERGY CORPORATION AND KENTUCKY
UTILITIES COMPANY 16-21
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 22
Item 4: Submission of Matters to a Vote of
Security Holders 22
Item 6: Exhibits and Reports on Form 8-K 22
Signatures 23
-2-
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
June 30,
1996 1995
Operating Revenues $167,510 $154,749
Operating Expenses:
Fuel, principally coal,
used in generation 45,079 40,679
Electric power purchased 17,589 17,631
Other operating expenses 30,727 30,661
Maintenance 17,606 19,495
Depreciation 20,154 18,832
Federal and state income taxes 9,636 5,378
Other taxes 3,894 4,180
Total Operating Expenses 144,685 136,856
Net Operating Income 22,825 17,893
Other Income and Deductions:
Interest and dividend income 666 1,127
Other income and deductions - net 2,927 1,868
Total Other Income and Deductions 3,593 2,995
Income Before Interest and Other Charges 26,418 20,888
Interest and Other Charges 10,345 10,466
Net Income $ 16,073 $ 10,422
Average Common Shares Outstanding 37,818 37,818
Earnings Per Common Share $ .42 $ .27
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except for per share amounts)
For the Six
Months Ended
June 30,
1996 1995
Operating Revenues $358,500 $321,889
Operating Expenses:
Fuel, principally coal,
used in generation 99,104 86,385
Electric power purchased 35,093 33,408
Other operating expenses 60,724 61,867
Maintenance 31,810 34,353
Depreciation 40,219 37,580
Federal and state income taxes 25,336 15,869
Other taxes 8,261 8,523
Total Operating Expenses 300,547 277,985
Net Operating Income 57,953 43,904
Other Income and Deductions:
Interest and dividend income 1,551 2,104
Other income and deductions - net 3,995 3,999
Total Other Income and Deductions 5,546 6,103
Income Before Interest and Other Charges 63,499 50,007
Interest and Other Charges 21,107 20,778
Net Income $ 42,392 $ 29,229
Average Common Shares Outstanding 37,818 37,818
Earnings Per Common Share $ 1.12 $ .77
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
-4-
KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the
Six Months
Ended June 30,
1996 1995
Cash Flows from Operating Activities:
Net Income $ 42,392 $ 29,229
Items not requiring (providing) cash currently:
Depreciation 40,219 37,580
Deferred income taxes and investment tax credit 701 (392)
Changes in current assets and liabilities:
Change in fuel inventory (8,089) (2,199)
Change in accounts receivable 1,505 3,253
Change in accounts payable 3,050 (10,411)
Change in accrued taxes 42 4,575
Change in accrued utility revenues 2,345 (628)
Change in liability to ratepayers (6,599) (314)
Change in escrow funds 6,599 317
Other--net 6,886 (52)
Net Cash Provided by Operating Activities 89,051 60,958
Cash Flows from Investing Activities:
Construction expenditures - utility (47,431) (54,480)
Proceeds from leveraged lease investments 236 236
Investment in independent power projects (666) (2,595)
Proceeds from independent power projects 638 188
Other 201 13
Net Cash Used by Investing Activities (47,022) (56,638)
Cash Flows from Financing Activities:
Short-term borrowings - net (14,900) (31,300)
Issuance of long-term debt 35,682 49,401
Funds deposited with trustee - net 3,779 8,600
Retirement of long-term debt, incl. premiums (36,192) (21)
Payment of common stock dividends (32,523) (31,767)
Net Cash Used by Financing Activities (44,154) (5,087)
Net Decrease in Cash and Cash Equivalents (2,125) (767)
Cash and Cash Equivalents Beginning of Period 29,492 28,927
Cash and Cash Equivalents End of Period $ 27,367 $ 28,160
Supplemental Disclosures
Cash paid for:
Interest on short- and long-term debt $ 17,896 $ 18,622
Federal and state income taxes $ 26,975 $ 12,554
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
-5-
KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
June 30, Dec. 31,
ASSETS 1996 1995
Utility Plant:
Plant in service, at cost $ 2,434,567 $2,394,018
Less: Accumulated depreciation 1,034,025 997,366
1,400,542 1,396,652
Construction work in progress 64,247 61,410
1,464,789 1,458,062
Current Assets:
