-----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, PzXCAWMAyotpzcjxm9kGbuyx+m6VwzA+Xvn8wp1oK1XcPjrK/X+8DeYtaz+bkD4o dwpN/MVGoqFUdZ+xLqyNMw== 0000861388-98-000011.txt : 19980518 0000861388-98-000011.hdr.sgml : 19980518 ACCESSION NUMBER: 0000861388-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: CSX SROS: NYSE 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: 98624244 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: 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: 98624245 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 March 31, 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 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. 129,682,889 shares, without par value, as of May 5, 1998. Louisville Gas and Electric Company 21,294,223 shares, without par value, as of April 30, 1998, all held by LG&E Energy Corp. This combined Form 10-Q is separately filed by LG&E Energy Corp. and Louisville Gas and Electric Company. Information contained herein related to LG&E Energy Corp. or any of its direct or indirect subsidiaries other than Louisville Gas and Electric Company is provided solely by LG&E Energy Corp. and not Louisville Gas and Electric Company and shall be deemed not included in the Form 10-Q of Louisville Gas and Electric Company. TABLE OF CONTENTS PART I Item 1 Financial Statements LG&E Energy Corp. and Subsidiaries Statements of Income 1 Balance Sheets 2 Statements of Cash Flows 4 Statements of Retained Earnings 6 Statements of Comprehensive Income 7 Louisville Gas and Electric Company Statements of Income 8 Balance Sheets 9 Statements of Cash Flows 11 Statements of Retained Earnings 12 Statements of Comprehensive Income 13 Notes to Financial Statements 14 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 17 PART II Item 1 Legal Proceedings 21 Item 5 Other Information Unaudited Supplemental Pro Forma Financial Information 22 Unaudited Supplemental Pro Forma Combined Condensed Balance Sheet as of March 31, 1998 23 Unaudited Supplemental Pro Forma Combined Condensed Statements of Income: Three Months Ended March 31, 1998 25 Three Months Ended March 31, 1997 26 Notes to Unaudited Supplemental Pro Forma Combined Condensed Financial Statements 27 Item 6 Exhibits and Reports on Form 8-K 28 Signatures 29 Part I. Financial Information - Item 1. Financial Statements LG&E Energy Corp. and Subsidiaries Statements of Income (Unaudited - Thousands of $ Except Per Share Data) Three Months Ended March 31, 1998 1997 REVENUES: Energy marketing and trading $ 940,714 $1,059,078 Electric utility 140,585 128,827 Gas utility 92,759 96,738 Argentine gas distribution and other 34,170 18,600 Total revenues 1,208,228 1,303,243 COST OF REVENUES: Energy marketing and trading 932,479 1,046,396 Fuel and power purchased 45,640 35,019 Gas supply expenses 64,076 67,825 Argentine gas distribution and other 19,427 11,394 Total cost of revenues 1,061,622 1,160,634 Gross profit 146,606 142,609 OPERATING EXPENSES: Operation and maintenance: Energy marketing and trading 10,506 11,970 Utility 55,590 53,431 Argentine gas distribution and other 12,781 7,802 Depreciation and amortization 31,750 27,887 Total operating expenses 110,627 101,090 Equity in earnings of joint ventures 5,119 3,384 OPERATING INCOME 41,098 44,903 Other income and (deductions) 1,531 3,367 Interest charges and preferred dividends 16,627 14,422 Minority interest 1,343 568 Income before income taxes 24,659 33,280 Income taxes 6,896 12,041 NET INCOME $ 17,763 $ 21,239 Average common shares outstanding 66,528 66,383 Earnings per share - basic and diluted $ .27 $ .32 The accompanying notes are an integral part of these financial statements. - 1 - LG&E Energy Corp. and Subsidiaries Balance Sheets (Thousands of $) ASSETS (Unaudited) March 31, Dec. 31, 1998 1997 CURRENT ASSETS: Cash and temporary cash investments $ 134,984 $ 104,366 Marketable securities 25,048 22,300 Accounts receivable - less reserve 465,114 521,166 Materials and supplies - primarily at average cost: Fuel (predominantly coal) 21,501 17,651 Gas stored underground 13,365 49,396 Other 31,985 31,866 Price risk management assets 182,262 120,341 Prepayments and other 4,340 10,599 Total current assets 878,599 877,685 UTILITY PLANT: At original cost 2,789,600 2,779,234 Less: reserve for depreciation 1,087,647 1,072,842 Net utility plant 1,701,953 1,706,392 OTHER PROPERTY AND INVESTMENTS - LESS RESERVES: Investment in affiliates 153,042 168,276 Non-utility property and plant, net 420,918 421,486 Price risk management assets 57,025 44,240 Other 29,228 24,743 Total other property and investments 660,213 658,745 DEFERRED DEBITS AND OTHER ASSETS 120,837 123,569 Total assets $3,361,602 $3,366,391 The accompanying notes are an integral part of these financial statements. - 2 - LG&E Energy Corp. and Subsidiaries Balance Sheets (cont.) (Thousands of $) LIABILITIES AND CAPITAL (Unaudited) March 31, Dec. 31, 1998 1997 CURRENT LIABILITIES: Long-term debt due within one year $ 20,000 $ 20,000 Notes payable 205,515 360,184 Accounts payable 393,748 449,230 Trimble County settlement 11,542 13,248 Price risk management liabilities 177,238 131,107 Other 78,388 84,966 Total current liabilities 886,431 1,058,735 Long-term debt 814,371 664,339 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 319,633 327,343 Investment tax credit, in process of amortization 74,722 75,800 Regulatory liability 71,287 65,502 Price risk management liabilities 53,848 23,803 Other 111,064 111,459 Total deferred credits and other liabilities 630,554 603,907 Minority interests 99,173 105,985 Cumulative preferred stock 98,353 98,353 COMMON EQUITY: Common stock, without par value - 66,527,636 shares outstanding 470,136 470,136 Other (1,391) (1,068) Retained earnings 363,975 366,004 Total common equity 832,720 835,072 Total liabilities and capital $3,361,602 $3,366,391 The accompanying notes are an integral part of these financial statements. - 3 - LG&E Energy Corp. and Subsidiaries Statements of Cash Flows (Unaudited - Thousands of $) Three Months Ended March 31, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 17,763 $ 21,239 Items not requiring cash currently: Depreciation and amortization 31,750 27,887 Deferred income taxes - net (1,131) 6,529 Change in net price risk management assets 1,470 (22,313) Other (2,361) 2,352 Change in net current assets 30,607 17,290 Other (13,730) (2,457) Net cash flows from operating activities 64,368 50,527 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of securities (3,584) (11,846) Proceeds from sales of securities 961 2,033 Construction expenditures (22,954) (21,366) Proceeds from sale of investment in affiliate 16,000 - Investments in affiliates - (985) Acquisition of interests in Argentine natural gas distribution companies, net of cash and temporary cash investments acquired - (126,499) Net cash flows from investing activities (9,577) (158,663) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of medium-term notes 150,000 - Repayment of short-term borrowings (995,724) (61,000) Short-term borrowings 841,343 201,000 Issuance of common stock - 2,594 Payment of common dividends (19,792) (19,073) Net cash flows from financing activities $ (24,173) $ 123,521 - 4 - LG&E Energy Corp. and Subsidiaries Statements of Cash Flows (cont.) (Unaudited - Thousands of $) Three Months Ended March 31, 1998 1997 CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS $ 30,618 $ 15,385 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 104,366 114,669 CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 134,984 $ 130,054 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the period for: Income taxes $ 2,160 $ (62) Interest on borrowed money 16,073 13,175 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. - 5 - LG&E Energy Corp. and Subsidiaries Statements of Retained Earnings (Unaudited) (Thousands of $) Three Months Ended March 31, 1998 1997 Balance at beginning of period $366,004 $345,994 Net income 17,763 21,239 Cash dividends declared on common stock ($.2975 and $.2875 per share) 19,792 19,112 Balance at end of period $363,975 $348,121 The accompanying notes are an integral part of these financial statements. - 6 - LG&E Energy Corp. and Subsidiaries Statements of Comprehensive Income (Unaudited - Thousands of $) Three Months Ended March 31, 1998 1997 Net income $17,763 $21,239 Unrealized holding losses on available-for-sale securities arising during the period (14) (405) Reclassification adjustment for realized gains and losses on available-for-sale securities included in net income 111 (18) Other comprehensive income (loss), before tax 97 (423) Income tax expense related to items of other comprehensive income 37 (169) Comprehensive income $17,823 $20,985 The accompanying notes are an integral part of these financial statements. - 7 - Louisville Gas and Electric Company Statements of Income (Unaudited) (Thousands of $) Three Months Ended March 31, 1998 1997 REVENUES: Electric $140,585 $128,661 Gas 92,759 96,738 Total operating revenues 233,344 225,399 OPERATING EXPENSES: Fuel for electric generation 36,041 31,012 Power purchased 9,600 4,007 Gas supply expenses 64,076 67,825 Other operation expenses 40,368 36,868 Maintenance 10,266 11,722 Depreciation and amortization 23,294 22,952 Federal and state income taxes 12,417 13,277 Property and other taxes 4,956 4,841 Total operating expenses 201,018 192,504 NET OPERATING INCOME 32,326 32,895 Other income and (deductions) 311 886 Interest charges 9,238 9,814 NET INCOME 23,399 23,967 Preferred stock dividends 1,123 1,127 NET INCOME