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, 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 1-10944
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 8, 1995:
37,817,878 shares.
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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,
1995 1994
Operating Revenues (See Note 2) $ 167,140 $ 166,523
Operating Expenses:
Fuel, principally coal,
used in generation (See Note 2) 45,706 43,859
Electric power purchased 15,777 15,883
Other operating expenses 31,206 27,104
Maintenance 14,858 14,539
Depreciation 18,748 16,188
Federal and state income taxes 10,491 14,558
Other taxes 4,343 4,068
Total Operating Expenses 141,129 136,199
Net Operating Income 26,011 30,324
Other Income and Deductions:
Interest and dividend income 977 2,155
Other income and deductions - net 2,131 1,377
Total Other Income and Deductions 3,108 3,532
Income Before Interest and Other Charges 29,119 33,856
Interest and Other Charges 10,312 8,837
Net Income $ 18,807 $ 25,019
Average Common Shares Outstanding 37,818 37,818
Earnings Per Common Share $ .50 $ .66
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the Three
Months Ended
March 31,
1995 1994
Cash Flows from Operating Activities:
Net Income $ 18,807 $ 25,019
Items not requiring (providing) cash currently:
Depreciation 18,748 16,188
Deferred income taxes and investment tax credit (271) (1,782)
Changes in current assets and liabilities:
Change in fuel inventory (254) 4,644
Change in accounts receivable 5,610 1,404
Change in accounts payable (17,463) (10,223)
Change in accrued taxes 10,597 17,882
Change in accrued utility revenues 2,493 4,788
Other--net 7,373 775
Net Cash Provided by Operating Activities 45,640 58,695
Cash Flows from Investing Activities:
Construction expenditures - utility (28,035) (40,496)
Purchase of long-term investments - (238)
Proceeds from leveraged lease investments 200 162
Investment in independent power projects (786) -
Other 7 103
Net Cash Used by Investing Activities (28,614) (40,469)
Cash Flows from Financing Activities:
Short-term borrowings - net (7,100) 3,500
Funds deposited with trustee - net 8,600 9,000
Retirement of long-term debt (21) (21)
Retirement of preferred stock, incl. premium - (20,302)
Payment of common stock dividends (15,884) (15,505)
Net Cash Used by Financing Activities (14,405) (23,328)
Net Increase (Decrease) in Cash and
Cash Equivalents 2,621 (5,102)
Cash and Cash Equivalents Beginning of Period 28,927 32,500
Cash and Cash Equivalents End of Period $ 31,548 $ 27,398
Supplemental Disclosures
Cash paid for:
Interest on short and long-term debt $ 6,475 $ 4,779
Federal and state income taxes $ - $ -
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
March 31, Dec. 31,
ASSETS 1995 1994
Utility Plant:
Plant in service, at cost $2,274,572 $2,238,926
Less: Accumulated depreciation 953,153 933,394
1,321,419 1,305,532
Construction work in progress 98,617 104,385
1,420,036 1,409,917
Current Assets:
Cash and cash equivalents 31,548 28,927
Escrow funds - coal contract litigation 6,508 6,911
Construction funds held by trustee 9,979 18,553
Accounts receivable 35,974 41,584
Accrued utility revenues 21,734 24,227
Fuel, principally coal, at average cost 35,906 35,652
Materials and supplies, at average cost 21,670 20,081
Other 11,003 10,619
174,322 186,554
Investments, Deferred Charges and Other Assets:
Investment in leveraged leases 19,275 18,675
Unamortized loss on reacquired debt 12,069 12,324
Other 42,717 41,824
74,061 72,823
Total Assets $1,668,419 $1,669,294
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 619,016 $ 616,092
Preferred stock of Subsidiary 40,000 40,000
Long-term debt of Subsidiary 495,987 496,012
1,155,003 1,152,104
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 69,200 76,300
Accounts payable 31,246 48,709
Accrued interest 9,938 7,328
Accrued taxes 19,785 9,188
Customers' deposits 6,421 6,423
Accrued payroll and vacations 10,727 8,222
Liab. to ratepayers - coal contract litigation 6,508 6,909
Other 8,056 6,471
161,902 169,571
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 216,758 215,466
Accumulated deferred investment tax credits 37,251 38,275
Regulatory tax liability 60,119 60,788
Other 37,386 33,090
351,514 347,619
Total Capitalization and Liabilities $1,668,419 $1,669,294
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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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, 1994.