Cash and cash equivalents 27,367 29,492
Escrow funds - coal contract litigation - 6,599
Construction funds held by trustee - 3,743
Accounts receivable 48,024 49,529
Accrued utility revenues 25,555 27,900
Fuel, principally coal, at average cost 37,527 29,438
Materials and supplies, at average cost 22,970 23,064
Other 8,447 8,121
169,890 177,886
Investments, Deferred Charges and Other Assets:
Investment in leveraged leases 23,038 21,509
Unamortized loss on reacquired debt 11,370 11,304
Other 45,726 46,213
80,134 79,026
Total Assets $ 1,714,813 $1,714,974
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 638,480 $ 628,611
Preferred stock of Subsidiary 40,000 40,000
Long-term debt of Subsidiary 546,373 545,980
1,224,853 1,214,591
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 40,700 55,600
Accounts payable 40,985 37,935
Accrued interest 8,304 7,556
Accrued taxes 5,002 4,960
Customers' deposits 7,729 6,876
Accrued payroll and vacations 9,609 8,759
Liab. to ratepayers - coal contract litigation - 6,599
Other 9,112 6,992
121,462 135,298
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 237,953 233,707
Accumulated deferred investment tax credits 32,174 34,180
Regulatory tax liability 55,929 57,726
Other 42,442 39,472
368,498 365,085
Total Capitalization and Liabilities $ 1,714,813 $1,714,974
The accompanying Condensed 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 Three
Months Ended
June 30,
1996 1995
Operating Revenues $167,516 $154,757
Operating Expenses:
Fuel, principally coal,
used in generation 45,079 40,679
Electric power purchased 17,589 17,631
Other operating expenses 30,214 30,127
Maintenance 17,604 19,493
Depreciation 20,107 18,785
Federal and state income taxes 9,215 5,634
Other taxes 3,845 4,125
Total Operating Expenses 143,653 136,474
Net Operating Income 23,863 18,283
Other Income and Deductions:
Interest and dividend income 401 803
Other income and deductions - net 1,706 1,376
Total Other Income and Deductions 2,107 2,179
Income Before Interest Charges 25,970 20,462
Interest Charges 9,780 9,901
Net Income 16,190 10,561
Preferred Stock Dividend Requirements 564 564
Net Income Applicable to Common Stock $ 15,626 $ 9,997
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
-7-
KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Six
Months Ended
June 30,
1996 1995
Operating Revenues $358,512 $321,905
Operating Expenses:
Fuel, principally coal,
used in generation 99,104 86,385
Electric power purchased 35,093 33,408
Other operating expenses 59,902 60,725
Maintenance 31,806 34,349
Depreciation 40,125 37,486
Federal and state income taxes 25,551 16,268
Other taxes 8,080 8,439
Total Operating Expenses 299,661 277,060
Net Operating Income 58,851 44,845
Other Income and Deductions:
Interest and dividend income 1,014 1,436
Other income and deductions - net 3,806 2,856
Total Other Income and Deductions 4,820 4,292
Income Before Interest Charges 63,671 49,137
Interest Charges 19,978 19,648
Net Income 43,693 29,489
Preferred Stock Dividend Requirements 1,128 1,128
Net Income Applicable to Common Stock $ 42,565 $ 28,361
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
-8-
KENTUCKY UTILITIES COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the Six
Months Ended
June 30,
1996 1995
Cash Flows from Operating Activities:
Net Income $ 43,693 $ 29,489
Items not requiring (providing) cash currently:
Depreciation 40,125 37,486
Deferred income taxes
and investment tax credit (497) (1,097)
Changes in current assets and liabilities:
Change in fuel inventory (8,089) (2,199)
Change in accounts receivable 1,447 2,957
Change in accounts payable 3,650 (11,075)
Change in accrued taxes (118) 4,737
Change in accrued utility revenues 2,345 (628)
Change in liability to ratepayers (6,599) (314)
Change in escrow funds 6,599 317
Other--net 7,515 1,797
Net Cash Provided by Operating Activities 90,071 61,470
Cash Flows from Investing Activities:
Construction expenditures - utility (47,431) (54,480)
Other 201 17
Cash Used by Investing Activities (47,230) (54,463)