AVAILABLE FOR COMMON STOCK $ 22,276 $ 22,840 The accompanying notes are an integral part of these financial statements. - 8 - Louisville Gas and Electric Company Balance Sheets (Thousands of $) ASSETS (Unaudited) March 31, Dec. 31, 1998 1997 UTILITY PLANT: At original cost $2,789,600 $2,779,234 Less: reserve for depreciation 1,087,647 1,072,842 Net utility plant 1,701,953 1,706,392 OTHER PROPERTY AND INVESTMENTS - LESS RESERVES 1,267 1,365 CURRENT ASSETS: Cash and temporary cash investments 89,015 50,472 Marketable securities 22,001 19,311 Accounts receivable - less reserve 102,670 124,872 Materials and supplies - at average cost: Fuel (predominantly coal) 21,501 17,651 Gas stored underground 15,352 41,487 Other 31,966 31,866 Prepayments 2,060 2,627 Total current assets 284,565 288,286 DEFERRED DEBITS AND OTHER ASSETS: Unamortized debt expense 6,147 6,074 Regulatory assets 26,545 24,899 Other 25,773 28,625 Total deferred debits and other assets 58,465 59,598 Total assets $2,046,250 $2,055,641 The accompanying notes are an integral part of these financial statements. - 9 - Louisville Gas and Electric Company Balance Sheets (cont.) (Thousands of $) CAPITAL AND LIABILITIES (Unaudited) March 31, Dec. 31, 1998 1997 CAPITALIZATION: Common stock, without par value - Outstanding 21,294,223 shares $ 425,170 $ 425,170 Retained earnings 261,386 258,910 Other (731) (754) Total common equity 685,825 683,326 Cumulative preferred stock 95,328 95,328 Long-term debt 626,800 626,800 Total capitalization 1,407,953 1,405,454 CURRENT LIABILITIES: Long-term debt due within one year 20,000 20,000 Accounts payable 72,347 98,894 Trimble County settlement 11,542 13,248 Dividends declared 20,923 21,152 Accrued taxes 27,903 18,723 Accrued interest 8,130 8,016 Other 16,152 14,608 Total current liabilities 176,997 194,641 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 246,625 249,851 Investment tax credit, in process of amortization 74,722 75,800 Accumulated provision for pensions and related benefits 40,608 40,608 Regulatory liability 71,287 65,502 Other 28,058 23,785 Total deferred credits and other liabilities 461,300 455,546 Total capital and liabilities $2,046,250 $2,055,641 The accompanying notes are an integral part of these financial statements. - 10 - Louisville Gas and Electric Company Statements of Cash Flows (Unaudited - Thousands of $) Three Months Ended March 31, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 23,399 $ 23,967 Items not requiring cash currently: Depreciation and amortization 23,294 22,952 Deferred income taxes - net 2,547 253 Investment tax credit - net (1,078) (1,086) Other 1,000 931 Changes in net current assets: Accounts receivable 22,202 5,086 Materials and supplies 22,185 27,834 Trimble County settlement (1,706) (1,712) Accounts payable (26,547) (39,977) Accrued taxes 9,180 13,703 Accrued interest 114 (1,501) Prepayments and other 2,111 2,110 Other 4,710 2,274 Net cash flows from operating activities 81,411 54,834 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of securities (3,096) (10,238) Proceeds from sales of securities 444 740 Construction expenditures (19,064) (19,284) Net cash flows from investing activities (21,716) (28,782) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends (21,152) (20,131) Net cash flows from financing activities (21,152) (20,131) CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 38,543 5,921 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 50,472 56,792 CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 89,015 $ 62,713 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (refunded) during the period for: Income taxes $ 4,276 $ (52) Interest on borrowed money 8,705 10,929 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. - 11 - Louisville Gas and Electric Company Statements of Retained Earnings (Unaudited) (Thousands of $) Three Months Ended March 31, 1998 1997 Balance at beginning of period $258,910 $209,222 Net income 23,399 23,967 Subtotal 282,309 233,189 Cash dividends declared on stock: 5% cumulative preferred 269 269 Auction rate cumulative preferred 487 491 $5.875 cumulative preferred 367 367 Common 19,800 - Subtotal 20,923 1,127 Balance at end of period $261,386 $232,062 The accompanying notes are an integral part of these financial statements. - 12 - Louisville Gas and Electric Company Statements of Comprehensive Income (Unaudited - Thousands of $) Three Months Ended March 31, 1998 1997 Net income $22,276 $22,840 Unrealized holding gains on available- for-sale securities arising during the period (27) (417) Reclassification adjustment for realized gains on available-for-sale securities included in net income 66 10 Other comprehensive income (loss), before tax 39 (407) Income tax expense related to items of other comprehensive income 16 (107) Comprehensive income $22,299 $22,540 The accompanying notes are an integral part of these financial statements. - 13 - LG&E Energy Corp. and Subsidiaries Louisville Gas and Electric Company Notes to Financial Statements (Unaudited) 1. This report includes unaudited consolidated financial statements for LG&E Energy Corp. and its wholly owned subsidiaries - Louisville Gas and Electric Company (LG&E) and LG&E Capital Corp. (Capital Corp.), collectively referred to as the "Company." This report also includes financial statements for LG&E. The unaudited consolidated financial statements of LG&E Energy as of and for the three months ended March 31, 1998 and 1997 included herein do not include or reflect the financial results of either KU Energy Corporation or Kentucky Utilities Company. As described below, subsequent to March 31, 1998, KU Energy Corporation was merged into LG&E Energy Corp. Unaudited supplemental pro forma financial information for the periods ended March 31, 1998 and 1997 giving effect to the merger is presented, however, in Part II - Item 5, Unaudited Supplemental Pro Forma Financial Information. 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. Certain reclassifications have been made to the Company's income statement for the three months ended March 31, 1997, to conform to the presentation for the three months ended March 31, 1998, with no impact on previously reported net income. These financial statements should be read with the financial statements and notes thereto included in the Company's and LG&E's Annual Reports on Form 10-K for 1997. 2. 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. 3. On May 4, 1998, the Company and KU Energy Corporation merged, with the Company as the surviving corporation. The Company will account for the merger as a pooling of interests. Through March 31, 1998, the Company's costs associated with the merger amounted to $8.6 million. In accordance with regulatory filings approved by the Kentucky Public Service Commission, one half of the Company's costs to achieve the merger synergies, up to a total of $77.2 million, are permitted to be deferred as a regulatory asset and amortized ratably over five years to reduce the amount of merger related savings being refunded to customers through a surcredit over five years. Amortization will begin in July 1998, when LG&E initiates the surcredit on customers' bills for 50% of the projected net non-fuel savings to be realized in each of the five years subsequent to consummation of the merger. The remaining one half of the recorded costs to achieve the merger will be expensed during the second quarter of 1998. The costs to achieve the merger, including separation costs, transaction costs and other merger-related expenditures, are currently estimated to total approximately $47 million for LG&E and $47 million for Kentucky Utilities. These amounts are higher than earlier estimates, primarily as a result of higher than originally estimated separation costs. Amounts in excess of $77.2 million will be expensed consis - 14 - tent with the approved regulatory plan as part of the second quarter one-time charge. The accompanying financial statements do not reflect the effects of the merger. For more information, see Item 1, Business, and Unaudited Supplemental Pro Forma Combined Condensed Financial Information in this report under Part II, Item 5, Other Information, Note 2 of the Company's Notes to Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, and the Company's Current Report on Form 8-K dated May 4, 1998. 4. In the first quarter of 1998, the Company and LG&E 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. Accumulated other comprehensive income included in the Company's equity totaled $277,000 and $217,000 at March 31, 1998, and December 31, 1997, respectively. Accumulated other comprehensive income included in LG&E's equity totaled $82,000 and $105,000 at March 31, 1998, and December 31, 1997, respectively. The Company's and LG&E's accumulated other comprehensive income at March 31, 1998, and December 31, 1997, consisted of unrealized holding gains and losses on available-for-sale securities. 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. 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 cannot predict the impact this statement will have on its consolidated operations and financial position. 