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 (KU).
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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KU ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Operating revenues and fuel expense for the three-month
period ended March 31, 1994 were reduced by $.5 million and $2.9
million, respectively, resulting from the above-mentioned
refunds. The refunding had no impact on operating revenues or
fuel expense for the three-month period ended March 31, 1995.
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.
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
KU Energy is a holding company organized under the laws of
Kentucky. KU Energy has two wholly owned subsidiaries, KU, an
electric utility, and KU Capital Corporation (KU Capital), a
nonutility subsidiary. KU 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 KU.
LIQUIDITY & RESOURCES
KU's construction expenditures decreased approximately $12
million during the three-month period ending March 31, 1995,
compared to the same period of 1994. The decrease is primarily
attributable to planned reductions in expenditures for combustion
turbine peaking units and for compliance with the 1990 Clean Air
Act Amendments.
KU plans to issue up to an additional $50 million of long-
term debt during 1995, principally to refinance short-term
indebtedness.
RESULTS OF OPERATIONS
Quarter ended March 31, 1995, compared
to the Quarter ended March 31, 1994
Earnings for the three-month period ending March 31, 1995
were $.50 as compared to $.66 for the corresponding period of
1994. Earnings for the first quarter of 1994 included a one-time
recovery of about $.05 per share from the resolution of a coal
contract dispute. For additional information concerning the
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
refunds resulting from resolution of the dispute and the impact
on 1994 operating results, refer to Note 2 of the Notes to
Consolidated Financial Statements, "Operating Revenues and Fuel
Costs".
Increase (Decrease)
From Prior Year
Three Months
Ended March 31, 1995
kWh Revenues
(%) (000's)
Residential (6) $(1,255)
Commercial (1) 1,060
Industrial 5 2,299
Mine Power & Public Authorities (2) 666
Total Retail Sales (2) 2,770
Other Electric Utilities (21) (2,477)
Miscellaneous Revenues & Other - (213)
Total Before Refund (5) 80
Provision for Refund -
Litigation Settlement - 537
Total (5) $ 617
Operating revenues, before the impact of the refunds to
customers, increased about $.1 million. A 5% decrease in
kilowatt-hour sales was offset by $3.8 million recovered under
the environmental surcharge discussed below (see page 10). 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 30% of the industrial sales increase was due
to greater sales to Toyota Motor Manufacturing U.S.A., Inc., KU's
largest customer. The decrease in off-system sales is attributable
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
to a decrease in demand for power at neighboring utilities. The
decline in residential sales reflects milder weather during the
first quarter of 1995 compared to 1994.
Fuel expense, excluding the effect of the refunds to
customers, decreased $1.1 million (2%). This decrease reflects a
6% decrease in tons of coal consumed, partially offset by a 3%
increase in the average price per ton of coal consumed.
Purchased power expense decreased $.1 million (1%) due to an
increase in demand costs ($1.3 million) offset by a decrease in
kilowatt-hour purchases ($1.4 million). The decrease in
kilowatt-hour purchases is due to the previously mentioned
decline in kilowatt-hour sales.
Other operating expenses increased $4.1 million (15%) 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.
Maintenance expense increased $.3 million (2%) 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 $2.6 million (16%) resulting
from the Ghent Unit 1 scrubber and two combustion turbine peaking
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
units being placed into service late in 1994 and early 1995.
