-----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, DcvCkGESlILnhQM7PWPqkdb5HrKQS36EeiPM9iIF+Y3OTWscDLl3EB0S6+XzmGii 6WBlJeKUCkDOKImHJnG98Q== 0000861388-98-000018.txt : 19981116 0000861388-98-000018.hdr.sgml : 19981116 ACCESSION NUMBER: 0000861388-98-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LG&E ENERGY CORP CENTRAL INDEX KEY: 0000861388 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 611174555 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10568 FILM NUMBER: 98747660 BUSINESS ADDRESS: STREET 1: 220 W MAIN ST STREET 2: P O BOX 32030 CITY: LOUISVILLE STATE: KY ZIP: 40232 BUSINESS PHONE: 5026272000 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: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03464 FILM NUMBER: 98747661 BUSINESS ADDRESS: STREET 1: ONE QUALITY ST CITY: LEXINGTON STATE: KY ZIP: 40507 BUSINESS PHONE: 6062552100 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOUISVILLE GAS & ELECTRIC CO /KY/ CENTRAL INDEX KEY: 0000060549 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 610264150 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02893 FILM NUMBER: 98747662 BUSINESS ADDRESS: STREET 1: 220 W MAIN ST STREET 2: P O BOX 32010 CITY: LOUISVILLE STATE: KY ZIP: 40232 BUSINESS PHONE: 5026272000 MAIL ADDRESS: STREET 1: 220 WEST MAIN ST CITY: LUUISVILLE STATE: KY ZIP: 40232 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission Registrant, State of Incorporation, IRS Employer File Number Address, and Telephone Number Identification No. 1-10568 LG&E Energy Corp. 61-1174555 (A Kentucky Corporation) 220 West Main Street P.O. Box 32030 Louisville, Ky. 40232 (502) 627-2000 2-26720 Louisville Gas and Electric Company 61-0264150 (A Kentucky Corporation) 220 West Main Street P.O. Box 32010 Louisville, Ky. 40232 (502) 627-2000 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 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: LG&E Energy Corp. 129,677,030 shares, without par value, as of October 30, 1998. Louisville Gas and Electric Company 21,294,223 shares, without par value, as of October 30, 1998, all held by LG&E Energy Corp. Kentucky Utilities Company 37,817,878 shares, without par value, as of October 30, 1998, all held by LG&E Energy Corp. This combined Form 10-Q is separately filed by LG&E Energy Corp., Louisville Gas and Electric Company and Kentucky Utilities Company. Information contained herein related to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. In particular, information contained herein related to LG&E Energy Corp. or any of its direct or indirect subsidiaries other than Louisville Gas and Electric Company or Kentucky Utilities Company is provided solely by LG&E Energy Corp., not Louisville Gas and Electric Company or Kentucky Utilities Company, and shall be deemed not included in the Form 10-Q of Louisville Gas and Electric Company or the Form 10-Q of Kentucky Utilities Company. TABLE OF CONTENTS PART I Item 1 Financial Statements LG&E Energy Corp. and Subsidiaries Consolidated Statements of Income 1 Consolidated Balance Sheets 3 Consolidated Statements of Cash Flows 5 Consolidated Statements of Retained Earnings 7 Consolidated Statements of Comprehensive Income 8 Louisville Gas and Electric Company Statements of Income 9 Balance Sheets 10 Statements of Cash Flows 12 Statements of Retained Earnings 13 Statements of Comprehensive Income 14 Kentucky Utilities Company Statements of Income 15 Balance Sheets 16 Statements of Cash Flows 18 Statements of Retained Earnings 19 Notes to Financial Statements 20 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 28 PART II Item 1 Legal Proceedings 42 Item 5 Other Information 45 Item 6 Exhibits and Reports on Form 8-K 45 Signatures 46 Part I. Financial Information - Item 1. Financial Statements LG&E Energy Corp. and Subsidiaries Consolidated Statements of Income (Unaudited - Thousands of $ Except Per Share Data) Three Months Nine Months Ended Ended Sep. 30, Sep. 30, 1998 1997 1998 1997 REVENUES: Electric utility $ 447,796 $381,733 $1,130,062 $ 998,553 Gas utility 16,978 18,953 136,277 149,882 Western Kentucky Energy 66,246 - 66,246 - Argentine gas distribution and other 72,835 60,826 163,131 124,688 Total revenues 603,855 461,512 1,495,716 1,273,123 COST OF REVENUES: Fuel and power purchased 154,959 117,046 393,495 314,000 Gas supply expenses 8,950 11,541 89,308 100,510 Western Kentucky Energy 29,302 - 29,302 - Argentine gas distribution and other 45,824 27,335 97,499 64,929 Total cost of revenues 239,035 155,922 609,604 479,439 Gross profit 364,820 305,590 886,112 793,684 OPERATING EXPENSES: Operation and maintenance: Utility 106,997 104,479 320,061 315,474 Western Kentucky Energy 25,800 - 25,800 - Argentine gas distribution and other 27,055 15,890 59,257 38,793 Depreciation and amortization 49,129 48,597 148,200 140,488 Total operating expenses 208,981 168,966 553,318 494,755 Equity in earnings of joint ventures (Note 9) 2,744 6,500 59,607 16,230 OPERATING INCOME 158,583 143,124 392,401 315,159 Merger costs to achieve (Note 2) - - 65,318 - Other income and (deductions) 2,350 3,122 82 11,008 Interest charges and preferred dividends 26,664 27,073 78,609 78,292 Minority interest 4,459 3,834 9,104 7,523 Income before income taxes $ 129,810 $115,339 $ 239,452 $ 240,352 - 1 - LG&E Energy Corp. and Subsidiaries Consolidated Statements of Income (cont.) (Unaudited - Thousands of $ Except Per Share Data) Three Months Nine Months Ended Ended Sep. 30, Sep. 30, 1998 1997 1998 1997 Income before income taxes $ 129,810 $115,339 $ 239,452 $ 240,352 Income taxes 50,298 44,470 99,972 89,169 Income from continuing operations 79,512 70,869 139,480 151,183 Loss from discontinued operations, net of income tax benefit of $9,721, $18,907, and $9,183 (Note 3) - (15,123) (23,599) (15,668) Loss on disposal of discon- tinued operations, net of income tax benefit of $125,000 (Note 3) - - (225,000) - NET INCOME (LOSS) $ 79,512 $ 55,746 $ (109,119) $ 135,515 Average common shares outstanding 129,683 129,646 129,683 129,608 Basic earnings (loss) per share: Continuing operations $ .61 $ .55 $ 1.08 $ 1.17 Discontinued operations .00 (.12) (.18) (.12) Loss on disposal of dis- continued operations .00 .00 (1.74) .00 Total $ .61 $ .43 $ (.84) $ 1.05 Diluted earnings (loss) per share: Continuing operations $ .61 $ .55 $ 1.07 $ 1.17 Discontinued operations .00 (.12) (.17) (.13) Loss on disposal of dis- continued operations .00 .00 (1.74) .00 Total $ .61 $ .43 $ (.84) $ 1.04 The accompanying notes are an integral part of these financial statements. - 2 - LG&E Energy Corp. and Subsidiaries Consolidated Balance Sheets (Thousands of $) ASSETS (Unaudited) Sep. 30, Dec. 31, 1998 1997 CURRENT ASSETS: Cash and temporary cash investments $ 122,060 $ 111,003 Marketable securities 24,532 22,300 Accounts receivable - less reserve 331,341 242,942 Materials and supplies - primarily at average cost: Fuel (predominantly coal) 69,744 45,450 Gas stored underground 36,694 42,104 Other 67,232 55,514 Net assets of discontinued opera- tions (Note 3) 118,774 222,784 Prepayments and other 49,138 9,304 Total current assets 819,515 751,401 UTILITY PLANT: At original cost 5,500,302 5,390,868 Less: reserve for depreciation 2,321,732 2,201,124 Net utility plant 3,178,570 3,189,744 OTHER PROPERTY AND INVESTMENTS - LESS RESERVES: Investment in affiliates (Note 9) 180,385 177,006 Non-utility property and plant, net 262,347 248,119 Other 56,429 53,534 Total other property and investments 499,161 478,659 DEFERRED DEBITS AND OTHER ASSETS 189,651 143,140 Total assets $4,686,897 $4,562,944 The accompanying notes are an integral part of these financial statements. - 3 - LG&E Energy Corp. and Subsidiaries Consolidated Balance Sheets (cont.) (Thousands of $) CAPITAL AND LIABILITIES (Unaudited) Sep. 30, Dec. 31, 1998 1997 CURRENT LIABILITIES: Long-term debt due within one year $ 21 $ 20,021 Notes payable 404,275 393,784 Accounts payable 185,763 147,962 Other 260,876 122,780 Total current liabilities 850,935 684,547 Long-term debt 1,360,764 1,210,690 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 548,486 548,477 Investment tax credit, in process of amortization 95,875 101,931 Regulatory liability 116,732 117,079 Other 202,016 156,688 Total deferred credits and other liabilities 963,109 924,175 Minority interests 106,935 105,985 Cumulative preferred stock 136,530 138,353 COMMON EQUITY: Common stock, without par value - 129,677,030 shares outstanding 778,273 778,273 Other (2,175) (1,663) Retained earnings 492,526 722,584 Total common equity 1,268,624 1,499,194 Total liabilities and capital $4,686,897 $4,562,944 The accompanying notes are an integral part of these financial statements. - 4 - LG&E Energy Corp. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited - Thousands of $) Nine Months Ended Sep. 30, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (109,119)$ 135,515 Items not requiring cash currently: Depreciation and amortization 148,200 140,488 Deferred income taxes - net 643 5,147 Loss from discontinued operations (Note 3) 23,599 15,668 Loss on disposal of discontinued operations (Note 3) 225,000 - Other (9,276) 2,666 Change in net current assets (124,012) 2,293 Other (44,538) (25,036) Net cash flows from operating activities 110,497 276,741 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of securities (18,783) (9,270) Proceeds from sales of securities 16,777 3,619 Construction expenditures (149,744) (144,029) Investment in affiliates (1,010) (5,790) Proceeds from sale of investment in affiliate 16,000 - Acquisition of interests in Argentine natural gas distribution companies, net of cash and temporary cash investments acquired - (125,852) Net cash flows from investing activities (136,760) (281,322) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of medium-term notes 150,000 - Retirement of long-term debt (20,021) (21) Short-term borrowings 4,753,762 2,323,661 Repayment of short-term borrowings (4,743,743)(2,216,800) Redemption of preferred stock (1,823) - Issuance of common stock - 3,745 Payment of common dividends (100,855) (107,217) Net cash flows from financing activities $ 37,320 $ 3,368 - 5 - LG&E Energy Corp. and Subsidiaries Consolidated Statements of Cash Flows (cont.) (Unaudited - Thousands of $) Nine Months Ended Sep. 30, 1998 1997 CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS $ 11,057 $ (1,213) CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 111,003 106,463 CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 122,060 $ 105,250 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 38,137 $ 60,342 Interest on borrowed money 70,414 66,213 For the purposes of these statements, all temporary cash investments purchased with a maturity of three months or less are considered cash equivalents. The accompanying notes are an integral part of these financial statements. - 6 - LG&E Energy Corp. and Subsidiaries Consolidated Statements of Retained Earnings (Unaudited - Thousands of $) Three Months Nine Months Ended Ended Sep. 30, Sep. 30, 1998 1997 1998 1997 Balance at beginning of period $ 452,891 $692,218 $ 722,584 $683,962 Net income (loss) 79,512 55,746 (109,119) 135,515 Cash dividends declared on common stock ($.30750, $.28094, $.93259 and $.83256 per share) 39,877 36,430 120,939 107,935 Other - - - 8 Balance at end of period $ 492,526 $711,534 $ 492,526 $711,534 The accompanying notes are an integral part of these financial statements. - 7 - LG&E Energy Corp. and Subsidiaries Consolidated Statements of Comprehensive Income (Unaudited - Thousands of $) (Note 5) Three Months Nine Months Ended Ended Sep. 30, Sep. 30, 1998 1997 1998 1997 Net income (loss) $ 79,512 $55,746 $(109,119) $135,515 Unrealized holding (gains) losses on available-for-sale securities arising during the period (50) 184 (42) 112 Reclassification adjustment for realized (gains) and losses on available-for-sale securities included in net income 90 209 124 (232) Other comprehensive income (loss), before tax 40 393 82 (120) Income tax expense (benefit) related to items of other comprehensive income 29 164 44 (94) Comprehensive income (loss) $ 79,523 $55,975 $(109,081) $135,489 The accompanying notes are an integral part of these financial statements. - 8 - Louisville Gas and Electric Company Statements of Income (Unaudited) (Thousands of $) Three Months Nine Months Ended Ended Sep. 30, Sep. 30, 1998 1997 1998 1997 OPERATING REVENUES: Electric $212,907 $189,482 $528,341 $464,228 Gas 16,978 18,953 136,277 149,882 Total operating revenues 229,885 208,435 664,618 614,110 OPERATING EXPENSES: Fuel for electric generation 41,205 40,731 118,488 107,181 Power purchased 18,057 6,076 42,883 13,052 Gas supply expenses 8,950 11,541 89,308 100,510 Other operation expenses 41,976 40,875 122,850 114,837 Maintenance 10,666 11,425 33,985 37,768 Depreciation and amortization 23,294 24,892 69,883 70,795 Federal and state income taxes 27,403 22,890 53,485 47,553 Property and other taxes 4,914 3,443 14,361 12,535 Total operating expenses 176,465 161,873 545,243 504,231 NET OPERATING INCOME 53,420 46,562 119,375 109,879 Merger costs to achieve (Note 2) - - 34,134 - Other income and (deductions) 359 520 10,668 2,364 Interest charges 8,918 9,859 27,629 29,566 NET INCOME 44,861 37,223 68,280 82,677 Preferred stock dividends 1,135 1,146 3,400 3,433 NET INCOME AVAILABLE FOR COMMON STOCK $ 43,726 $ 36,077 $ 64,880 $ 79,244 The accompanying notes are an integral part of these financial statements. - 9 - Louisville Gas and Electric Company Balance Sheets (Thousands of $) ASSETS (Unaudited) Sep. 30, Dec. 31, 1998 1997 UTILITY PLANT: At original cost $2,840,947 $2,779,234 Less: reserve for depreciation 1,131,803 1,072,842 Net utility plant 1,709,144 1,706,392 OTHER PROPERTY AND INVESTMENTS - less reserve 1,092 1,365 CURRENT ASSETS: Cash and temporary cash investments 31,015 50,472 Marketable securities 21,511 19,311 Accounts receivable - less reserve 167,626 124,872 Materials and supplies - at average cost: