-----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, WpXqmltIw8Daf5/IE47P5zFBWagUVpdb4HplUpMWRO9L+2XbiJEN+BjudZWDOeFQ fBm0OKMTpszy34F15OVqVw== 0000861388-00-000003.txt : 20000516 0000861388-00-000003.hdr.sgml : 20000516 ACCESSION NUMBER: 0000861388-00-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 635508 BUSINESS ADDRESS: STREET 1: 220 W MAIN ST STREET 2: P O BOX 32030 CITY: LOUISVILLE STATE: KY ZIP: 40232 BUSINESS PHONE: 5026272000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENTUCKY UTILITIES CO CENTRAL INDEX KEY: 0000055387 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 610247570 STATE OF INCORPORATION: KY FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03464 FILM NUMBER: 635509 BUSINESS ADDRESS: STREET 1: ONE QUALITY ST CITY: LEXINGTON STATE: KY ZIP: 40507 BUSINESS PHONE: 6062552100 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOUISVILLE GAS & ELECTRIC CO /KY/ CENTRAL INDEX KEY: 0000060549 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 610264150 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02893 FILM NUMBER: 635510 BUSINESS ADDRESS: STREET 1: 220 W MAIN ST STREET 2: P O BOX 32030 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 UNITED STATES 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, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission Registrant, State of Incorporation, IRS Employer File Number Address, and Telephone Number Identification No. 1-10568 LG&E Energy Corp. 61-1174555 (A Kentucky Corporation) 220 West Main Street P.O. Box 32030 Louisville, Ky. 40232 (502) 627-2000 2-26720 Louisville Gas and Electric Company 61-0264150 (A Kentucky Corporation) 220 West Main Street P.O. Box 32010 Louisville, Ky. 40232 (502) 627-2000 1-3464 Kentucky Utilities Company 61-0247570 (A Kentucky and Virginia Corporation) One Quality Street Lexington, Kentucky 40507-1428 (606) 255-2100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: LG&E Energy Corp. 129,677,030 shares, without par value, as of April 28, 2000. Louisville Gas and Electric Company 21,294,223 shares, without par value, as of April 28, 2000, all held by LG&E Energy Corp. Kentucky Utilities Company 37,817,878 shares, without par value, as of April 28, 2000, all held by LG&E Energy Corp. This combined Form 10-Q is separately filed by LG&E Energy Corp., Louisville Gas and Electric Company and Kentucky Utilities Company. Information contained herein related to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. In particular, information contained herein related to LG&E Energy Corp. or any of its direct or indirect subsidiaries other than Louisville Gas and Electric Company or Kentucky Utilities Company is provided solely by LG&E Energy Corp., not Louisville Gas and Electric Company or Kentucky Utilities Company, and shall be deemed not included in the Form 10-Q of Louisville Gas and Electric Company or the Form 10-Q of Kentucky Utilities Company. TABLE OF CONTENTS PART I Item 1 Financial Statements LG&E Energy Corp. and Subsidiaries Consolidated Statements of Income 1 Consolidated Balance Sheets 3 Consolidated Statements of Cash Flows 5 Consolidated Statements of Retained Earnings 7 Consolidated Statements of Comprehensive Income 8 Louisville Gas and Electric Company Statements of Income 9 Balance Sheets 10 Statements of Cash Flows 12 Statements of Retained Earnings 14 Statements of Comprehensive Income 15 Kentucky Utilities Company Statements of Income 16 Balance Sheets 17 Statements of Cash Flows 19 Statements of Retained Earnings 20 Notes to Financial Statements 21 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 26 Item 3 Quantitative and Qualitative Disclosures About Market Risk 32 PART II Item 1 Legal Proceedings 33 Item 6 Exhibits and Reports on Form 8-K 34 Signatures 35 Part I. Financial Information - Item 1. Financial Statements LG&E Energy Corp. and Subsidiaries Consolidated Statements of Income (Unaudited - Thousands of $ Except Per Share Data) Three Months Ended Mar. 31, 2000 1999 REVENUES: Electric utility $365,890 $361,673 Gas utility 88,316 75,779 International and non-utility 171,184 161,813 Total revenues 625,390 599,265 OPERATING EXPENSES: Operation and maintenance: Fuel and power purchased 203,196 205,088 Gas supply expenses 119,228 95,064 Utility operation and maintenance 103,858 103,705 International and non-utility operation and maintenance 48,538 44,964 Depreciation and amortization 58,373 54,736 Non-recurring charges (Note 3) 20,713 - Total operating expenses 553,906 503,557 Equity in earnings of uncon- solidated ventures 5,930 21,656 OPERATING INCOME 77,414 117,364 Other income and (deductions) 5,009 6,388 Interest charges and preferred dividends 34,965 30,520 Minority interest 1,494 1,571 Income before income taxes 45,964 91,661 Income taxes 16,082 34,882 Income from continuing operations 29,882 56,779 Income on disposal of dis- continued operations, net of income tax expense of $328 (Note 4) - 788 NET INCOME $ 29,882 $ 57,567 - 1 - LG&E Energy Corp. and Subsidiaries Consolidated Statements of Income (cont.) (Unaudited - Thousands of $ Except Per Share Data) Three Months Ended Mar. 31, 2000 1999 Average common shares outstanding 129,677 129,677 Earnings per share - basic and diluted $.23 $.44 The accompanying notes are an integral part of these financial statements. - 2 - LG&E Energy Corp. and Subsidiaries Consolidated Balance Sheets (Thousands of $) ASSETS (Unaudited) Mar. 31, Dec. 31, 2000 1999 CURRENT ASSETS: Cash and temporary cash investments $ 109,195 $ 91,413 Marketable securities 9,991 10,126 Accounts receivable - less reserve 270,362 318,914 Materials and supplies - primarily at average cost: Fuel (predominantly coal) 78,967 91,931 Gas stored underground 23,289 49,038 Other 96,296 90,259 Prepayments and other 54,515 54,038 Total current assets 642,615 705,719 UTILITY PLANT: At original cost 5,958,178 5,916,905 Less: reserve for depreciation 2,550,527 2,503,851 Net utility plant 3,407,651 3,413,054 OTHER PROPERTY AND INVESTMENTS - LESS RESERVES: Investment in unconsolidated ventures (Note 5) 242,949 249,455 Non-utility property and plant, net 475,137 477,442 Other 25,265 25,596 Total other property and investments 743,351 752,493 DEFERRED DEBITS AND OTHER ASSETS 275,757 262,491 Total assets $5,069,374 $5,133,757 The accompanying notes are an integral part of these financial statements. - 3 - LG&E Energy Corp. and Subsidiaries Consolidated Balance Sheets (cont.) (Thousands of $) CAPITAL AND LIABILITIES (Unaudited) Mar. 31, Dec. 31, 2000 1999 CURRENT LIABILITIES: Current portion of long-term debt $ 411,808 $ 411,810 Notes payable 443,520 449,578 Accounts payable 202,197 220,460 Net liabilities of discontinued opera- tions (Note 4) 152,384 158,222 Other 254,844 248,841 Total current liabilities 1,464,753 1,488,911 Long-term debt 1,279,426 1,299,415 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 584,460 585,880 Investment tax credit, in process of amortization 83,838 85,828 Regulatory liability 102,234 104,795 Other 178,598 182,357 Total deferred credits and other liabilities 949,130 958,860 Minority interests 111,133 109,952 Cumulative preferred stock 135,140 135,328 COMMON EQUITY: Common stock, without par value - 129,677,030 shares outstanding 777,013 777,013 Other (2,165) (1,956) Retained earnings 354,944 366,234 Total common equity 1,129,792 1,141,291 Total liabilities and capital $5,069,374 $5,133,757 The accompanying notes are an integral part of these financial statements. - 4 - LG&E Energy Corp. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited - Thousands of $) Three Months Ended Mar. 31, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 29,882 $ 57,567 Items not requiring cash currently: Depreciation and amortization 58,373 54,736 Deferred income taxes - net (8,091) 4,694 Income from discontinued operations - net of tax (Note 4) - (788) Other (638) (17,627) Change in net current assets 59,434 19,647 Other (15,718) (8,417) Net cash flows from operating activities 123,242 109,812 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of securities (242) (223) Proceeds from sales of securities 132 3,075 Construction expenditures (53,716) (79,410) Investments in unconsolidated ventures - (74,250) Proceeds from sale of investment in affiliate (Note 5) 17,907 33,821 Net cash flows from investing activities (35,919) (116,987) CASH FLOWS FROM FINANCING ACTIVITIES: Retirement of bonds (20,022) - Short-term borrowings 2,170,510 416,174 Repayment of short-term borrowings (2,178,857) (346,174) Redemption of preferred stock - (1,202) Payment of common dividends (41,172) (39,876) Net cash flows from financing activities (69,541) 28,922 CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 17,782 21,747 BEGINNING CASH AND TEMPORARY CASH INVESTMENTS 91,413 105,604 ENDING CASH AND TEMPORARY CASH INVESTMENTS $ 109,195 $ 127,351 - 5 - LG&E Energy Corp. and Subsidiaries Consolidated Statements of Cash Flows (cont.) (Unaudited - Thousands of $) Three Months Ended Mar. 31, 2000 1999 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 4,410 $ 2,969 Interest on borrowed money 30,097 23,533 For the purposes of these statements, all temporary cash investments purchased with a maturity of three months or less are considered cash equivalents. The accompanying notes are an integral part of these financial statements. - 6 - LG&E Energy Corp. and Subsidiaries Consolidated Statements of Retained Earnings (Unaudited - Thousands of $) Three Months Ended Mar. 31, 2000 1999 Balance at beginning of period $366,234 $466,279 Net income 29,882 57,567 Cash dividends declared on common stock ($.3175 and $.3075 per share) 41,172 39,876 Balance at end of period $354,944 $483,970 The accompanying notes are an integral part of these financial statements. - 7 - LG&E Energy Corp. and Subsidiaries Consolidated Statements of Comprehensive Income (Unaudited - Thousands of $) Three Months Ended Mar. 31, 2000 1999 Net income $29,882 $57,567 Unrealized holding gains (losses) on available-for-sale securities arising during the period (312) 192 Reclassification adjustment for realized gains and losses on available-for-sale securities included in net income 14 5 Other comprehensive (loss) income, before tax (298) 197 Income tax benefit (expense) related to items of other comprehensive (loss) income 113 (64) Comprehensive income $29,697 $57,700 The accompanying notes are an integral part of these financial statements. - 8 - Louisville Gas and Electric Company Statements of Income (Unaudited) (Thousands of $) Three Months Ended Mar. 31, 2000 1999 REVENUES: Electric $161,326 $150,840 Gas 88,316 75,779 Total operating revenues 249,642 226,619 OPERATING EXPENSES: Fuel for electric generation 39,926 32,457 Power purchased 21,753 23,026 Gas supply expenses 63,394 50,492 Non-recurring charges (Note 3) 8,141 - Other operation expenses 36,975 40,192 Maintenance 13,881 14,702 Depreciation and amortization 24,149 24,144 Federal and state income taxes 9,668 9,556 Property and other taxes 5,163 5,036 Total operating expenses 223,050 199,605 NET OPERATING INCOME 26,592 27,014 Other income and (deductions) 1,519 1,080 Interest charges 10,690 9,178 NET INCOME 17,421 18,916 Preferred stock dividends 1,165 1,089 NET INCOME AVAILABLE FOR COMMON STOCK $ 16,256 $ 17,827 The accompanying notes are an integral part of these financial statements. - 9 - Louisville Gas and Electric Company Balance Sheets (Thousands of $) ASSETS (Unaudited) Mar. 31, Dec. 31, 2000 1999 UTILITY PLANT: At original cost $3,086,048 $3,065,839 Less: reserve for depreciation 1,238,536 1,215,032 Net utility plant 1,847,512 1,850,807 OTHER PROPERTY AND INVESTMENTS - less reserve 1,353 1,224 CURRENT ASSETS: Cash and temporary cash investments 49,059 54,761 Marketable securities 6,902 6,936 Accounts receivable - less reserve 172,077 113,859 Materials and supplies - at average cost: Fuel (predominantly coal) 17,472 17,350 Gas stored underground 15,754 38,780 Other 35,192 35,010 Prepayments 2,100 2,775 Total current assets 298,556 269,471 DEFERRED DEBITS AND OTHER ASSETS: Unamortized debt expense 5,529 5,607 Regulatory assets 30,386 31,443 Other 10,010 12,900 Total deferred debits and other assets 45,925 49,950 Total assets $2,193,346 $2,171,452 The accompanying notes are an integral part of these financial statements. - 10 - Louisville Gas and Electric Company Balance Sheets (cont.) (Thousands of $) CAPITALIZATION AND LIABILITIES (Unaudited) Mar. 31, Dec. 31, 2000 1999 CAPITALIZATION: Common stock, without par value - Outstanding 21,294,223 shares $ 425,170 $ 425,170 Retained earnings 258,987 259,231 Other (1,120) (1,025) Total common equity 683,037 683,376 Cumulative preferred stock 95,140 95,328 Long-term debt 360,600 380,600 Total capitalization 1,138,777 1,159,304 CURRENT LIABILITIES: Current portion of long-term debt 246,200 246,200 Notes payable 131,791 120,097 Accounts payable 143,357 113,008 Provision for rate refunds 5,409 8,962 Dividends declared 17,665 24,236 Accrued taxes 37,814 23,759 Accrued interest 7,566 9,265 Other 16,795 15,725 Total current liabilities 606,597 561,252 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 257,422 255,910 Investment tax credit, in process of amortization 66,182 67,253 Accumulated provision for pensions and related benefits 40,741 38,431 Customer advances for construction 10,208 11,104 Regulatory liability 55,923 58,726 Other 17,496 19,472 Total deferred credits and other liabilities 447,972 450,896 Total capital and liabilities $2,193,346 $2,171,452 The accompanying notes are an integral part of these financial statements. - 11 - Louisville Gas and Electric Company Statements of Cash Flows (Unaudited - Thousands of $) Three Months Ended Mar. 31, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 17,421 $ 18,916 Items not requiring cash currently: Depreciation and amortization 24,149 24,143 Deferred income taxes - net (3,498) 3,650 Investment tax credit - net (1,071) (1,072) Other 1,677 