5. Effective January 1, 1996, the Company adopted the mark-to-market method of accounting for its energy marketing and trading activities. The fair values of the Company's price risk management assets and liabilities as of March 31, 1998, and the averages for the three months then ended follow (in thousands of $): March 31, 1998 Average Fair Value Fair Value Liabil- Liabil- Counterparty Assets ities Assets ities Electricity $157,121 $145,437 $113,735 $101,224 Natural gas 82,397 84,096 88,158 93,526 Other (231) - 11 - Totals 239,287 229,533 $201,904 $194,750 Reserves - 1,553 Net values $239,287 $231,086 As of March 31, 1998, the Company estimated that a $1 change in electricity prices and a 10-cent change in natural gas prices across all geographic areas and time periods could have changed the value of the Company's net price risk management assets by approximately $1.2 million. In addition to price risk, the value of the Company's entire energy portfolio is subject to operational and event risks including, among others, regulatory changes, increases in load demand, and forced outages at units providing supply for the Company. - 15 - For more information, see Notes 1 and 5 of the Company's Notes to Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 6. Reference is made to Part II herein - Item 1, Legal Proceedings, and Note 16 of the Notes to Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 1997. - 16 - Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. On May 4, 1998, the Company and KU Energy Corporation ("KU Energy") merged. KU Energy is the parent company of Kentucky Utilities Company ("Kentucky Utilities"). Further information concerning the merger and supplemental pro forma financial information relating thereto is included in Note 3 and Part II of this Form 10-Q. Except as otherwise indicated, the following discussion and analysis is based on the financial condition and operations of the Company and does not reflect the effects of the combination between the Company and KU Energy. Reference is made to the Form 10-Q of KU Energy for the quarter ended March 31, 1998, for a discussion of its results of operations and other matters (File No. 1-10944). Without regard to the above-mentioned merger, one of the Company's principal subsidiaries is LG&E, an electric and gas utility. Accordingly, LG&E's results of operations and liquidity and capital resources are primary factors affecting the Company's consolidated results of operations and capital resources and liquidity. Some of the matters discussed in Part I or Part II of this Form 10-Q 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; unusual weather; regulatory decisions, including decisions resulting from the combination of the Company and KU Energy; the factors described in Exhibit 99.01 of this Report on Form 10-Q, and other factors described from time to time in the Company's reports to the Securities and Exchange Commission. Results of Operations LG&E's and the Argentine gas distribution companies' results of operations are significantly affected by seasonal fluctuations in temperature and other weather-related factors. To a lesser degree, the results of the Company's Energy Marketing and Trading Division are also 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 March 31, 1998, Compared to Three Months Ended March 31, 1997 Earnings per share decreased 16% to $.27 in 1998 from $.32 in 1997 mainly due to a loss on the previously announced sale of the Company's San Miguel generating facilities in Argentina and lower energy marketing and trading gross margins. The decrease in energy marketing and trading margins reflects the impact of increasing summer electricity pricing being recognized through mark-to-market accounting. Lower energy marketing and trading operation and maintenance expenses partially offset these decreases. LG&E (Utility) Operating Results: LG&E's net income decreased $.6 million (2%) for the quarter ended March 31, 1998, as compared to the quarter ended March 31, 1997, primarily due to a decrease in electric and gas retail sales caused by the unseasonably mild weather and higher operation expenses. Heating degree days were 12% below 1997. - 17 - A comparison of LG&E's revenues for the quarter ended March 31, 1998, with the quarter ended March 31, 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 $ (1,463) $ 3,821 Demand side management/revenue decoupling (1) 1,383 Environmental cost recovery surcharge (238) - Variation in sales volume, etc. 482 (13,954) Total (1,220) (8,750) Sales for resale 13,390 4,508 Gas transportation - net - 484 Other (246) (221) Total $ 11,924 $ (3,979) Electric sales for resale increased due to larger amounts of power available for off-system sales. Gas wholesale sales increased to $4.5 million in 1998 from zero in 1997 due to the implementation of LG&E's performance-based ratemaking mechanism. 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. Fuel for electric generation increased $5 million (16%) for the quarter because of an increase in generation ($3.9 million) and a higher cost of coal burned ($1.1 million). Gas supply expenses decreased $3.7 million (6%) due to a decrease in the volume of gas delivered to the distribution system ($10.1 million) partially offset by an increase in net gas supply cost ($6.4 million). Power purchased increased $5.6 million because of the availability of economically priced power and an increase in unplanned outages at the electric generating plants. Other operation expenses increased $3.5 million (9%) over 1997 because of increased administrative costs ($2.5 million) and increased costs to operate the electric generating plants ($1 million). Maintenance expenses decreased $1.5 million (12%) mainly because of a decrease in repairs at the electric generating plants ($1.1 million) and fewer storm damage expenses ($.5 million). Variations in income tax expense are largely attributable to changes in pre- tax income. - 18 - Capital Corp. (Non-Utility) Operating Results: 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 energy marketing and trading, the gas distribution business in Argentina, and various independent power projects, which businesses are included in the accompanying income statement under the headings "Energy Marketing and Trading," "Argentina Gas Distribution and Other" and "Equity in Earnings of Joint Ventures." Energy marketing and trading revenues and cost of revenues decreased $118.4 million (11%) and $113.9 million (11%), respectively, due to lower prices in the energy markets, partially offset by increased volumes. The decrease in gross margins reflects the impact of increasing summer electricity pricing recognized through mark-to-market accounting. Energy marketing and trading operation and maintenance expense decreased $1.5 million (12%). The decrease primarily reflects savings resulting from relocating gas trading operations from Dallas to Louisville during the second quarter of 1997. Argentine gas distribution and other revenues and cost of revenues increased $15.6 million (84%) and $8.0 million (71%) due to acquiring Distribuidora de Gas del Centro (Centro) in February 1997. Argentine gas distribution and other operating expenses increased $5.0 million (64%) due to the Centro acquisition and to higher corporate expenses. Consolidated depreciation and amortization expense increased $3.9 million (14%) due to acquiring Centro and to writing off certain costs related to the San Miguel facility. The Company sold its interest in the San Miguel project in February 1998. See Note 7 of Notes to Financial Statements under Item 8 in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Equity in earnings of joint ventures increased $1.7 million (51%) due mainly to a reduction in forced-outage days at the Roanoke Valley I project. Non-utility interest charges increased $2.8 million (80%) due to an increase in average debt outstanding. The consolidated effective income tax rate decreased to 28.0% in 1998 from 36.2% in 1997 primarily due to the favorable resolution of income tax audits in 1998. 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 electric and gas customers' needs and protection of the environment. Capital funds are also needed for partnership equity contributions in connection with independent power production projects, efforts to expand and improve gas gathering and processing facilities, information system enhancements, and other business development opportunities. Construction expenditures for the three months ended March 31, 1998, of $23.0 million were financed with internally generated funds. The Company's combined cash and marketable securities balance increased $33.4 million during the three months ended March 31, 1998. The increase reflects cash flows from operations 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 decreases in accounts receivable and accounts pay - 19 - able resulted from seasonal fluctuations in the energy marketing and trading division's and LG&E's businesses. Gas stored underground decreased due to seasonal fluctuations in LG&E's business. The decrease in notes payable and the offsetting increase in long-term debt reflect issuing $150 million of medium-term notes in February 1998 and using the proceeds to repay a portion of the outstanding commercial paper balance. The Company also uses commercial paper which had maturity dates ranging between one and 270 days. Because of the rollover of these maturity dates, total short-term borrowings during the first quarter of 1998 were $1.0 billion and total repayments of short-term borrowings during the quarter were $.8 billion. See Note 14 of Notes to Financial Statements under Item 8 in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. At March 31, 1998, unused capacity under the Company's lines of credit totaled $659.6 million after considering commercial paper support and approximately $34.9 million in letters of credit securing on- and