Fuel (predominantly coal) 26,757 17,651 Gas stored underground 36,032 41,487 Other 32,934 31,866 Prepayments 1,532 2,627 Total current assets 317,407 288,286 DEFERRED DEBITS AND OTHER ASSETS: Unamortized debt expense 5,997 6,074 Regulatory assets 38,818 24,899 Other 23,836 28,625 Total deferred debits and other assets 68,651 59,598 Total assets $2,096,294 $2,055,641 The accompanying notes are an integral part of these financial statements. - 10 - Louisville Gas and Electric Company Balance Sheets (cont.) (Thousands of $) CAPITALIZATION AND LIABILITIES (Unaudited) Sep. 30, Dec. 31, 1998 1997 CAPITALIZATION: Common stock, without par value - Outstanding 21,294,223 shares $ 425,170 $ 425,170 Retained earnings 260,790 258,910 Other (730) (754) Total common equity 685,230 683,326 Cumulative preferred stock 95,328 95,328 Long-term debt 626,800 626,800 Total capitalization 1,407,358 1,405,454 CURRENT LIABILITIES: Long-term debt due within one year - 20,000 Accounts payable 122,569 112,142 Dividends declared 23,135 21,152 Accrued taxes 32,104 18,723 Accrued interest 7,712 8,016 Other 15,203 14,608 Total current liabilities 200,723 194,641 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 246,139 249,851 Investment tax credit, in process of amortization 72,620 75,800 Accumulated provision for pensions and related benefits 62,694 40,608 Regulatory liability 69,604 65,502 Other 37,156 23,785 Total deferred credits and other liabilities 488,213 455,546 Total capitalization and liabilities $2,096,294 $2,055,641 The accompanying notes are an integral part of these financial statements. - 11 - Louisville Gas and Electric Company Statements of Cash Flows (Unaudited - Thousands of $) Nine Months Ended Sep. 30, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 68,280 $ 82,677 Items not requiring cash currently: Depreciation and amortization 69,883 70,795 Deferred income taxes - net 373 (4,170) Investment tax credit - net (3,180) (3,257) Other 2,862 3,639 Changes in current assets and liabilities: Accounts receivable (42,754) (17,145) Materials and supplies (4,719) (5,727) Accounts payable 10,427 (26,199) Accrued taxes 13,381 13,361 Accrued interest (304) (1,271) Prepayments and other 1,690 2,922 Other - net 24,132 11,550 Net cash flows from operating activities 140,071 127,175 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of securities 15,623 1,247 Purchases of securities (17,784) (6,457) Construction expenditures (72,950) (69,850) Net cash flows from investing activities (75,111) (75,060) CASH FLOWS FROM FINANCING ACTIVITIES: Retirement of first mortgage bonds (20,000) - Payment of dividends (64,417) (41,419) Net cash flows from financing activities (84,417) (41,419) CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (19,457) 10,696 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 50,472 56,792 CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 31,015 $ 67,488 SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Income taxes $ 37,396 $ 33,120 Interest on borrowed money 26,195 29,707 For the purposes of these statements, all temporary cash investments purchased with a maturity of three months or less are considered cash equivalents. The accompanying notes are an integral part of these financial statements. - 12 - Louisville Gas and Electric Company Statements of Retained Earnings (Unaudited) (Thousands of $) Three Months Nine Months Ended Ended Sep. 30, Sep. 30, 1998 1997 1998 1997 Balance at beginning of period $239,064 $233,388 $258,910 $209,222 Net income 44,861 37,223 68,280 82,677 Subtotal 283,925 270,611 327,190 291,899 Cash dividends declared on stock: 5% cumulative preferred 269 269 807 807 Auction rate cumulative pref. 499 509 1,492 1,525 $5.875 cumulative preferred 367 367 1,101 1,101 Common 22,000 20,000 63,000 39,000 Subtotal 23,135 21,145 66,400 42,433 Balance at end of period $260,790 $249,466 $260,790 $249,466 The accompanying notes are an integral part of these financial statements. - 13 - Louisville Gas and Electric Company Statements of Comprehensive Income (Unaudited - Thousands of $) (Note 5) Three Months Nine Months Ended Ended Sep. 30, Sep. 30, 1998 1997 1998 1997 Net income available for common stock $43,726 $36,077 $64,880 $79,244 Unrealized holding gains (losses) on available-for-sale securities arising during the period 32 (24) 39 (22) Reclassification adjustment for realized gains (losses) on avail- able-for-sale securities includ- ed in net income - 138 - (264) Other comprehensive income (loss), before tax 32 114 39 (286) Income tax expense (benefit) related to items of other comprehensive income 14 (46) 16 (157) Comprehensive income $43,744 $36,237 $64,903 $79,115 The accompanying notes are an integral part of these financial statements. - 14 - Kentucky Utilities Company Statements of Income (Unaudited) (Thousands of $) Three Months Nine Months Ended Ended Sep. 30, Sep. 30, 1998 1997 1998 1997 OPERATING REVENUES $246,117 $192,102 $622,415 $533,884 OPERATING EXPENSES: Fuel for electric generation 65,586 51,962 168,623 138,288 Power purchased 40,134 18,277 82,725 55,479 Other operation expenses 31,100 29,851 92,531 91,122 Maintenance 15,630 15,165 45,578 47,666 Depreciation 21,749 21,084 64,852 62,830 Federal and state income taxes 23,325 16,703 50,024 38,445 Property and other taxes 3,916 3,717 12,225 11,545 Total operating expenses 201,440 156,759 516,558 445,375 NET OPERATING INCOME 44,677 35,343 105,857 88,509 Merger costs to achieve (Note 2) - - 21,830 - Other income and (deductions) 1,899 1,628 5,806 5,284 Interest charges 9,596 10,047 28,923 29,820 NET INCOME 36,980 26,924 60,910 63,973 Preferred stock dividends 564 564 1,692 1,692 NET INCOME AVAILABLE FOR COMMON STOCK $ 36,416 $ 26,360 $ 59,218 $ 62,281 The accompanying notes are an integral part of these financial statements. - 15 - Kentucky Utilities Company Balance Sheets (Thousands of $) ASSETS (Unaudited) Sep. 30, Dec. 31, 1998 1997 UTILITY PLANT: At original cost $2,659,355 $2,611,634 Less: reserve for depreciation 1,189,929 1,128,282 Net utility plant 1,469,426 1,483,352 OTHER PROPERTY AND INVESTMENTS - less reserve 12,697 12,808 CURRENT ASSETS: Cash and temporary cash investments 51,703 5,453 Accounts receivable - less reserve 130,202 74,524 Material and supplies - at average cost: Fuel (predominantly coal) 16,477 27,799 Other 24,164 23,648 Prepayments 6,673 5,769 Total current assets 229,219 137,193 DEFERRED DEBITS AND OTHER ASSETS: Unamortized debt expense 5,328 5,628 Regulatory assets 29,485 14,773 Other 19,989 26,126 Total other assets 54,802 46,527 Total assets $1,766,144 $1,679,880 The accompanying notes are an integral part of these financial statements. - 16 - Kentucky Utilities Company Balance Sheets (cont.) (Thousands of $) CAPITALIZATION AND LIABILITIES (Unaudited) Sep. 30, Dec. 31, 1998 1997 CAPITALIZATION: Common stock, without par value - Outstanding 37,817,878 shares $ 308,140 $ 308,140 Retained earnings 305,877 304,750 Other (595) (595) Total common equity 613,422 612,295 Cumulative preferred stock 40,000 40,000 Long-term debt 546,330 546,351 Total capitalization 1,199,752 1,198,646 CURRENT LIABILITIES: Long-term debt due within one year 21 21 Notes payable - 33,600 Accounts payable 108,393 33,386 Dividends declared 18,188 188 Accrued taxes 17,342 7,473 Accrued interest 10,824 8,283 Other 34,327 26,216 Total current liabilities 189,095 109,167 OTHER LIABILITIES: Accumulated deferred income taxes 248,272 245,150 Investment tax credit, in process of amortization 23,255 26,131 Regulatory liability 47,128 50,904 Other 58,642 49,882 Total other liabilities 377,297 372,067 Total capitalization and liabilities $1,766,144 $1,679,880 The accompanying notes are an integral part of these financial statements. - 17 - Kentucky Utilities Company Statements of Cash Flows (Unaudited - Thousands of $) Nine Months Ended Sep. 30, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 60,910 $ 63,973 Items not requiring cash currently: Depreciation and amortization 64,852 62,830 Deferred income taxes - net (331) 3,244 Investment tax credit - net (2,875) (3,040) Changes in current assets and liabilities: Accounts receivable (55,678) 8,915 Materials and supplies 10,806 (245) Accounts payable 75,007 (5,152) Accrued taxes 9,869 4,045 Accrued interest 2,541 2,586 Prepayments and other 6,881 4,923 Other 3,095 (2,381) Net cash flows from operating activities 175,077 139,698 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from insurance reimbursement 75 4,265 Construction expenditures (53,498) (68,423) Net cash flows from investing activities (53,423) (64,158) CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings 381,500 1,894,500 Repayments of short-term borrowings (415,100)(1,918,800) Repayments of debt (21) (21) Payment of dividends (41,783) (51,611) Net cash flows from financing activities (75,404) (75,932) CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 46,250 (392) CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 5,453 5,719 CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 51,703 $ 5,327 SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Income taxes $ 43,556 $ 25,316 Interest on borrowed money 24,244 32,810 For the purposes of these statements, all temporary cash investments purchased with a maturity of three months or less are considered cash equivalents. The accompanying notes are an integral part of these financial statements. - 18 - Kentucky Utilities Company Statements of Retained Earnings (Unaudited) (Thousands of $) Three Months Nine Months Ended Ended Sep. 30, Sep. 30, 1998 1997 1998 1997 Balance at beginning of period $287,461 $290,493 $304,750 $287,851 Net income 36,980 26,924 60,910 63,973 Subtotal 324,441 317,417 365,660 351,824 Cash dividends declared on stock: 4.75% preferred 237 237 713 713 6.53% preferred 327 327 979 979 Common 18,000 16,640 58,091 49,919 Subtotal 18,564 17,204 59,783 51,611 Balance at end of period $305,877 $300,213 $305,877 $300,213 The accompanying notes are an integral part of these financial statements. - 19 - LG&E Energy Corp. and Subsidiaries Louisville Gas and Electric Company Kentucky Utilities Company Notes to Financial Statements (Unaudited) 1. Effective May 4, 1998, following the receipt of all required state and federal regulatory approvals, LG&E Energy Corp. (LG&E Energy or the Company) and KU Energy Corporation (KU Energy) merged, with LG&E Energy as the surviving corporation (the Merger). The accompanying unaudited consolidated financial statements reflect the accounting for the merger as a pooling of interests and are presented as if the companies were combined as of the earliest period presented. However, the financial information is not necessarily indicative of the results of operations, financial position or cash flows that would have occurred had the merger been consummated for the periods for which it is given effect, nor is it necessarily indicative of future results of operations, financial position, or cash flows. The financial statements reflect the conversion of each outstanding share of KU Energy common stock into 1.67 shares of LG&E Energy common stock. The outstanding preferred stock of Louisville Gas and Electric Company (LG&E), a subsidiary of LG&E Energy, and Kentucky Utilities Company (KU), a subsidiary of KU Energy, were not affected by the Merger. KU Capital Corporation, a subsidiary of KU Energy, was merged into LG&E Capital Corp. (Capital Corp.) on July 24, 1998, with the latter as the surviving corporation. The consolidated financial statements include the accounts of LG&E Energy Corp., LG&E, LG&E Capital Corp., and KU and their respective wholly-owned subsidiaries, collectively referred to herein as the "Company." All significant intercompany items and transactions have been eliminated from the unaudited consolidated financial statements. In the opinion of management, all adjustments, including those of a normal recurring nature, have been made to present fairly the consolidated financial position, results of operations and cash flows for the periods indicated. 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 SEC rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. See the Company's 'Financial Statements for the year ended December 31, 1997, contained in its Report on Form 8-K dated October 21, 1998, for information relevant to the accompanying financial statements, including information as to the significant accounting policies of the Company. See also LG&E's and KU's Annual Reports on Form 10-K for 1997. 2. Through September 30, 1998, the Company's costs associated with the KU Energy merger amounted to $103.9 million. This amount included $52.3 million for LG&E and $42.3 million for KU, and consisted of separation costs, transaction costs and other merger-related expenditures. In accordance with regulatory filings approved by the Kentucky Public Service Commission (the Commission) and the Virginia State Corporation Commission, the Company deferred $38.6 million of the costs associated with the merger and will amortize this amount over five years. LG&E and KU will refund merger-related savings to their customers through surcredits over the next five years, and the amortization will reduce the amount of the surcredits. The amortization and the surcredits began in July 1998. The Company, LG&E and KU expensed the remaining costs associated with the merger in the second quarter of 1998, and included the amounts in merger costs to achieve in the accompanying statements of income. - 20 - For more information, see Note 2 of the Company's Financial Statements for the year ended December 31, 1997, contained in its Report on Form 8- K dated October 21, 1998, the Company's Current Report on Form 8-K dated May 4, 1998, and LG&E's and KU's Annual Reports on Form 10-K for 1997. 