1,772 Changes in net current assets and liabilities 5,399 (7,335) Other 4,156 4,704 Net cash flows from operating activities 48,233 44,778 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of securities (124) (223) Proceeds from sales of securities - 3,065 Construction expenditures (21,269) (17,323) Net cash flows from investing activities (21,393) (14,481) CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings 11,694 - Retirement of first mortgage bonds (20,000) - Payment of dividends (24,236) (23,168) Net cash flows from financing activities (32,542) (23,168) CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (5,702) 7,129 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 54,761 31,730 CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 49,059 $ 38,859 - 12 - Louisville Gas and Electric Company Statements of Cash Flows (cont.) (Unaudited - Thousands of $) Three Months Ended Mar. 31, 2000 1999 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 3,184 $ 11,288 Interest on borrowed money 8,743 8,811 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. - 13 - Louisville Gas and Electric Company Statements of Retained Earnings (Unaudited) (Thousands of $) Three Months Ended Mar. 31, 2000 1999 Balance at beginning of period $259,231 $247,462 Net income 17,421 18,916 Subtotal 276,652 266,378 Cash dividends declared on stock: 5% cumulative preferred 269 269 Auction rate cumulative preferred 529 453 $5.875 cumulative preferred 367 367 Common 16,500 22,000 Subtotal 17,665 23,089 Balance at end of period $258,987 $243,289 The accompanying notes are an integral part of these financial statements. - 14 - Louisville Gas and Electric Company Statements of Comprehensive Income (Unaudited - Thousands of $) Three Months Ended Mar. 31, 2000 1999 Net income available for common stock $16,256 $17,827 Unrealized holding gains (losses) on available-for-sale securities arising during the period (159) 84 Other comprehensive (loss) income, before tax (159) 84 Income tax benefit (expense) related to items of other comprehensive (loss) income 64 (34) Comprehensive income $16,161 $17,877 The accompanying notes are an integral part of these financial statements. - 15 - Kentucky Utilities Company Statements of Income (Unaudited) (Thousands of $) Three Months Ended Mar. 31, 2000 1999 OPERATING REVENUES $217,778 $217,349 OPERATING EXPENSES: Fuel for electric generation 55,615 58,155 Power purchased 38,845 39,317 Non-recurring charges (Note 3) 11,030 - Other operation expenses 28,848 27,142 Maintenance 14,150 12,520 Depreciation and amortization 24,331 21,991 Federal and state income taxes 11,366 17,144 Property and other taxes 4,840 4,113 Total operating expenses 189,025 180,382 NET OPERATING INCOME 28,753 36,967 Other income and (deductions) 1,325 2,168 Interest charges 9,904 9,507 NET INCOME 20,174 29,628 Preferred stock dividends 564 564 NET INCOME AVAILABLE FOR COMMON STOCK $ 19,610 $ 29,064 The accompanying notes are an integral part of these financial statements. - 16 - Kentucky Utilities Company Balance Sheets (Thousands of $) ASSETS (Unaudited) Mar. 31, Dec. 31, 2000 1999 UTILITY PLANT: At original cost $2,872,130 $2,851,066 Less: reserve for depreciation 1,311,991 1,288,819 Net utility plant 1,560,139 1,562,247 OTHER PROPERTY AND INVESTMENTS - less reserve 14,575 14,349 CURRENT ASSETS: Cash and temporary cash investments 1,190 6,793 Accounts receivable - less reserve 93,211 88,549 Materials and supplies - at average cost: Fuel (predominantly coal) 23,154 30,225 Other 27,496 26,213 Prepayments 2,322 3,743 Total current assets 147,373 155,523 DEFERRED DEBITS AND OTHER ASSETS: Unamortized debt expense 4,727 4,827 Regulatory assets 21,738 23,033 Other 28,401 25,111 Total deferred debits and other assets 54,866 52,971 Total assets $1,776,953 $1,785,090 The accompanying notes are an integral part of these financial statements. - 17 - Kentucky Utilities Company Balance Sheets (cont.) (Thousands of $) CAPITALIZATION AND LIABILITIES (Unaudited) Mar. 31, Dec. 31, 2000 1999 CAPITALIZATION: Common stock, without par value - Outstanding 37,817,878 shares $ 308,140 $ 308,140 Retained earnings 324,080 329,470 Other (595) (595) Total common equity 631,625 637,015 Cumulative preferred stock 40,000 40,000 Long-term debt 430,830 430,830 Total capitalization 1,102,455 1,107,845 CURRENT LIABILITIES: Current portion of long-term debt 115,500 115,500 Accounts payable 86,176 116,546 Provision for rate refunds 13,907 20,567 Dividends declared 25,188 19,150 Accrued taxes 38,082 10,502 Accrued interest 9,825 7,329 Other 19,208 18,617 Total current liabilities 307,886 308,211 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 240,678 243,620 Investment tax credit, in process of amortization 17,656 18,575 Accumulated provision for pensions and related benefits 48,269 48,285 Regulatory liability 44,539 46,069 Other 15,470 12,485 Total deferred credits and other liabilities 366,612 369,034 Total capital and liabilities $1,776,953 $1,785,090 The accompanying notes are an integral part of these financial statements. - 18 - Kentucky Utilities Company Statements of Cash Flows (Unaudited - Thousands of $) Three Months Ended Mar. 31, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 20,174 $ 29,628 Items not requiring cash currently: Depreciation and amortization 24,331 21,991 Deferred income taxes - net (4,602) (2,396) Investment tax credit - net (919) (895) Other (911) 1,556 Changes in net current assets and liabilities 2,222 (17,031) Other (2,804) 1,718 Net cash flows from operating activities 37,491 34,571 CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures (23,530) (18,240) Net cash flows from investing activities (23,530) (18,240) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends (19,564) (18,564) Net cash flows from financing activities (19,564) (18,564) CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (5,603) (2,233) CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 6,793 59,071 CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 1,190 $ 56,838 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the period for: Income taxes $ (9,260) $ (904) Interest on borrowed money 6,560 6,079 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. - 19 - Kentucky Utilities Company Statements of Retained Earnings (Unaudited) (Thousands of $) Three Months Ended Mar. 31, 2000 1999 Balance at beginning of period $329,470 $299,167 Net income 20,174 29,628 Subtotal 349,644 328,795 Cash dividends declared on stock: 4.75% preferred 237 237 6.53% preferred 327 327 Common 25,000 18,000 Subtotal 25,564 18,564 Balance at end of period $324,080 $310,231 The accompanying notes are an integral part of these financial statements. - 20 - LG&E Energy Corp. and Subsidiaries Louisville Gas and Electric Company Kentucky Utilities Company Notes to Financial Statements (Unaudited) 1. The unaudited consolidated financial statements include the accounts of LG&E Energy Corp. and its wholly-owned subsidiaries (LG&E Energy or the Company). In the opinion of management, all adjustments, including those of a normal recurring nature, have been made to present fairly the consolidated financial position, results of operations and cash flows for the periods indicated. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. See the Company's, Louisville Gas and Electric Company's (LG&E's) and Kentucky Utilities Company 's (KU's) Reports on Form 10-K for 1999 for information relevant to the accompanying financial statements, including information as to the significant accounting policies of the Company. 2. On February 28, 2000, the Company announced that its Board of Directors accepted an offer to be acquired by PowerGen for cash of approximately $3.2 billion or $24.85 per share and the assumption of $2.2 billion of the Company's debt. Pursuant to the acquisition agreement, among other things, LG&E Energy will become a wholly owned subsidiary of PowerGen and its U.S. headquarters. The Utility Operations of the Company will continue their separate identities and serve customers in Kentucky and Virginia under their present names. The preferred stock and debt securities of the Utility Operations will not be affected by this transaction. The acquisition is expected to close 9 to 12 months from the announcement, shortly after all of the conditions to consummation of the acquisition are met. Those conditions include, without limitation, the approval of the holders of a majority of the outstanding shares of common stock of each of LG&E Energy and PowerGen, the receipt of all necessary governmental approvals and the making of all necessary governmental filings, including approvals of various regulators in Kentucky and Virginia under state utility laws, the approval of the FERC under the FPA, the approval of the SEC under the PUHCA of 1935, and the filing of requisite notifications with the Federal Trade Commission and the Department of Justice under the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the expiration of all applicable waiting periods thereunder. Shareholder meetings to vote upon the approval of the acquisition are scheduled to be held in early June 2000 for both LG&E Energy and PowerGen. During the first quarter of 2000, the Company expensed approximately $1.0 million relating to the PowerGen transaction. The foregoing description of the acquisition does not purport to be complete and is qualified in its entirety by reference to LG&E Energy's current reports on Form 8-K, filed February 29, 2000, with the SEC. As of the end of April 2000 the Company has filed applications for approval with the U.S. Securities and Exchange Commission (under the Public Utility Holding Company Act of 1935), the Kentucky Public Service Commission, the Virginia State Corporation Commission and the Federal Energy Regulatory Commission (under the Federal Power Act). Hearings before the Kentucky Commission were held April 19-21 and submission of briefs and data requests have been completed. A decision is expected on or about May 15 and the Company will have approximately 23 days from any order in which to file for rehearing, or approximately 33 days in which to file for appeal. While the Company and PowerGen believe that they will receive the requisite regulatory approvals for the merger in sufficient time to complete the transaction on the schedule men - 21 - tioned above, there can be no assurance as to the timing of such approvals or the ability to obtain such approvals on satisfactory terms or otherwise. 3. During the first quarter 2000, the Company took a $12.1 million ($.09) after-tax charge for the continued integration of the operations of LG&E and KU including their customer service centers and their retail electric and gas operations. The result of this consolidation was the elimination of approximately 400 positions most of which were taken by employees through the Company's voluntary enhanced severance program. 4. Effective June 30, 1998, the Company discontinued its merchant energy trading and sales business. This business consisted primarily of a portfolio of energy marketing contracts entered into in 1996 and early 1997, nationwide deal origination and some level of speculative trading activities, which were not directly supported by the Company's physical assets. The Company's decision to discontinue these operations was primarily based on the impact that volatility and rising prices in the power market had on its portfolio of energy marketing contracts. Exiting the merchant energy trading and sales business enabled the Company to focus on optimizing the value of physical assets it owns or controls, and reduced the earnings impact on continuing operations of extreme market volatility in its portfolio of energy marketing contracts. The Company continues to settle commitments that obligate it to buy and sell natural gas and electric power. If the Company is unable to dispose of these commitments or assets it will continue to meet its obligations under the terms of the contracts. The Company, however, has maintained sufficient market knowledge, risk management skills, technical systems and experienced personnel to maximize the value of power sales from physical assets it owns or controls, including LG&E, KU and WKE. As a result of the Company's decision to discontinue its merchant energy trading and sales activity, and the initial decision to sell the associated gas gathering and processing business, the Company recorded an after-tax loss on disposal of discontinued operations of $225 million in the second quarter of 1998. The loss on disposal of discontinued operations resulted primarily from several fixed-price energy marketing contracts entered into in 1996 and early 1997, including the Company's long-term contract with OPC. Other components of the write-off included costs relating to certain peaking options, goodwill associated with the Company's 1995 purchase of merchant energy trading and sales operations and exit costs. In the fourth quarter of 1999, the Company received an adverse decision from the arbitration panel considering its contract dispute with OPC, which was commenced by the Company in April 1998. As a result of this adverse decision, higher than anticipated commodity prices, increased load demands, and other factors, the Company increased its after-tax accrued loss on disposal of discontinued operations by $175 million. The additional write-off included costs related to the remaining commitments in its portfolio and exit costs expected to be incurred to serve those commitments. Although the Company used what it believes to be appropriate estimates for future energy prices, among other factors, to calculate the net realizable value of discontinued operations, there are inherent limitations in models to accurately predict future commodity prices, load demands and other events that could impact the amounts recorded by the Company. - 22 - Operating results for