off- balance sheet commitments. At December 31, 1997, unused capacity under the lines of credit totaled $481.7 million. The increase in unused capacity resulted from repaying a portion of the outstanding commercial paper balance. As explained in more detail under Item 1 of Part II of this report, the Company continues to progress in its proposed lease of the generating assets of Big Rivers Electric Corporation. Upon closing the transaction and receiving the necessary regulatory approvals, the Company will need funds to meet various working capital requirements. The Company expects to issue debt to finance these requirements. The Company's capitalization ratios at March 31, 1998, and December 31, 1997, follow: March 31, Dec. 31, 1998 1997 Long-term debt (including current portion) 42.4% 34.7% Notes payable 10.4 18.2 Preferred stock 5.0 4.8 Common equity 42.2 42.3 Total 100.0% 100.0% LG&E's capitalization ratios at March 31, 1998, and December 31, 1997, follow: March 31, Dec. 31, 1998 1997 Long-term debt (including current portion) 45.3% 45.4% Preferred stock 6.7 6.7 Common equity 48.0 47.9 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. - 20 - Part II. Other Information Item 1. Legal Proceedings. For a description of the significant legal proceedings involving the Company and LG&E, reference is made to the information under the following items and captions of the Company's and LG&E's combined Annual Report on Form 10-K for the year ended December 31, 1997: Item 1, Business; Item 3, Legal Proceedings; Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition; Notes 4 and 16 of the Company's Notes to Financial Statements under Item 8; and Notes 3 and 12 of LG&E's Notes to Financial Statements under Item 8. Except as described herein, to date, the proceedings reported in the Company's and LG&E's combined 1997 Annual Report on Form 10-K have not changed materially. Environmental. Note 16 of the Company's, and Note 12 of LG&E's, Financial Statements for the year ended December 31, 1997, respectively, in the Company's and LG&E's Annual Report on Form 10-K for such year, 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. These certain settlements are now final and have been entered by the court. Big Rivers Transaction. On April 30, 1998, the Kentucky Public Service Commission (the "Kentucky Commission") issued an order approving, in principle, the proposed 25-year lease by certain subsidiaries of the Company of the generating assets of Big Rivers Electric Corporation ("Big Rivers") as generally set forth in a New Participation Agreement dated April 6, 1998 among the parties. The New Participation Agreement supersedes an earlier Participation Agreement dated June 9, 1997 and is effective in lieu of an Amended and Restated Participation Agreement dated March 18, 1998. The Kentucky Commission's order contained or required certain modifications or further filings in connection with the transaction and the Company, Big Rivers, its member cooperatives and certain of Big Rivers' industrial customers are in discussions to attempt to resolve the issues raised by the Kentucky Commission's order. In connection with an earlier November 1997 order of the Kentucky Commission, the New Participation Agreement also contains an agreement by affiliates of the Company to assume, effective with the overall proposed transaction, responsibility for certain unforeseen future environmental, legislative and regulatory costs associated with the Big Rivers generating facilities and the loads of certain industrial customers. Consummation of the lease transaction, including consideration of modifications contained in the recent Kentucky Commission order, is subject to further regulatory and other approvals, including the U.S. Bankruptcy Court and the Federal Energy Regulatory Commission ("FERC"). See Item 1, Business, of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Southampton Note 16 of the Company's Financial Statements for the year ended December 31, 1997 discusses the status of certain proceedings before the FERC regarding the status of the Southampton cogeneration facility ("Southamption") 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 13, 1998, the FERC approved an order, which has not been issued in final form, addressing certain issues in this matter. The order reaffirmed certain exemptions granted Southampton as a QF for the 1992 period. Regarding the rate refund amount, the FERC order requires VEPCO to compen - 21 - sate Southampton for every hour in 1992 that the unit was available for dispatch, whether or not actually dispatched, at VEPCO's hourly economy energy cost, thus reducing Southampton's exposure to refund. FERC also denied Southampton's request for approval of a $500,000 refund and directed the parties to enter into further FERC-supervised settlement negotiations regarding calculation of the refund amount in accordance with the clarifications in the FERC order. Pending the commencement and outcome of such negotiations, as well as any further potential actions, currently unknown, to be taken by Southamption or VEPCO, including possible appeal of any final FERC order, the Company cannot predict the ultimate amount of the refund. The Company's share of the revenues received by Southampton in 1992 is approximately $9.5 million and any refund is subject to interest charges. Item 5. Other Information. Unaudited Supplemental Pro Forma Financial Information. On May 4, 1998, the Company and KU Energy Corporation, a Kentucky corporation ("KU"), merged. Pursuant to the Merger Agreement, among other things, KU was merged with and into LG&E Energy, with LG&E Energy as the surviving corporation (the "Merger"). See Note 3 of Notes to Financial Statements under Part I, Item 1, for more information. The following unaudited supplemental pro forma financial information combines the balance sheets and statements of income of LG&E Energy and KU Energy, including their respective subsidiaries, after giving effect to the Merger. The unaudited supplemental pro forma combined condensed balance sheet at March 31, 1998, gives effect to the Merger as if it had occurred on that date. The unaudited supplemental pro forma combined condensed statements of income for all periods give effect to the Merger as if it had occurred at the beginning of the periods presented. These statements are prepared on the basis of accounting for the Merger as a pooling of interests and are based on the assumptions set forth in the notes thereto. In addition, the supplemental pro forma financial information does not give effect to the expected synergies of the transaction. The following supplemental pro forma financial information has been prepared from, and should be read in conjunction with, the financial statements and related notes thereto reported by the Company and KU Energy, incorporated herein by reference. The following information is not necessarily indicative of the financial position or operating results that would have occurred had the Merger been consummated on the date as of which, or at the beginning of the periods for which, the Merger is being given effect nor is it necessarily indicative of future operating results or financial position. In addition, due to the effect of seasonal fluctuations in temperature and other weather-related factors on the operations of the Company and KU Energy, financial results for the three months ended March 31, 1998, and March 31, 1997, are not necessarily indicative of trends for any twelve-month period. - 22 - LG&E Energy Corp. Unaudited Supplemental Pro Forma Combined Condensed Balance Sheet As of March 31, 1998 (Thousands of $) ASSETS As Reported Pro Pro For- LG&E KU Forma ma Com- Energy Energy Adj. bined CURRENT ASSETS: Cash and temporary cash investments $ 134,984 $ 32,386 $ - $ 167,370 Marketable securities 25,048 - - 25,048 Accounts receivable - less reserve 465,114 70,163 (320) 534,957 Materials and supplies - pri- marily at average cost: Fuel (predominantly coal) 21,501 22,892 - 44,393 Gas stored underground 13,365 - - 13,365 Other 31,985 24,147 - 56,132 Price risk management assets 182,262 - - 182,262 Prepayments and other 4,340 6,360 - 10,700 Total current assets 878,599 155,948 (320) 1,034,227 UTILITY PLANT: At original cost 2,789,600 2,625,228 - 5,414,828 Less: reserve for depreciation 1,087,647 1,149,284 - 2,236,931 Net utility plant 1,701,953 1,475,944 - 3,177,897 OTHER PROPERTY AND INVESTMENTS - LESS RESERVES: Investment in affiliates 153,042 2,081 - 155,123 Non-utility property and plant, net 420,918 2,642 - 423,560 Price risk management assets 57,025 - - 57,025 Other 29,228 43,349 - 72,577 Total other property and investments 660,213 48,072 - 708,285 DEFERRED DEBITS AND OTHER ASSETS 120,837 56,253 (2,798) 174,292 Total assets $3,361,602 $1,736,217 $ (3,118)$5,094,701 See accompanying notes to Unaudited Supplemental Pro Forma Combined Financial Statements. - 23 - LG&E Energy Corp. Unaudited Supplemental Pro Forma Combined Condensed Balance Sheet (cont.) As of March 31, 1998 (Thousands of $) LIABILITIES AND CAPITAL As Reported Pro Pro For- LG&E KU Forma ma Com- Energy Energy Adj. bined CURRENT LIABILITIES: Long-term debt due within one year $ 20,000 $ 21 $ - $ 20,021 Notes payable 205,515 - - 205,515 Accounts payable 393,748 28,052 7,573 429,373 Trimble County settlement 11,542 - - 11,542 Price risk management liabilities 177,238 - - 177,238 Other 78,388 63,468 (4,314) 137,542 Total current liabilities 886,431 91,541 3,259 981,231 Long-term debt 814,371 546,330 - 1,360,701 