10-Q 1 q10q302.txt LG&E/KU 1ST QUARTER 2002 10-Q 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, 2002 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. 2-26720 Louisville Gas and Electric Company 61-0264150 (A Kentucky Corporation) 220 West Main Street P.O. Box 32010 Louisville, Ky. 40232 (502) 627-2000 1-3464 Kentucky Utilities Company 61-0247570 (A Kentucky and Virginia Corporation) One Quality Street Lexington, Kentucky 40507-1428 (859) 255-2100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X. No __. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Louisville Gas and Electric Company 21,294,223 shares, without par value, as of April 30, 2002, all held by LG&E Energy Corp. Kentucky Utilities Company 37,817,878 shares, without par value, as of April 30, 2002, all held by LG&E Energy Corp. This combined Form 10-Q is separately filed by Louisville Gas and Electric Company and Kentucky Utilities Company. Information contained herein related to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. TABLE OF CONTENTS PART I Item 1 Consolidated Financial Statements Louisville Gas and Electric Company and Subsidiary Statements of Income 1 Balance Sheets 2 Statements of Cash Flows 4 Statements of Retained Earnings 5 Statements of Other Comprehensive Income 6 Kentucky Utilities Company and Subsidiary Statements of Income 7 Balance Sheets 8 Statements of Cash Flows 10 Statements of Retained Earnings 11 Statements of Other Comprehensive Income 12 Notes to Consolidated Financial Statements 13 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 3 Quantitative and Qualitative Disclosures About Market Risk 25 PART II Item 1 Legal Proceedings 26 Item 6 Exhibits and Reports on Form 8-K 26 Signatures 28 Part I. Financial Information - Item 1. Financial Statements Louisville Gas and Electric Company and Subsidiary Consolidated Statements of Income (Unaudited) (Thousands of $) Three Months Ended March 31, 2002 2001 OPERATING REVENUES: Electric (Note 7) $166,246 $155,374 Gas(Note 7) 117,119 157,897 Total operating revenues 283,365 313,271 OPERATING EXPENSES: Fuel for electric generation 44,107 38,484 Power purchased 23,581 11,341 Gas supply expenses 83,467 125,237 Non-recurring charges (Note 4) - 144,385 Other operation expenses 48,410 35,283 Maintenance 12,001 10,555 Depreciation and amortization 25,278 25,267 Federal and state income taxes 13,237 (38,011) Property and other taxes 4,536 4,462 Total operating expenses 254,617 357,003 NET OPERATING INCOME (LOSS) 28,748 (43,732) Other income - net 1 996 Interest charges 7,806 11,379 NET INCOME (LOSS) 20,943 (54,115) Preferred stock dividends 1,065 1,299 NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK $ 19,878 $(55,414) The accompanying notes are an integral part of these consolidated financial statements. -1- Louisville Gas and Electric Company and Subsidiary Consolidated Balance Sheets (Unaudited) (Thousands of $) ASSETS Mar. 31, Dec. 31, 2002 2001 UTILITY PLANT: At original cost $3,444,952 $3,423,037 Less: reserve for depreciation 1,404,277 1,381,874 Net utility plant 2,040,675 2,041,163 OTHER PROPERTY AND INVESTMENTS - less reserve 1,356 1,176 CURRENT ASSETS: Cash 16,082 2,112 Accounts receivable - less reserve (Note 6) 120,576 85,667 Materials and supplies - at average cost: Fuel (predominantly coal) 28,715 22,024 Gas stored underground 15,278 46,395 Other 28,176 29,050 Prepayments and other 4,071 4,688 Total current assets 212,898 189,936 DEFERRED DEBITS AND OTHER ASSETS: Unamortized debt expense 5,269 5,921 Regulatory assets (Note 8) 169,544 197,142 Other 13,686 13,016 Total deferred debits and other assets 188,499 216,079 Total assets $2,443,428 $2,448,354 The accompanying notes are an integral part of these consolidated financial statements. -2- Louisville Gas and Electric Company and Subsidiary Consolidated Balance Sheets (cont.) (Unaudited) (Thousands of $) CAPITALIZATION AND LIABILITIES Mar. 31, Dec. 31, 2002 2001 CAPITALIZATION: Common stock, without par value - Outstanding 21,294,223 shares $ 425,170 $ 425,170 Additional paid-in capital 40,000 40,000 Retained earnings 413,514 393,636 Accumulated other comprehensive income (18,994) (19,900) Other (836) (836) Total common equity 858,854 838,070 Cumulative preferred stock 95,140 95,140 Long-term debt (Note 10) 370,704 370,704 Total capitalization 1,324,698 1,303,914 CURRENT LIABILITIES: Current portion of long-term debt 246,200 246,200 Notes payable to parent 122,553 94,197 Accounts payable 87,689 149,070 Dividends declared 1,065 1,111 Accrued taxes 38,451 20,257 Accrued interest 3,819 5,818 Other 11,708 11,729 Total current liabilities 511,485 528,382 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 299,366 298,143 Investment tax credit, in process of amortization 57,635 58,689 Accumulated provision for pensions and related benefits 168,043 167,526 Customer advances for construction 9,758 9,745 Regulatory liabilities (Note 8) 57,419 65,349 Other 15,024 16,606 Total deferred credits and other liabilities 607,245 616,058 Total capital and liabilities $2,443,428 $2,448,354 The accompanying notes are an integral part of these consolidated financial statements. -3- Louisville Gas and Electric Company and Subsidiary Consolidated Statements of Cash Flows (Unaudited) (Thousands of $) Three Months Ended Mar. 31, 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 20,943 $ (54,115) Items not requiring cash currently: Depreciation and amortization 25,278 25,267 Deferred income taxes - net 290 (50,358) Investment tax credit - net (1,054) (1,067) Other 10,893 5,074 Changes in current assets and liabilities (32,199) 12,199 Changes in accounts receivable securitization-net (Note 6) 22,000) 74,550 Other 9,775 79,455 Net cash flows from operating activities 11,926 91,005 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of securities (180) - Proceeds from sales of securities - 4,225 Construction expenditures (24,947) (66,227) Net cash flows from investing activities (25,127) (62,002) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of pollution control bonds 119,926 - Retirement of pollution control bonds (120,000) - Short-term borrowings 58,300 - Repayment of short-term borrowings (29,944) (23,136) Payment of dividends (1,111) (1,367) Net cash flows from financing activities 27,171 (24,503) CHANGE IN CASH 13,970 4,500 CASH AT BEGINNING OF PERIOD 2,112 2,495 CASH AT END OF PERIOD $ 16,082 $ 6,995 SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Income taxes $ - $ (4,226) Interest