the discontinued merchant energy trading and sales business follow. Three Months Ended Mar. 31, 2000 1999 Revenues $ 74,698 $ 146,498 Loss before taxes (1,389) (4,650) Loss from discontinued opera- tions, net of income taxes (1,389) (2,749) Net liabilities of discontinued operations at March 31, 2000, follow. Accounts receivable $ 24,809 Price risk management assets 30,816 Accounts payable and accruals (36,215) Other assets and liabilities, net (3,388) Net assets before accrued loss on disposal of dis- continued operations 16,022 Accrued loss on disposal of discontinued operations, net of income tax benefit of $102,647 (168,406) Net liabilities of discon- tinued operations $(152,384) Total pretax charges against the accrued loss on disposal of discontinued operations through March 31, 2000, include $260.6 million for commitments prior to disposal, $69.6 million for transaction settlements, $11.1 million for goodwill, and $31.5 million for other exit costs. While the Company has been successful in settling portions of its discontinued operations, significant assets, operations and obligations remain. The Company continues to manage the remaining portfolio and believes it has hedged certain of its future obligations through various power purchase commitments and planned construction of physical assets. Management cannot predict the ultimate effectiveness of these hedges. The pretax net fair value of the remaining commitments as of March 31, 2000, are currently estimated to be approximately $41.3 million in 2000, $33.0 million to $57.8 million each year in 2001 through 2004 and $9.7 million in the aggregate thereafter. As of March 31, 2000, the Company's discontinued operations were under various contracts to buy and sell power and gas with net notional amounts of 16.3 million Mwh's of power and 21.9 million Mmbtu's of natural gas with a volumetric weighted-average period of approximately 38 and 41 months, respectively. These notional amounts are based on estimated loads since various commitments do not include specified firm volumes. The Company is also under contract to buy or sell coal and SO2 allowances in support of its power contracts. Notional amounts reflect the nominal volume of transactions included in the Company's price risk management commitments, but do not reflect actual amounts of cash, financial instruments, or quantities of the underlying commodity which may ultimately be exchanged between the parties. - 23 - As of May 9, 2000, the Company estimates that a $1 change in electricity prices and a 10-cent change in natural gas prices across all geographic areas and time periods could change the value of the Company's remaining energy portfolio by approximately $2.6 million. In addition to price risk, the value of the Company's remaining energy portfolio is subject to operational and event risks including, among others, increases in load demand, regulatory changes, and forced outages at units providing supply for the Company. As of May 9, 2000, the Company estimates that a 1% change in the forecasted load demand could change the value of the Company's remaining energy portfolio by $11.7 million. The Company's discontinued operations maintain policies intended to minimize credit risk and revalue credit exposures daily to monitor compliance with those policies. As of March 31, 2000, over 95% of the Company's price risk management commitments were with counterparties rated BBB equivalent or better. As of March 31, 2000, six counterparties represented 88% of the Company's price risk management commitments. 5. In March 2000, the Company sold its interest in CEC-APL L.P., a partnership in which the Company owned a 49% interest, for approximately $18 million. The sale resulted in a pretax gain of approximately $2 million. In March 1999, LG&E-Westmoreland Rensselaer, a California general partnership in which the Company owns a 50% interest, sold substantially all the assets and major contracts of its 79 MW gas-fired cogeneration facility in Rensselaer, New York, with net proceeds to the Company of approximately $34 million. 6. In February, 2000, the Commission acknowledged that the PBR Order issued on January 7, 2000, contained an error and issued an Order changing the KU annual base rate reduction from $36.5 million to $33.9 million. The Commission also ordered rehearing on several issues and subsequently held hearings in April 2000. The Commission is expected to issue a Final Order on Rehearing by June 2000. The outcome of these hearings are not anticipated to have a material effect on the consolidated financial results of the Company. In March 2000, the 2000 Kentucky General Assembly passed House Bill 897 that established requirements for cost allocations, affiliate transactions and a code of conduct governing the relationship between utilities and their non-utility operations and affiliates. Management does not expect this matter to have a material adverse effect on the Company's financial position or results of operations. In March 2000, LG&E filed a Notice and Statement with the Kentucky Public Service Commission requesting an adjustment in LG&E's gas rates. LG&E asked for a general adjustment in gas rates for a test year for the twelve months ended December 31, 1999. The revenue increase applied for is $27.9 million. The new rates are expected to go into effect October 1, 2000. The increase is to recover higher costs for providing service to natural gas customers. - 24 - 7. External and intersegment revenues and income from continuing operations by business segment for the three months ended March 31, 2000, follow: Income Inter- from External segment Cont. Revenues Revenues Oper. LG&E electric $155,119 $ 6,207 $ 16,305 LG&E gas 88,316 - (49) KU electric 210,771 7,007 19,610 Power Operations 4,676 - 6,827 Western Kentucky Energy 60,754 - (501) Argentine Gas Distribution 30,742 - (731) Other Non-Utility Operations 75,012 - (9,990) All Other - (13,214) (1,589) Consolidated $625,390 $ - $ 29,882 External and intersegment revenues and income from continuing operations by business segment for the three months ended March 31, 1999, follow: Income Inter- from External segment Cont. Revenues Revenues Oper. LG&E electric $148,326 $ 2,514 $ 17,613 LG&E gas 75,779 - 214 KU electric 213,347 4,002 29,064 Power Operations 6,904 - 14,180 Western Kentucky Energy 59,978 - (1,024) Argentine Gas Distribution 29,797 - 357 Other Non-Utility Operations 65,134 - 888 All Other - (6,516) (4,513) Consolidated $599,265 $ - $ 56,779 8. Reference is made to Part II, Legal Proceedings, below and Part I, Item 3, Legal Proceedings, of the Company's, KU Energy's, LG&E's and KU's (and Note 18 of the Company's Notes to Financial Statements) Annual Reports on Form 10-K for the year ended December 31, 1999. - 25 - Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. General The Company's principal subsidiaries are LG&E, an electric and gas utility, KU, an electric utility, and LG&E Capital