3. Effective June 30, 1998, the Company discontinued its merchant trading and sales business, primarily due to its current portfolio of energy marketing contracts, and the impact that recent volatility, instability and rising prices on the power market have had on these contracts. Exiting the merchant trading and sales business is intended to enable the Company to focus on adding and optimizing physical assets, and to eliminate the earnings impact to continuing operations of extreme market volatility on its current portfolio of energy marketing contracts. The Company is in the process of settling the long-term contracts that obligate it to buy and sell natural gas and electric power. It also plans to sell its natural gas gathering and processing business. The Company, however, intends to maintain sufficient market knowledge, risk management skills, technical systems and experienced personnel to maximize the value of power sales from assets it owns or controls, including LG&E, KU and WKEC. As a result of the Company's decision to discontinue its merchant trading and sales activity, and the decision to sell the associated gas gathering and processing business, the Company recorded an after-tax loss on disposal of discontinued operations of $225.0 million in the second quarter of 1998. The loss on disposal of discontinued operations results primarily from several fixed-price energy marketing contracts entered in 1996 and early 1997, including the Company's long- term contract with Oglethorpe Power Corporation (OPC). Other components of the write-off include costs relating to certain peaking options, goodwill associated with the Company's 1995 purchase of these operations and exit costs. Management believes that its estimates of the net realizable value for discontinued operations recorded in the second quarter have not changed materially. Although the Company used what it believes to be appropriate estimates for future energy prices among other factors to calculate the fair market value of discontinued operations, there is no guarantee that higher than anticipated future prices or lower than anticipated proceeds from the asset sales could not result in additional losses. As of October 15, 1998, the Company estimated that a $1 change in electricity prices across all geographic areas and time periods could change the value of the Company's remaining energy portfolio by approximately $10 million. In addition to price risk, the value of the Company's remaining energy portfolio is subject to operational and event risks including, among others, increases in load demand, regulatory changes, and forced outages at units providing supply for the Company. As of October 15, 1998, the Company estimated that a 1% change in the forecasted load demand could change the value of the Company's remaining energy portfolio by $11 million. - 21 - Operating results for discontinued operations follow. Three Months Nine Months Ended Ended Sep. 30, Sep. 30, 1998 1997 1998 1997 Revenues $1,895,622 $844,104 $3,552,305 $2,425,071 Income (loss) before taxes (77,268) (24,844) (115,774) (24,851) Income (loss) from dis- continued operations, net of income taxes (39,569) (15,123) (63,168) (15,668) Net assets of discontinued operations at September 30, 1998, follow. Cash and temporary cash investments $ 8,629 Accounts receivable 427,061 Price risk management assets 94,667 Non-utility property and plant, net 167,288 Accounts payable (410,811) Price risk management liabilities (55,520) Goodwill and other assets and liabilities, net 32,459 Net assets before accrued loss on disposal of dis- continued operations 263,773 Accrued loss on disposal of discontinued operations, net of income tax benefit of $80,362 144,999 Net assets of discon- tinued operations $ 118,774 4. On April 3, 1998, LG&E entered into a forward-starting interest-rate swap with a notional amount of $83.3 million. The swap will hedge anticipated variable-rate borrowing commitments. It will start in August 2000 and mature in November 2020. LG&E will pay a fixed rate of 5.21% and receive a variable rate based on the Bond Market Association Municipal Swap Index. Under certain conditions, the counterparty to the agreement may terminate the swap at no cost after August 2010. In September 1998, LG&E entered into two interest-rate swaps with notional amounts totaling $100 million. The swaps hedge tax-exempt variable-rate borrowing commitments. They started in September 1998 and they will mature in September 2001. LG&E pays fixed rates of 3.66% and 3.56% and receives a variable rate based on the Bond Market Association Municipal Swap Index. The receive rate currently amounts to 3.56%. In September 1998, Capital Corp. entered into two forward-starting interest-rate swaps with notional amounts totaling $150 million. The swaps were hedges of anticipated medium-term note issuance. They were to start on October 30, 1998, and mature in October 2001. Capital Corp. would have paid a fixed rate of 5.158% on the swaps - 22 - and would have received a variable rate based on the six-month London Interbank offered rate. The swaps were terminated on October 29, 1998, when the medium-term notes were priced (see also Note 13). In September 1998, Capital Corp. entered into an interest-rate swap with a notional amount of $50 million. The swap hedges outstanding commercial paper. The swap started on October 1, 1998, and it will mature in January 2000. Capital Corp. pays a fixed rate of 4.78% on the swap and receives a variable rate based on a one-month commercial paper index. The index rate currently amounts to 5.12%. The fair values of the Company's interest-rate swaps totaled $21.7 million (liability) as of September 30, 1998. 5. In the first quarter of 1998, the Company, LG&E, and KU adopted Statement of Accounting Standards No. 130, Reporting Comprehensive Income. The Company and LG&E have presented the information required by the Statement in their respective Statements of Comprehensive Income. KU had no items of other comprehensive income for the three- and nine-month periods ended September 30, 1998, and September 30, 1997, and it had no accumulated other comprehensive income at September 30, 1998, or December 31, 1997. Accumulated other comprehensive income included in the Company's equity totaled $255,000 and $217,000 at September 30, 1998, and December 31, 1997, respectively. Accumulated other comprehensive income included in LG&E's equity totaled $105,000 and $82,000 at September 30, 1998, and December 31, 1997, respectively. The Company's and LG&E's accumulated other comprehensive income at September 30, 1998, and December 31, 1997, consisted of unrealized holding gains and losses on available-for-sale marketable securities. On March 4, 1998, the American Institute of Certified Public Accountants issued Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1), which is effective for fiscal years beginning after December 15, 1998. The statement clarifies the criteria for capital or expense treatment of costs incurred by an enterprise to develop or obtain computer software to be used in its internal operations. The statement does not change treatment of costs incurred in connection with correcting computer programs to properly process the millennium change to the Year 2000, which must be expensed as incurred. The Company plans to adopt SOP 98-1 on January 1, 1999. Management does not expect adoption of this statement to have a material adverse effect on its financial position or results of operations. On April 3, 1998, the American Institute of Certified Public Accountants issued Statement of Position No. 98-5, Reporting on the Costs of Start-Up Activities, which is effective for fiscal years beginning after December 31, 1998. The statement requires companies to expense the costs of start-up activities as incurred. The statement also requires certain previously capitalized costs to be charged to expense at the time of adoption and reported as the cumulative effect of a change in accounting principle. The Company is currently analyzing the provisions of the statement and anticipates that a range of $10 to $20 million of start-up costs could be affected. On June 15, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The statement is effective for fiscal years beginning after June 15, 1999, and establishes accounting and reporting standards that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires - 23 - that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The Company is currently analyzing the provisions of the statement and cannot predict the impact this statement will have on its consolidated operations and financial position. However, the statement could increase volatility in earnings and other comprehensive income. 6. 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 September 30, 1998, were approximately $75 million. The PSC's order approving the surcharge and the constitutionality of the surcharge statute were 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 joined by representatives of consumer groups. In July 1995, the Circuit Court entered a judgment upholding the constitutionality of the surcharge statute, but vacating that part of the PSC's July 1994 order which the Circuit Court's judgment described as retroactively applying the surcharge statute. The Circuit Court further ordered the case remanded to the PSC for a determination in accordance with the judgment. KU and the PSC argued that the PSC's July 1994 order did not retroactively apply the statute. The Kentucky Attorney General and other consumer representatives appealed to the Kentucky Court of Appeals (Court of Appeals) the portion of the Circuit Court's judgment upholding the constitutionality of the surcharge statute. The PSC and KU appealed the portion of the judgment concerning the retroactive application of the surcharge statute. The PSC previously ordered KU to collect all surcharge revenues beginning February 1, 1995 subject to refund pending final determination of all appeals. KU expects the PSC to continue to do so until the appeals are concluded. The total surcharge collections from February 1, 1995 through September 30, 1998 were approximately $70 million. In December 1997, the Court of Appeals rendered an opinion upholding the portion of the Circuit Court's judgment regarding the constitutionality of the surcharge statute but reversing that portion of the Circuit Court's judgment concerning the claim of retroactive application of the statute. The Kentucky Attorney General and other consumer representatives filed motions for discretionary review with the Kentucky Supreme Court (Supreme Court). The Supreme Court granted said motion and the issues are presently being briefed by the parties at the Supreme Court. Oral arguments are scheduled for November 13, 1998. KU continues to believe that the constitutionality of the surcharge statute will be upheld. Although KU cannot predict the outcome of the claim of retroactive application of the statute, it is the position of KU and the PSC that the July 1994 PSC order did not retroactively apply the statute. If the Court of Appeals' opinion reversing the Circuit Court's judgment on the claim of retroactivity is overturned and the Circuit Court's judgment, as entered, is upheld, KU estimates that the amount it could be required to refund for surcharge collections through September 30, 1998, from the implementation of the surcharge would be approximately $18 million and from February 1, 1995, would be approximately $16 million. At this time, KU has not recorded any reserve for refund. - 24 - Although not a party to the KU proceeding, LG&E is involved in separate proceedings regarding its surcharge and may also face exposure on these matters in the event of an ultimate adverse ruling on these issues. See Note 4 of LG&E's Notes to Financial Statements in LG&E's Annual Report on Form 10-K for the year ended December 31, 1997, for a further discussion. 7. Note 18 of the Company's Financial Statements for the year ended December 31, 1997, contained in its 'Report on Form 8-K dated October 21, 1998, discusses the status of certain proceedings before the FERC regarding the status of the Southampton cogeneration facility ("Southampton") as a qualifying facility ("QF") under the Public Utility Regulatory Policies Act for the year 1992, including a settlement agreement as to any FERC-ordered rate refunds payable from Southampton to Virginia Electric and Power Company ("VEPCO") for the 1992 period. See Part II, Item 1, Legal Proceedings, for recent developments in this matter. 8. Effective July 15, 1998, the Company closed its transaction to lease the generating assets of Big Rivers Electric Corporation ("Big Rivers"). Future minimum payments under the lease agreement follow (amounts in thousands of dollars). 1998 $ - 1999 - 2000 14,192 2001 30,965 2002 30,965 Thereafter 650,265 Total $726,387 The Company paid the first two years' rent to Big Rivers at closing. The above table does not include this payment, which totaled $55.9 million. See "Recent Developments - Lease of Big Rivers Facilities" in Item 2, Management's Discussion and Analysis of Operations and Financial Condition for information concerning this transaction. See also Part II, Item 1, Legal Proceedings, of the Company's Form 10-Q for the quarter ended March 31, 1998 and Part I, Item 1, Business, of the Company's 1997 Form 10-K. 9. On June 30, 1998, the partnership that owns the Rensselaer cogeneration facility, along with 14 other independent power producers, participated in the consummation of a Master Restructuring Agreement (MRA) with Niagara Mohawk Power Corporation (NIMO), the purchasing utility. As part of the MRA, the partnership restructured its power purchase agreement with NIMO and entered into a multi-year agreement with the utility. Substantial amounts of the gross proceeds received by the partnership from NIMO were used to repay outstanding project debt and financial obligations as well as termination payments to the project's steam host, fuel suppliers, fuel transporters and other service providers. As a result of a settlement among the parties, the Company will retain a 50% interest in the partnership that owns the Rensselaer facility. The Company received one-half of the partnership's net receipts related to the MRA, less amounts retained by the partnership for operating needs. The Company recognized an after-tax gain on the MRA transaction of $21 million. See also Part II, Item 1, Legal Proceedings of the Company's Form 10-Q's for the quarters ended March 31, 1998, and June 30, 1998. 