on borrowed money 8,356 9,963 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 consolidated financial statements. -4- Louisville Gas and Electric Company and Subsidiary Consolidated Statements of Retained Earnings (Unaudited) (Thousands of $) Three Months Ended March 31, 2002 2001 Balance at beginning of period $393,636 $314,594 Net income (loss) 20,943 (54,115) Subtotal 414,579 260,479 Cash dividends declared on stock: 5% cumulative preferred 269 269 Auction rate cumulative preferred 429 663 $5.875 cumulative preferred 367 367 Subtotal 1,065 1,299 Balance at end of period $413,514 $259,180 The accompanying notes are an integral part of these consolidated financial statements. -5- Louisville Gas and Electric Company and Subsidiary Consolidated Statements of Other Comprehensive Income (Unaudited) (Thousands of $) Three Months Ended March 31, 2002 2001 Net income (loss) $20,943 $(54,115) Cumulative effect of change in accounting principle - Accounting For Derivative Instruments and Hedging Activities (Note 5) - (5,998) Gains (Losses) on derivative instruments and hedging activities (Note 5) 1,509 (2,035) Other comprehensive income (loss), before tax 1,509 (8,033) Income tax benefit (expense) related to items of other comprehensive income (loss) (603) 3,213 Other comprehensive income (loss) $ 21,849 $ (58,935) The accompanying notes are an integral part of these consolidated financial statements. -6- Kentucky Utilities Company and Subsidiary Consolidated Statements of Income (Unaudited) (Thousands of $) Three Months Ended March 31, 2002 2001 OPERATING REVENUES (Note 7) $215,168 $211,793 OPERATING EXPENSES: Fuel for electric generation 58,271 55,928 Power purchased 41,060 32,885 Non-recurring charges (Note 4) - 63,788 Other operation expenses 34,522 26,618 Maintenance 11,559 11,970 Depreciation and amortization 23,059 23,828 Federal and state income taxes 14,383 (6,450) Property and other taxes 4,114 4,155 Total operating expenses 186,968 212,722 NET OPERATING INCOME (LOSS) 28,200 (929) Other income - net 1,639 1,793 Interest charges (Note 5) 5,482 8,117 NET INCOME (LOSS)before Cumulative Effect of Accounting Change 24,357 (7,253) Cumulative Effect of Change in Accounting for Derivative Instruments and Hedging Activities, net of tax - 136 NET INCOME (LOSS) 24,357 (7,117) Preferred stock dividends 564 564 NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK $ 23,793 $ (7,681) The accompanying notes are an integral part of these consolidated financial statements. -7- Kentucky Utilities Company and Subsidiary Consolidated Balance Sheets (Unaudited) (Thousands of $) ASSETS Mar. 31, Dec. 31, 2002 2001 UTILITY PLANT: At original cost $3,087,542 $3,064,220 Less: reserve for depreciation 1,481,695 1,457,754 Net utility plant 1,605,847 1,606,466 OTHER PROPERTY AND INVESTMENTS - less reserve 9,859 9,629 CURRENT ASSETS: Cash and temporary cash investments 5,292 3,295 Accounts receivable - less reserve (Note 6) 79,070 45,291 Materials and supplies - at average cost: Fuel (predominantly coal) 46,034 43,382 Other 26,729 26,188 Prepayments and other 6,057 4,942 Total current assets 163,182 123,098 DEFERRED DEBITS AND OTHER ASSETS: Unamortized debt expense 4,233 4,316 Regulatory assets (Note 8) 61,511 66,467 Other 15,701 16,926 Total deferred debits and other assets 81,445 87,709 Total assets $1,860,333 $1,826,902 The accompanying notes are an integral part of these consolidated financial statements. -8- Kentucky Utilities Company and Subsidiary Consolidated Balance Sheets (cont.) (Unaudited) (Thousands of $) CAPITALIZATION AND LIABILITIES Mar. 31, Dec. 31, 2002 2001 CAPITALIZATION: Common stock, without par value - Outstanding 37,817,878 shares $ 308,140 $ 308,140 Additional paid-in capital 15,000 15,000 Retained earnings 434,689 410,896 Accumulated other comprehensive income 1,588 1,588 Other (595) (595) Total common equity 758,822 735,029 Cumulative preferred stock 40,000 40,000 Long-term debt (Note 5) 432,892 434,506 Total capitalization 1,231,714 1,209,535 CURRENT LIABILITIES: Current portion of long-term debt 54,000 54,000 Notes payable to parent 64,190 47,790 Accounts payable 64,132 85,149 Accrued taxes 36,249 20,520 Accrued interest 4,947 5,668 Other 16,458 16,482 Total current liabilities 239,976 229,609 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 237,723 239,204 Investment tax credit, in process of amortization 10,716 11,455 Accumulated provision for pensions and related benefits 91,824 91,235 Customer advances for construction 1,498 1,526 Regulatory liabilities (Note 8) 32,972 33,889 Other 13,910 10,449 Total deferred credits and other liabilities 388,643 387,758 Total capital and liabilities $1,860,333 $1,826,902 The accompanying notes are an integral part of these consolidated financial statements. -9- Kentucky Utilities Company and Subsidiary Consolidated Statements of Cash Flows (Unaudited) (Thousands of $) Three Months Ended March 31, 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 24,357 $ (7,117) Items not requiring cash currently: Depreciation and amortization 23,059 23,828 Deferred income taxes - net (2,406) (28,166) Investment tax credit - net (739) (862) Other 1,233 1,654 Changes in current assets and liabilities (19,020) (1,502) Changes in accounts receivable securitization-net (Note 6) (25,100) 50,000 Other 8,388 41,947 Net cash flows from operating activities 9,772 79,782 CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures (23,611) (60,302) Net cash flows from investing activities (23,611) (60,302) CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings 174,869 99,325 Repayment of short-term borrowings (158,469) (114,375) Payment of dividends (564) (564) Net cash flows from financing activities 15,836 (15,614) CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 1,997 3,866 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 3,295 314 CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 5,292 $ 4,180 SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Income taxes $ - $ 3,894 Interest on borrowed money 6,101 7,116 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 consolidated financial statements. -10- Kentucky Utilities Company and Subsidiary Consolidated Statements of Retained Earnings (Unaudited) (Thousands of $) Three Months Ended March 31, 2002 2001 Balance at beginning of period $410,896 $347,238 Net income (loss) 24,357 (7,117) Subtotal 435,253 340,121 Cash dividends declared on stock: 4.75% preferred 237 237 6.53% preferred 327 327 Subtotal 564 