-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, XddQx4vFsn3O61BG+BE7IS4hUYlmcU0T/EznQRYf148l2osGdtoISqtTjzMhLbp3 TpLD7UGzxDtNkTQwhabXLA== 0000060549-95-000016.txt : 19950814 0000060549-95-000016.hdr.sgml : 19950814 ACCESSION NUMBER: 0000060549-95-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 001-02893 FILM NUMBER: 95561062 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 LG&E'S JUNE 1995 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 June 30, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 2 - 26720 LOUISVILLE GAS AND ELECTRIC COMPANY (Exact name of registrant as specified in its charter) Kentucky 61 - 0264150 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 220 West Main Street 40232 P.O. Box 32010 (Zip Code) Louisville, KY (Address of principal executive offices) (502) 627-2000 (Registrant's telephone number) 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. 21,294,223 shares, without par value, as of July 31, 1995, all of which were held by LG&E Energy Corp. 2 Part I. Financial Information - Item 1. Financial Statements Louisville Gas and Electric Company Statements of Income (Thousands of $) The following statements of income include all normal recurring adjustments and accruals which are, in the opinion of the Company, necessary to present a fair statement of the results for the periods shown. Three Months Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 OPERATING REVENUES: Electric (Note 3). . . . . . . . .$142,340 $143,272 $265,882 $266,589 Gas. . . . . . . . . . . . . . . . 25,481 29,770 101,455 126,131 Total operating revenues. . . . . 167,821 173,042 367,337 392,720 OPERATING EXPENSES: Fuel for electric generation . . . 35,801 36,570 67,652 69,803 Power purchased. . . . . . . . . . 1,037 3,914 1,843 7,301 Gas supply expenses. . . . . . . . 13,594 18,447 61,961 85,846 Other operation expenses . . . . . 35,658 34,527 71,056 69,880 Maintenance. . . . . . . . . . . . 13,205 13,561 24,687 26,836 Non-recurring charges (Note 4). . . . . . . . . . . . . - - - 38,613 Depreciation and amortization. . . 21,440 20,633 42,880 41,266 Federal and state income taxes . . . . . . . . . . . . . . 13,013 11,653 26,241 7,600 Property and other taxes . . . . . 4,058 3,864 8,593 9,100 Total operating expenses. . . . . 137,806 143,169 304,913 356,245 NET OPERATING INCOME. . . . . . . . 30,015 29,873 62,424 36,475 Other income and (deductions) . . . 1,809 1,477 2,211 989 Contribution to charitable foundation - net (Note 4). . . . . - - - 8,946 Interest charges. . . . . . . . . . 10,739 10,714 21,711 21,208 Income before cumulative effect of change in accounting principle . . 21,085 20,636 42,924 7,310 Cumulative effect of change in accounting principle, net of income taxes of $2,280 (Note 5). . - - - (3,369) NET INCOME. . . . . . . . . . . . . 21,085 20,636 42,924 3,941 Preferred Stock Dividends . . . . . 1,627 1,380 3,244 2,758 NET INCOME AVAILABLE FOR COMMON STOCK . . . . . . . . . . .$ 19,458 $ 19,256 $ 39,680 $ 1,183 3 Louisville Gas and Electric Company Balance Sheets (Thousands of $) ASSETS June 30, Dec. 31, 1995 1994 UTILITY PLANT: At original cost . . . . . . . . . . . . . . . . . .$2,569,555 $2,537,895 Less: reserve for depreciation. . . . . . . . . . . 918,133 881,861 Net utility plant . . . . . . . . . . . . . . . . . 1,651,422 1,656,034 OTHER PROPERTY AND INVESTMENTS - less reserve . . . . . . . . . . . . . . . . . . . . 36,944 50,681 CURRENT ASSETS: Cash and temporary cash investments. . . . . . . . . 50,731 39,138 Accounts receivable - less reserve . . . . . . . . . 87,127 86,058 Materials and supplies - at average cost: Fuel (predominantly coal) . . . . . . . . . . . . . 10,225 13,869 Gas stored underground. . . . . . . . . . . . . . . 11,681 31,354 Other . . . . . . . . . . . . . . . . . . . . . . . 36,635 37,299 Prepayments. . . . . . . . . . . . . . . . . . . . . 1,535 253 Total current assets. . . . . . . . . . . . . . . . 197,934 207,971 DEFERRED DEBITS AND OTHER ASSETS: Unamortized debt expense . . . . . . . . . . . . . . 7,844 7,776 Regulatory assets. . . . . . . . . . . . . . . . . . 31,817 31,726 Other. . . . . . . . . . . . . . . . . . . . . . . . 12,700 12,402 Total deferred debits and other assets. . . . . . . 52,361 51,904 Total assets. . . . . . . . . . . . . . . . . . .$1,938,661 $1,966,590 4 Louisville Gas and Electric Company Balance Sheets (cont.) (Thousands of $) CAPITAL AND LIABILITIES June 30, Dec. 31, 1995 1994 CAPITALIZATION: Common stock, without par value - Authorized 75,000,000 shares; outstanding 21,294,223 shares . . . . . . . . . . .$ 425,170 $ 425,170 Common stock expense . . . . . . . . . . . . . . . . (836) (836) Unrealized loss on marketable securities, net of income taxes of $79 and $1,434 . . . . . . . . . . . . . . (338) (1,751) Retained earnings. . . . . . . . . . . . . . . . . . 