10.In January 1994,LG&E implemented a Commission approved demand side management (DSM) program that LG&E, the Jefferson County Attorney, and representatives of several customers interest groups had filed with the Commission. One rate mechanism contained - 25 - in the program allowed LG&E to recover revenues from lost sales associated with the DSM program ("decoupling"). In June 1998, LG&E and customer interest groups requested an end to the decoupling rate mechanism. On September 23, 1998, the Commission accepted the proposal effective as of June 1, 1998. On June 1, 1998, LG&E discontinued recording revenues from lost sales due to DSM. Decoupling revenues recorded prior to June 1, 1998, will continue to be recovered through the DSM recovery mechanism. 11.In October 1998, LG&E and KU filed separate, but parallel applications with the Commission for approval of a new method of determining electric rates that provide financial incentives for LG&E and KU to further reduce customers' bills. The filing was required by the September 1997 Commission merger order. The new rate making method, known as performance based ratemaking (PBR), would include financial incentives for LG&E and KU to reduce fuel costs and increase generating efficiency, and to share any resulting savings with customers. Additionally, the PBR provides financial penalties and rewards to assure continued high quality service and reliability. The performance-based ratemaking plan chosen by LG&E and KU consists of five components: The utilities' fuel adjustment clause mechanism will be withdrawn and replaced with a cap that limits recovery of actual changes in fuel cost to changes in a fuel price index for a five state region. If the utility outperforms the index, benefits will be shared equally between shareholders and customers. If the utility's fuel costs exceed the index, the difference will be absorbed by the company's shareholders; Customers will continue to receive the benefits from the post-merger joint dispatch of power from LG&E's and KU's generating plants; Power plant performance will be measured against the best performance achieved between 1991 and 1997. If the performance exceeds this level, customers will share the benefits of this performance up to $10 million annually at each of LG&E and KU; The utility will be encouraged to maintain and improve service quality, reliability, customer satisfaction and safety, which will be measured against six objective benchmarks. The plan provides for annual rewards or penalties to the company of up to $5 million per year at each of LG&E and KU; The plan provides the utility with greater flexibility to customize rates and services to meet customer needs. Services will continue to be priced above marginal cost and customers will continue to have the option to elect standard tariff service. These proposals remain subject to approval by the Commission. 12.Note 18 of the Company's Financial Statements for the year ended December 31, 1997, contained in its Report on Form 8-K dated October 21, 1998, discuss certain pending settlements for an aggregate of $150,000 relating to LG&E's status as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act for certain disposal facilities. Note 12 of LG&E's Financial Statements for the year ended December 31, 1997, contained in its'' Annual Report on Form 10-K for 1997, also discusses the settlements'. These settlements are now final and have been entered by the court. 13.On November 3, 1998, Capital Corp. issued $150 million of Reset Put Securities due 2011. The interest rate is set at 5.75% through November 1, 2001. The securities will be subject to automatic purchase by a remarketing agent, at which time the in - 26 - terest rate will be reset, or to automatic repurchase by Capital Corp., on November 1, 2001. After taking into account the net effect of the derivative instruments entered into in September 1998 to hedge the interest rate on the notes and other issuance costs, the effective rate through October 31, 2001, is approximately 5.37%. The proceeds were used to repay a portion of Capital Corp.'s outstanding commercial paper. 14.Reference is made to Part II, Legal Proceedings, below and in the Company's, KU Energy's, LG&E's and KU's 10-Qs for the quarter ended March 31, 1998, and June 30, 1998, respectively, Part I, Item 3, Legal Proceedings, of the Company's, KU Energy's, LG&E's and KU's (and Note 16 of the Company's Notes to Financial Statements) respective Annual Reports on Form 10-K for the year ended December 31, 1997. - 27 - Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. Recent Developments On May 4, 1998, LG&E Energy and KU Energy merged. KU Energy was the parent company of Kentucky Utilities Company (KU). Further information concerning the merger is included in Notes 1 and 2. On June 8, 1998, LG&E Power Inc. (LPI) announced that it has entered into a partnership with Columbia Electric Corporation in the development of a natural gas-fired cogeneration project in Gregory, Texas, providing electricity and steam equivalent to 550 Mw. The project's construction is subject, among other things, to final negotiation of project documents and completion of financing arrangements. The project will sell steam and a portion of its electric output to Reynolds Metals Company. It is anticipated that the remaining electric output will be sold initially under a medium-term contract. The project is expected to begin commercial operation in the summer of 2000. Total project cost is anticipated to be approximately $240 million. Non-recourse financing is expected to fund a majority of the costs. The Company's equity contribution is expected to be approximately $30-35 million in connection with its 50% interest in the project. In early October 1998, LG&E Capital Corp. entered into a cancelable letter of intent to purchase two natural gas turbines. The Company anticipates that the turbines, if purchased, or their electrical output, if purchased and operated, would be marketed or resold to an affiliated or an unaffiliated third party. However, there can be no assurance as to when, if at all, such resale would occur or as to the price of any such resale. The aggregate purchase price, including costs of installation, for the turbines is approximately $115 million, which is expected to be largely funded through additional borrowing by Capital Corp. On November 10, 1998, LG&E's collective bargaining agreement with employees represented by the International Brotherhood of Electrical Workers Local 2100 (IBEW) expired. On November 11, 1998, IBEW employees voted to reject a tentative agreement for a proposed four-year contract which had been reached by negotiation teams representing LG&E and the IBEW. Both sides plan to meet with their committees to discuss how to proceed. LG&E's operations and maintenance employees are members of the IBEW, which represents approximately 60% of LG&E's workforce. Discontinuance of Merchant Energy Trading and Sales Business Effective June 30, 1998, the Company discontinued its merchant trading and sales business, primarily due to its current portfolio of energy marketing contracts, and the impact that recent volatility, instability and rising prices on the power market have had on these contracts. Exiting the merchant trading and sales business is intended to enable the Company to focus on adding and optimizing physical assets, and to eliminate the earnings impact to continuing operations of extreme market volatility on its current portfolio of energy marketing contracts. The Company is in the process of settling the long-term contracts that obligate it to buy and sell natural gas and electric power. It also included its natural gas gathering and processing business in discontinued operations. The Company, however, intends to maintain sufficient market knowledge, risk management skills, technical systems and experienced personnel to maximize the value of power sales from assets it owns or controls, including LG&E, KU and Western Kentucky Energy Corp. (WKEC). As a result of the Company's decision to discontinue its merchant trading and sales activity, and the decision to sell the associated gas gathering and processing business, the Company recorded an after-tax loss on disposal of discontinued operations of $225.0 million in the second quarter of 1998. The loss on disposal of discontinued operations re - 28 - sults primarily from several fixed-price energy marketing contracts entered in 1996 and early 1997, including the Company's long-term contract with Oglethorpe Power Corporation (OPC). Other components of the write-off include costs relating to certain peaking options, goodwill associated with the Company's 1995 purchase of these operations and exit costs. Management believes that its estimates of the net realizable value for discontinued operations recorded in the second quarter have not changed materially. Although the Company used what it believes to be appropriate estimates for future energy prices among other factors to calculate the fair market value of discontinued operations, there is no guarantee that higher than anticipated future prices or lower than anticipated proceeds from the asset sales could not result in additional losses. As of October 15, 1998, the Company estimates that a $1 change in electricity prices across all geographic areas and time periods could change the value of the Company's remaining energy portfolio by approximately $10 million. In addition to price risk, the value of the Company's remaining energy portfolio is subject to operational and event risks including, among others, increases in load demand, regulatory changes, and forced outages at units providing supply for the Company. As of October 15, 1998, the Company estimates that a 1% change in the forecasted load demand could change the value of the Company's remaining energy portfolio by $11 million. See Part II, Item I for a discussion of recent developments regarding the OPC contract. The Company restated its financial statements for prior periods to present the operating results, financial position and cash flows of these businesses as discontinued operations. See Note 3 of the Company's Financial Statements for the year ended December 31, 1997, contained in its Report on Form 8-K dated October 21, 1998 and Note 3 of Notes to Financial Statements under Item 1 for more information. Master Restructuring Agreement On June 30, 1998, the partnership that owns the Rensselaer cogeneration facility, along with 14 other independent power producers, participated in the consummation of a Master Restructuring Agreement (MRA) with Niagara Mohawk Power Corporation (NIMO), the purchasing utility. The Company recognized an after-tax gain on the MRA transaction and the settlement of $21 million. See Note 9 of Notes to Financial Statements. Lease of Big Rivers Facilities Effective July 15, 1998, the Company closed its transaction to lease the generating assets of Big Rivers following receipt of necessary regulatory approvals. This 25-year transaction involves a lease by subsidiaries of the Company of Big Rivers' approximately 1,700 megawatts of generating capacity. Under the transaction, Western Kentucky Energy Corp. (WKE), a subsidiary of the Company, leases and operates Big Rivers' three coal-fired facilities as an exempt wholesale generator. In addition, an affiliate of WKE operates and maintains the Station Two generating facility of the City of Henderson, Kentucky, and another affiliate, LG&E Energy Marketing, Inc. (LEM), purchases from the City the capacity and energy of Station Two in excess of the City's needs. In related transactions, LEM supplies power to Big Rivers at fixed prices to meet the needs of its four member distribution cooperatives and their retail customers in Western Kentucky, and separately provides power directly to two of those cooperatives to meet the needs of the aluminum smelting facilities of Alcan Aluminum Corporation and Southwire Company in Kentucky. Excess generating capacity, currently estimated to be up to 350 Mw in the aggregate for this transaction, will remain available for LEM to market throughout the region. In connection with these transactions, the Company, through its affiliates, has undertaken to bear certain of the future capital requirements of those generating assets, certain defined environmental compliance costs (including costs to comply with recent NOx limitations), and other obligations. Big Rivers' personnel at the plants became employees of WKE upon the commencement of the transactions. Final Kentucky Public Service Commission approvals in connection with this transaction were received on July 14, 1998, and final Federal Energy - 29 - Regulatory Commission approvals were received on July 8, 1998. See Part II, Item 1, Legal Proceedings, of the Company's Form 10-Qs for the quarters ended March 31, 1998, and June 30, 1998, and Part I, Item 1, Business, of the Company's 1997 Form 10-K. General Two of the Company's principal subsidiaries are LG&E, an electric and gas utility, and KU, an electric utility. LG&E's and KU's results of operations and liquidity and capital resources are important factors affecting the Company's consolidated results of operations and capital resources and liquidity. Some of the matters discussed in the Notes to Consolidated Financial Statements and Management's Discussion and Analysis may contain forward- looking statements that are subject