-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T8GCmUNIL1yD+AJEHbfIpBQPNBZYVOI5RJEvb74wOl0iLxv1NbOS0FtlZnQrpATW pHn80uEPFmW+4FXCGAjRqQ== 0000835715-97-000005.txt : 19970506 0000835715-97-000005.hdr.sgml : 19970506 ACCESSION NUMBER: 0000835715-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970505 SROS: NYSE SROS: PHLX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENTUCKY UTILITIES CO CENTRAL INDEX KEY: 0000055387 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 610247570 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03464 FILM NUMBER: 97595425 BUSINESS ADDRESS: STREET 1: ONE QUALITY ST CITY: LEXINGTON STATE: KY ZIP: 40507 BUSINESS PHONE: 6062552100 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KU ENERGY CORP CENTRAL INDEX KEY: 0000835715 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 611141273 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10944 FILM NUMBER: 97595426 BUSINESS ADDRESS: STREET 1: ONE QUALITY STREET CITY: LEXINGTON STATE: KY ZIP: 40507 BUSINESS PHONE: 6062552100 FORMER COMPANY: FORMER CONFORMED NAME: HOLDINGS INC DATE OF NAME CHANGE: 19600201 10-Q 1 KU ENERGY CORP. AND KENTUCKY UTILITIES CO. FORM 10-Q 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 March 31, 1997 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 May 2, 1997 Kentucky Utilities Company: Common stock, no par value, 37,817,878 shares outstanding and held by KU Energy Corporation at May 2, 1997 -1- KU ENERGY CORPORATION AND KENTUCKY UTILITIES COMPANY FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997* CONTENTS PART I. FINANCIAL INFORMATION Page No. Item 1: Financial Statements KU ENERGY CORPORATION Consolidated Statements of Income 3 Consolidated Statements of Cash Flows 4 Consolidated Balance Sheets 5 KENTUCKY UTILITIES COMPANY Statements of Income 6 Statements of Cash Flows 7 Balance Sheets 8 CONDENSED NOTES TO FINANCIAL STATEMENTS OF KU ENERGY CORPORATION AND KENTUCKY UTILITIES COMPANY 9 - 12 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations KU ENERGY CORPORATION AND KENTUCKY UTILITIES COMPANY 13 - 19 PART II. OTHER INFORMATION Item 1: Legal Proceedings 20 Item 6: Exhibits and Reports on Form 8-K 20 Signatures 21 *Information included herein which relates solely to KU Energy Corporation is provided solely by KU Energy Corporation and not by Kentucky Utilities Company and shall be deemed not included in the Quarterly Report of Kentucky Utilities Company. -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 March 31, 1997 1996 Operating Revenues $178,908 $190,990 Operating Expenses: Fuel, principally coal, used in generation 44,713 54,025 Electric power purchased 17,603 17,504 Other operating expenses 31,156 29,997 Maintenance 12,013 14,204 Depreciation 20,882 20,065 Federal and state income taxes 15,334 15,700 Other taxes 4,071 4,367 Total Operating Expenses 145,772 155,862 Net Operating Income 33,136 35,128 Other Income and Deductions: Interest and dividend income 612 885 Other income and deductions - net 1,555 1,068 Total Other Income and Deductions 2,167 1,953 Income Before Interest and Other Charges 35,303 37,081 Interest and Other Charges 10,440 10,762 Net Income $ 24,863 $ 26,319 Average Common Shares Outstanding 37,818 37,818 Earnings Per Common Share $ .66 $ .70 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -3- KU ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars) For the Three Months Ended March 31, 1997 1996 Cash Flows from Operating Activities: Net Income $ 24,863 $ 26,319 Items not requiring (providing) cash currently: Depreciation 20,882 20,065 Deferred income taxes and investment tax credit 3,213 321 Changes in current assets and liabilities: Change in fuel inventory 5,646 4,127 Change in accounts receivable 7,476 1,712 Change in accounts payable (3,506) (2,900) Change in accrued taxes 13,517 15,110 Change in other current assets and liabilities 4,956 9,510 Other--net (4,706) 3,187 Net Cash Provided by Operating Activities 72,341 77,451 Cash Flows from Investing Activities: Construction expenditures - utility (18,127) (21,105) Investment in independent power projects (4,995) (284) Proceeds from insurance reimbursements 4,046 201 Other 230 650 Net Cash Used by Investing Activities (18,846) (20,538) Cash Flows from Financing Activities: Short-term borrowings - net (41,700) (40,200) Issuance of long-term debt - 35,710 Funds deposited with trustee - net - 1,500 Retirement of long-term debt, incl. premiums (21) (36,192) Payment of common stock dividends (16,640) (16,262) Net Cash Used by Financing Activities (58,361) (55,444) Net Increase (Decrease) in Cash and Cash Equivalents (4,866) 1,469 Cash and Cash Equivalents Beginning of Period 30,270 29,492 Cash and Cash Equivalents End of Period $ 25,404 $ 30,961 Supplemental Disclosures Cash paid for: Interest $ 