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 319,633 255,037 - 574,670 Investment tax credit, in process of amortization 74,722 25,163 - 99,885 Regulatory liability 71,287 50,263 - 121,550 Price risk management liabilities 53,848 - - 53,848 Other 111,064 55,374 - 166,438 Total deferred credits and other liabilities 630,554 385,837 - 1,016,391 Minority interests 99,173 - - 99,173 Cumulative preferred stock 98,353 40,000 - 138,353 Common equity 832,720 672,509 (6,377) 1,498,852 Total capital and liabilities $3,361,602 $1,736,217 $ (3,118)$5,094,701 See accompanying notes to Unaudited Pro Supplemental Forma Combined Financial Statements. - 24 - LG&E Energy Corp. Unaudited Supplemental Pro Forma Combined Condensed Statements of Income Three Months Ended March 31, 1998 (Thousands of $ Except Per Share Data) As Reported Pro Pro For- LG&E KU Forma ma Com- Energy Energy Adj. Bined REVENUES: Energy marketing and trading $ 940,714 $ - $ - $ 940,714 Electric utility 140,585 183,210 (24) 323,771 Gas utility 92,759 - - 92,759 Argentine gas distribution and other 34,170 1,912 - 36,082 Total revenues 1,208,228 185,122 (24) 1,393,326 COST OF REVENUES: Energy marketing and trading 932,479 - - 932,479 Fuel and power purchased 45,640 66,336 (24) 111,952 Gas supply expenses 64,076 - - 64,076 Argentine gas distribution and other 19,427 - - 19,427 Total cost of revenues 1,061,622 66,336 (24) 1,127,934 Gross profit 146,606 118,786 - 265,392 OPERATING EXPENSES: Operation and maintenance: Energy marketing and trading 10,506 - - 10,506 Utility 55,590 47,393 - 102,983 Argentine gas distribution and other 12,781 540 - 13,321 Depreciation and amortization 31,750 21,533 - 53,283 Total operating expenses 110,627 69,466 - 180,093 Equity in earnings of joint ventures 5,119 - - 5,119 OPERATING INCOME 41,098 49,320 - 90,418 Other income and (deductions) 1,531 953 - 2,484 Interest charges and pre- ferred dividends 16,627 10,270 - 26,897 Minority interest 1,343 - - 1,343 Income before income taxes 24,659 40,003 - 64,662 Income taxes 6,896 14,598 - 21,494 NET INCOME $ 17,763 $ 25,405 $ - $ 43,168 Average shares outstanding 66,528 37,818 25,338 129,684 Earnings per share $ .27 $ .67 $ - $ .33 See accompanying notes to Unaudited Supplemental Pro Forma Combined Financial Statements. - 25 - LG&E Energy Corp. Unaudited Supplemental Pro Forma Combined Condensed Statements of Income Three Months Ended March 31, 1997 (Thousands of $ Except Per Share Data) As Reported Pro Pro For- LG&E KU Forma ma Com- Energy Energy Adj. Bined REVENUES: Energy marketing and trading $1,059,078 $ - $ (4)$1,059,074 Electric utility 128,827 178,908 (204) 307,531 Gas utility 96,738 - - 96,738 Argentine gas distribution and other 18,600 1,177 - 19,777 Total revenues 1,303,243 180,085 (208) 1,483,120 COST OF REVENUES: Energy marketing and trading 1,046,396 - (14) 1,046,382 Fuel and power purchased 35,019 62,316 (194) 97,141 Gas supply expenses 67,825 - - 67,825 Argentine gas distribution and other 11,394 - - 11,394 Total cost of revenues 1,160,634 62,316 (208) 1,222,742 Gross profit 142,609 117,769 - 260,378 OPERATING EXPENSES: Operation and maintenance: Energy marketing and trading 11,970 - - 11,970 Utility 53,431 46,812 - 100,243 Argentine gas distribution and other 7,802 619 - 8,421 Depreciation and amortization 27,887 20,882 - 48,769 Total operating expenses 101,090 68,313 - 169,403 Equity in earnings of joint ventures 3,384 - - 3,384 OPERATING INCOME 44,903 49,456 - 94,359 Other income and (deductions) 3,367 527 - 3,894 Interest charges and pre- ferred dividends 14,422 10,440 - 24,862 Minority interest 568 - - 568 Income before income taxes 33,280 39,543 - 72,823 Income taxes 12,041 14,680 - 26,721 NET INCOME $ 21,239 $ 24,863 $ - $ 46,102 Average shares outstanding 66,383 37,818 25,338 129,539 Earnings per share $ .32 $ .66 $ - $ .36 See accompanying notes to Unaudited Supplemental Pro Forma Combined Financial Statements. - 26 - LG&E Energy Corp. Notes to Unaudited Supplemental Pro Forma Combined Condensed Financial Statements. 1. Reclassifications have been made to certain "as-reported" account balances reflected in KU Energy's financial statements to conform to this reporting presentation. All other financial statement presentation and accounting policy differences are immaterial and have not been adjusted in the supplemental pro forma combined condensed financial statements. 2. Intercompany transactions (power purchased and power sales transactions) between LG&E Energy and KU Energy during the periods presented were eliminated through pro forma adjustments. 3. Merger-related transaction costs are currently estimated to be approximately $21.4 million (including fees for financial advisors, attorneys, accountants, consultants, filings and printing). LG&E Energy and KU Energy have incurred transaction costs of $13.5 million through March 31, 1998, which are included in deferred debits and other assets in the supplemental pro forma combined condensed balance sheet. None of the estimated cost savings resulting from the Merger or costs to achieve such savings have been reflected in the supplemental pro forma combined condensed statements of income. A charge of $6.4 million ($10.7 million, net of income taxes of $4.3 million) as a pro forma adjustment to retained earnings and a credit of $2.8 million ($10.7 million less $13.5 million actual charges incurred through March 31, 1998) as a pro forma adjustment to deferred debits and other assets have been made in the supplemental pro forma combined condensed balance sheet to recognize such estimated transaction costs and the proposed treatment following the consummation of the Merger. 4. The supplemental pro forma combined condensed financial statements reflect the conversion of each share of KU Energy Common Stock (no par value) outstanding into 1.67 shares of LG&E Energy Common Stock (no par value) as provided in the Merger Agreement. The supplemental pro forma combined condensed financial statements are presented as if the companies were combined during all periods included therein. - 27 - Item 6(a). Exhibits. Exhibit Number Description 27 Financial Data Schedules for LG&E Energy Corp. and Louisville Gas and Electric Company. 99.01 Cautionary Statement for Purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. 99.02 Description of Common Stock. 99.03 Unaudited Financial Statements of KU Energy Corporation and Kentucky Utilities Company for the three months ended March 31, 1998. [Filed as part of KU Energy Corporation's, File No. 1-10944, and Kentucky Utilities Company's, File No. 1-3464, Quarterly Report on Form 10- Q for the three months ended March 31, 1998, and incorporated herein by reference.] Item 6(b). Reports on Form 8-K. On January 8, 1998, LG&E Energy Corp. filed a report on Form 8-K stating that: (1)On December 19, 1997, LG&E Power Argentina I Inc. ("LG&E Argentina"), a wholly owned indirect subsidiary of the Company, entered into a Put and Call Agreement with Pluspetrol Resources Corporation ("Pluspetrol") and ASTRA Compania Argentina de Petroleo S.A. ("Astra") pursuant to which Pluspetrol and Astra have an option to purchase from LG&E Argentina, and LG&E Argentina has an option to sell to Pluspetrol and Astra, LG&E Argentina's one-third interest in the company which owns and operates the San Miguel facility, at a purchase price which is established based upon a variable pricing structure. (2)On December 30, 1997, LG&E Energy Corp. announced that it elected R. Foster Duncan, 43, to the position of Executive Vice President, Planning and Development, effective January 12, 1998. On April 9, 1998, the Company filed a report on Form 8-K announcing that the LG&E Energy Corp. and KU Energy Corporation merger will close effective May 4, 1998, subject to Securities and Exchange Commission final approval and the satisfaction and confirmation of certain closing conditions set forth in their merger agreement. On May 6, 1998, the Company filed a report on Form 8-K stating that: (1)On May 4, 1998, LG&E Energy Corp. and KU Energy Corporation completed their merger with the Company as the surviving corporation. (2)Effective May 1, 1998, the Company elected Frederick J. Newton, III, to the position of Senior Vice President - Human Resources and Administration. - 28 - 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: May 15, 1998 /s/ Victor A. Staffieri Victor A. Staffieri Chief Financial Officer (On behalf of the registrant) 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: May 15, 1998 /s/ Victor A. Staffieri Victor A. Staffieri Chief Financial Officer (On behalf of the registrant) - 29 - EX-27 2
UT 0000861388 LG&E ENERGY CORP. 1,000 3-MOS DEC-31-1998 MAR-31-1998 PER-BOOK 1,701,953 660,213 878,599 120,837 0 3,361,602 468,468 277 363,975 832,720 0 98,353 814,371 205,515 0 0 20,000 0 0 0 1,390,643 3,361,602 1,208,228 6,896 1,168,473 1,175,369 32,859 1,531 34,390 15,504 18,886 1,123 17,763 19,792 8,819 64,368 0.27 0.27 Includes common stock expense of $1,668. Represents unrealized loss on marketable securities, net of taxes. Includes equity in earnings of affiliates of $5,119.
EX-27 3
UT 0000060549 LOUISVILLE GAS AND ELECTRIC COMPANY 1,000 3-MOS DEC-31-1998 MAR-31-1998 PER-BOOK 1,701,953 1,267 284,565 58,465 0 2,046,250 424,334 105 261,386 685,825 46,223 49,105 626,800 0 0 0 20,000 0 0 0 618,297 2,046,250 233,344 12,417 188,601 201,018 32,326 311 32,637 9,238 23,399 1,123 22,276 19,800 8,819 81,411 0 0