Cash Flows from Financing Activities:
Short-term borrowings - net (14,900) (31,300)
Issuance of long-term debt 35,682 49,401
Funds deposited with trustee - net 3,779 8,600
Retirement of long-term debt, incl. premiums (36,192) (21)
Payment of dividends (33,651) (32,706)
Net Cash Used by Financing Activities (45,282) (6,026)
Net Increase (Decrease) in Cash and
Cash Equivalents (2,441) 981
Cash and Cash Equivalents Beginning of Period 5,697 3,111
Cash and Cash Equivalents End of Period $ 3,256 $ 4,092
Supplemental Disclosures
Cash paid for:
Interest on short- and long-term debt $ 17,896 $ 18,622
Federal and state income taxes $ 27,918 $ 12,826
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
-9-
KENTUCKY UTILITIES COMPANY
BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
June 30, Dec. 31,
1996 1995
ASSETS
Utility Plant:
Plant in service, at cost $2,434,567 $2,394,018
Less: Accumulated depreciation 1,034,025 997,366
1,400,542 1,396,652
Construction work in progress 64,247 61,410
1,464,789 1,458,062
Current Assets:
Cash and cash equivalents 3,256 5,697
Escrow funds - coal contract litigation - 6,599
Construction funds held by trustee - 3,743
Accounts receivable 48,024 49,471
Accrued utility revenues 25,555 27,900
Fuel, principally coal, at average cost 37,527 29,438
Materials and supplies, at average cost 22,970 23,064
Other 8,447 8,121
145,779 154,033
Investments, Deferred Charges and Other Assets:
Unamortized loss on reacquired debt 11,370 11,304
Other 37,202 36,589
48,572 47,893
Total Assets $1,659,140 $1,659,988
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 586,578 $ 576,537
Preferred stock 40,000 40,000
Long-term debt 546,373 545,980
1,172,951 1,162,517
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 40,700 55,600
Accounts payable 41,650 38,000
Accrued interest 8,304 7,556
Accrued taxes 5,083 5,201
Customers' deposits 7,729 6,876
Accrued payroll and vacations 9,560 8,706
Liab. to ratepayers - coal contract litigation - 6,599
Other 8,997 6,752
122,044 135,311
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 234,765 231,717
Accumulated deferred investment tax credits 32,174 34,180
Regulatory tax liability 55,929 57,726
Other 41,277 38,537
364,145 362,160
Total Capitalization and Liabilities $1,659,140 $1,659,988
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. PRESENTATION OF CONDENSED INFORMATION
The unaudited interim financial statements presented herein
include the consolidated statements of KU Energy Corporation and
Subsidiaries (KU Energy or the Company) as well as separate financial
statements for Kentucky Utilities Company (KU). KU Energy Corporation
is a holding company organized under the laws of Kentucky with two
first-tier subsidiaries: KU Capital Corporation (KU Capital), a non-
utility subsidiary, and KU, an electric utility. KU Energy
Corporation owns 100% of the common equity of KU Capital and KU. KU
is KU Energy Corporation's principal subsidiary.
The unaudited statements have been prepared by the Company and
KU, respectively, pursuant to the rules and regulations of the
Securities and Exchange Commission. 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 such rules and regulations, although
the Company and KU believe the disclosures are adequate to make the
information presented not misleading. The Company's consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto incorporated by reference in the Annual
Report on Form 10-K of KU Energy for the year ended December 31, 1995;
and the KU financial statements should be read in conjunction with the
financial statements and notes thereto included in the Annual Report
on Form 10-K of KU for the year ended December 31, 1995.
In the opinion of the Company and KU, the respective information
furnished herein reflects all adjustments, all of which are normal and
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
recurring, 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 KU's business. Prior year amounts have been
reclassified on a basis consistent with the June 30, 1996
presentation.