181,575 193,895 Total common equity . . . . . . . . . . . . . . . . 605,571 616,478 Cumulative preferred stock . . . . . . . . . . . . . 116,716 116,716 Long-term debt (Note 6). . . . . . . . . . . . . . . 646,854 662,862 Total capitalization. . . . . . . . . . . . . . . . 1,369,141 1,396,056 CURRENT LIABILITIES: Long-term debt due within one year. . . . . . . . . . . . . . . . . . . . . . 16,000 - Accounts payable . . . . . . . . . . . . . . . . . . 58,553 70,770 Dividends declared . . . . . . . . . . . . . . . . . 19,627 19,567 Accrued taxes. . . . . . . . . . . . . . . . . . . . 6,102 8,247 Accrued interest . . . . . . . . . . . . . . . . . . 11,998 13,394 Other. . . . . . . . . . . . . . . . . . . . . . . . 12,057 10,277 Total current liabilities . . . . . . . . . . . . . 124,337 122,255 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes (Note 7). . . . . . . . . . . . . . . . . . . 230,393 275,814 Investment tax credit, in process of amortization . . . . . . . . . . . . . . 86,339 88,779 Accumulated provision for pensions and related benefits. . . . . . . . . . . . . . . . 40,163 49,104 Customers' advances for construction . . . . . . . . 9,166 8,621 Regulatory liability (Note 7). . . . . . . . . . . . 61,403 8,914 Other. . . . . . . . . . . . . . . . . . . . . . . . 17,719 17,047 Total deferred credits and other liabilities. . . . 445,183 448,279 Total capital and liabilities . . . . . . . . .$1,938,661 $1,966,590 5 Louisville Gas and Electric Company Statements of Cash Flows (Thousands of $) Six Months Ended June 30, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . $ 42,924 $ 3,941 Items not requiring cash currently: Depreciation and amortization . . . . . . . . . . . 42,880 41,266 Deferred income taxes - net . . . . . . . . . . . . 5,713 (12,268) Investment tax credit - net . . . . . . . . . . . . (2,440) (2,378) Cumulative effect of change in accounting principle . . . . . . . . . . . . . - 3,369 Non-recurring charges . . . . . . . . . . . . . . . - 38,613 Other . . . . . . . . . . . . . . . . . . . . . . . 1,908 4,742 (Increases) decreases in net current assets: Accounts receivable . . . . . . . . . . . . . . . . (1,069) 11,436 Materials and supplies. . . . . . . . . . . . . . . 23,981 19,539 Accounts payable. . . . . . . . . . . . . . . . . . (12,217) (18,082) Accrued taxes . . . . . . . . . . . . . . . . . . . (2,145) (8,284) Accrued interest. . . . . . . . . . . . . . . . . . (1,396) 325 Prepayments and other . . . . . . . . . . . . . . . 498 (187) Other. . . . . . . . . . . . . . . . . . . . . . . . (9,118) (4,279) Net cash provided by operating activities . . . . . 89,519 77,753 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of securities. . . . . . . . . . . . . . . (75,468) (34,360) Proceeds from sales of securities. . . . . . . . . . 91,970 19,519 Construction expenditures. . . . . . . . . . . . . . (38,127) (37,551) Net cash used for investing activities. . . . . . . . . . . . . . . (21,625) (52,392) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of pollution control bonds. . . . . . . . . 39,959 - Retirement of pollution control bonds. . . . . . . . (41,076) - Payment of dividends . . . . . . . . . . . . . . . . (55,184) (37,756) Net cash used for financing activities. . . . . . .$ (56,301) $ (37,756) 6 Louisville Gas and Electric Company Statements of Cash Flows (cont.) (Thousands of $) Six Months Ended June 30, 1995 1994 NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS . . . . . . . . . . . . .$ 11,593 $ (12,395) CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . 39,138 44,105 CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD. . . . . . . . . . . . . . . . . . . .$ 50,731 $ 31,710 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes. . . . . . . . . . . . . . . . . . .$ 23,494 $ 25,864 Interest on borrowed money. . . . . . . . . . . . 22,285 20,183 For the purposes of this statement, all temporary cash investments purchased with a maturity of three months or less are considered cash equivalents. 7 Louisville Gas and Electric Company Statements of Retained Earnings (Thousands of $) Three Months Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 Balance at beginning of period. . . $180,117 $159,330 $193,895 $194,903 Net income. . . . . . . . . . . . . 21,085 20,636 42,924 3,941 Subtotal. . . . . . . . . . . . . 201,202 179,966 236,819 198,844 Cash dividends declared on stock - 5% cumulative preferred . . . . . 269 269 539 538 7.45% cumulative preferred. . . . 400 400 799 799 Auction rate cumulative pref. . . 591 344 1,172 687 $5.875 cumulative preferred . . . 367 367 734 734 Common. . . . . . . . . . . . . . 18,000 - 52,000 17,500 Total dividends declared. . . . . 