EX-99 4 Exhibit 99.01 LG&E Energy Corp. and Louisville Gas and Electric Company Cautionary Factors The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage such disclosures without the threat of litigation providing those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statement. Forward-looking statements have been and will be made in written documents and oral presentations of LG&E Energy Corp. ("LG&E Energy") and Louisville Gas and Electric Company ("LG&E") (collectively, the "Companies"). Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in the Companies' documents or oral presentations, the words "anticipate," "estimate," "expect," "objective" and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause the Companies' actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: * Increased competition in the utility, natural gas and electric power marketing industries, including effects of: decreasing margins as a result of competitive pressures; industry restructuring initiatives; transmission system operation and/or administration initiatives; recovery of investments made under traditional regulation; nature of competitors entering the industry; retail wheeling; a new pricing structure; and former customers entering the generation market; * Changing market conditions and a variety of other factors associated with physical energy and financial trading activities including, but not limited to, price, basis, credit, liquidity, volatility, capacity, transmission, currency, interest rate and warranty risks; * Risks associated with price risk management strategies intended to mitigate exposure to adverse movement in the prices of electricity and natural gas on both a global and regional basis; * Legal, regulatory, economic and other factors which may result in redetermination or cancellation of revenue payment streams under power sales agreements resulting in reduced operating income and potential asset impairment related to the Companies' investments in independent power production ventures, as applicable; * Economic conditions including inflation rates and monetary fluctuations; * Trade, monetary, fiscal, taxation, and environmental policies of governments, agencies and similar organizations in geographic areas where the Companies have a financial interest; * Customer business conditions including demand for their products or services and supply of labor and materials used in creating their products and services; * Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Federal Energy Regulatory Commission, state public utility commissions, state entities which regulate natural gas transmission, gathering and processing and similar entities with regulatory oversight; * Availability or cost of capital such as changes in: interest rates, market perceptions of the utility and energy-related industries, the Companies or any of their subsidiaries or security ratings; * Factors affecting utility and non-utility operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages, unusual maintenance or repairs; unanticipated changes to fossil fuel, or gas supply costs or availability due to higher demand, shortages, transportation problems or other developments; environmental incidents; or electric transmission or gas pipeline system constraints; * Employee workforce factors including changes in key executives, collective bargaining agreements with union employees, or work stoppages; * Rate-setting policies or procedures of regulatory entities, including environmental externalities; * Social attitudes regarding the utility, natural gas and power industries; * Identification of suitable investment opportunities to enhance shareholder returns and achieve long-term financial objectives through business acquisitions; * Some future project investments made by the Companies, respectively, as applicable, could take the form of minority interests, which would limit the Companies' ability to control the development or operation of the project; * Legal and regulatory delays and other unforeseeable obstacles associated with mergers, acquisitions and investments in joint ventures; * Costs and other effects of legal and administrative proceedings, settlements, investigations, claims and matters, including but not limited to those described in Note 16 (for LG&E Energy) and Note 12 (for LG&E) of the respective Notes to Financial Statements of the Companies' Annual Reports on Form 10-K for the year ended December 31, 1997, under the caption Commitments and Contingencies; * Technological developments, changing markets and other factors that result in competitive disadvantages and create the potential for impairment of existing assets; * Factors associated with non-regulated investments, including but not limited to: continued viability of partners, foreign government actions, foreign economic and currency risks, political instability in foreign countries, partnership actions, competition, operating risks, dependence on certain customers, third-party operators, suppliers and domestic and foreign environmental and energy regulations; * Other business or investment considerations that may be disclosed from time to time in the Companies' Securities and Exchange Commission filings or in other publicly disseminated written documents. * Factors affecting the realization of anticipated cost savings associated with the merger between LG&E Energy and KU Energy Corporation including national and regional economic conditions, national and regional competitive conditions, inflation rates, weather conditions, financial market conditions, and synergies resulting from the business combination; The Companies undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. EX-99 5 8 EXHIBIT 99.02 DESCRIPTION OF LG&E ENERGY COMMON STOCK The information under this caption is a succinct summary of certain provisions and is subject to the detailed provisions of LG&E Energy Corp.'s (the "Company's") Restated Articles of Incorporation, as amended, and of its By-Laws, which have been filed (or incorporated by reference) as exhibits to the Company's Current Report on Form 8-K dated May 4, 1998, and which are incorporated herein by this reference. Authorized Stock Under the Company's Articles of Incorporation, the Company is authorized to issue 300,000,000 shares of Common Stock, without par value (the "Common Stock"), of which approximately 129,682,889 shares were outstanding on May 4, 1998. The Company is also authorized to issue 5,000,000 shares of preferred stock, without par value (the "Preferred Stock"). As discussed below under the caption "Rights to Purchase Series A Preferred Stock," the Company has created a series of Preferred Stock designated as "Series A Preferred Stock," and the number of shares constituting such series is 2,000,000. No shares of such Series A Preferred Stock and no shares of any other Preferred Stock are currently outstanding. Preferred Stock may be issued in the future in such series as may be designated by the Company's Board of Directors. In creating any such series, the Company's Board of Directors has the authority to fix the rights and preferences of each series with respect to, among other things, the dividend rate, redemption provisions, liquidation preferences, and sinking fund provisions. Dividend Rights Subject to the prior payment in full of all accrued and unpaid dividends on the Series A Preferred Stock and possible prior rights of holders of other Preferred Stock that may be issued in the future, holders of the Company's Common Stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors of the Company out of funds legally available therefor. The funds required by the Company to enable it to pay dividends on its Common Stock are expected to be derived principally from dividends paid by Louisville Gas and Electric Company, the Company's principal subsidiary ("LG&E"), on LG&E's Common Stock. The Company's ability to receive dividends on LG&E's Common Stock is subject to the prior rights of the holders of LG&E's preferred stock and the covenants of debt instruments limiting the ability of LG&E to pay dividends. The only existing covenant limiting LG&E's ability to pay dividends is in LG&E's trust indenture, as supplemented, securing LG&E's first mortgage bonds. It provides in substance that retained income of LG&E equal to the amount by which the aggregate of (a) provisions for retirement and depreciation and (b) expenditures for maintenance, for the period from January 1, 1978, to the end of the last preceding month for which a balance sheet of LG&E is available, is less than 2.25% of depreciable property, including construction work in progress, as of the end of that period, shall not be available for the payment of cash dividends on the Common Stock of LG&E. No portion of retained income of LG&E is presently restricted by this provision. Voting Rights Every holder of Common Stock and every holder of Series A Preferred Stock that may be issued in the future is entitled to one vote per share for the election of directors and upon all other matters on which such holder is entitled to vote. At all elections of directors, any eligible shareholder may vote cumulatively. The Board of Directors of the Company has the authority to fix conversion and voting rights for any new series of Preferred Stock (including the right to elect directors upon a failure to pay dividends), provided that no share of Preferred Stock can have more than one vote per share. Notwithstanding the foregoing, if any Series A Preferred Stock is issued in the future and if and when dividends payable on such Series A Preferred Stock that may be issued in the future shall be in default for