2. ENVIRONMENTAL COST RECOVERY
Since August 1994, KU has been collecting an environmental
surcharge from its Kentucky retail customers under a Kentucky statute
which authorizes electric utilities (including KU) to implement,
beginning January 1, 1993, an environmental surcharge. The surcharge
is designed to recover certain operating and capital costs of
compliance with federal, state or local environmental requirements
associated with the production of energy from coal, including the
Federal Clean Air Act as amended. KU's environmental surcharge was
approved by the Kentucky Public Service Commission (PSC) in July 1994
and was implemented in August 1994. The total surcharge collections
from August 1, 1994 through June 30, 1996 were approximately
$31 million.
The constitutionality of the surcharge statute was challenged in
the Franklin County (Kentucky) Circuit Court in an action brought
against KU and the PSC by the Attorney General of Kentucky and joined
by representatives of consumer groups. In July 1995, the Circuit
Court entered a judgment upholding the constitutionality of the
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
statute, but vacating that part of the PSC's July 1994 order which the
judgment describes as allowing KU to recover, under the surcharge,
environmental expenditures incurred before January 1, 1993, and
ordering the case remanded to the PSC for a determination in
accordance with the Circuit Court judgment.
The Attorney General and other consumer representatives appealed
to the Kentucky Court of Appeals that part of the Circuit Court
judgment upholding the constitutionality of the surcharge statute.
The PSC and KU appealed that part of the judgment denying recovery of
environmental expenditures incurred before January 1, 1993. On
August 22, 1995, in the first semi-annual reconciliation review, the
PSC ordered all surcharge revenues collected by KU from that date
subject to refund pending final determination of all appeals. In
March 1996 in the second semi-annual reconciliation review, the PSC
ordered all surcharge revenues collected during the six-month period
then under review (February 1, 1995 through July 31, 1995) subject to
refund pending final determination of all appeals. The total
surcharge collections from February 1, 1995 through June 30, 1996 were
approximately $27 million.
KU believes the constitutionality of the surcharge statute will
be upheld, but it cannot predict the outcome of that part of the
Circuit Court judgment disallowing recovery of environmental
expenditures incurred before January 1, 1993. If the Circuit Court
judgment is ultimately upheld as entered, KU estimates that the amount
it would be required to refund (which is based solely on costs
associated with environmental expenditures incurred before January 1,
-13-
KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1993) for surcharge collections through June 30, 1996, from the
implementation of the surcharge would be approximately $9 million, and
from February 1, 1995 would be approximately $7 million. At this
time, KU has not recorded any reserve for refund.
3. FINANCING
In January 1996, KU issued $36 million of Series S First Mortgage
Bonds which bear interest at 5.99% and will mature January 15, 2006.
The proceeds were used to redeem $35.5 million of Series K First
Mortgage Bonds. A redemption premium of approximately $.7 million was
recorded on the balance sheet and will be amortized over the period to
the scheduled maturity of the new bonds.
4. OPERATING REVENUES AND FUEL COSTS
Pursuant to regulatory orders, KU had been refunding fuel cost
savings related to the resolution of a coal contract dispute. 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 FERC in lump sum payments in September 1993.
Refunds to Kentucky retail customers commenced in July 1994. A
portion remained to be refunded to Kentucky customers who had not
filed required claims for refunds. Kentucky passed legislation in
March 1996 which provides for the distribution by the State of certain
unclaimed utility refunds to pay qualifying workers' compensation
claims through the Kentucky Workers' Compensation Funding Commission
(Funding Commission). KU requested permission from the PSC to
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
transfer the remaining unclaimed refunds to the state for this
purpose. The PSC issued an order in June 1996 approving this request
and releasing KU from any obligation imposed by the PSC to hold,
maintain and distribute the funds. KU transferred the funds
(approximately $6.8 million) to the Funding Commission in June 1996.
The legislation releases KU upon payment to the Kentucky State
Treasurer from any future liability relating to unclaimed refunds,
preserves the rights of ratepayers entitled to claim a refund who have
not yet done so, and authorizes the Funding Commission to make any
such refunds using any funds available.
-15-
KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and
results of operations is for the Company unless otherwise stated.
Material changes in the consolidated financial condition and operating
results of KU Energy are based primarily upon the operations of KU.
LIQUIDITY & RESOURCES
At June 30, 1996, KU's short-term borrowings were $40.7 million
compared to $55.6 million at December 31, 1995. The short-term
borrowings have been used primarily to finance ongoing construction
expenditures and general corporate requirements. The decrease is due
primarily to planned reductions in construction expenditures and
additional cash provided by operations during the first half of 1996.