564 Balance at end of period $434,689 $339,557 The accompanying notes are an integral part of these consolidated financial statements. -11- Kentucky Utilities Company and Subsidiary Consolidated Statements of Other Comprehensive Income (Unaudited) (Thousands of $) Three Months Ended March 31, 2002 2001 Net income (loss) $24,357 $(7,117) Cumulative effect of change in accounting principle-Accounting for Derivative Instruments and Hedging activities (Note 5) - 2,647 Other comprehensive income, before tax - 2,647 Income tax (expense) related to items of other comprehensive income - (1,059) Other comprehensive income (loss) $24,357 $(5,529) The accompanying notes are an integral part of these consolidated financial statements. -12- Louisville Gas and Electric Company and Subsidiary Kentucky Utilities Company and Subsidiary Notes to Consolidated Financial Statements (Unaudited) 1. The unaudited consolidated financial statements include the accounts of Louisville Gas and Electric Company and Subsidiary and Kentucky Utilities Company and Subsidiary ("LG&E" and "KU" or the "Companies"). The common stock of each of LG&E and KU is wholly owned by LG&E Energy Corp. ("LG&E Energy"). In the opinion of management, the unaudited interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of consolidated financial position, results of operations, comprehensive income 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 Companies believe that the disclosures are adequate to make the information presented not misleading. See LG&E's and KU's Reports on Form 10-K for 2001 for information relevant to the accompanying financial statements, including information as to the significant accounting policies of the Companies. 2. On December 11, 2000, LG&E Energy Corp. was acquired by Powergen plc for cash of approximately $3.2 billion or $24.85 per share and the assumption of all of LG&E Energy's debt. As a result of the acquisition, among other things, LG&E Energy became a wholly-owned indirect subsidiary of Powergen and, as a result, LG&E and KU became indirect subsidiaries of Powergen. The utility operations (LG&E and KU) of LG&E Energy have continued their separate identities and continue to serve customers in Kentucky and Virginia under their existing names. The preferred stock and debt securities of the utility operations were not affected by this transaction resulting in the utility operations' obligations to continue to file SEC reports. Following the acquisition, Powergen became a registered holding company under the Public Utility Holding Company Act (PUHCA), and LG&E and KU, as subsidiaries of a registered holding company, became subject to additional regulation under PUHCA. As a result of the Powergen acquisition and in order to comply with PUHCA, LG&E Energy Services Inc. ("LG&E Services") was formed and became operational on January 1, 2001. LG&E Services provides certain services to affiliated entities, including LG&E and KU, at cost, as required under PUHCA. On January 1, 2001, approximately 1,000 employees, primarily from LG&E Energy, LG&E and KU, were moved to LG&E Services. 3. On April 9, 2001, a German power company, E.ON AG ("E.ON"), announced a pre-conditional cash offer of 5.1 billion pounds sterling ($7.3 billion) for Powergen. The offer is subject to a number of conditions, including the receipt of certain European and United States regulatory approvals. The Kentucky Public Service Commission ("Kentucky Commission"), the Federal Regulatory Energy Commission ("FERC"), the Virginia State Corporation Commission, and the Tennessee Regulatory Authority have all approved the acquisition of Powergen and LG&E Energy by E.ON. The parties expect to obtain the remaining regulatory approvals during the first half of 2002 and they expect to complete the transaction during this time frame. On April 19, 2002, Powergen plc shareholders voted in favor of the acquisition of Powergen by E.ON. The vote in favor of such resolutions enables the deal to proceed by way of a scheme of arrangement. Such procedure is anticipated to allow E.ON to obtain full equity in Powergen upon completion. -13- 4. During the first quarter 2001, LG&E recorded a $144 million charge and KU recorded a $64 million charge for a workforce reduction program. Primary components of the charge were separation benefits, enhanced early retirement benefits, and health care benefits. The result of this workforce reduction was the elimination of over 1,100 positions, accomplished primarily through a voluntary enhanced severance program. On June 1, 2001, LG&E and KU filed an application (VDT case) with the Kentucky Commission to create a regulatory asset relating to these first quarter 2001 charges. The application requested permission to amortize these costs over a four-year period. The Kentucky Commission also opened a case to review the new depreciation study and resulting depreciation rates implemented in 2001. LG&E and KU reached a settlement in the VDT case as well as the other cases involving depreciation rates and the Earnings Sharing Mechanism with all intervening parties. The settlement agreement was approved by the Kentucky Commission on December 3, 2001. The Kentucky Commission December 3, 2001 order allowed LG&E to set up a regulatory asset of $141 million for the workforce reduction costs and begin amortizing these costs over a five year period starting in April 2001. The first quarter charge of $144 million represented all employees who had accepted a voluntary enhanced severance program. Between the time of the original filing and the December 3, 2001 order, some employees rescinded their participation in the voluntary enhanced severance program, thereby decreasing the original charge from $144 million to $141 million. The settlement will also reduce revenues by approximately $26 million through a surcredit on future bills to customers over the same five year period. The surcredit represents stipulated net savings LG&E is expected to realize from implementation of best practices through the value delivery process. The agreement also established LG&E's new depreciation rates in effect retroactive to January 1, 2001. The new depreciation rates decreased depreciation expense by $5.6 million in 2001. The Kentucky Commission December 3, 2001, order allowed KU to set up a regulatory asset of $54 million for the workforce reduction costs and begin amortizing these costs over a five year period starting in April 2001. The first quarter charge of $64 million represented all employees who had accepted a voluntary enhanced severance program. Some employees rescinded their participation in the voluntary enhanced severance program and, along with the non-recurring charge of $6.9 million for FERC and Virginia jurisdictions, thereby decreasing the original charge from $64 million to $54 million. The settlement will also reduce revenues by approximately $11 million through a surcredit on future bills to customers over the same five year period. The surcredit represents stipulated net savings KU is expected to realize from implementation of best practices through the value delivery process. The agreement also established KU's new depreciation rates in effect December 2001, retroactive to January 1, 2001. The new depreciation rates decreased depreciation expense by $6.0 million in 2001. 5. Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or a liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that LG&E and KU must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 could increase the volatility in earnings and other comprehensive income. LG&E and KU adopted SFAS No. 133 -14- on January 1, 2001. The effect of adopting this statement in 2001 resulted in a $3.6 million (net of tax of $2.4 million) decrease in other comprehensive income from a cumulative effect of change in accounting principle for LG&E and a $1.6 million (net of tax of $1.1 million) increase in other comprehensive income from a cumulative effect of change in accounting principle for KU. The Companies use interest rate swaps to hedge exposure to market fluctuations in certain of their debt instruments. Pursuant to Company policy, use of these financial instruments is intended to mitigate risk and earnings volatility and is not speculative in nature. Management has designated all of the Companies' interest rate swaps as hedge instruments. Financial instruments designated as cash flow hedges have resulting gains and losses recorded within other comprehensive income and stockholders' equity. To the extent a financial instrument or the underlying item being hedged is prematurely terminated or the hedge becomes ineffective, the resulting gains or losses are reclassified from other comprehensive income to net income. Financial instruments designated as fair value hedges are periodically marked to market with the resulting gains and losses recorded directly into net income to correspond with income or expense recognized from changes in market value of the items being hedged. As of March 31, 2002, LG&E had fixed rate swaps covering $117,335,000 in notional amounts of variable rate debt and with fixed rates ranging from 4.184% to 5.495%. The average variable rate on the debt during the quarter was 1.41%. The swaps have been designated as cash flow hedges and expire on various dates from September 2003 through November 2020. The hedges were deemed to be fully effective resulting in pretax gain for the quarter ended March 31, 2002 of $1.5 million, recorded in Other Comprehensive Income. Upon expiration of these hedges, the amount recorded in Other Comprehensive Income will be reclassified into earnings. The amount expected to be reclassified from Other Comprehensive Income to earnings in the next twelve months is immaterial. As of March 31, 2002, KU had variable rate swaps covering $153,000,000 in notional amounts of fixed rate debt. The average variable rate on these swaps during the quarter was 2.42%. The underlying debt has fixed rates ranging from 5.75% to 7.92%. The swaps have been designated as fair value hedges and expire on various dates from May 2007 through June 2025. During the quarter ended March 31, 2002, the effect of marking these financial instruments and the underlying debt to market resulted in pretax gains of $1.8 million, recorded as a reduction in interest expense. 6. SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, and provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The Companies adopted SFAS No. 140 in the first quarter of 2001, when LG&E and KU entered into an accounts receivable securitization transaction. On February 6, 2001, LG&E and KU implemented an accounts receivable securitization program. The purpose of this program is to enable the utilities to accelerate the receipt of cash from the collection of retail accounts receivable, thereby reducing dependence upon more costly sources of working capital. The securitization program allows for a percentage of eligible receivables to be sold. Eligible receivables are generally all receivables associated with retail sales that have standard terms and are not past due. LG&E and KU are able to terminate these programs at any time without penalty. If there is a significant deterioration in the payment record of the receivables by retail customers or if the Companies fail to meet certain covenants of the program, the program may terminate at the election of the financial institutions. In this case, payments from retail customers would first -15- be used to repay the financial institutions participating in the program, and would then be available for use by the Companies. As part of the program, LG&E and KU sold retail accounts receivables to wholly owned subsidiaries, LG&E Receivables LLC ("LG&E R") and KU Receivables LLC ("KU R"). Simultaneously, LG&E R and KU R entered into two separate three-year accounts receivable securitization facilities with two financial institutions and their affiliates whereby LG&E R and KU R can sell, on a revolving basis, an undivided interest in certain of their receivables and receive up to $75 million and $50 million, respectively, from an unrelated third party purchaser. The effective cost of the receivables programs is comparable to LG&E and KU's lowest cost source of capital, and is based on prime rated commercial paper. LG&E and KU retain servicing rights of the sold receivables through separate servicing agreements with the third party purchasers. LG&E and KU have obtained opinions from independent legal counsel indicating these transactions qualify as true sales of receivables. As of March 31, 2002 and December 31, 2001, LG&E's outstanding program balance was $20.0 million and $42.0 million, respectively, and KU's balance at March 31, 2002 and December 31, 2001 was $20.0 million and $45.1 million, respectively. Management expects to renew these facilities when they expire. The allowance for doubtful accounts associated with the eligible securitized receivables was $1.6 million and $1.3 million for LG&E and $0.5 million and $0.5 million for KU at March 31, 2002 and December 31, 2001, respectively. Charge offs were immaterial for LG&E and KU. The risk of uncollectibility associated with the sold receivables is minimal. Moreover, each securitization facility contains a fully funded reserve for uncollectible receivables. 