6,672 $ 6,294 Income taxes $ (320) $ 2,425 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -4- KU ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands of dollars) As of As of Mar. 31, Dec. 31, ASSETS 1997 1996 Utility Plant: Plant in service, at cost $ 2,489,427 $ 2,482,812 Less: Accumulated depreciation 1,087,644 1,067,911 1,401,783 1,414,901 Construction work in progress 73,125 63,435 1,474,908 1,478,336 Current Assets: Cash and cash equivalents 25,404 30,270 Accounts receivable 43,022 50,498 Accrued utility revenues 23,616 24,239 Fuel, principally coal, at average cost 25,249 30,895 Materials and supplies, at average cost 22,604 21,656 Other 6,795 7,486 146,690 165,044 Other Assets: Investment in leveraged leases 25,408 24,650 Investment in independent power projects 9,885 4,745 Unamortized loss on reacquired debt 10,567 10,838 Other 45,013 43,335 90,873 83,568 Total Assets $ 1,712,471 $ 1,726,948 CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity $ 653,737 $ 645,513 Preferred stock of Subsidiary 40,000 40,000 Long-term debt of Subsidiary 546,351 546,373 1,240,088 1,231,886 Current Liabilities: Long-term debt due within one year 21 21 Short-term borrowings 12,500 54,200 Accounts payable 24,747 28,253 Accrued interest 10,409 8,048 Accrued taxes 17,522 4,005 Customers' deposits 9,206 8,746 Accrued payroll and vacations 11,868 9,921 Other 7,001 5,954 93,274 119,148 Other Liabilities: Accumulated deferred income taxes 246,499 242,674 Accumulated deferred investment tax credits 29,169 30,167 Regulatory tax liability 53,548 54,388 Other 49,893 48,685 379,109 375,914 Total Capitalization and Liabilities $ 1,712,471 $ 1,726,948 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -5- KENTUCKY UTILITIES COMPANY STATEMENTS OF INCOME (Unaudited) (in thousands of dollars) For the Three Months Ended March 31, 1997 1996 Operating Revenues $178,914 $190,996 Operating Expenses: Fuel, principally coal, used in generation 44,713 54,025 Electric power purchased 17,603 17,504 Other operating expenses 30,788 29,688 Maintenance 12,011 14,202 Depreciation 20,835 20,018 Federal and state income taxes 15,527 16,336 Other taxes 4,013 4,235 Total Operating Expenses 145,490 156,008 Net Operating Income 33,424 34,988 Other Income and Deductions: Interest and dividend income 366 613 Other income and deductions - net 1,046 2,100 Total Other Income and Deductions 1,412 2,713 Income Before Interest Charges 34,836 37,701 Interest Charges 9,875 10,198 Net Income 24,961 27,503 Preferred Stock Dividend Requirements 564 564 Net Income Applicable to Common Stock $ 24,397 $ 26,939 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -6- KENTUCKY UTILITIES COMPANY STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars) For the Three Months Ended March 31, 1997 1996 Cash Flows from Operating Activities: Net Income $ 24,961 $ 27,503 Items not requiring (providing) cash currently: Depreciation 20,835 20,018 Deferred income taxes and investment tax credit 1,154 (352) Changes in current assets and liabilities: Change in fuel inventory 5,646 4,127 Change in accounts receivable 7,525 1,508 Change in accounts payable (4,320) (2,455) Change in accrued taxes 15,231 15,300 Change in other current assets and liabilities 5,109 9,664 Other--net (3,412) 2,705 Net Cash Provided by Operating Activities 72,729 78,018 Cash Flows from Investing Activities: Construction expenditures - utility (18,127) (21,105) Proceeds from insurance reimbursements 4,046 201 Net Cash Used by Investing Activities (14,081) (20,904) Cash Flows from Financing Activities: Short-term borrowings - net (41,700) (40,200) Issuance of long-term debt - 35,710 Funds deposited with trustee - net - 1,500 Retirement of long-term debt, incl. premiums (21) (36,192) Payment of dividends (17,204) (16,826) Net Cash Used by Financing Activities (58,925) (56,008) Net Increase (Decrease) in Cash and Cash Equivalents (277) 1,106 Cash and Cash Equivalents Beginning of Period 5,719 5,697 Cash and Cash Equivalents End of Period $ 5,442 $ 6,803 Supplemental Disclosures Cash paid for: Interest $ 6,672 $ 6,294 Income taxes $ (320) $ 2,753 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -7- KENTUCKY UTILITIES COMPANY BALANCE SHEETS (Unaudited) (in thousands of dollars) As of As of Mar. 31, Dec. 31, 1997 1996 ASSETS Utility Plant: Plant in service, at cost $2,489,427 $2,482,812 Less: Accumulated depreciation 1,087,644 1,067,911 1,401,783 1,414,901 Construction work in progress 73,125 63,435 1,474,908 1,478,336 Current Assets: Cash and cash equivalents 5,442 5,719 Accounts receivable 43,057 50,582 Accrued utility revenues 23,616 24,239 Fuel, principally coal, at average cost 25,249 30,895 Materials and supplies, at average cost 22,604 21,656 Other 6,795 7,486 126,763 140,577 Other Assets: Unamortized loss on reacquired