Corp. (Capital Corp.), the holding company for all non-utility investments other than trading operations. LG&E's and KU's results of operations and liquidity and capital resources are important factors affecting the Company's consolidated results of operations and capital resources and liquidity. On February 28, 2000, the Company announced that its Board of Directors accepted an offer to be acquired by PowerGen for cash of approximately $3.2 billion or $24.85 per share and the assumption of $2.2 billion of the Company's debt. For more information, see Note 2 of Notes to Financial Statements under Item 1. Some of the matters discussed in the Notes to Consolidated Financial Statements and Management's Discussion and Analysis may contain forward- looking statements that are subject to certain risks, uncertainties and assumptions. Actual results may vary materially. Factors that could cause actual results to differ materially include, but are not limited to: general economic conditions; business and competitive conditions in the energy industry; future prices of power and natural gas; unusual weather; regulatory decisions; and other factors described from time to time in the Company's reports to the Securities and Exchange Commission, including Exhibit 99.01 to the Form 10-K for the year ended December 31, 1999. Results of Operations The results of operations for LG&E, KU and Capital Corp.'s Argentine gas distribution and WKE operations 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, 2000, Compared to Three Months Ended March 31, 1999 The Company's earnings per share from continuing operations decreased to $.23 in 2000 from $.44 in 1999. The decrease resulted from recording non- recurring after-tax charges of $12.5 million ($.10 per share) in March 2000, and from recognizing one-time after-tax gains totaling $10.3 million ($.08 per share) in 1999. The non-recurring after-tax charges represent $12.1 million of costs associated with the integration of the Company's two utilities operations (the One-Utility Program) and $0.4 million of merger costs incurred by the Company relating to its proposed merger with PowerGen plc. The gains in 1999 resulted from selling the Company's interest in the Rensselaer, New York, project ($8.9 million, or $.07 per share) and a bankruptcy settlement received in connection with the Company's windpower partnerships ($1.4 million, or $.01 per share). LG&E Results: LG&E's net income decreased $1.6 million (9%) for the quarter ended March 31, 2000, as compared to the quarter ended March 31, 1999, primarily because of mild weather, as the region recorded its mildest winter since 1931, increases in gas supply expenses, fuel for electric generation, and administrative and general operating expenses including a $4.9 million net of tax one-time charge for the Company's One-Utility Program. These expenses were partially offset by increased gas sales to ultimate consumers, off-system electric sales, and the reversal of a rate refund of $.5 million net of tax. Excluding these one-time charges, LG&E's net income would have increased $2.8 million. - 26 - A comparison of LG&E's revenues for the quarter ended March 31, 2000, with the quarter ended March 31, 1999, excluding the reversal of an FAC refund of $1.1 million which was offset by an additional accrual for performance- based ratemaking of $.3 million, reflects increases and (decreases) which have been segregated by the following principal causes (thousands of $): Electric Gas Cause Revenues Revenues Retail sales: Fuel and gas supply adjustments $ 1,112 $10,006 Performance based rate reduction (1,179) - Electric rate refunds (1,156) - Variation in sales volume, merger surcredit, etc. (4,065) (2,443) Total retail sales (5,288) 7,563 Wholesale sales 15,786 4,720 Gas transportation - net - 189 Other (12) 65 Total $10,486 $12,537 Fuel for electric generation and gas supply expenses comprise a large component 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 $7.5 million (23%) for the quarter because of an increase in generation ($11 million), partially offset by a lower cost of coal burned ($3.5 million). Gas supply expenses increased $12.9 million (26%) due to increases in net gas supply cost. Power Purchased decreased $1.3 million (6%) due to a decrease in purchases for wholesale sales ($3.0 million), partially offset by higher purchases to support off-system sales ($1.7 million). Non-recurring charges of $5.0 million, after tax, include the costs associated with the Company's One-Utility Program. Other operation expenses decreased $3.2 million as compared to 1999. This decrease resulted from decreases in pension expense, $1.2 million, and various other administrative and general activities, $2 million. Maintenance expenses decreased $.8 million (6%) in 2000 primarily due to decreases in scheduled outages of $1.5 million, and electric distribution maintenance, $.6 million, partially offset by an increase in software and communication equipment maintenance, $1.3 million. Variations in income tax expense are largely attributable to changes in pretax income. KU Results: KU's net income decreased $9.5 million (32%) for the quarter ended March 31, 2000, as compared to the quarter ended March 31, 1999. The decrease was mainly due to a non-recurring charge of $6.6 million, after tax, made in the first quarter of 2000 for costs associated - 27 - with further integration of KU and LG&E. Excluding this non-recurring charge, net income decreased $2.9 million. A comparison of KU's revenues for the quarter ended March 31, 2000, with the quarter ended March 31, 1999, reflects increases and (decreases) which have been segregated by the following principal causes (thousands of $): Sales to ultimate consumers: Fuel clause adjustments $ 867 Environmental cost recovery (1,272) Performance based rate reduction (893) Merger surcredit (452) Electric rate refunds (3,389) Variation in sales volume, etc. 4,601 Total retail sales (538) Wholesale sales 1,309 Other (342) Total $ 429 Fuel for electric generation comprises a large segment of KU's total operating expenses. KU's electric rates contain a fuel adjustment clause (FAC), whereby increases or decreases in the cost of fuel are reflected in retail rates, subject to the approval of the Public Service Commission of Kentucky, The Virginia State Corporation Commission, and the Federal Energy Regulatory Commission. Fuel for electric generation decreased $2.5 million (4%) for the quarter because of a decrease in generation ($1.5 million) and the lower cost of coal burned ($1 million). Non-recurring charges of $6.6 million, after tax, include the costs associated with the Company's One-Utility Program. Other operating expenses increased by $1.7 million (6%). The increase was primarily attributable to increased transmission ($.6 million) and distribution ($.4 million) system operating expenditures as well as increased sales and marketing expenses ($.5 million). Maintenance