19,627 1,380 55,244 20,258 Balance at end of period. . . . . . $181,575 $178,586 $181,575 $178,586 8 Louisville Gas and Electric Company Notes to Financial Statements (Unaudited) 1. The financial statements included herein have been prepared by Louisville Gas and Electric Company (the "Company" or "LG&E"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year 1994. 2. On July 19, 1995, the Public Service Commission of Kentucky (Commission) issued an order that requires the Company to refund $23.9 million to its electric customers, plus interest applicable through June 1995 of $9.9 million, for a total of $33.8 million, arising from the Commission's disallowance of 25% of the Trimble County power plant. The Commission's order requires the Company to submit a proposed refund methodology for approval within 30 days from the date of the order. On August 4, 1995, the Kentucky Attorney General filed a complaint in the Franklin (Kentucky) Circuit Court for review of the Commission's orders of July 8, 1994, April 25, 1995, and July 19, 1995 in this proceeding. The complaint seeks to have the Court vacate those orders and remand the proceeding back to the Commission with instructions that the Commission consider in determining a refund amount the revenues paid by the Company's customers as a result of the inclusion of Trimble County related CWIP in the Company's rate base prior to May 20, 1988. On August 8, 1995, the Company filed a request for rehearing of the July 19 order with the Commission. If the Company is unsuccessful at overturning the decision and the refund is required to be paid, the after-tax charge to net income would amount to approximately $20.2 million. However, the outcome of this matter is uncertain, and the Company is unable to predict the exact amount of refunds, if any, that ultimately may be due. 3. The Company filed an application with the Public Service Commission of Kentucky on October 7, 1994, in which it requested approval of an environmental cost recovery surcharge to recover certain costs required to comply with the Federal Clean Air Act, as amended, and those federal, state, and local environmental requirements which apply to coal combustion wastes and by-products from facilities utilized for the production of energy from coal. On April 6, 1995, the Commission approved, with modifications, an environmental cost recovery surcharge estimated to increase electric revenues by approximately $3.8 million in 1995 and $7.2 million in 1996. The surcharge became effective on May 1, 1995. The Company, the Kentucky Attorney General (KAG) and the Kentucky Industrial Utility Customers (KIUC) filed applications for rehearing on certain issues in the April 6 order. Among other things, the KAG and KIUC are requesting a reduction of the amounts recoverable by the Company. The Commission denied all motions for rehearing, and appeals have subsequently been filed in Franklin Circuit Court, which are pending. The Company is unable to predict the outcome of these proceedings. 9 4. As part of a study of LG&E Energy Corp.'s business strategy and realignment during 1994, the Company re-evaluated its regulatory strategy which previously had been to seek full recovery of certain costs deferred in accordance with prior precedents established by the Commission. As a result of this re-evaluation, in the first quarter of 1994, the Company wrote off certain expenses that had previously been deferred amounting to approximately $38.6 million before taxes. While the Company continues to believe that it could have reasonably expected to recover these costs in future rate proceedings before the Commission, the Company decided to deduct these expenses currently and not seek recovery for such expenses in future rates due to increasing competitive pressures and the existing and anticipated future economic conditions. The items written off include costs incurred in connection with early retirements and workforce reductions that occurred in 1992 and 1993 which consist primarily of separation payments, enhanced early retirement benefits, and health care benefits; costs associated with property damage claims pertaining to particulate emissions from its Mill Creek electric generating plant which primarily consist of spotting on automobile finish and aluminum siding; and certain costs previously deferred resulting from adoption in January 1993 of Statement of Financial Accounting Standards No. 106, Employers' Accounting for Post-Retirement Benefits Other Than Pensions. In the first quarter of 1994, the Board of Directors of the Company approved the formation of a tax-exempt charitable foundation (Foundation) which will make charitable contributions to qualified persons and entities. In 1994, the Company recorded a pre-tax charge against income and made an irrevocable payment of $15 million to fund the Foundation. On June 6, 1994, the Internal Revenue Service issued a letter stating that it had determined the Foundation was exempt from Federal income tax under the Internal Revenue Code. 5. The Company adopted Statement of Financial Accounting Standards No. 112, Employers' Accounting for Post-Employment Benefits (SFAS 112) on January 1, 1994, as required. SFAS 112 requires the accrual of the expected cost of benefits to former or inactive employees after employment but before retirement. The cumulative effect of the accounting change was recorded in the first quarter of 1994 and decreased net income by $3.4 million. 