to certain risks, uncertainties and assumptions. Actual results may vary materially. Factors that could cause actual results to differ materially include, but are not limited to: general economic conditions; business and competitive conditions in the energy industry; future prices of power and natural gas; unusual weather; regulatory decisions, including decisions resulting from the combination of LG&E Energy and KU Energy; the Company's ability to resolve Year 2000 issues in a timely manner and other factors described from time to time in the Company's reports to the Securities and Exchange Commission, including Exhibit 99.01 to the Form 10-K for the year ended December 31, 1997. Results of Operations LG&E's, KU's and the Argentine gas distribution companies' results of operations are significantly affected by seasonal fluctuations in temperature and other weather-related factors. Because of these and other factors, the results of one interim period are not necessarily indicative of results or trends to be expected for the full year. Three Months Ended September 30, 1998, Compared to Three Months Ended September 30, 1997 The Company's diluted earnings per share from continuing operations increased to $.61 in 1998 from $.55 in 1997. The increase resulted from increased earnings at LG&E and KU and from marketing the power generated by the Big Rivers facility (the Company began leasing the facility in July 1998). Decreases resulting from receiving fees in 1997 related to an undeveloped independent power project and increased corporate expenses partially offset these increases. LG&E Results: LG&E's net income increased $7.6 million for the quarter ended September 30, 1998, as compared to the quarter ended September 30, 1997, primarily because of an increase in electric sales due to warmer weather. - 30 - A comparison of LG&E's revenues for the quarter ended September 30, 1998, with the quarter ended September 30, 1997, reflects increases and decreases which have been segregated by the following principal causes: Increase or (Decrease) (Thousands of $) Electric Gas Cause Revenues Revenues Sales to ultimate consumers: Fuel and gas supply adjustments $ 1,138 $ (711) Demand side management/decoupling revenue (315) (353) Merger surcredit (2,127) - Variation in sales volume, etc. 13,196 (855) Total 11,892 (1,919) Sales for resale 11,501 194 Gas transportation - net - (104) Other 32 (146) Total $23,425 $(1,975) Retail electric sales increased due to the warmer weather experienced in the quarter compared to the third quarter of 1997; cooling degree days this quarter were 27% higher than last year. Electric sales for resale increased due to larger amounts of power available for off-system sales, an increase in the unit price of sales and sales to Kentucky Utilities of $3.5 million as a result of economic dispatch of generating units between LG&E and KU following the merger of LG&E Energy Corp. and KU Energy. As a consequence of such economic dispatch, LG&E and KU are buying power from each other when it is economically advisable for them to do so. See Note 10 of Notes to Financial Statements for a discussion regarding the termination of the demand side management revenue decoupling mechanism effective June 1, 1998. Fuel for electric generation and gas supply expenses comprise a large segment of LG&E's total operating expenses. LG&E's electric and gas rates contain a fuel adjustment clause and a gas supply clause, respectively, whereby increases or decreases in the cost of fuel and gas supply may be reflected in retail rates, subject to the approval of the Public Service Commission of Kentucky. See Note 11 of Notes to Financial Statements relating to performance-based ratemaking. Fuel for electric generation increased $.5 million for the quarter because of a higher cost of coal burned. Gas supply expenses decreased $2.6 million (22%) due to a decrease in the volume of gas delivered to the distribution system ($1 million) and a decrease in net gas supply cost ($1.6 million). Power purchased increased $12 million because of an increase in the unit price of purchases, increased Kwh purchases to support increased electric sales and increased purchases from Kentucky Utilities of $6.0 million as a result of economic dispatch following the merger of the two companies in May 1998. Maintenance expenses decreased $.8 million (7%) mainly because of a decrease in repairs to the electric generating plants of $1.1 million. Depreciation and amortization decreased $1.6 million (6%) primarily as a result of accelerated write offs of losses on early retirement of facilities, in the third quarter of 1997, which were deferred as regulatory assets and were in the process of being amortized. - 31 - Variations in income tax expense are largely attributable to changes in pre- tax income. Interest charges decreased partly because $20 million of the Company's First Mortgage Bonds, 6.75% Series were retired at maturity on June 1, 1998 and lower interest rates on bonds refinanced in November 1997. KU Results: KU's net income for the three months ended September 30, 1998 increased $10.1 million compared to the same period of 1997. The increase was primarily due to increases in residential sales, commercial sales and sales for resale caused by the warmer weather and increased marketing efforts. The increase was also attributed to increased load growth in KU's industrial customer base. A comparison of KU's revenues for the three months ended September 30, 1998, with the three months ended September 30, 1997, reflects increases and decreases which have been segregated by the following principal causes: Sales to ultimate consumers: Fuel clause adjustments $ 1,094 Environmental cost recovery (848) Merger surcredit (1,945) Variation in sales volume, etc. 15,950 Total 14,251 Sales for resale 39,465 Other 299 Total $54,015 Operating revenues increased $54 million (28%). The increase reflects a 33% increase in kilowatt-hour sales, which is primarily attributable to increases in residential sales, commercial sales, and sales for resale. The increase in residential and commercial sales were primarily due to warmer weather during the third quarter of 1998 in comparison to 1997. The increase in sales for resale (2,135,544 megawatt-hours versus 893,622 megawatt-hours) was primarily due to increased marketing efforts and sales to Louisville Gas and Electric of $6.0 million as a result of economic dispatch following the merger of LG&E Energy Corp. and KU Energy. Fuel for electric generation expenses increased by $13.6 million (26%) due to a 26% increase in million British thermal units (MMBTU) used. The increased consumption was primarily caused by the previously mentioned increase in kilowatt-hour sales. Power purchased increased $21.9 million. The increase was primarily due to a 70.8% increase in megawatt-hour purchases which was primarily attributable to increased marketing efforts and purchases from Louisville Gas and Electric of $3.5 million as a result of economic dispatch following the merger of the two companies in May 1998. Variations in income tax expense are largely attributable to changes in pre- tax income. LG&E Capital Corp. and Other Results: LG&E Capital Corp. (Capital Corp.), a wholly-owned subsidiary of the Company, serves as the holding company for the Company's non-utility operations. Capital Corp., through its subsidiaries, is engaged in various independent power projects and leveraged leases in the United States, in operating non-regulated electric generation facilities, and in the gas - 32 - distribution business in Argentina. Capital Corp.'s continuing operations are included in the accompanying income statements under the headings "Western Kentucky Energy," "Argentina Gas Distribution and Other," and "Equity in Earnings of Joint Ventures." On July 24, 1998, KU Capital Corporation, the former holding company for KU Energy's non-utility operations, was merged into Capital Corp., with the latter as the surviving corporation. Capital Corp. contributed 7 cents per share to consolidated earnings from continuing operations for the third quarter of 1998, compared with 8 cents in the same period of 1997. The earnings this year are primarily due to strong operating performance and off-system sales of power from Western Kentucky Energy. Last year's earnings included a $.05 gain from resolution of issues related to an independent power project. Capital Corp.'s revenues increased $78.3 million due to marketing the power generated by the Big Rivers facility ($66.2 million) and to Retail Access Services' starting operations in the second quarter of 1998 ($17.2 million). The Company began leasing the Big Rivers facility in July 1998. Fees received in 1997 related to an undeveloped independent power plant partially offset these increases. Cost of revenues increased $47.8 million also due to marketing the power generated by the Big Rivers facilities ($29.3 million) and to Retail Access Services' starting operations ($16.8 million). Retail Access Services provides consulting, technical, software and operational support and services to independent retail energy service providers in certain markets. Capital Corp. and other non-utility operation and maintenance expense increased $37.0 million due to increases related to leasing the Big Rivers facility and to higher corporate expenses. Equity in earnings of joint ventures decreased $3.8 million in 1998 due to writing off the investment in Windpower Partners 1994. See Notes 8 and 18 of Company's Financial Statements for the year ended December 31, 1997, contained in its Report on Form 8-K dated October 21, 1998'. Loss from discontinued operations decreased from $15.1 million in 1997 to zero in 1998 due to the Company's discontinuing its merchant trading and sales business effective June 30, 1998. See Note 3 for information regarding the operations and financial results of the discontinued businesses. Nine Months Ended September 30, 1998, Compared to Nine Months Ended September 30, 1997 The Company's diluted earnings per share from continuing operations decreased to $1.07 in 1998 from $1.17 in 1997. Results for 1998 included $.42 of charges for merger-related costs ($.19 for LG&E, $.17 for KU, and $.06 for Corporate). Excluding these charges, income from continuing operations would have totaled $1.49 in 1998, an increase of $.32 over earnings for 1997. Approximately $.16 of this increase resulted from closing the NIMO MRA in June 1998 (see Note 9 of Notes to Financial Statements). The rest of the increase resulted from increased earnings at LG&E and KU and from marketing the power generated by the Big Rivers facilities (the Company began leasing the facilities in July 1998). Fees received in 1997 related to an undeveloped independent power project and increased corporate expenses partially offset these increases. Loss from discontinued operations increased $7.9 million due to increased volatility, instability and rising prices in the wholesale power market during the first six months of 1998. See Note 3 of Notes to Financial Statements for more information. - 33 - LG&E Results: LG&E's net income decreased $14.4 million for the first nine months of 1998, as compared to the first nine months of 1997, primarily due to the charge for merger-related expenses as discussed in Note 2 of Notes to Financial Statements. Excluding the costs to achieve the merger, net income increased $10.6 million. This increase is mainly due to increased electric retail and wholesale sales, partially offset by lower gas sales and higher operating expenses at the electric generating stations. A comparison of LG&E's revenues for the nine months ended September 30, 1998, with the nine months ended September 30, 1997, reflects increases and decreases which have been segregated by the following principal causes: Increase or (Decrease) (Thousands of $) Electric Gas Cause Revenues Revenues Sales to ultimate consumers: Fuel and gas supply adjustments $ 1,789 $ 1,115 Merger surcredit (2,127) - Demand side management/decoupling revenue (3,598) 571 Environmental cost recovery surcharge (234) - Variation in sales volume, etc. 28,395 (20,183) Total 24,225 (18,497) Sales for resale 40,475 5,593 Gas transportation - net - (118) Other (587) (583) Total $ 64,113 $(13,605) Electric retail sales increased primarily due to the warmer weather experienced in the second and third quarters of 1998 as compared to 1997. Sales for resale increased due to larger amounts of power available for off- system sales, an increase in the unit price of the sales and sales to Kentucky Utilities of $7.8 million due to economic dispatch following the merger in May 1998 of LG&E Energy Corp. and KU Energy. See Note 10 for a discussion on discontinuance of the revenue decoupling rate mechanism. Gas retail sales decreased from 1997 due to the warmer weather in the first nine months of 1998. Gas wholesale sales increased to $5.6 million in 1998 from zero in 1997 due to the implementation of LG&E's performance-based ratemaking mechanism. Fuel for electric generation increased $11.3 million (11%) for the nine months because of an increase in generation ($7.4 million) and a higher cost of coal burned ($3.9 million). See Note 11 of Notes to Financial Statements relating to performance-based ratemaking. Gas supply expenses decreased $11.2 million (11%) due to a decrease in the volume of gas delivered to the distribution system. Power purchased increased $29.8 million because of the availability of economically priced power during the first quarter of 1998, increases in the unit price of purchases in the second and third quarters of 1998 and increased purchases from Kentucky Utilities of $11.2 - 34 - million as a result of economic dispatch following the merger of the two companies in May 1998. Other operation expenses increased $8 million (7%) over 1997 because of increased costs to operate the electric generating plants ($6.3 million) and increased administrative costs ($2.2 million). Maintenance expenses decreased $3.8 million (10%) primarily because of a decrease in scheduled outages and general repairs at the electric generating plants ($5.5 million) offset by increased storm damage expenses($1.4 million). LG&E incurred a pre-tax charge in the second quarter for costs associated with the merger of LG&E Energy Corp. and KU Energy of $34.1 million. The corresponding tax benefit of $9.1 million is recorded in other income and (deductions). The amount charged is in excess of the amount permitted to be deferred as a regulatory asset by the Kentucky Public Service Commission. See Note 2 for a further explanation of merger costs. Variations in income tax expense are largely attributable to changes in pre- tax income as well as non-deductible merger expenses. KU Results: KU's net income for the nine months ended September 30, 1998 decreased $3.1 million compared to the same period of 1997. Net income for the nine months ended September 30, 1998, includes a one time charge in the second quarter of 1998, of $21.7 million (after tax) of merger related expenses as discussed in Note 2 of Notes to Financial Statements. Excluding this charge, net income increased $18.6 million. The increase was primarily due to increases in residential sales, commercial sales and sales for resale caused by the warmer weather. A comparison of KU's revenues for the nine months ended September 30, 1998, with the nine months ended September 30, 1997, reflects increases and decreases which have been segregated by the following principal causes: Sales to ultimate consumers: Fuel clause adjustments $ 1,515 Environmental cost recovery 330 Merger surcredit (2,351) Variation in sales volume, etc. 28,576 Total 28,070 Sales for resale 59,226 Other 1,235 Total $88,531 Operating revenues increased $88.5 million. The increase reflects a 21% increase in kilowatt-hour sales. The increase in kilowatt-hours sales is primarily attributable to increases in residential sales, commercial sales, and sales for resale. The increases in residential and commercial sales are primarily attributable to warmer weather in 1998. The increase in sales for resale (4,657,699 megawatt-hours versus 2,442,727 megawatt-hours) was primarily due to increased marketing efforts and sales to Louisville Gas and Electric of $11.2 million as a result of economic dispatch following the merger of LG&E Energy Corp. and KU Energy. - 35 - Fuel for electric generation expenses increased by $30.3 million (22%) primarily due to a 18% increase in MBTU used. The increased consumption was primarily caused by the previously mentioned increase in kilowatt-hour sales. Power purchased increased $27.2 million (49%). The increase was primarily due to a 35% increase in megawatt-hour purchases which was primarily attributable to increased marketing efforts and purchases from Louisville Gas and Electric of $7.8 million as a result of economic dispatch following the merger of the two companies in May 1998. Merger costs to achieve reflects the one-time charge during 1998 of $21.8 million (the corresponding tax benefit of $.1 million is recorded in other income and (deductions)) for merger related expenses as discussed in Note 2 of Notes to Financial Statements. Variations in income tax expense are largely attributable to changes in pre- tax income as well as non-deductible merger expenses. LG&E Capital Corp. and Other Results: Capital Corp. contributed 28 cents per share to consolidated earnings from continuing operations in 1998, compared with 11 cents in 1997. The increase resulted from closing the NIMO MRA in June 1998 and from strong operating performance and off-system sales of power from Western Kentucky Energy. Also, last year's earnings included a $.05 gain from resolution of issues related to an independent power project. Capital Corp.'s revenues increased $104.7 million due to marketing the power generated by the Big Rivers facility ($66.2 million) and to Retail Access Services' starting operations in the second quarter of 1998 ($22.7 million). The Company began leasing the Big Rivers facility in July 1998. An increase resulting from acquiring a controlling interest in Distribuidora de Gas del Centro (Centro) in February 1997 also contributed to the overall increase. A decrease resulting from receiving fees in 1997 related to an undeveloped independent power plant partially offset these increases. Capital Corp.'s cost of revenues increased $61.9 million also due to marketing the power generated by the Big Rivers facility ($29.3 million) and to Retail Access Services' starting operations in the second quarter of 1998 ($21.9 million). An increase resulting from acquiring the controlling interest in Centro also contributed to the increase. Capital Corp. and other non-utility operation and maintenance expense increased $46.3 million due to increases related to marketing the power generated by the Big Rivers facility, higher expenses from a full year of operation at the Argentine gas distribution companies, and to higher corporate expenses. Non-utility depreciation and amortization increased $6.6 million due to writing off certain capitalized interest and development costs related to the San Miguel facility and to write-offs related to the Rensselaer project's Master Restructuring Agreement (MRA) with Niagara Mohawk Power Corporation (NIMO). An increase resulting from acquiring the controlling interest in Centro also contributed to the increase. For more information about the San Miguel sale, see Note 8 of the Company's Financial Statements for the year ended December 31, 1997, contained in its Report on Form 8-K dated October 21, 1998'. See Note 9 of Notes to Financial Statements in Item 1 for more information about the MRA with NIMO. Equity in earnings of joint ventures increased $43.4 million in 1998 due to the Rensselaer project's recording a gain related to the MRA with NIMO, partially offset by writing off the investment in Windpower Partners 1994. - 36 - Non-utility other income decreased $10.2 million due mainly to the reacquisition of the Company's interest in the partnership that owns the Rensselaer project, and to recording related expenses. See Note 9 of Notes to Financial Statements in Item 1. Non-utility interest charges increased $3.2 million due to an increase in average debt outstanding. The consolidated effective tax rate increased to 41.8% in 1998 from 37.1% in 1997 mainly due to non-deductible merger-related expenses. Liquidity and Capital Resources The Company's need for capital funds is primarily related to the construction of plant and equipment necessary to meet LG&E's and KU's electric and gas customers' needs and protection of the environment. Capital funds are also needed for the Company's capital obligations under the Big Rivers lease arrangements, the discontinuance of the merchant sales and trading business, partnership equity contributions in connection with independent power production projects, information system enhancements, and other business development opportunities. Construction expenditures for the nine months ended September 30, 1998, of $149.7 million were financed with internally generated funds. It is currently anticipated that the Company will meet its known capital needs with internally generated funds and short-term and medium-term borrowings. The Company's combined cash and marketable securities balance increased $13.3 million during the nine months ended September 30, 1998. The increase reflects cash flows from operations, a net increase in debt, and proceeds received from the sale of the Company's interest in the San Miguel project, partially offset by construction expenditures and dividends paid. Variations in accounts receivable, accounts payable and materials and supplies are generally not significant indicators of the Company's liquidity. Such variations are primarily attributable to fluctuations in weather, which have a direct effect on sales of electricity and natural gas. The significant increases in accounts receivable and accounts payable resulted from seasonal fluctuations in LG&E's, KU's and Centro's businesses, from marketing the power generated by the Big Rivers facility and from Retail Access Services' starting operations in the second quarter of 1998. The Company began leasing the Big Rivers facility in July 1998. The increases in materials and supplies and in prepayments and other current assets resulted mainly from the Big Rivers activity. The decrease in net assets of discontinued operations resulted mainly from accruing the estimated loss on disposal of the Company's merchant energy trading and sales business effective June 30, 1998. See Note 3 of Notes to Financial Statements in Item 1 of Part I. The increase in other current liabilities resulted from the Big Rivers activity and differences in the timing of dividend and income tax payments. The increase in long-term debt reflects Capital Corp.'s issuing $150 million of medium-term notes in February 1998. The Company also issues commercial paper which has maturity dates ranging between one and 270 days. Because of the rollover of these maturity dates, total short-term borrowings during the first nine months of 1998 were $4.8 billion and total repayments of short-term borrowings during the same period were $4.7 billion. See Note 16 of the Company's Financial Statements for the year ended December 31, 1997, contained in its Report on Form 8-K dated October 21, 1998'. At September 30, 1998, unused capacity under the Company's lines of credit totaled $482.4 million after considering commercial paper support and approximately $72.8 million in letters of credit securing on- and off- balance sheet commitments. At December 31, 1997, un - 37 - used capacity under the lines of credit totaled $541.7 million. The decrease in unused capacity resulted from borrowing funds to meet working capital needs. On July 15, 1998, the Company closed its transaction to lease the generating assets of Big Rivers Electric Corporation. On July 14, 1998, LG&E Capital Corp. issued $95.1 million of commercial paper to meet various working capital requirements related to the closing. In July 1998 following the Company's decision to discontinue its merchant energy trading and sales business, Standard & Poor's (S&P) downgraded the credit ratings of the Company and its subsidiaries. The Company's corporate credit rating was changed from "A+" to "A". Similar action was taken with respect to the credit ratings of LG&E and KU. LG&E's corporate credit rating and first mortgage bonds are now rated "A+", its unsecured debt and preferred stock are now rated "A" and its commercial paper is now rated "A-1". KU's corporate credit rating and preferred stock are now rated "A+", its first mortgage bonds are now rated "AA-" and its commercial paper is now rated "A-1". LG&E Capital's ratings for its corporate credit and unsecured debt are now "A" and its commercial paper rating remained at "A-1". These ratings reflect the views of S&P, and an explanation of the significance of these ratings may be obtained from S&P. A security rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time by the rating agency. LG&E retired $20 million of first mortgage bonds on June 1, 1998, with funds generated internally. At September 30, 1998, KU had no short-term borrowings compared to $33.6 million at December 31, 1997. The short-term borrowings have been used primarily to finance ongoing construction expenditures and general corporate requirements. The decrease between September 30, 1998 and December 31, 1997 is due primarily to cash provided by operations exceeding cash required for investing and financing activities (exclusive of short- term borrowings) for the nine months ended September 30, 1998. In early October 1998, LG&E Capital Corp. entered into a cancelable letter of intent to purchase two natural gas turbines. The Company anticipates that the turbines, if purchased, or their electrical output, if purchased and operated, would be marketed or resold to an affiliated or an unaffiliated third party. However, there can be no assurance as to when, if at all, such resale would occur or as to the price of any such resale. The aggregate purchase price, including costs of installation, for the turbines is approximately $115 million, which is expected to be largely funded through additional borrowing by Capital Corp. The Company's capitalization ratios at September 30, 1998, and December 31, 1997, follow: Sep. 30, Dec. 31, 1998 1997 Long-term debt (including current portion) 42.9% 37.7% Notes payable 12.8 12.1 Preferred stock 4.3 4.2 Common equity 40.0 46.0 Total 100.0% 100.0% - 38 - LG&E's capitalization ratios at September 30, 1998, and December 31, 1997, follow: Sep. 30, Dec. 31, 1998 1997 Long-term debt (including current portion) 44.5% 45.4% Preferred stock 6.8 6.7 Common equity 48.7 47.9 Total 100.0% 100.0% KU's capitalization ratios at September 30, 1998, and December 31, 1997, follow: Sep. 30, Dec. 31, 1998 1997 Long-term debt (including current portion) 45.6% 44.4% Notes payable 0.0 2.7 Preferred stock 3.3 3.2 Common equity 51.1 49.7 Total 100.0% 100.0% For a description of significant contingencies that may affect the Company, LG&E and KU, reference is made to Part II herein - Item 1, Legal Proceedings. Year 2000 Computer Issues The Company and its subsidiaries, including LG&E and KU, use various software, systems and technology that are affected by the "Year 2000 Issue." This issue concerns the ability of electronic processing equipment (including microprocessors embedded in other equipment) to properly process the millennium change to 2000 and related issues. A failure to timely correct any such processing problems could result in material operational and financial risks if significant systems either cease to function or produce erroneous data. Such risks are described in more detail