debt 10,567 10,838 Other 44,986 43,304 55,553 54,142 Total Assets $1,657,224 $1,673,055 CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity $ 603,154 $ 595,397 Preferred stock 40,000 40,000 Long-term debt 546,351 546,373 1,189,505 1,181,770 Current Liabilities: Long-term debt due within one year 21 21 Short-term borrowings 12,500 54,200 Accounts payable 24,640 28,960 Accrued interest 10,410 8,048 Accrued taxes 20,614 5,383 Customers' deposits 9,206 8,746 Accrued payroll and vacations 11,819 9,862 Other 6,918 5,728 96,128 120,948 Other Liabilities: Accumulated deferred income taxes 240,308 238,542 Accumulated deferred investment tax credits 29,169 30,167 Regulatory tax liability 53,548 54,388 Other 48,566 47,240 371,591 370,337 Total Capitalization and Liabilities $1,657,224 $1,673,055 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -8- 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 percent 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 and KU for the year ended December 31, 1996; 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 Energy and KU for the year ended December 31, 1996. -9- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited) In the opinion of the Company and KU, the respective information furnished herein reflects all adjustments, all of which are normal and 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. Certain prior year amounts have been reclassified on a basis consistent with the March 31, 1997 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 March 31, 1997 were approximately $45 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 -10- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited) by representatives of consumer groups. In July 1995, the Circuit Court entered a judgment upholding the constitutionality of the statute, but vacating that part of the PSC's July 1994 order which the judgment describes as allowing KU to recover, under the surcharge, certain environmental expenditures characterized by the Circuit Court as having been incurred before January 1, 1993. The Circuit Court further ordered the case remanded to the PSC for a determination in accordance with the judgment. KU and the PSC assert that none of the costs included in the surcharge were incurred prior to June 1994. 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 certain environmental expenditures characterized by the Circuit Court as having been incurred before January 1, 1993. The PSC has ordered all surcharge revenues collected by KU from February 1, 1995 subject to refund pending final determination of all appeals. The total surcharge collections from February 1, 1995 through March 31, 1997 were approximately $41 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 certain environmental expenditures characterized by the Circuit Court as having been 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 -11- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited) certain environmental expenditures characterized by the Circuit Court as having been incurred before January 1, 1993) for surcharge collections through March 31, 1997, from the implementation of the surcharge would be approximately $12 million, and from February 1, 1995 would be approximately $10 million. At this time, KU has not recorded any reserve for refund. -12- 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 are 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. FINANCIAL CONDITION At March 31, 1997, KU's short-term borrowings were $12.5 million compared to $54.2 million at December 31, 1996. The short-term borrowings have been used primarily to finance ongoing construction expenditures and general corporate requirements. The decrease between March 31, 1997 and December 31, 1996 is due primarily to cash provided by operations exceeding cash required for investing and financing activities (exclusive of short-term borrowings) in the first quarter of 1997. RESULTS OF OPERATIONS Quarter ended March 31, 1997 compared to the Quarter ended March 31, 1996 The Company's earnings per common share for the three-month period ended March 31, 1997 were $.66 compared to $.70 for the corresponding period of 1996. The decrease was primarily due to lower residential sales as a result of milder weather in 1997 when compared to 1996, and slightly lower sales for resale during 1997 when compared to 1996. The negative effects of these factors were somewhat offset by an increase in sales to industrial customers and decreases in fuel and maintenance expenses. -13- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 Mar. 31, 1997 kWh Revenues (%) (000's) Residential (9) $ (8,014) Commercial (2) (1,839) Industrial 7 713 Mine Power - (544) Public Authorities - (304) Total Retail Sales (3) (9,988) Sales for Resale (11) (2,274) Miscellaneous