6. On April 18, 1995, the Company completed the issuance of $40 million Jefferson County, Kentucky, 5.90% Pollution Control Bonds, 1995 Series A due April 15, 2023. The proceeds from the sale were used to redeem the 1985 Series A Jefferson County, Kentucky, 9.25% Pollution Control Bonds. 7. The Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, effective January 1, 1993. Regulatory assets and liabilities were established to recognize the future revenue requirement impact from the deferred income taxes which were not immediately recognized in operating results because of ratemaking treatment. The change in Accumulated Deferred Income Taxes and Regulatory Liability on the accompanying balance sheets reflects the accrual for the six months ended June 30, 1995 and certain reclassifications between Accumulated Deferred Income Taxes and Regulatory Liability applicable to prior periods. 10 8. LG&E Energy Corp., the Company's parent, has recorded an $8 million liability in connection with potential amounts that may be owed by the Company as a result of litigation. The liability is offset by an asset of equal amount representing proceeds received from a third party in the second quarter. The Company is in the process of determining the amount of liability to charge to expense. 9. Reference is made to Part II herein - Item 1, Legal Proceedings. 11 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. Results of Operations Because of seasonal fluctuations in temperature and other factors the results of one interim period are not necessarily indicative of results to be expected for the year. Quarter Ended June 30, 1995, Compared with Quarter Ended June 30, 1994 Net income increased $.5 million for the quarter ended June 30, 1995, over the second quarter of 1994 primarily due to an increase in electric industrial sales and decreased power purchased required this quarter to meet native load and other power commitments. A comparison of operating revenues for the quarter ended June 30, 1995, with the quarter ended June 30, 1994, 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. . . . . . . $(3,372) $(2,406) Demand side management/revenue decoupling. . . . . . . . . . . . . . . . 625 529 Environmental cost recovery. . . . . . . . . 504 - Variation in sales volume, etc.. . . . . . . 1,546 (2,992) Total . . . . . . . . . . . . . . . . . . (697) (4,869) Sales for resale. . . . . . . . . . . . . . . (442) - Gas transportation - net. . . . . . . . . . . - 602 Other . . . . . . . . . . . . . . . . . . . . 207 (22) Total . . . . . . . . . . . . . . . . . . $ (932) $(4,289) Fuel for electric generation and gas supply expenses comprise a large segment of the Company's total operating expenses. The Company'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 the Company's rates, subject to the approval of the Public Service Commission of Kentucky. Fuel for electric generation decreased $.8 million (2%) for the quarter primarily because of a decrease in the cost of coal burned ($3.1 million) partially offset by increased generation of $2.3 million. Gas supply expenses decreased $4.9 million (26%) due to a lower volume of gas delivered to the distribution system ($2.6 million) and a decrease in net gas supply cost ($2.3 million). 12 The Company implemented a Commission approved demand side management (DSM) program in January 1994. The agreement contains a rate mechanism that allows the Company concurrent recovery of DSM costs; provides the Company an incentive for implementing DSM programs; and allows the Company to recover revenues due to lost sales associated with the DSM programs. On May 1, the Company implemented a Commission approved environmental cost recovery surcharge to recover certain costs required to comply with the Federal Clean Air Act. See Note 3 of Notes to Financial Statements. Power purchased decreased $2.9 million due mainly to less power being purchased to meet native load and other power commitments. Other operation expenses increased $1.1 million (3%) mainly as a result of increased costs to operate electric power plants and electric and gas distribution systems. Maintenance expenses decreased $.4 million (3%) because of fewer repairs this quarter associated with the Mill Creek electric power plant. Depreciation and amortization increased because of additional depreciable plant in