six full quarterly dividends and thereafter until all defaults shall have been paid, the holders of the Series A Preferred Stock, voting separately as one class, to the exclusion of the holders of Common Stock, will be entitled to elect two (2) directors of the Company. The Company's Articles of Incorporation contain "fair price" provisions, which require that mergers and certain other business combinations or transactions involving the Company and any substantial (10% or more) holder of the Company's Voting Stock (as defined below) must be approved by the holders of at least 80% of the voting power of the Company's outstanding Voting Stock and by the holders of at least 66-2/3% of the voting power of the Company's Voting Stock not beneficially owned by the 10% owner unless the transaction is either approved by a majority of the members of the Board of Directors who are unaffiliated with the substantial holder or certain minimum price and procedural requirements are met. Any amendment to the foregoing provisions must be approved by the holders of at least 80% of the voting power of the Company's outstanding Voting Stock and by the holders of at least 66-2/3% of the voting power of the Company's Voting Stock not beneficially owned by any 10% owner. The Company's Voting Stock consists of all outstanding shares of the Company generally entitled to vote in the election of directors and currently consists of the Company's Common Stock. Subject to the rights of the Series A Preferred Stock (if any are issued) to elect directors under certain circumstances described above and any voting rights of the holders of the Company's Preferred Stock that may be issued in the future, the Company's Articles and By-Laws contain provisions stating that: (a) the Board of Directors shall be divided into three classes, as nearly equal in number as possible, each of which, after an interim arrangement, will serve for three years, with one class being elected each year, (b) directors may be removed only with the approval of the holders of at least 80% of the voting power of the shares of the Company generally entitled to vote, except that so long as cumulative voting applies no director may be removed if the votes cast against removal would be sufficient to elect the director if cumulatively voted at an election of the class of directors of which such director is a part, (c) any vacancy on the Board of Directors shall be filled by the remaining directors then in office, though less than a quorum, (d) advance notice of introduction by shareholders of business at annual shareholders' meetings and of shareholder nominations for the election of directors shall be given and that certain information be provided with respect to such matters, (e) shareholder action may be taken only by unanimous written consent or at an annual meeting of shareholders or a special meeting of shareholders called by the President, the Board of Directors or, to the extent required by Kentucky law, shareholders, and (f) the foregoing provisions may be amended only by the approval of the holders of at least 80% of the voting power of the shares of the Company generally entitled to vote. These provisions along with the "fair price" provisions and cumulative voting provisions discussed above and the Rights described below, may deter attempts to change control of the Company (by proxy contest, tender offer or otherwise) and will make more difficult a change in control of the Company that is opposed by the Company's Board of Directors. Liquidation Rights Subject to the prior rights of the holders of the Series A Preferred Stock that may be issued in the future and the possible prior rights of holders of other Preferred Stock that may be issued in the future, in the event of liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the Common Stock are entitled to the remaining assets. Other Provisions No holder of Common Stock or any future holder of Preferred Stock has the preemptive right to subscribe for and purchase any part of any new or additional issue of stock or securities convertible into stock. The Common Stock is not subject to redemption and does not have any conversion or sinking fund provisions. The issued and outstanding shares of Common Stock are fully paid and nonassessable shares of Common Stock of the Company. Under the Company's Articles of Incorporation, the Board of Directors may issue additional shares of authorized but unissued Common Stock for such consideration as it may from time to time determine. Rights to Purchase Series A Preferred Stock On December 5, 1990, the Board of Directors of the Company: (i) declared a dividend distribution of one Preferred Stock purchase right (a "Right" or "Rights") for each outstanding share of Common Stock to shareholders of record on December 19, 1990, and issuable as of such Record Date and (ii) further authorized the issuance of one Right with respect to each share of Common Stock of the Company that becomes outstanding after such Record Date and before the Distribution Date (as defined below). The Company declared a three-for-two split of the Common Stock to shareholders of record on April 30, 1992. As a result of the stock split and in accordance with the terms of the Rights, the number of Rights associated with a share of Common Stock was reduced, effective May 15, 1992, from one Right per share to two- thirds of a Right per share. The Company declared a two-for-one split of the Common Stock to shareholders of record on April 1, 1996. As a result of the two-for-one split and in accordance with the terms of the Rights, the number of Rights associated with a share of Common Stock was reduced from two-thirds of a Right per share to one-third of a Right per share, effective April 15, 1996. On June 7, 1995, the Board of Directors approved the First Amendment to Rights Agreement, whereby the definition of "Acquiring Person" (see below) was modified to provide that an "Acquiring Person" shall be any person who has acquired, or obtained the rights to acquire, beneficial ownership of 15% or more of the outstanding Common Stock of the Company. The previous ownership threshold was 20%. In connection with the Merger with KU Energy Corporation, on May 20, 1997, the Board of Directors approved the Second Amendment to Rights Agreement so that the execution, delivery and performance of the Merger Agreement and the LG&E Energy Stock Option Agreement (as defined in the Second Amendment to Rights Agreement) will not cause any Rights to become exercisable, cause KU Energy or any of its affiliates to become an "Acquiring Person" or give rise to a "Distribution Date" or "Stock Acquisition Date" (see below). Each whole Right entitles the holder of record to purchase from the Company one one-hundredth of a share of Series A Preferred Stock, without par value, of the Company ("Series A Preferred Stock") at a price of $110 per one one-hundredth of a share (the "Purchase Price"). The description and terms of the Rights are set forth in the Rights Agreement, as amended (the "Rights Agreement"). Initially the Rights will not be exercisable, certificates will not be sent to shareholders and the rights will automatically trade with the Common Stock. The Rights will be evidenced by the Common Stock certificates until the close of business on the earlier to occur of the tenth day following (i) a public announcement (or, if earlier, the date a majority of the Board of Directors of the Company becomes aware) that a person or group of affiliated or associated persons has become an "Acquiring Person", which is defined as a person who has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding Common Stock of the Company (the "Stock Acquisition Date"), or (ii) the commencement of, or public announcement of an intention to commence, a tender or exchange offer the consummation of which would result in the ownership of 15% or more of the outstanding Common Stock (the earlier of the dates in clause (i) or (ii) being called the "Distribution Date"). Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a person who would otherwise be an "Acquiring Person," has become such inadvertently and without any intention of changing or influencing control of the Company, and such person, as promptly as practicable after being advised of such determination, divests himself or itself of beneficial ownership of a sufficient number of shares of Common Stock so that such person would no longer be an "Acquiring Person," then such person shall not be deemed to be an "Acquiring Person" for any purposes of the Rights Agreement. Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock certificates will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of the Company's Common Stock as of the close of business on the Distribution Date, and such separate certificates alone will evidence the rights from and after the Distribution Date. Each of the following persons (an "Exempt Person") will not be deemed to be an Acquiring Person, even if they have acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding Common Stock of the Company: (i) the Company, any subsidiary of the Company, any employee benefit plan or employee stock plan of the Company or of any subsidiary of the Company; and (ii) any person who becomes an Acquiring Person solely by virtue of a reduction in the number of outstanding shares of Common Stock, unless and until such person shall become the beneficial owner of, or make a tender offer for, any additional shares of Common Stock. The Rights are not exercisable until the Distribution Date. The Rights will expire at the close of business on December 19, 2000, unless earlier redeemed or exchanged by the Company as described below. The Purchase Price payable, and the number of shares of Series A Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Series A Preferred Stock, (ii) upon the grant to holders of the Series A Preferred Stock of certain rights or warrants to subscribe for Series A Preferred Stock or convertible securities at less than the current market price of the Series A Preferred Stock or (iii) upon the distribution to holders of the Series A Preferred Stock of evidences of indebtedness or assets (excluding dividends payable in Series A Preferred Stock) or of subscription rights or warrants (other than those referred to above). The number of Rights associated with a share of the Company's Common Stock is subject to adjustment from time to time in the event of a stock dividend on, or a subdivision or combination of, the Common Stock. In the event any Person (other than an Exempt Person) becomes the beneficial owner of 15% or more of the then outstanding shares of Common Stock (except pursuant to an offer for all outstanding shares of Common Stock that the independent directors determine to be fair to and otherwise in the best interest of the Company and its shareholders) or any Exempt Person who is the beneficial owner of 15% or more of the outstanding Common Stock fails to continue to qualify as an Exempt Person, then each holder of record of a whole Right, other than the Acquiring Person, will thereafter have the right to receive, upon payment of the Purchase Price, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a market value at the time of the transaction equal to twice the Purchase Price. However, Rights are not exercisable following such event until such time as the Rights are no longer redeemable by the Company as set forth below. Any Rights that are or were at any time, on or after the Distribution Date, beneficially owned by an Acquiring Person shall become null and void. For example, at an exercise price of $110 per Right, each whole Right not owned by an Acquiring Person (or by certain related parties) following an event set forth in the preceding paragraph would entitle its holder to purchase $220 worth of Common Stock (or other consideration, as noted above) for $110. Assuming that the Common Stock had a per share value of $22 at such time, the holder of each valid Right would be entitled to purchase 10 shares of Common Stock for $110. After the Rights have become exercisable, if the Company is acquired in a merger or other business combination (in which any shares of the Company's Common Stock are changed into or exchanged for other securities or assets) or more than 50% of the assets or earning power of the Company and its subsidiaries (taken as a whole) are sold or transferred in one or a series of related transactions, the Rights Agreement provides that proper provision shall be made so that each holder of record of a whole Right will have the right to receive, upon payment of the Purchase Price, that number of shares of common stock of the acquiring company having a market value at the time of such transaction equal to two times the Purchase Price. After any such event, to the extent that insufficient shares of Common Stock are available for the exercise in full of the Rights, holders of Rights will receive upon exercise shares of Common Stock to the extent available and then other securities of the Company, including units of shares of Series A Preferred Stock with rights substantially comparable to those of the Common Stock, property, or cash, in proportions determined by the Company, so that the aggregate value received is equal to twice the Purchase Price. The Company, however, shall not be required to issue any cash, property or debt securities upon exercise of the Rights to the extent their aggregate value would exceed the amount of cash the Company would otherwise be entitled to receive upon exercise in full of the then exercisable Rights. No fractional shares of Series A Preferred Stock or Common Stock will be required to be issued upon exercise of the Rights and, in lieu thereof, a payment in cash may be made to the holder of such Rights equal to the same fraction of the current market value of a share of Series A Preferred Stock or, if applicable, Common Stock. At any time until ten days after the Stock Acquisition Date (subject to extension by the Board of Directors), the Company may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (subject to certain anti-dilution adjustments) (the "Redemption Price"). After such redemption period, the Company's right of redemption may be reinstated, under certain circumstances, if an Acquiring Person reduces his beneficial ownership of Common Stock to below 10% and there is no other Acquiring Person. Immediately upon the action of the Board of Directors of the Company authorizing redemption of the Rights, the right to exercise the rights will terminate, and the only right of the holders of Rights will be to receive the Redemption Price without any interest thereon. The Board of Directors may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the outstanding Rights (other than Rights held by the Acquiring Person and certain related parties) for shares of Common Stock at an exchange ratio of three (3) shares of Common Stock per Right (subject to certain anti-dilution adjustments). However, the Board may not effect such an exchange at any time any Person or group owns 50% or more of the shares of Common Stock then outstanding. Immediately after the Board orders such an exchange, the right to exercise the Rights shall terminate and the holders of Rights shall thereafter only be entitled to receive shares of Common Stock at the applicable exchange ratio. The Board of Directors of the Company may amend the Rights Agreement. After the Distribution Date, however, the provisions of the Rights Agreement may be amended by the Board only to cure any ambiguity, to make changes which do not adversely affect the interests of holders of Rights (excluding the interests of any Acquiring Person or an affiliate or associate of an Acquiring Person), or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment to adjust the time period governing redemption shall be made at such time as the Rights are not redeemable. In addition, no supplement or amendment may be made which changes the Redemption Price, the final expiration date, the Purchase Price or the number one one- hundredths of a share of Series A Preferred Stock for which a Right is exercisable, unless at the time of such supplement or amendment there has been no occurrence of a Stock Acquisition Date and such supplement or amendment does not adversely affect the interests of the holders of Rights (other than an Acquiring Person or an associate or affiliate of an Acquiring Person). Until a Right is exercised, the holder, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. The issuance of the Rights is not taxable to the Company or to shareholders under presently existing federal income tax law, and will not change the way in which shareholders can presently trade the Company's shares of Common Stock. If the Rights should become exercisable, shareholders, depending on then existing circumstances, may recognize taxable income. The Rights may have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Board of Directors and, accordingly, will make more difficult a change of control that is opposed by the Company's Board of Directors. However, the Rights should not interfere with a proposed change of control (including a merger or other business combination) approved by a majority of the Board of Directors since the Rights may be redeemed by the Company at the Redemption Price at any time until ten days after the Stock Acquisition Date (subject to extension by the Board of Directors). Thus, the Rights are intended to encourage persons who may seek to acquire control of the Company to initiate such an acquisition through negotiations with the Board of Directors. Nevertheless, the Rights also may discourage a third party from making a partial tender offer or otherwise attempting to obtain a substantial equity position in, or seeking to obtain control of, the Company. To the extent any potential acquirors are deterred by the Rights, the Rights may have the effect of preserving incumbent management in office. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to the Company's Registration Statement on Form S-8, Registration No. 33-38557. A copy of the First Amendment to Rights Agreement has been filed with the SEC as an Exhibit to the Company's Registration Statement on Form 8-A/A, Registration No. 1-10568, filed on June 20, 1995. A copy of the Second Amendment to Rights Agreement has been filed with the SEC as an Exhibit to the Company's Registration Statement on Form S-4, Registration No. 333-34219. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, as amended, which is incorporated in this summary description herein by reference. Miscellaneous The Company's outstanding Common Stock is listed on the New York and Chicago Stock Exchanges. Transfer Agents and Registrar The Transfer Agents for the Common Stock are the Company and Harris Trust and Savings Bank, Chicago, Illinois. Registrars for the Common Stock are PNC Bank, Kentucky, Inc., Louisville, Kentucky, and Harris Trust and Savings Bank, Chicago, Illinois. -----END PRIVACY-ENHANCED MESSAGE-----