Refer to Note 3 of the Condensed Notes to Financial Statements
for a discussion of KU's recent financing activities.
RESULTS OF OPERATIONS
Quarter ended June 30, 1996, compared
to the Quarter ended June 30, 1995
The Company's earnings per common share for the three-month
period ended June 30, 1996 were $.42 compared to $.27 for the
corresponding period of 1995. The increase reflects the success of
KU's aggressive marketing efforts in the residential sector and the
positive effects of colder weather in April 1996 as well as increased
sales to industrial customers and increased opportunity sales during
the second quarter of 1996 compared to 1995. The positive effects of
these factors were somewhat offset by increased fuel and depreciation.
-16-
KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
expenses.
The changes in operating revenues and kilowatt-hour sales
described below are for the Company. The only difference between
changes in operating revenues for the Company and operating revenues
for KU are intercompany revenues that are eliminated in the
consolidated financial statements. These intercompany amounts are
immaterial.
Increase (Decrease)
From Prior Year
Three Months
Ended June 30, 1996
kWh Revenues
(%) (000's)
Residential 13 $4,663
Commercial 3 968
Industrial 7 2,272
Mine Power (7) (677)
Public Authorities 10 1,236
Total Retail Sales 7 8,462
Wholesale 6 908
Opportunity 45 2,167
Total Other Electric Utilities 22 3,075
Miscellaneous Revenues & Other - 1,224
Total 9 $12,761
Operating revenues increased $12.8 million (8%). The increase
reflects a 9% increase in kilowatt-hour sales. The increase in
kilowatt-hour sales is primarily attributable to increases in
residential, industrial and opportunity sales. The increase in
residential sales was due to the positive impacts of aggressive
marketing efforts and to colder weather during April 1996. The
increase in industrial sales reflects continued economic growth in the
manufacturing sector of KU's service area evidenced primarily by a 10%
increase in the number of industrial customers over 1995. The
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increase in opportunity sales (374,794 megawatt-hours versus 257,961
megawatt-hours) is primarily due to agreements with two neighboring
utilities for non-firm energy sales during 1996.
Fuel expense increased $4.4 million (11%). The increase was
primarily due to a 14% increase in the tons of coal consumed partially
offset by a 4% reduction in the average price per ton of coal
consumed. The increased consumption was primarily caused by a 13%
increase in generation due to the previously mentioned increase in
kilowatt-hour sales.
Maintenance expense decreased $1.9 million (10%). The decrease
was primarily due to the timing of expenditures for transmission and
distribution maintenance.
Federal and state income taxes increased $4.3 million (79%).
The increase was primarily attributable to higher pretax net income.
Six Months ended June 30, 1996, compared
to the Six Months ended June 30, 1995
The Company's earnings per common share for the six-month
period ended June 30, 1996 were $1.12 compared to $.77 for the
corresponding period of 1995. The increase reflects the success of
KU's aggressive marketing efforts in the residential sector, the
positive effects of colder weather in the first four months of 1996
and increases in industrial and opportunity sales during the first
half of 1996 compared to 1995. The positive effects of these factors
were somewhat offset by increased fuel and depreciation expenses.
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Increase (Decrease)
From Prior Year
Six Months
Ended June 30, 1996
kWh Revenues
(%) (000's)
Residential 13 $12,849
Commercial 4 2,986
Industrial 9 5,406
Mine Power (5) (912)
Public Authorities 9 2,378
Total Retail Sales 8 22,707
Wholesale 6 1,681
Opportunity 149 10,087
Total Other Electric Utilities 51 11,768
Miscellaneous Revenues & Other - 2,136
Total 14 $36,611
Operating revenues increased $36.6 million (11%). The increase
reflects a 14% increase in kilowatt-hour sales. The increase in
kilowatt-hour sales is primarily due to increases in residential,
industrial and opportunity sales. The increase in residential sales
was due to the positive impacts of aggressive marketing efforts and to
colder weather during the first four months of 1996 compared to the
same period of 1995. KU set an all-time record peak demand for
electricity on February 5, 1996 of 3,391 megawatts. The increase in
opportunity sales was primarily attributable to agreements with
neighboring utilities for non-firm energy sales during 1996. The
increase in industrial sales was primarily due to an 8% increase in
the number of industrial customers over 1995.