below, but could include an inability to operate LG&E's or KU's generating plants, disruptions in the operation of transmission and distribution systems and an inability to access interconnections with the systems of neighboring utilities. The Company began its project regarding the Year 2000 issue in 1996. The Board of Directors has approved the general Year 2000 plan and receives, along with management, regular updates. In addition, monthly reporting procedures have been established at senior management levels. Since 1996, a single-purpose Year 2000 team has been established in the Information Technology (IT) Department. This team, which is headed by a senior executive officer, is responsible for planning, implementing, and documenting the Company's Year 2000 process. The team also provides direct and detailed assistance to the Company's operational divisions and smaller units, where identified personnel are responsible for Year 2000 work and remediation in their specific areas. In many cases, the Company also uses the services of third parties, including technical consultants, vendor representatives and auditors. - 39 - The Company's Year 2000 effort generally follows a three phase process: Phase I - inventory and identify potential Year 2000 issues, determine solutions for Company issues Phase II - survey vendors regarding their Year 2000 readiness, determine solutions to deal with possible vendor non-compliance, develop work plans regarding Company and vendors non-compliance issues Phase III - implementation, testing, certification, contingency planning The Company has long recognized the complexity of the Year 2000 issue. Work has progressed concurrently on (a) replacing or modifying IT systems, including mainframes, PC's and software applications, (b) replacing or modifying non-IT systems, including embedded systems such as mechanical control units and (c) evaluating the readiness of key third parties, including customers, suppliers, business partners and neighboring utilities. State of Readiness At present, the Company, including LG&E and KU, have substantially completed the internal inventory, vendor survey and compliance assessment portions (Phases I and II) of their Year 2000 plan for mission critical mainframe and PC hardware and software. Remediation efforts (Phase III) in these areas are approximately 50% complete. With respect to embedded systems, LG&E has also substantially completed its Phase I and Phase II efforts, while KU and the Company have completed approximately 30%-50%. For each entity, Phase III remediation efforts are also in progress for embedded systems. Testing will commence as remediation efforts are implemented and is generally expected to run from the fourth quarter of 1998 through the end of 1999. As a general matter, corrective action for major IT systems, including customer information, financial and trading systems, are in process or have been completed. For smaller or more isolated systems, including embedded and plant operational systems, the Company has completed much of the evaluative process and is commencing corrective plans. The Company has communicated with its key suppliers, customers and business partners regarding their Year 2000 progress, particularly in the IT software and embedded component areas, to determine the areas in which the Company's operations are vulnerable to those parties failure to complete their remediation efforts. The Company is currently evaluating and, in certain cases, initiating follow-up actions regarding the responses from these parties. The Company regularly attends and participates in trade group efforts focusing on Year 2000 issues in the energy industry context. Costs of Year 2000 Issues The Company's system modification costs related to the Year 2000 issue are being expensed as incurred. Through September 1998, the Company has incurred approximately $19.0 million in capital and operating costs in connection with the Year 2000 issue. Based upon studies and projections to date, the Company expects to spend an additional $16.7 million to complete its Year 2000 efforts. It should be noted that these figures include total hardware, software, embedded systems and consulting costs. In many cases, these costs include system replacements which were already contemplated or which provided additional benefits or efficiencies beyond the Year 2000 aspect. Additionally many costs are not incremental costs, but constitute redeployment of existing resources, particularly IT. These costs represent estimates, however there can be no assurance that actual costs associated with the Company's Year 2000 issues will not be higher. - 40 - Risks of Year 2000 Issues As described above, the Company has made significant progress in the implementation of its Year 2000 plan. Based upon the information currently known regarding its internal operations and assuming successful and timely completion of its remediation plan, the Company does not anticipate material business disruptions from its internal systems due to the Year 2000 issue. However, the Company may possibly experience limited interruptions to some aspects of its activities, whether IT, operational, administrative or otherwise, and the Company is considering such potential occurrences in planning for its most reasonably likely worst case scenarios. Additionally, risk exists regarding the non-compliance of third parties with key business or operational importance to the Company. Year 2000 problems affecting key customers, interconnected utilities, fuel suppliers and transporters, telecommunications providers or financial institutions could result in lost power or gas sales, reduced power production or transmission capabilities or internal operational or administrative difficulties on the part of the Company. The Company is not presently aware of any such situations, however severe occurrences of this type could have material adverse impacts upon the business, operating results or financial condition of the Company. There can be no assurance that the Company will be able to identify and correct all aspects of the Year 2000 problem among these third parties that effect it in sufficient time, that it will develop adequate contingency plans or that the costs of achieving Year 2000 readiness will not be material. The Company plans to develop contingency plans for material areas of Year 2000 risk and is in the process of preparing such plans. Contingency planning will address certain areas, including delays in completion in the Company's remediation plans, failure or incomplete remediation results and failure of key third parties to be Year 2000 compliant. Forward Looking Statements The foregoing discussion regarding the timing, effectiveness, implementation, and cost of the Company's Year 2000 efforts, contains forward-looking statements, which are based on management's best estimates derived using assumptions. These forward-looking statements involve inherent risks and uncertainties, and actual results could differ materially from those contemplated by such statements. Factors that might cause material differences include, but are not limited to, the availability of key Year 2000 personnel, the Company's ability to locate and correct all relevant computer codes, the readiness of third parties, and the Company's ability to respond to unforeseen Year 2000 complications and other factors described from time to time in the Company's reports to the Securities and Exchange Commission, including Exhibit 99.01 to the Form 10-K for the year ended December 31, 1997. Such material differences could result in, among other things, business disruption, operational problems, financial loss, legal liability and similar risks. - 41 - Part II. Other Information Item 1. Legal Proceedings. For a description of the significant legal proceedings involving the Company, LG&E and KU, reference is made to the information under (i) the following items and captions contained in the Company's Financial statements for the year ended December 31, 1998 as filed with the Company's Current Report on Form 8-K filed October 21, 1998: "Rates and Regulation" and "Environmental Matters" in Management's Discussion and Analysis of Results of Operations and Financial Condition and Note 18 to Notes to Financial Statements, (ii) the following items and captions of the Company's, LG&E's, KU Energy's and KU's respective Annual Reports on Form 10-K for the year ended December 31, 1997: Item 1, Business; Item 3, Legal Proceedings; Notes 3 and 12 of LG&E's Notes to Financial Statements under Item 8 and Note 9 of KU's Notes to Financial Statements under Item 8; and (iii) the following items and captions of the Company's, LG&E's, KU Energy's and KU's respective Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998: Part III, Item 1, Legal Proceedings; and Note 2 to KU's Notes to Financial Statements. Except as described herein, to date, the proceedings reported in the Company's and LG&E's and KU Energy's and KU's respective Forms 8-K, 10-K and Forms 10-Q as described above have not changed materially.''''''''''''''''''''' Big Rivers Transaction. Effective July 15, 1998, the Company closed its pending transaction to lease the generating assets of Big Rivers Electric Corporation ("Big Rivers"). See "Recent Developments - Lease of Big Rivers Facilities" in Item 2, Management's Discussion and Analysis of Operations and Financial Condition for information concerning this transaction. See also Part II, Item 1, Legal Proceedings, of the Company's Form 10-Q's for the quarters ended March 31, 1998, and June 30, 1998, and Part I, Item 1, Business, of the Company's 1997 Form 10-K. Southampton Note 18 of the Company's Financial Statements for the year ended December 31, 1997, contained filed in the Company's Current Report on Form 8-K filed October 21, 1998, and Part II, Item 1, Legal Proceedings, of the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, and June 30, 1998, discuss the status of certain proceedings before the FERC regarding the status of the Southampton cogeneration facility ("Southampton") as a qualifying facility ("QF") under the Public Utility Regulatory Policies Act for the year 1992, including a request for clarification as to any FERC-ordered rate refunds payable from Southampton to Virginia Electric and Power Company ("VEPCO") for the 1992 period. On May 18, 1998, the FERC issued an order addressing certain issues in this matter and directing the parties to enter into further FERC-supervised settlement negotiations. On October 1, 1998, Southampton and VEPCO entered into a settlement agreement which provided for, among other items, payments by Southampton to VEPCO of $1 million annually for the years 1999-2001, followed by a reduction in capacity payments from VEPCO to Southampton by $500,000 for the years 2002-2008. Following 2008, VEPCO may elect to terminate its power purchases from Southampton or continue to receive the annual reduction in capacity payments for the remainder of the power purchase agreement. The settlement remains subject to FERC approval and the parties have filed for such approval. The Company has also been notified that its partners in the Southampton partnership are disputing their responsibilities for their share of any refunds or related amounts and are asserting that the Company should bear full responsibility for such amounts. The Company and its partners are currently negotiating these matters. - 42 - Oglethorpe Power Contract In November 1996, the Company, through its LG&E Energy Marketing Inc. subsidiary (LEM), entered into a 15 year agreement with Oglethorpe Power Corporation (OPC) to supply approximately one-half of OPC's systemwide power needs during the term of the agreement and with rights to market OPC's surplus power. The Company has been in settlement negotiations with OPC over load projections provided by OPC as an inducement for LEM to enter into the 1996 agreement. On October 5, 1998, LEM initiated an arbitration proceeding against OPC related to those load projections. Springfield Municipal Contract On July 29, 1998, LEM filed suit in the United States District Court for the Western District of Kentucky in Louisville, against the City of Springfield, Illinois, City Water, Light and Power Company ("Springfield CWLP"). The action seeks damages for Springfield CWLP's failure, including in late June 1998, to sell electric energy to LEM pursuant to a February 1997 Interchange Agreement and transaction confirmations thereunder, as well as for other related claims. LEM has estimated that its damages in this matter may be approximately $21.0 million. Proposed NOx Reductions Note 18 to the Company's and Note 12 to LG&E's respective Notes to Financial Statements for the year ended December 31, 1997, contained in the Company's Current Report on Form 8-K filed October 21, 1998, and LG&E's Annual Report on Form 8-K for the year ended December 31, 1997, and Management's Discussion and Analysis to KU's Form 10-K for the year ending December 31, 1997 (Part I, Item 1, Business) and KU's Form 10-Q for the quarter ending March 31, 1998 (Part I, Item 2), discuss the pending United States Environmental Protection Agency's ("USEPA") new nitrogen oxide and particulate matter standards adopted in July 1997 and related proposed regulations issued in October 1997. On September 24, 1998 the USEPA issued final regulations in this matter affecting long-range ozone transport from Midwest emissions sources that allegedly contribute to ozone problems in the Northeast. The regulations provide for a reduction, by 2003, in utility nitrogen oxide emissions of approximately 85% from 1990 levels. If these regulations are implemented as promulgated, LG&E, KU, WKEC and the independent power projects in which the Company has an interest will be required to incur significant capital expenditures and significantly increased operation and maintenance costs for remedial