Revenues & Other - 180 Total (4) $(12,082) In February 1997, pursuant to a PSC order , KU made a one-time refund through the fuel adjustment clause to Kentucky customers associated with the disposition of Company-owned railroad cars. As a result of the refund, revenues and fuel expense were reduced by approximately $3 million in the first quarter of 1997. KU had reserved for the refund amount in prior periods. Excluding the effect of the refund mentioned above, operating revenues decreased $8.8 million (5%). The decrease reflects a 4% decline in kilowatt-hour sales. The decline in kilowatt-hour sales is primarily attributable to decreases in residential sales and sales for resale partially offset by an increase in industrial sales. The -14- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS decrease in residential sales was primarily due to milder weather during the first quarter of 1997 as compared to the corresponding period of 1996. The decrease in sales for resale (834,892 megawatt- hours versus 939,101 megawatt-hours) was primarily due to decreased demand for power from neighboring utilities. The increase in industrial sales reflects continued economic growth in the manufacturing sector of KU's service area. Excluding the effect of the refund mentioned above, fuel expense decreased $6.4 million (12%). The decrease was primarily due to a 6% decrease in tons of coal consumed and to a 4% decrease in the cost per million British thermal units of coal consumed. The decline in consumption was primarily caused by a decline in generation due to the previously mentioned decrease in kilowatt-hour sales. Maintenance expense decreased $2.2 million (15%). The decrease was primarily due to the timing of expenditures for scheduled maintenance at KU's generating stations. Federal and state income taxes decreased $.4 million (2%). The decrease was primarily attributable to a decline in pretax income. NONUTILITY ACTIVITES KU Solutions, a non-regulated subsidiary of KU Energy Corporation, was formed in March 1997. KU Solutions will offer products and services designed to complement the Company's core energy business. In March 1997, KU Solutions entered into a gas marketing joint venture with Alliance Energy Services Partnership (AES), a Kentucky general partnership between Conoco, Inc., and Alliance Gas Services,Inc. -15- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The venture will allow KU Solutions and AES to capitalize on their combined marketing expertise in electricity and natural gas by offering both sources of energy to respond to the increasing demands of customers for a single supplier to meet all of their energy needs. UTILITY ISSUES Competition Refer to Management's Discussion and Analysis incorporated by reference in the 1996 Annual Report on Form 10-K of KU Energy and KU under the heading Utility Issues - Competition for a discussion of the Federal Energy Regulatory Commission (FERC) Order No. 888 (Order 888) and FERC Order No. 889 (Order 889). In March 1997 the FERC issued its Final Rule, reaffirming the legal and policy basis on which Orders 888 and 889 were based. The Final Rule for the Orders responded to public comments on the various provisions of Orders 888 and 889; but no major changes were made. The Final Rule is effective May 13, 1997. KU does not anticipate any problem in complying with all aspects of the FERC's Final Rule. ENVIRONMENTAL MATTERS Environmental Cost Recovery In August 1994, KU implemented an environmental cost recovery mechanism (surcharge) in Kentucky. Authorized by a 1992 state statute and approved by the PSC, the surcharge is designed to recover certain environmental compliance costs, including costs to comply with the 1990 Clean Air Act Amendments, through a surcharge on customers' bills. -16- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The constitutionality of the surcharge was challenged in a Kentucky state court action brought against KU and the PSC by the Attorney General of Kentucky and representatives of consumer groups. In July 1995, the state court upheld the constitutionality of the surcharge statute but vacated that part of the PSC's order which the state court described as allowing KU to recover certain environmental expenditures characterized by the state court as having been incurred before January 1, 1993. All parties (including KU) have appealed to the Kentucky Court of Appeals. KU believes the constitutionality of the surcharge statute will be upheld, but it cannot predict the outcome of that part of the state court judgment disallowing recovery of certain environmental expenditures characterized by the state court as having been incurred before January 1, 1993. If the state 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 certain environmental expenditures characterized