7. External and intersegment revenues (related parties transactions between LG&E and KU) and income by business segment for the three months ended March 31, 2002, follow (in thousands of $): -16- Net Income/ (Loss) Inter- Avail. External segment For- Revenues Revenues Common LG&E electric $ 153,193 $ 13,053 $ 10,178 LG&E gas 117,119 - 9,700 Total $ 270,312 $ 13,053 $ 19,878 KU electric $ 200,387 $ 14,781 $ 23,793 External and intersegment revenues (related parties transactions between LG&E and KU) and income by business segment for the three months ended March 31, 2001, follow (in thousands of $): Net Income/ (Loss) Inter- Avail. External segment For Revenues Revenues Common LG&E electric $ 148,361 $ 7,013 $ (44,443) LG&E gas 157,897 - (10,971) Total $ 306,258 $ 7,013 $ (55,414) KU electric $ 206,111 $ 5,682 $ (7,681) 8. The following regulatory assets and liabilities were included in the balance sheet of LG&E and KU as of March 31, 2002 and December 31, 2001 (in thousands of $): Louisville Gas and Electric (Unaudited) Mar. 31, Dec. 31, 2002 2001 REGULATORY ASSETS: VDT costs $ 120,029 $ 127,529 Unamortized loss on bonds 18,262 17,902 Gas supply adjustments due from customers 13,772 30,135 LG&E/KU merger costs 4,537 5,444 One utility costs 2,971 3,643 Manufactured gas sites 1,987 2,062 Other 7,986 10,427 Total 169,544 197,142 REGULATORY LIABILITIES: Deferred income taxes - net 47,770 48,703 Gas supply adjustments due to customers 8,879 15,702 Other 770 944 Total $ 57,419 $ 65,349 -17- Kentucky Utilities (Unaudited) Mar. 31, Dec. 31, 2002 2001 REGULATORY ASSETS: VDT costs $ 45,936 $ 48,811 Unamortized loss on bonds 5,925 6,142 LG&E/KU merger costs 5,116 6,139 One utility costs 3,492 4,365 Other 1,042 1,010 Total 61,511 66,467 REGULATORY LIABILITIES: Deferred income taxes - net 31,947 32,872 Other 1,025 1,017 Total $ 32,972 $ 33,889 9. Statements of Financial Accounting Standards ("SFAS") No. 141, Business Combinations and No. 142, Goodwill and Other Intangible Assets were issued in the second quarter of 2001. SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. SFAS No. 142 requires goodwill to be recorded, but not amortized. Further, goodwill will now be subject to a periodic assessment for impairment. LG&E and KU have no recorded goodwill and have no merger or acquisitions in progress. Accordingly, the provisions of these new pronouncements were effective July 1, 2001, for LG&E and KU. The Companies experienced no impact on financial position or results of operations as a result of adopting these standards. SFAS No. 143, Accounting for Asset Retirement Obligations and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, were also issued during 2001. SFAS No. 143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144, among other provisions, eliminates the requirement of SFAS No. 121 to allocate goodwill to long-lived assets to be tested for impairment. The effective implementation date as it relates to the Companies for SFAS No. 144 is January 1, 2002 and SFAS No. 143 is January 1, 2003. SFAS No. 144 had no current impact on the financial position or results of operations of LG&E or KU. Management has not determined what impact SFAS No. 143 will have on the financial position or results of operations of the Companies. The Financial Accounting Standards Board created the Derivatives Implementation Group ("DIG") to provide guidance for implementation of SFAS No. 133. DIG Issue C15, Normal Purchases and Normal Sales Exception for Option Type Contracts and Forward Contracts in Electricity was adopted in 2001 and had no impact on results of operations and financial position. DIG Issue C16, Applying the Normal Purchase and Normal Sales Exception to Contracts that Combine a Forward Contract and a Purchased Option Contract, was cleared in the third quarter 2001 and stated that option contracts do not meet the normal purchases and normal sales exception and should follow SFAS No. 133. -18- DIG Issue C16 will be effective in the second quarter of 2002. The Companies have reviewed their contracts for options and determined that DIG Issue C16 does apply, but the adoption of DIG Issue C16 will not have a material impact on the financial position or results of operations of the Companies pursuant to regulatory treatment prescribed by SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. 10.On March 22, 2002, LG&E refinanced two $35 million unsecured pollution control bonds due November 1, 2027. The replacement variable rate bonds are secured by first mortgage bonds and will mature November 1, 2027. The variable rate will be established by the remarketing agent taking into account market conditions in the commercial paper market. On March 6, 2002, LG&E refinanced $22.5 million and $27.5 million in unsecured pollution control bonds, both due September 1, 2026. The replacement bonds, due September 1, 2026, are variable rate bonds and are secured by first mortgage bonds. The variable rate will be established by the remarketing agent taking into account market conditions in the commercial paper market. 11.In the normal course of business, lawsuits, claims, environmental actions, and various non-ratemaking governmental proceedings arise against LG&E and KU. To the extent that damages are assessed in any of these lawsuits, LG&E and KU believe that their insurance coverage is adequate. Management, after consultation with legal counsel, does not anticipate that liabilities arising out of other currently pending or threatened lawsuits and claims of the type referenced above will have a material adverse effect on LG&E's or KU's consolidated financial position or results of operations, respectively. -19- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General The following discussion and analysis by management focuses on those factors that had a material effect on LG&E's and KU's financial results of operations and financial condition during the three month period ended March 31, 2002 and should be read in connection with the financial statements and notes thereto. Some of the following discussion may contain forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate," "expect," "estimate," "objective," "possible," "potential" and