service. Variations in income tax expense are largely attributable to changes in pre-tax income. Other income and deductions increased primarily due to an increase in dividend and interest income from investments. Six Months Ended June 30, 1995, Compared with Six Months Ended June 30, 1994 Net income for the six months ended June 30, 1995 increased $39 million over the same period of 1994. This increase was due to the write off, in the first quarter of 1994, of non-recurring items, the formation of a charitable foundation, and the adoption of SFAS No. 112 as discussed in Note 5 of Notes to Financial Statements. Without consideration of the charges against income in 1994 as discussed above, net income for the six months ended June 30, 1995, increased $2.9 million (7.2%). This increase is due primarily to higher retail electric industrial sales during the six month period of 1995 and the higher maintenance expenses incurred in January 1994 because of the severe winter storm. 13 A comparison of operating revenues for the six months ended June 30, 1995, with the six months ended June 30, 1994, 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. . . . . . . $(6,249) $ (9,632) Demand side management/revenue decoupling. . . . . . . . . . . . . . . . 3,069 2,602 Environmental cost recovery. . . . . . . . . 504 - Variation in sales volume, etc.. . . . . . . 2,696 (19,956) Total . . . . . . . . . . . . . . . . . . 20 (26,986) Sales for resale. . . . . . . . . . . . . . . (879) - Gas transportation - net. . . . . . . . . . . - 2,605 Other . . . . . . . . . . . . . . . . . . . . 152 (295) Total . . . . . . . . . . . . . . . . . . $ (707) $(24,676) Fuel for electric generation decreased $2.2 million (3%) for the six months primarily because of a lower cost of coal burned ($5.9 million), partially offset by increased generation ($3.7 million). Gas supply expenses decreased $23.9 million (28%) primarily because of a decrease in gas delivered to the distribution system ($16.8 million) and the lower cost of net gas supply ($7.1 million). Power purchased declined because less power was wheeled for other utilities and purchased to meet native load and other power commitments. Other operation expenses increased $1.2 million (2%) primarily due to an increase in various administrative expenses. Maintenance expenses decreased $2.1 million (8%), primarily due to storm related expenses during the first quarter of 1994 ($1.3 million) and fewer repairs at the electric power plants. Non-recurring charges include the write off of previously deferred costs in connection with early retirements and work force reductions that occurred in 1992 and 1993, costs in connection with property damage claims pertaining to particulate emissions from the Mill Creek electric generating plant, and certain costs previously deferred resulting from adoption of Statement of Financial Accounting Standards No. 106, Employers' Accounting for Post-Retirement Benefits Other Than Pensions. See Note 4 of Notes to Financial Statements. Depreciation and amortization increased because of an increase in depreciable plant in service. 14 Variations in income tax expense are largely attributable to changes in pre-tax income. Property and other taxes decreased mainly due to payroll taxes associated with severance payments in connection with work force reductions recorded in the first quarter of 1994. See Note 4 of Notes to Financial Statements. Other income and deductions increased primarily due to an increase in dividend and interest income from investments. The contribution to charitable foundation represents the expense (net of taxes) associated with the formation of a tax-exempt charitable foundation recorded in the first quarter of 1994. See Note 4 of Notes to Financial Statements. Interest charges increased because of a higher composite interest rate on outstanding debt. A component of interest expense was the cost associated with $30 million of interest rate swaps that the Company entered into as a standard hedging device in connection with the issuance of Pollution Control Bonds Series S due September 1, 2017, in 1992. The swaps are designed to reduce the Company's exposure to interest rate risk. During the six months ended June 30, 1995, the Company received interest at a composite rate of 3.88% and paid interest at a composite rate of 4.55% pursuant to the swaps. Cumulative Effect of Change in Accounting for Post-Employment Benefits reflects an accounting change required by the adoption of Statement of Financial Accounting Standards No. 112, Employers' Accounting for Post-Employment Benefits. See Note 5 of Notes to Financial Statements. Liquidity and Capital Resources The Company's capital structure and cash flow remained strong throughout the reported periods. This is evidenced primarily by the Company's ability to meet its