Interest and other charges increased $1.5 million (17%)
reflecting the issuance of additional short-term debt (commercial
paper) during 1995 as well as the issuance of $54 million of
long-term debt in the fourth quarter of 1994. The average amount
of short-term debt outstanding during the first quarter of 1995
was substantially greater than in the first quarter of 1994.
ENVIRONMENTAL COST RECOVERY
In July 1994, the 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. KU estimates that it has resulted in
an average increase of about 4% in a customer's monthly bill,
leaving KU's rates very competitive. The constitutionality of
the surcharge is being challenged in the Franklin County
(Kentucky) Circuit Court. Management believes that the surcharge
statute is constitutional and the PSC approval of July 1994 will
be upheld.
UTILITY ISSUES - COMPETITION
In March 1995, the Federal Energy Regulatory Commission
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KU ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(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. 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 to Shareholders under the
heading "Utility Issues - Competition" for a discussion of the TS
Tariff and PS Tariff filed by KU). KU revised the TS Tariff in a
filing made on March 31, 1995 with the FERC. KU will comply with
any requirements mandated by the FERC's final rules. Although KU
does not expect either of these new tariffs to have a material
impact on its 1995 revenues or income, they are indicative of the
increasingly competitive environment in which KU and other
utilities operate.
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PART II. OTHER INFORMATION
KU ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL COST RECOVERY
By order of July 19, 1994, the Kentucky Public Service
Commission (PSC) approved KU's plan for environmental surcharge
adjustments to customer billings beginning in August 1994. The
surcharge, authorized by a Kentucky statute enacted in 1992, is
designed to recover certain ongoing operating and capital costs,
not already included in existing rates, 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. Surcharge billings are subject to
periodic PSC review to confirm the level of environmental
expenditures and to reconcile previous surcharge billings with
actual costs.
On September 9, 1994, the Attorney General of the Commonwealth
of Kentucky (Attorney General) filed an action in the Franklin
County (KY) Circuit Court challenging the constitutionality of
the Kentucky surcharge statute and seeking to vacate the PSC
order of July 19, 1994 on the ground, among others, that the
environmental surcharge approved by the PSC will deprive KU's
customers of their property without due process of law. The
Attorney General has been joined by interveners asserting similar
claims on behalf of ratepayer groups. In December 1994, the
Circuit Court denied a motion by the Attorney General and two
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interveners seeking to have surcharge collections deposited with
the court pending the outcome of the litigation. Management
believes that the surcharge statute is constitutional and that
the PSC order of July 19, 1994 approving the surcharge will be
upheld. In the remote occurrence that the statute is declared
unconstitutional, amounts collected pursuant to the PSC order may
be subject to refund.
FUEL MATTERS
A former coal supplier of KU has initiated arbitration
proceedings to recover approximately $536,000 in on-going
reclamation costs claimed to have been incurred during mining
operations at the supplier's mine used to supply KU under a
contract that expired in 1988. In addition, the supplier has
submitted invoices for approximately $1,324,000 representing what
it claims are final reclamation costs incurred during 1994. The
supplier has stated that invoices for final reclamation costs
will be submitted every six months over the five years estimated
by the supplier for completion of final reclamation, which began
in 1994. The supplier has not sought arbitration or otherwise
initiated proceedings with respect to the claims for final
reclamation nor has it produced any original cost data in support
of its claims for final reclamation. Management intends to
contest vigorously the claims for on-going and final reclamation.
Although the total amount of the claims is unknown at this time,
KU believes that this matter will not have a material adverse
effect on KU's financial position or its results of operation. KU
will seek to recover any amounts ultimately paid through the Fuel
Adjustment Clause.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibit is filed as part of this report:
Exhibit
Number Description
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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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 8, 1995 /s/ John T. Newton
John T. Newton
Chairman of the Board and
Chief Executive Officer
Date May 8, 1995 /s/ Michael D. Robinson
Michael D. Robinson
Controller
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