similar expressions. Actual results may vary materially. Factors that could cause actual results to differ materially include: general economic conditions; business and competitive conditions in the energy industry; changes in federal or state legislation; unusual weather; actions by state or federal regulatory agencies; and other factors described from time to time in LG&E's and KU's reports to the Securities and Exchange Commission, including Exhibit No. 99.01 to the report on Form 10-K for year ended December 31, 2001. Results of Operations The results of operations for LG&E and KU are 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, 2002, Compared to Three Months Ended March 31, 2001 LG&E Results: LG&E's net income increased $75.1 million for the quarter ended March 31, 2002, as compared to the quarter ended March 31, 2001, primarily because of a non-recurring charge of $86.1 million, net of tax, for LG&E's workforce reduction program incurred in 2001. Excluding this one-time charge, LG&E's net income would have decreased $11.0 million primarily due to amortization expenses associated with LG&E's workforce reduction program and higher pension and fuel costs. A comparison of LG&E's revenues for the quarter ended March 31, 2002, with the quarter ended March 31, 2001, reflects increases and (decreases) which have been segregated by the following principal causes (in thousands of $): Electric Gas Cause Revenues Revenues Retail sales: Fuel and gas supply adjustments $ (698)$ (40,932) Environmental cost recovery surcharge 1,646 - Demand side management cost recovery 52 422 LG&E/KU merger surcredit (204) - Value delivery surcredit (237) (122) Variation in sales volume, etc. (2,341) (10,296) Total retail sales (1,782) (50,928) Wholesale sales 13,101 10,022 Gas transportation - net - 189 Other (447) (61) Total $ 10,872 $ (40,778) -20- Electric revenues increased primarily because of an increase in wholesale sales volumes ($27.6 million) partially offset by a decrease in wholesale sales prices ($14.5 million). Gas revenues decreased primarily as a result of lower gas supply costs billed to customers through the gas supply clause and decreased volumes sold in the first quarter of 2002 due to an 18% decrease in heating-degree days. Fuel for electric generation and gas supply expenses comprise a large portion 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 Kentucky Commission. Fuel for electric generation increased $5.6 million (15%) for the quarter because of an increase in volume of generation ($3.2 million) and an increase in the cost of coal burned ($2.4 million). Gas supply expenses decreased $41.8 million (33%) due to a decrease in net gas supply cost ($36.4 million), and a decrease in the volume of retail gas delivered to the distribution system ($13.6 million), partially offset by increased wholesale gas expenses ($8.2 million). Power purchased increased $12.2 million (108%) primarily because of an increase in volume of purchases to support increased wholesale sales ($14 million) partially offset by a decrease in cost of power purchased ($1.8 million). The decrease in non-recurring charges of $144.4 million, $86.1 million after tax is due to the costs associated with LG&E's workforce reduction initiative. (See Note 4). Other operations expenses increased $13.1 million (37%) in 2002, as compared to 2001, primarily due to amortization expenses associated with LG&E's workforce reduction program ($7.5 million), higher pension expenses ($2.7 million), and higher costs for electric transmission ($1.7 million). Maintenance expenses increased $1.4 million (14%) in 2002 primarily due to increased repairs to steam production ($0.9 million) and maintenance to electric distribution plant ($0.3 million). Other income-net decreased $1 million (100%) in 2002 primarily due to increases in repairs to non-utility property($0.5 million), and a decrease in gains recorded on the sale of non-utility property ($0.4 million). Variations in income tax expense are largely attributable to changes in pre- tax income. Interest charges decreased $3.6 million (31%) due to lower interest rates on variable rate long term debt ($2.0 million), a decrease in interest on debt to parent company ($0.6 million) and a decrease in interest associated with LG&E's accounts receivable securitization program ($1.1 million). -21- KU Results: KU's net income increased $31.5 million for the quarter ended March 31, 2002, as compared to the quarter ended March 31, 2001. The increase was primarily due to a non-recurring charge of $38.0 million, net of tax, made in the first quarter of 2001 for costs associated with KU's workforce reduction program. Excluding this one-time charge, net income decreased $6.5 million, due largely to increased operations and purchased power expense, partially offset by decreased interest expense. A comparison of KU's revenues for the quarter ended March 31, 2002, with the quarter ended March 31, 2001, reflects increases and (decreases) which have been segregated by the following principal causes (in thousands of $): Retail sales: Fuel supply adjustments $ 5,133 Environmental cost recovery surcharge 1,510 Demand side management cost recovery 784 LG&E/KU merger surcredit (1,025) Value delivery surcredit (189) Variation in sales volume, etc. (3,814) Total retail sales 2,399 Wholesale sales (305) Other 1,281 Total $ 3,375 Electric revenues increased primarily due to increased price of sales to retail customers. Fuel for electric generation comprises a large portion of KU's total operating expenses. KU's electric rates contain a Fuel Adjustment Clause, whereby increases or decreases in the cost of fuel are reflected in retail rates, subject to the approval of the Kentucky Public Service Commission, the Virginia State Corporation Commission, and the Federal Energy Regulatory Commission. Fuel for electric generation increased $2.3 million (4%) for the quarter due to a $5.3 million increase in the cost of coal burned partially offset by a decrease of $3.0 million in volume burned. Power purchased increased $8.2 million (25%) in 2002 primarily because of an increase in volumes purchased ($11.6 million) partially offset by a decrease in price ($3.4 million). Non-recurring charges decreased $63.8 million, $38.0 million after tax. These costs were due to KU's workforce reduction program. (See Note 4). Other operations expenses increased $7.9 million (30%) as compared