capital needs through internal generation. The Company's need for capital funds is primarily related to the construction of plant and equipment necessary to meet electric and gas customers' needs and the protection of the environment. Construction expenditures for the six months ended June 30, 1995 of $38 million were financed with internally generated funds. The Company's combined cash and temporary cash investments balance increased $12 million during the six months ended June 30, 1995. The increase reflects the Company's cash flow from operations and sale of available-for-sale securities, less construction expenditures, and dividend payments. Variations in accounts receivable and accounts payable are not generally significant indicators of the Company's liquidity, as such variations are primarily attributable to seasonal fluctuations in weather, which has a direct effect on sales of electricity and natural gas. In April 1995, the Company issued $40 million of Jefferson County, Kentucky, Pollution Control Revenue Bonds, 5.90% Series, due April 15, 2023. The proceeds of the bonds were used to redeem the outstanding 9.25% Series of Pollution Control Bonds due July 1, 2015. 15 At June 30, 1995, the Company had unused lines of credit of $145 million with banks for which it pays commitment fees. The lines are scheduled to expire at various periods throughout 1995. The Company intends to renegotiate such lines when they expire. The Company's capitalization ratios at June 30, 1995, and December 31, 1994 were: June 30, Dec. 31, 1995 1994 Long-term debt (including current portion) . . . . . . . . 47.9% 47.5% Preferred stock . . . . . . . . . . . . . . . 8.4 8.4 Common equity . . . . . . . . . . . . . . . . 43.7 44.1 Total. . . . . . . . . . . . . . . . . . . . 100.0% 100.0% For a description of significant contingencies that may affect the Company, reference is made to Part II herein - Item 1, Legal Proceedings. 16 Part II. Other Information Item 1. Legal Proceedings. For a description of the significant legal proceedings involving the Company, reference is made to: (i) the information under the following items and captions of the Company's Annual Report on Form 10-K for the year ended December 31, 1994: Item 1, Business; Item 3, Legal Proceedings; Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition; and Notes 2, 10, and 11 of the Notes to Financial Statements under Item 8, (ii) the Company's current report on Form 8-K dated April 13, 1995, (iii) the information under Part II, Item 1, Legal Proceedings, of the Company's Form 10-Q for the quarter ended March 31, 1995, and (iv) the Company's current report on Form 8-K dated July 21, 1995. Except as noted below, there have been no material changes in these proceedings as reported in the Company's 1994 Form 10-K, Form 8-K dated April 13, 1995, Form 10-Q for the quarter ended March 31, 1995, and Form 8-K dated July 21, 1995. Trimble County. Reference is made to Note 11 of the Notes to Financial Statements under Item 8 of the Company's 1994 Form 10-K, Part II, Item 1, Legal Proceedings, of the Company's Form 10-Q for the quarter ended March 31, 1995, and the Company's current report on Form 8-K, dated July 21, 1995, regarding proceedings before the Kentucky Public Service Commission (Commission) to determine the proper ratemaking treatment to exclude 25% of the Trimble County electric generating facility from customer rates for the period May 1988 through December 1990. On July 19, 1995, the Commission ordered the Company to issue its electric customers a refund of $23.9 million, plus interest applicable through June 1995 of $9.9 million, for a total of $33.8 million, arising from the disallowance of 25% of its Trimble County plant. The Commission's order requires the Company to submit, within the next 30 days, a proposed refund methodology for Commission approval. On August 4, 1995, the Kentucky Attorney General filed a complaint in the Franklin (Kentucky) Circuit Court for review of the Commission's orders of July 8, 1994, April 25, 1995, and July 19, 1995 in this proceeding. The complaint seeks to have the Court vacate those orders and remand the proceeding back to the Commission with instructions that the Commission consider in determining a refund amount the revenues paid by the Company's customers as a result of the inclusion of Trimble County related CWIP in the Company's rate base prior to May 20, 1988. On August 8, 1995, the Company filed a request for rehearing of the July 19 order with the Commission. However, the outcome of this matter is uncertain, and the Company is unable to predict the exact amount of refunds, if any, that ultimately may be due. 17 Environmental Surcharge. As reported in Note 2 of the Notes to Financial Statements under Item 8 of the Company's 1994 Form 10-K, and in Part II, Item 1, Legal