by the state court as having been incurred before January 1, 1993) for surcharge collections through March 31, 1997, from the implementation of the surcharge would be approximately $12 million, and from February 1, 1995 would be approximately $10 million. At this time, KU has not recorded any reserve for refund. For additional discussion, refer to Note 2 of the Condensed Notes to Financial Statements, Environmental Cost Recovery. -17- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IMPACT OF ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128), and Statement of Financial Accounting Standards No. 129, Disclosure of Information about Capital Structure (SFAS 129). SFAS 128 specifies the computation, presentation, and disclosure requirements for earnings per share for entities with publicly held common stock. SFAS 129 was issued in conjunction with the FASB's earnings per share project and incorporated related disclosure requirements from APB Opinion No. 10, Disclosure of Long- Term Obligations, and Statement of Financial Accounting Standards No. 47, Disclosure of Long-Term Obligations. Both statements are effective for fiscal years ending after December 15, 1997. The Company will adopt the statements for year-end 1997 and does not expect adoption of the statements to have any impact on its current earnings per share calculation or disclosures. FORWARD LOOKING STATEMENTS This report includes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made herein which are not based on historical facts are forward looking and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those discussed. Such forward looking statements include those under Management's Discussion and Analysis relating to the anticipated results of proceedings -18- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS related to the environmental surcharge and the Company's ability to comply with the FERC's Final Rule issued in May 1997. Such statements are based on management's belief, judgment and analysis as well as assumptions made by and information available to management at the date hereof. In addition to any assumptions and cautionary factors referred to specifically in this report in connection with such forward looking statements, factors that could cause actual results to differ materially from those contemplated by the forward looking statements include unanticipated or adverse decisions in regulatory proceedings or litigation and other matters detailed in Exhibit 99.06, Cautionary Statements, to the 1996 Annual Report on Form 10-K of KU Energy and KU, incorporated herein by reference. -19- 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 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following exhibits are filed as part of this report: Exhibit Number Description 27.01 Financial Data Schedule for KU Energy (required for electronic filing only in accordance with Item 601 (c)(1) of Regulation S-K.) 27.02 Financial Data Schedule for KU (required for electronic filing only in accordance with Item 601(c)(1) of Regulation S-K.) 99.01 Cautionary Statements - KU Energy and KU. (Exhibit 99.06 to Form 10-K Annual Report of KU Energy and KU for the year ended December 31, 1996). Incorporated by reference. (b) Reports on Form 8-K. None. -20- 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 May 2, 1997 /s/ Michael R. Whitley Michael R. Whitley Chairman and President Date May 2, 1997 /s/ Michael D. Robinson Michael D. Robinson Controller -21- EX-27 2 EXHIBIT 27.01 - ARTICLE UT FDS FOR KU ENERGY CORP.
UT THIS TABLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF MARCH 31, 1997 AND THE STATEMENTS OF INCOME AND CASH FLOWS FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q QUARTERLY REPORT. 0000835715 KU ENERGY CORPORATION 1,000 3-MOS DEC-31-1997 MAR-31-1997 PER-BOOK 1,474,908 48,002 146,690 42,871 0 1,712,471 308,140 (594) 346,191 653,737 0 40,000 546,351 12,500 0 0 21 0 0 0 459,862 1,712,471 178,908 15,334 130,438 145,772 33,136 2,167 35,303 10,440 24,863 0 24,863 16,640 9,291 72,341 .66 .66
EX-27 3 EXHIBIT 27.02 - ARTICLE UT FDS FOR KU
UT THIS TABLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF MARCH 31, 1997 AND THE STATEMENTS OF INCOME AND CASH FLOWS FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q QUARTERLY REPORT. 0000055387 KENTUCKY UTILITIES COMPANY 1,000 3-MOS DEC-31-1997 MAR-31-1997 PER-BOOK 1,474,908 12,683 126,763 42,870 0 1,657,224 308,140 (594) 295,608 603,154 0 40,000 546,351 12,500 0 0 21 0 0 0 455,198 1,657,224 178,914 15,527 129,963 145,490 33,424 1,412 34,836 9,875 24,961 564 24,397 16,640 9,291 72,729 0 0 ALL OUTSTANDING COMMON STOCK OF KENTUCKY UTILITIES COMPANY IS HELD BY ITS PARENT COMPANY, KU ENERGY CORPORATION. THEREFORE, EARNINGS PER SHARE IS NOT APPLICABLE.
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