expenses increased by $1.6 million (13%) due primarily to increased maintenance at the steam generating plants ($1.3 million) and the distribution system ($.5 million). Depreciation and amortization increased by $2.3 million (11%) due to additional utility plant in service. Variations in income tax expense are largely attributable to changes in pretax income. LG&E Capital Corp. and Other Results: Power Operations Power Operations' revenues decreased from $6.9 million in 1999 to $4.7 million in 2000. The decrease resulted mainly from recognizing revenues in 1999 related to the Rensselaer project, which the Company sold in March 1999. Power Operations' operation and maintenance expense decreased from $3.6 million in 1999 to $1.6 million in 2000. The decrease resulted primarily from writing off assets related to the Rensselaer project in 1999. - 28 - Power Operations' equity in earnings of unconsolidated ventures decreased from $21.4 million in 1999 to $5.8 million in 2000, due mainly to recognizing a pretax gain or $14.5 million on the sale of the Rensselaer project in 1999. Western Kentucky Energy Western Kentucky Energy Corp.'s (WKE's) revenues were approximately the same in 2000 and 1999, $60.1 million and 60.0 million, respectively. Higher smelter sales were offset by lower off-system sales resulting from lower volumes and prices. WKE's cost of revenues were approximately the same in 2000 and 1999, $35.3 million and $35.7 million, respectively. WKE's operating expenses increased slightly in 2000 to $25.8 million from $24.7 million in 1999. The increase was due to more unit outages in 2000 and higher depreciation expense. Argentine Gas Distribution The Argentine Distribution companies' revenues of $30.7 million, cost of revenues of $16.9 million and operation and maintenance expenses of $5.7 million in 2000 were slightly higher than 1999 due to higher consumption per customer. Other Other revenues increased from $65.1 million in 1999 to $75.0 million in 2000. The increases resulted from acquiring CRC-Evans in July 1999 and increased sales in the Company's natural gas gathering and processing and energy marketing businesses, partially offset by a decrease in Retail Access Services' revenues and a decrease resulting from recognizing fees in 1999 related to the development of an independent power project in Gregory, Texas. Other cost of revenues increased from $47.9 million in 1999 to $60.6 million in 2000. The increases resulted from acquiring CRC-Evans in July 1999 and increased sales in the Company's natural gas gathering and processing and energy marketing businesses, partially offset by a decrease at Retail Access Services. Other income for Capital Corp. and Other increased from $3.3 million in 1999 to $4.2 million in 2000. The increase resulted from higher interest income and the gain on the sale of the Company's interest in CEC-APL L.P. Decreases resulting from payments received in 1999 related to the Rensselaer sale and the initial settlement of a claim on an undeveloped independent power project in California partially offset the increases. Capital Corp. and Other interest expense increased from $10.2 million in 1999 to $13.2 million in 2000. The increase resulted from funding discontinued operations, corporate operating expenses, and the Gas BAN and CRC acquisitions. The Company's consolidated effective income tax rate decreased from 38.1% in 1999 to 35.0% in 2000 due to an increase in investment and wind tax credits as a percent of pretax income. Liquidity and Capital Resources The Company's need for capital funds is largely related to the construction of plant and equipment necessary to meet the needs of electric and gas utility customers and equity investments in connection with independent power production projects and other energy-related growth or acquisition opportunities among the non-utility businesses. Capital funds are also needed for the Company's capital obligations under the Big Rivers lease arrangements, losses incurred in connection with the discontinuance of the merchant energy trading and sales business, information system enhancements, and other business develop - 29 - ment opportunities. Fluctuations in the Company's discontinued energy marketing and trading activities also affected liquidity throughout the quarter. Lines of credit and commercial paper programs are maintained to fund these temporary capital requirements. Construction expenditures for the three months ended March 31, 2000, of $53.7 million were financed with internally generated funds and commercial paper. The Company's combined cash and marketable securities balance increased $17.6 million during the three months ended March 31, 2000. The increase reflects cash flows from operations and the proceeds received from the sale of CEC-APL L.P., partially offset by construction expenditures, debt repayments 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 decreases in accounts receivable and accounts payable resulted mainly from seasonal fluctuations at LG&E, KU and the Company's natural gas gathering and processing business. The decrease in fuel resulted from seasonal fluctuations at KU and WKE, and the decrease in gas stored underground resulted from seasonal fluctuations at LG&E and the natural gas gathering and processing business. Long-term debt decreased by $20 million due to the redemption of LG&E's first mortgage bonds 7.5% series due July 1, 2002, in January 2000. At March 31, 2000, unused capacity under the Company's lines of credit totaled $415.4 million after considering commercial paper support and approximately $40.0 million in letters of credit securing on- and off- balance sheet commitments. In March 2000, KU finalized an uncommitted line of credit for $60 million. Standard and Poor's downgraded LG&E's, KU's and Capital Corp.'s debt ratings on February 28, 2000. The downgrades reflect S&P's opinion of the credit quality of the Companies following the impact of the PBR and the OPC decision. S&P, Moody's and Duff and Phelps continue to have the debt of the Companies on credit watch pending review of the financial condition following consummation of the merger of the Company with PowerGen. The Company's capitalization ratios at March 31, 2000, and December 31, 1999, follow: Mar. 31, Dec. 31, 2000 1999 Long-term debt (including current portion) 49.8% 49.8% Notes payable 13.0 13.1 Preferred stock 4.0 3.9 Common equity 33.2 33.2 Total 100.0% 100.0% LG&E's capitalization ratios at March 31, 2000, and December 31, 1999, follow: Mar. 31, Dec. 31, 2000 1999 Long-term debt (including current portion) 40.0% 41.1% Notes payable 8.7 7.9 Preferred stock 6.3 6.2 Common equity 45.0 44.8 Total 100.0% 100.0% - 30 - KU's capitalization ratios at March 31, 2000, and December 31, 1999, follow: Mar. 31, Dec. 31, 2000 1999 Long-term debt (including current portion) 44.9% 44.7% Preferred stock 3.3 3.3 Common equity 51.8 52.0 Total 100.0% 100.0% For a description of significant contingencies that may affect the Company, LG&E and KU, reference is made to Part II herein - Item 1, Legal Proceedings. - 31 - Item 3. Quantitative and Qualitative Disclosures About Market Risk. LG&E Energy is exposed to market risks in both its regulated and non- utility operations. Both operations are exposed to market risks from changes in interest rates and commodity prices, while the non-utility operations are also exposed to changes in foreign exchange rates. To mitigate changes in cash flows attributable to these exposures, the Company has entered into various derivative instruments. Derivative positions are monitored using techniques that include market value and sensitivity analysis. The potential change in interest expense resulting from changes in base interest rates of the Company's unswapped debt did not change materially in the first quarter of 2000. 