measures. Final implementation methods will be set by the USEPA and state regulatory authorities. The Company continues to monitor ongoing state implementation plans and recent legal challenges to the final regulations and a detailed determination of the impact of the regulations depends on the outcome of such proceedings. The Company estimates that these capital costs could potentially range between $300 million and $500 million in the aggregate for LG&E, KU and WKEC. These costs would generally be incurred following the year 2000. The Company believes its costs in this regard to be comparable to that of similarly-situated utilities with like generation assets. The Company anticipates that such capital and operating costs are the type of costs that are eligible for recovery from customers under LG&E's and KU's environmental surcharge mechanisms and believes that, in the cases of LG&E and KU, a significant portion of such costs could be so recovered. However, Kentucky Commission approval is necessary and there can be no guarantee of such recovery. KU Environmental Surcharge On June 10, 1998, the Kentucky Supreme Court granted motions for discretionary review filed by the Kentucky Attorney General and consumer representatives in court proceedings regarding the constitutionality of the state environmental surcharge statute and related matters. Briefs have been filed and oral argument has been scheduled for November 13, - 43 - 1998. See Note 6 to Notes to Financial Statements (Unaudited) under Item 1 of this Form 10-Q for further details, including a discussion of any potential refund amounts. Recent Ratemaking Filing On October 12, 1998, LG&E and KU submitted parallel filings to the Kentucky Public Service Commission (Kentucky Commission) proposing performance-based ratemaking systems. In its order approving the merger of LG&E Energy and KU Energy, the Kentucky Commission had directed LG&E and KU to address their future rate regulation and, in particular, to indicate whether they intended to remain under traditional rate of return regulation or commence non-traditional regulation. The performance-based ratemaking proposals include financial incentives, including penalties, for LG&E and KU to develop cost-saving means to provide electricity to customers, who will also share in such savings. Incentives are also included in the areas of quality of service and reliability. The PBR proposals have five elements: replacement of the existing fuel adjustment clause with a cap tied to a regional index; continued flow-through of certain LG&E and KU joint- dispatch savings to customers; incentives tied to power plant unit availability compared to past performance; incentives tied to quality, reliability, satisfaction and safety performance compared to objective benchmarks; and flexibility to customize rates and services according to customer needs, subject to an obligation to offer standard tariff service and subject to the condition that rates must exceed marginal cost. The proposals remain subject to approval by the Kentucky Commission. See also Note 11 of Notes to Financial Statements. Tenaska, Inc. Note 18 to Notes to Financial Statements for the year ended December 31, 1997, contained in the Company's Current Report on Form 8-K filed October 21, 1998, discusses the Company's agreements with Tenaska, Inc. and affiliates regarding certain independent power projects in North America. The Company also has a limited partnership interest in a gas-fired generation project which is the subject of a breach of contract claim filed by Tenaska against the Bonneville Power Administration (BPA). Construction of the project was suspended in 1995 after BPA notified Tenaska of its intent to cancel a power purchase agreement under which BPA committed to buy electricity to be produced by the project. Tenaska has a $650 million claim for damages against BPA in the United States Court of Federal Claims (Court of Claims). Arbitration ordered by the Court of Claims began in February 1997. On July 29, 1998, an arbitration panel awarded the partnership $158.2 million in lieu of compensation under the power purchase agreement. The award was entered by the Court of Claims on October 27, 1998, and certified final by the U.S. Department of Justice on October 29, 1998. Upon payment of the award by the U.S Department of the Treasury, ownership of the facility would be transferred to the BPA. If the award is approved, it is anticipated the Company would receive a payment of approximately $8.5 million. Windpower Partners 1994 Windpower Partners 1994 (WPP 94), in which the Company has a 25% interest through indirect subsidiaries, did not make semiannual payments, due September 2, 1997, March 2, 1998 and September 1, 1998, respectively, to John Hancock Mutual Life Insurance Company (Hancock) under certain Notes issued by WPP 94 to Hancock. The Company has offered WPP 94 financial support with respect to the appropriate proportion of its debt obligations, but certain of the three other investor groups are unable to offer funds to WPP 94 in support of the partnership. The Company wrote off its aggregate indirect investment in WPP 94 of $3.8 million in the third quarter of 1998. WPP 94 and Hancock are presently engaged in discussions concerning a possible restructuring of WPP 94's debt obligations and Hancock has informed WPP 94 that it may declare WPP 94 in default of the trust indenture relating to the Notes. WPP 94 operates wind power generation facilities in Texas. Because of the continuing nature of the negotiations, the Company is not able to predict the outcome of this - 44 - event. The Company does not expect the ultimate resolution of this matter to have a material effect on its results of operations or financial condition. Item 5. Other Information. 1998 Annual Meeting Any shareholder proposal intended for inclusion in the proxy material for the 1999 Annual Meeting for the Company, LG&E or KU must be received by November 20, 1998, in the case of the Company and LG&E, and November 18, 1998, in the case of KU. In addition, under each companies' By-laws, shareholders intending to submit a proposal in person at the Annual Meeting, must provide advance written notice along with other prescribed information. In general, such notice must be received by the Secretary of the applicable company (a) not less than 90 days (60 days in the case of KU) prior to the meeting date or (b) if the meeting date is not publicly announced more than 100 days (70 days in the case of KU) prior to the meeting, by the tenth day following such announcement. Proposals not properly submitted will be considered untimely and the persons named in the proxies solicited by the Company, LG&E or KU may exercise discretionary voting power with respect to any such proposal. Proposals are subject to applicable federal and state eligibility requirements governing proxies, voting and proposals, and applicable provisions of the Articles of Incorporation and By-laws of each company. Item 6(a). Exhibits. Exhibit Number Description 27 Financial Data Schedules for LG&E Energy Corp., Louisville Gas and Electric Company, and Kentucky Utilities Company. Item 6(b). Reports on Form 8-K. On July 29, 1998, the Company filed a report on Form 8-K announcing that it would discontinue its merchant energy trading and sales business and that it would sell the associated gas gathering and processing business. The Company also announced in the same report on Form 8-K that its energy marketing subsidiary, LG&E Energy Marketing Inc. ("LEM"), intends to file an action against the City of Springfield, Illinois, City Water, Light and Power Company ("Springfield CWLP"). The action will seek damages for Springfield CWLP's failure, including in late June 1998, to sell electric energy to LEM pursuant to a February 1997 Interchange Agreement and transaction confirmations thereunder, as well as for other related claims. On October 2, 1998, the Company filed a report on Form 8-K announcing that Michael R. Whitley, Vice Chairman of the Board of Directors, President and Chief Operating Officer of LG&E Energy Corp. announced his retirement, effective November 1, 1998. Mr. Whitley is also retiring from the positions of Vice Chairman of the Board of Directors and Chief Operating Officer of Louisville Gas and Electric Company and Kentucky Utilities Company, two public utility subsidiaries of the Company. On October 21, 1998, the Company filed a report on Form 8-K containing management's discussion and analysis and consolidated financial statements of the Company as of December 31, 1997. The Company filed this report in connection with the May 4, 1997, merger of KU Energy Corporation and LG&E Energy Corp. - 45 - SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LG&E Energy Corp. Registrant Date: November 13, 1998 /s/ S. Bradford Rives S. Bradford Rives Vice President - Finance and Controller (On behalf of the registrant in his capacity as Principal Accounting Officer) Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Louisville Gas and Electric Company Registrant Date: November 13, 1998 /s/ Michael D. Robinson Michael D. Robinson Vice President and Controller (On behalf of the registrant in his capacity as Principal Accounting Officer) Pursuant to the requirements of the Securities and 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: November 13, 1998 /s/ Michael D. Robinson Michael D. Robinson Vice President and Controller (On behalf of the registrant in his capacity as Principal Accounting Officer) - 46 - EX-27 2
UT 0000861388 LG&E ENERGY CORP. 1,000 3-MOS DEC-31-1996 MAR-31-1996 PER-BOOK 3,120,037 180,136 670,828 117,941 0 4,088,942 771,899 (42) 656,753 1,428,610 0 135,328 1,193,215 173,400 0 0 16,021 0 0 0 1,142,368 4,088,942 422,641 26,777 329,755 356,532 66,109 11,681 77,790 22,656 55,134 1,720 53,414 34,657 19,738 143,545 0.41 0.41 Includes common stock expense of $1,530. Represents unrealized loss on marketable securities, net of taxes. Includes equity in earnings of affiliates of $4,847. Includes income from discontinued operations of $8,919, net of income taxes. The Company restated this schedule to reflect its merger with KU Energy Corporation and to reclassify discontinued operations.
EX-27 3
UT 0000861388 LG&E ENERGY CORP. 1,000 6-MOS DEC-31-1996 JUN-30-1996 PER-BOOK 3,133,818 180,821 655,349 117,324 0 4,087,312 771,821 (149) 661,989 1,433,661 0 135,328 1,193,211 209,500 0 0 21 0 0 0 1,115,591 4,087,312 775,700 47,403 602,754 650,157 125,543 15,825 141,368 44,639 96,729 3,420 93,309 69,316 39,105 162,991 0.72 0.72 Includes common stock expense of $1,850. Represents unrealized loss on marketable securities, net of taxes. Includes equity in earnings of affiliates of $9,247. Includes income from discontinued operations of $9,295, net of income taxes. The Company restated this schedule to reflect its merger with KU Energy Corporation and to reclassify discontinued operations.
EX-27 4
UT 0000861388 LG&E ENERGY CORP. 1,000 9-MOS DEC-31-1996 SEP-30-1996 PER-BOOK 3,133,963 180,958 665,170 112,238 0 4,092,329 772,617 (4) 690,883 1,463,496 0 135,328 1,193,209 187,900 0 0 21 0 0 0 1,112,375 4,092,329 1,162,684 78,558 873,693 952,251 210,433 17,636 228,069 65,401 162,668 5,130 157,538 104,651 58,354 276,667 1.22 1.22 Includes common stock expense of $1,852. Represents unrealized loss on marketable securities, net of taxes. Includes equity in earnings of affiliates of $11,960. Includes income from discontinued operations of $7,910, net of income taxes. The Company restated this schedule to reflect its merger with KU Energy Corporation and to reclassify discontinued operations.
EX-27 5
UT 0000861388 LG&E ENERGY CORP. 1,000 9-MOS DEC-31-1998 SEP-30-1998 PER-BOOK 3,178,570 499,161 819,515 189,651 0 4,686,897 775,843 255 492,526 1,268,624 0 136,530 1,360,764 404,275 0 0 21 0 0 0 1,516,683 4,686,897 1,495,716 99,972 1,112,419 1,212,391 283,325 (313,835) (30,510) 73,517 (104,027) 5,092 (109,119) 120,939 53,874 110,497 (0.84) (0.84) Includes common stock expense of $2,430. Represents unrealized loss on marketable securities, net of taxes. Includes equity in earnings of affiliates of $59,607. Includes loss from discontinued operations of $23,599 and loss on disposal of discontinued operations of $225,000, both net of income taxes.
EX-27 6
UT 0000861388 LG&E ENERGY CORP. 1,000 9-MOS DEC-31-1997 SEP-30-1997 PER-BOOK 3,168,046 480,133 674,555 128,626 0 4,451,360 776,357 128 711,534 1,488,019 0 135,328 1,210,666 319,061 0 0 20,021 0 0 0 1,278,265 4,451,360 1,273,123 89,169 965,487 1,054,656 218,467 (4,660) 213,807 73,167 140,640 5,125 135,515 107,935 56,475 276,741 1.05 1.05 Includes common stock expense of $1,874. Represents unrealized loss on marketable securities, net of taxes. Includes equity in earnings of affiliates of $16,230. Includes loss from discontinued operations of $15,668, net of income taxes. The Company restated this schedule to reflect its merger with KU Energy Corporation and to reclassify discontinued operations.
EX-27 7
UT 0000055387 KENTUCKY UTILITIES COMPANY 1,000 9-MOS DEC-31-1998 SEP-30-1998 PER-BOOK 1,469,426 12,697 229,219 54,802 0 1,766,144 307,545 0 305,877 613,422 0 40,000 546,330 0 0 0 21 0 0 0 566,371 1,766,144 622,415 50,024 466,534 516,558 105,857 (16,024) 89,833 28,923 60,910 1,692 59,218 58,091 27,983 175,077 0 0 Includes common stock expense of $595. Represents unrealized loss on marketable securities, net of taxes.
EX-27 8
UT 0000060549 LOUISVILLE GAS AND ELECTRIC COMPANY 1,000 9-MOS DEC-31-1998 SEP-30-1998 PER-BOOK 1,709,144 1,092 317,407 68,651 0 2,096,294 424,334 106 260,790 685,230 0 95,328 626,800 0 0 0 0 0 0 0 688,936 2,096,294 664,618 53,485 491,758 545,243 119,375 (23,466) 95,909 27,629 68,280 3,400 64,880 63,000 25,891 140,071 0 0 Includes common stock expense of $836. Represents unrealized gain/loss on marketable securities, net of taxes. Includes $34,134 Merger costs to achieve.
-----END PRIVACY-ENHANCED MESSAGE-----