Fuel expense increased $12.7 million (15%). The increase was
primarily due to a 17% increase in the tons of coal consumed slightly
offset by a 3% decrease in the average price per ton of coal consumed.
The increase in consumption was primarily due to a 16% increase in
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
generation due to the previously mentioned increase in kilowatt-hour
sales.
Maintenance expense decreased by $2.5 million (7%) due
primarily to the timing of expenditures for transmission and
distribution maintenance.
Federal and state income taxes increased by $9.5 million (60%).
The increase was primarily attributable to higher pretax net income.
UTILITY ISSUES - COMPETITION
Refer to Management's Discussion and Analysis in the 1995
KU Energy Annual Report on Form 10-K under the heading "Utility Issues
-Competition" for a discussion of the Federal Energy Regulatory
Commission's (FERC) proposed rules addressing open access transmission
service and the collection of charges for the recovery of stranded
costs. In late April 1996, the FERC issued two final rules and a
Notice of Proposed Rulemaking (NOPR). FERC Order No. 888 (Order 888)
addressed both open access and stranded cost issues. FERC Order
No. 889 (Order 889) requires utilities to establish an electronic Open
Access Same-Time Information System (OASIS) to share information about
available transmission capacity, and also requires the establishment
by each utility of standards of conduct for its transmission system
operation. The NOPR proposes to establish a new system for utilities
to use in reserving capacity on their own and other's transmission
lines.
On July 9, 1996, KU filed a new open access transmission tariff
with the FERC designed to comply with provisions of Order 888. Upon
acceptance by the FERC, the new tariff will supersede KU's existing
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Transmission Services Tariff, which had been in effect since December
1994. The provisions of the tariff filed July 9, 1996, are similar to
the terms and conditions of service contained in KU's existing tariff.
KU is in the process of developing an OASIS and finalizing its
standards of conduct pursuant to Order 889. KU expects to meet the
FERC's November 1, 1996, deadline for implementation of these
requirements.
KU is also in the process of evaluating the FERC's NOPR which
rules, if adopted as proposed, would supersede KU's transmission
tariff filed July 9, 1996.
The Company believes that competition and change will continue
to impact the industry going forward. With utility rates that are
among the lowest in the Nation, KU believes it is well-positioned for
an increasingly competitive environment.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 2 of the Condensed Notes to Financial Statements,
Environmental Cost Recovery, for a discussion of KU's
environmental surcharge.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
KU Energy Corporation
At the April 23, 1996, Annual Meeting of Shareholders, the
following proposal was acted upon and approved.
To elect five Directors to the Board of Directors of the
Company.
Votes for Votes Withheld
Mira S. Ball 31,443,277 371,571
Carol M. Gatton 31,402,099 371,571
Frank V. Ramsey, Jr. 31,432,761 371,571
Charles L. Shearer 31,397,729 371,571
Lee T. Todd, Jr. 31,454,407 371,571
Kentucky Utilities Company
At the April 23, 1996, Annual Meeting of Shareholders, the
following proposal was acted upon and approved.
To elect five Directors to the Board of Directors of KU.
Votes for Votes Withheld
Mira S. Ball 37,817,878 0
Carol M. Gatton 37,817,878 0
Frank V. Ramsey, Jr. 37,817,878 0
Charles L. Shearer 37,817,878 0
Lee T. Todd, Jr. 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
4.01 By-laws of KU Energy Corporation dated
July 29, 1996
4.02 By-laws of Kentucky Utilities Company dated
July 29, 1996
27.01 Financial Data Schedule for KU Energy
27.02 Financial Data Schedule for KU
(Both 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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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, KU Energy Corporation and Kentucky Utilities Company have
each duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KU ENERGY CORPORATION and
KENTUCKY UTILITIES COMPANY
(Registrants)
Date August 2, 1996 /s/ Michael R. Whitley
Michael R. Whitley
Chairman and President
Date August 2, 1996 /s/ Michael D. Robinson
Michael D. Robinson
Controller
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