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 the first quarter of 2000. The Company's exposure to market risks from changes in commodity prices and foreign exchange rates remained immaterial in the first quarter of 2000. - 32 - Part II. Other Information Item 1. Legal Proceedings. For a description of the significant legal proceedings involving the Company, LG&E and KU, reference is made to the information under the following items and captions of the Company's, LG&E's and KU's respective combined Annual Report on Form 10-K for the year ended December 31, 1999: Item 1, Business; Item 3, Legal Proceedings; Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition; Notes 2, 6, 18 and 22 of the Company's Notes to Financial Statements under Item 8; Notes 3, 12 and 16 of LG&E's Notes to Financial Statements under Item 8 and Notes 3, 11 and 14 of KU's Notes to Financial Statements under Item 8. Except as described herein, to date, the proceedings reported in the Company's, LG&E's and KU's respective combined Annual Report on Form 10- K have not changed materially. PowerGen Merger Regulatory Filings On February 28, 2000, the Company announced the signing of a definitive merger agreement with PowerGen plc of the United Kingdom, wherein, upon closing, the Company will become a wholly-owned subsidiary of PowerGen and shareholders of the Company will receive $24.85 per share of Company common stock. The transaction is scheduled to be completed nine to twelve months from announcement, subject to receipt of required regulatory approvals and other conditions to consummation. Applications for approval were filed with the Kentucky Commission, the Virginia State Corporation Commission and the FERC (under the Federal Power Act) in March 2000, and with the SEC (under the Public Utility Holding Company Act of 1935) in April 2000. Approval applications or notice filings will also be made to the Tennessee Regulatory Authority, to the Department of Justice and the Federal Trade Commission (under the Hart-Scott-Rodino Antitrust Improvements Act of 1976) and as required under the "Exon-Florio" US Omnibus Trade and Competitiveness Act of 1988. PowerGen has made standard filings with the United Kingdom Office of Fair Trading under the Fair Trading Act of 1973, which implements a voluntary regulatory regime. Hearings before the Kentucky Commission were held April 19-21 and submissions of briefs and data requests have been completed. A decision is expected on or about May 15 and the Company will have approximately 23 days from any order in which to file for rehearing, or approximately 33 days in which to file for appeal. While the Company and PowerGen believe that they will receive the requisite regulatory approvals for the merger in sufficient time to complete the transaction on the schedule mentioned above, there can be no assurance as to the timing of such approvals or the ability to obtain such approvals on satisfactory terms or otherwise. See Item 1, PowerGen Merger and Note 22 to the Company's Notes to Financial Statements under Item 8 of its Annual Report on Form 10-K for the year ended December 31, 1999 for further discussion of this matter. - 33 - Item 6(a). Exhibits. Exhibit Number Description 27 Financial Data Schedules for LG&E Energy Corp., Louisville Gas and Electric Company, and Kentucky Utilities Company. Item 6(b). Reports on Form 8-K. On January 6, 2000, the Company filed a report on Form 8-K announcing that on December 21, 1999, it received an adverse order from the arbitration panel considering its contract dispute with OPC. On January 25, 2000, the Company filed a report on Form 8-K announcing that on January 7, 2000, it issued a statement regarding the Kentucky Commission's decision in the PBR case involving its two utility subsidiaries, LG&E and KU. On February 29, 2000, the Company filed a report on Form 8-K announcing that on February 27, 2000, it and PowerGen entered into an Agreement and Plan of Merger. - 34 - 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. LG&E Energy Corp. Registrant Date: May 15, 2000 /s/ Michael D. Robinson Michael D. Robinson Vice President and Controller (On behalf of the registrant in his capacity as Principal Accounting Officer) Pursuant to the requirements of the Securities 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, 2000 /s/ Michael D. Robinson Michael D. Robinson Vice President and Controller (On behalf of the registrant in his capacity as Principal Accounting Officer) Pursuant to the requirements of the Securities 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 15, 2000 /s/ Michael D. Robinson Michael D. Robinson Vice President and Controller (On behalf of the registrant in his capacity as Principal Accounting Officer) - 35 - EX-27 2
UT 0000055387 KENTUCKY UTILITIES COMPANY 1,000 3-MOS DEC-31-2000 MAR-31-2000 PER-BOOK 1,560,139 14,575 147,373 54,866 0 1,776,953 307,545 0 324,080 631,625 0 40,000 430,830 0 0 0 115,500 0 0 0 558,998 1,776,953 217,778 11,366 177,659 189,025 28,753 1,325 30,078 9,904 20,174 564 19,610 25,000 8,735 37,369 0 0 Includes common stock expense of $595.
EX-27 3
UT 0000861388 LG&E ENERGY CORP. 1,000 3-MOS DEC-31-2000 MAR-31-2000 PER-BOOK 3,407,651 599,603 744,656 253,625 0 5,005,535 775,299 (451) 354,944 1,129,792 0 135,140 1,279,426 443,520 0 0 411,808 0 0 0 1,605,849 5,005,535 625,390 16,082 549,470 565,552 59,838 5,009 64,847 33,237 31,610 1,728 29,882 41,172 16,910 125,157 0.23 0.23 Includes common stock expense of $1,714. Represents unrealized loss on marketable securities, net of taxes. Includes equity in earnings of affiliates of $5,930.
EX-27 4
UT 0000060549 LOUISVILLE GAS AND ELECTRIC COMPANY 1,000 3-MOS DEC-31-2000 MAR-31-2000 PER-BOOK 1,847,512 1,353 298,556 45,925 0 2,193,346 424,334 (284) 258,987 683,037 0 95,140 360,600 0 0 131,791 0 0 0 0 922,778 2,193,346 249,643 9,668 213,383 223,051 26,592 1,519 28,111 10,690 17,421 1,165 16,256 16,500 8,175 48,233 0 0 Includes common stock expense of $836. Represents unrealized gain/loss on marketable securities, net of taxes.
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