Proceedings, of the Company's Form 10-Q for the quarter ended March 31, 1995, on April 6, 1995, the Commission approved, with modifications, the Company's application for an environmental cost recovery surcharge to recover certain costs required to comply with the Federal Clean Air Act, as amended, and other federal, state, and local environmental laws, regulations and orders which apply to coal combustion wastes and by-products from facilities utilized for the production of energy from coal. As a result of the order approving the surcharge, the Company estimates that its electric revenues will increase by approximately $3.8 million in 1995 and $7.2 million in 1996. The Company, the Kentucky Attorney General (KAG) and the Kentucky Industrial Utility Customers (KIUC) filed applications for rehearing on certain issues in the April 6 order. Among other things, the KAG and KIUC are requesting a reduction of the amounts recoverable by the Company. The Commission denied all motions for rehearing, and appeals have subsequently been filed in Franklin Circuit Court, which are pending. The Company is unable to predict the outcome of these proceedings. Environmental. As reported in Note 10 of Notes to Financial Statements in the Company's 1994 Form 10-K, in August 1993, 34 persons filed a complaint in Jefferson Circuit Court against the Company seeking certification of a class consisting of all persons within 2.5 miles of the Mill Creek plant who have alleged suffered personal injury or property damage as a result of emissions from the plant. In June 1994, the court denied the plaintiffs' motion for certification of the class and thus limited the scope of the litigation to the claims of the individual plaintiffs. On August 3, 1995, the plaintiffs filed a motion for leave to file an amended complaint bringing a total of 537 individual plaintiffs into the pending litigation. The plaintiffs continue to seek compensation for alleged personal injury and property damage, injunctive relief, a fund to finance future medical monitoring of area residents, and other relief. The plaintiffs seek certification of a class consisting of all persons within 3.5 miles of the plant who have allegedly suffered property damage. The Company intends to vigorously defend itself in the pending litigation. Item 5. Other Information. On July 31, 1995, the Commission released the findings of a comprehensive management and operations audit that found the Company "well managed, aggressive and fast becoming a 'best in class' utility". The audit, which began in September 1994, was part of the Commission's ongoing management audit program. Vantage Consulting, Inc., selected by the Commission to perform the audit, commended the Company for excellence in several areas, including executive management, strategic planning, customer satisfaction, cost control, continuous improvement, and employee and shareholder relations. The audit also highlighted employees' dedication and commitment to achieving the Company's goals and increasing overall productivi- ty. Consultants from Vantage conducted 260 interviews and field visits and made 875 information requests of the Company in completing its ten month review. The audit contains 98 recommendations. The Company had begun or was planning to initiate many of the recommendations within the Wholesale Electric, Retail Electric, and Retail Gas areas. 18 By implementing the audit recommendations, the report estimates that the Company may realize $11 million in cost savings. However, many of those recommendations require incremental costs to be incurred before savings can be realized. Item 6(a). Exhibits. Exhibit No. 27. Financial Data Schedule Item 6(b). Reports on Form 8-K. On April 13, 1995, a report on Form 8-K was filed announcing the approval, with modifications, of the Company's application for an environmental cost recovery surcharge. On July 21, 1995, a report on Form 8-K was filed announcing that on July 19, the Public Service Commission of Kentucky ordered the Company to issue its electric customers a refund of $33.8 million, arising from the disallowance of 25% of the Company's Trimble County plant. 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. LOUISVILLE GAS AND ELECTRIC COMPANY Registrant Date: August 11, 1995 M. L. Fowler --------------------------------------- M. L. Fowler Vice President and Controller (On behalf of the registrant in his capacity as Principal Accounting Officer) EX-27 2
UT 1,000 6-MOS DEC-31-1995 JUN-30-1995 PER-BOOK 1,651,422 36,944 197,934 52,361 0 1,938,661 424,334 (338) 181,575 605,571 0 116,716 646,854 0 0 0 16,000 0 0 0 553,520 1,938,661 367,337 26,241 278,672 304,913 62,424 2,211 64,635 21,711 42,924 3,244 39,680 52,000 20,899 89,519 0 0 Represents Unrealized Loss on Marketable Securities.
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