to 2001, primarily due to amortization expenses associated with KU's workforce reduction program ($2.9 million), higher pension expenses ($1.2 million), higher costs for electric transmission ($1.4 million) and increases in uncollectible accounts and customer assistance programs ($1.9 million). Variations in income tax expense are largely attributable to changes in pretax income. Interest charges decreased $2.6 million (32%) for the first quarter 2002 as compared to the first quarter 2001 due to lower rates on variable rate debt ($2.2 million) and a decrease in interest associated with KU's accounts receivable securitization program ($0.6 million). -22- Liquidity and Capital Resources LG&E's and KU's need for capital funds are largely related to the construction of plant and equipment necessary to meet the needs of electric and gas utility customers. Lines of credit, the accounts receivable securitization programs, and commercial paper programs are maintained to fund short-term capital requirements. Construction expenditures for the three months ended March 31, 2002 for LG&E and KU amounted to $24.9 million and $23.6 million, respectively. Such expenditures related primarily to construction to meet nitrogen oxide (NOx) emission standards, and were financed with internally generated funds and accounts receivable securitization program funds. Also, no common dividends have been paid by LG&E or KU for the three months ended March 31, 2002. See Note 6 of Notes to Financial Statements concerning accounts receivable securitization. LG&E's and KU's combined cash and temporary cash investment balance increased $16.0 million (LG&E $14.0 million, KU $2.0 million) during the three months ended March 31, 2002. The increase reflects cash flows from operations and short term borrowings, partially offset by construction expenditures. Variations in accounts receivable, accounts payable and materials and supplies are generally not significant indicators of LG&E's and KU's liquidity. Such variations are primarily attributable to fluctuations in weather, which have a direct effect on sales of electricity and natural gas. The increases in accounts receivable resulted primarily from seasonal fluctuations and the reduced sales of accounts receivable through LG&E and KU's accounts receivable securitization program. See Note 6 of Notes to Financial Statements. The increase in fuel inventory resulted from seasonal fluctuations at LG&E and KU, and the decrease in LG&E's gas stored underground resulted from seasonal fluctuations. LG&E and KU participate in a money pool whereby LG&E Energy can make funds available to LG&E and KU at market-based rates up to $200 million each. LG&E Energy maintains a facility of $200 million with a Powergen subsidiary to ensure funding availability for the money pool. There is no balance outstanding under the Powergen line of credit as of March 31, 2002 and no outstanding commercial paper program balance. LG&E Energy has provided loans to LG&E and KU through the money pool that total $122.6 million and $64.2 million, respectively, as of March 31, 2002. These borrowings carried a commercial paper grade interest rate of 1.80% at March 31, 2002. On March 6, 2002, LG&E refinanced its $22.5 million and $27.5 million unsecured pollution control bonds, both due September 1, 2026. The replacement bonds, due September 1, 2026, are variable rate bonds and are secured by first mortgage bonds. On March 22, 2002, LG&E refinanced its two $35 million unsecured pollution control bonds due November 1, 2027. The replacement variable rate bonds are secured by first mortgage bonds and will mature November 1, 2027. LG&E's security ratings as of March 31, 2002, were: Moody's S&P Fitch First mortgage bonds A1 A- A+ Preferred stock a2 BBB- A- Commercial paper P-1 A-2 F-1 KU's security ratings as of March 31, 2002, were: Moody's S&P Fitch First mortgage bonds A1 A- A+ Preferred stock a2 BBB- A- Commercial paper P-1 A-2 F-1 -23- The S&P ratings of LG&E's and KU's debt securities are on Credit Watch for upgrade as the result of the E.ON bid. Fitch has placed LG&E and KU on credit watch evolving following the E.ON bid. These ratings reflect the views of Moody's, S&P and Fitch. A security rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time by the rating agency. LG&E's capitalization ratios at March 31, 2002, and December 31, 2001, follow: Mar. 31, Dec. 31, 2002 2001 Long-term debt (including current portion) 36.5% 37.5% Notes payable 7.2 5.7 Preferred stock 5.6 5.8 Common equity 50.7 51.0 Total 100.0% 100.0% KU's capitalization ratios at March 31, 2002, and December 31, 2001, follow: Mar. 31, Dec. 31, 2001 2001 Long-term debt (including current portion) 36.0% 37.2% Notes payable 4.8 3.6 Preferred stock 3.0 3.1 Common equity 56.2 56.1 Total 100.0% 100.0% Statements of Financial Accounting Standards ("SFAS") No. 141, Business Combinations and No. 142, Goodwill and Other Intangible Assets were issued in the second quarter of 2001. Therefore, the provisions of these new pronouncements were effective July 1, 2001, for LG&E and KU. SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. SFAS No. 142 requires goodwill to be recorded, but not amortized. Furthermore, goodwill will now be subject to a periodic assessment for impairment. LG&E and KU have no recorded goodwill and have no merger or acquisitions in progress. Accordingly, these pronouncements have no effect on the financial condition and results of operations for LG&E or KU. The Companies experienced no impact on the financial position or results of operation as a result of adopting these standards. -24- SFAS No. 143, Accounting for Asset Retirement Obligations and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, were issued during 2001. SFAS No. 143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144, among other provisions, eliminates the requirement of SFAS No. 121 to allocate goodwill to long-lived assets to be tested for impairment. The effective implementation date for SFAS No. 144 is January 1, 2002 and SFAS No. 143 is January 1, 2003. SFAS No. 144 had no current impact on the financial position or results of operations of LG&E or KU. Management has not determined what impact SFAS No. 143 will have on the financial position or results of operations of the Companies. The Financial Accounting Standards Board created the Derivatives Implementation Group (DIG) to provide guidance for implementation of SFAS No. 133. DIG Issue C15, Normal Purchases and Normal Sales Exception for Option Type Contracts and Forward Contracts in Electricity was adopted in 2001 and had no impact on results of operations or financial condition. DIG Issue C16, Applying the Normal Purchase and Normal Sales Exception to Contracts that Combine a Forward Contract and a Purchased Option Contract, was cleared in the third quarter 2001 and stated that option contracts do not meet the normal purchases and normal sales exception and should follow SFAS No. 133. DIG Issue C16 will become effective in the second quarter of 2002. The Companies have reviewed their contracts for options and determined that DIG Issue C16 does apply, but the adoption of DIG Issue C16 will not have a material impact on the financial position or results of operations of the Companies pursuant to regulatory treatment prescribed by SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. For a description of significant contingencies that may affect LG&E and KU, reference is made to Part I, Item 3, Legal Proceedings, and Notes 12 (LG&E) and 11 (KU) to the financial statements of LG&E's and KU's Annual Reports on form 10-K. For the year ended December 31, 2001 and to Part II herein - Item 1, Legal Proceedings. Item 3. Quantitative and Qualitative Disclosures About Market Risk. -25- LG&E and KU are exposed to market risks. Both operations are exposed to market risks from changes in interest rates and commodity prices. To mitigate changes in cash flows attributable to these exposures, the Companies have entered into various derivative instruments. Derivative positions are monitored using techniques that include market value and sensitivity analysis. The Companies use interest rate swaps to hedge exposure to market fluctuations in certain of their debt instruments. Pursuant to Company policy, use of these financial instruments is intended to mitigate risk and earnings volatility and is not speculative in nature. Management has designated all of the Companies' interest rate swaps as hedge instruments. Financial instruments designated as cash flow hedges have resulting gains and losses recorded within other comprehensive income and stockholders' equity. To the extent a financial instrument or the underlying item being hedged is prematurely terminated or the hedge becomes ineffective, the resulting gains or losses are reclassified from other comprehensive income to net income. Financial instruments designated as fair value hedges are periodically marked to market with the resulting gains and losses recorded directly into net income to correspond with income or expense recognized from changes in market value of the items being hedged. The potential change in interest expense resulting from changes in base interest rates of the Companies' unswapped debt did not change materially in 2002. The potential changes in the fair values of the Company's interest-rate swaps resulting from changes in interest rates and the yield curve also did not change materially in 2002. The Company's exposure to market risks from changes in commodity prices remained immaterial in 2002. -26- Part II. Other Information Item 1. Legal Proceedings. For a description of the significant legal proceedings involving LG&E and KU, reference is made to the information under the following items and captions of LG&E's and KU's respective combined Annual Report on Form 10-K for the year ended December 31, 2001: Item 1, Business; Item 3, Legal Proceedings; Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations; Notes 3, 11 and 14 of LG&E's Notes to Financial Statements under Item 8 and Notes 3, 12 and 16 of KU's Notes to Financial Statements under Item 8. Except as described herein, to date, the proceedings reported in LG&E's and KU's respective combined Annual Report on Form 10-K have not changed materially. E.ON-Powergen Transaction On April 9, 2001, E.ON AG announced a conditional offer to purchase all the common shares of Powergen plc, the indirect corporate parent of LG&E and KU. The transaction is subject to a number of conditions precedent, including the receipt of regulatory approvals from European and United States governmental bodies, in form satisfactory to the parties. Among the primary United States regulatory approvals are: the Kentucky Public Service Commission, the Virginia State Corporation Commission, the Securities and Exchange Commission, and the Federal Energy Regulatory Commission. The parties anticipate that the remaining approvals may be received by mid-2002 to permit completion of the transaction in 2002. However, there can be no assurance that such approvals will be obtained in form or timing sufficient for such dates. Regulatory orders approving the E.ON transaction were received from the Kentucky Commission on August 6, 2001, from the Virginia State Corporation Commission on October 5, 2001, the Federal Energy Regulatory Commission on October 11, 2001, and the Tennessee Regulatory Authority on October 23, voted in an open hearing to approve the transaction with an affirmative order issued shortly thereafter. On November 15, 2001, the Commission of the European Communities granted E.ON AG and Powergen plc transaction approval. On April 19, 2002, Powergen plc shareholders voted in favor of certain resolutions to approve the acquisition of Powergen plc by E.ON AG by means of a scheme of arrangement under United Kingdom law. Other On April 16, 2002, the LG&E 5% Cumulative Preferred class of stock was delisted from the NASDAQ Small Capitalization Market. Delisting will enable the Companies to realize certain administrative and corporate governance efficiencies. In May 2002, KU filed a request with the Philadelphia Stock Exchange seeking delisting of its 4.75% Cumulative Preferred class of stock, which delisting may become effective shortly. Delisting will enable the Companies to realize certain administrative and corporate governance efficiencies. Item 6(a). Exhibits. None. Item 6(b). Reports on Form 8-K. None. -27- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Louisville Gas and Electric Company Registrant Date: May 14, 2002 /s/ S. Bradford Rives S. Bradford Rives Senior Vice President - Finance and Controller (On behalf of the registrant in his capacity as Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Kentucky Utilities Company Registrant Date: May 14, 2002 /s/ S. Bradford Rives S. Bradford Rives Senior Vice President - Finance and Controller (On behalf of the registrant in his capacity as Principal Accounting Officer) -28-