EXHIBIT 13
CENTRAL LOUSIANA ELECTRIC COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net income applicable to common stock for 1993 totaled $39.8 million,
or $1.78 per share, a decrease of $0.15 from 1992 earnings of $1.93
per share. Earnings for 1991 were $43.0 million, or $1.92 per share.
The decline in net income in 1993 was the result of a $0.31 per share
restructuring charge. The charge was partially offset by lower
interest expense and a 3.5% increase in kilowatt-hour sales due in
part to favorable weather compared with the previous year. Results for
1992 were influenced by a full year of service to the city of
Opelousas, milder summer weather, lower interest expenses and higher
operating expenses.
REVENUES AND SALES
Total revenues include fuel cost recovery and base revenues. Changes in
revenues and kilowatt-hour sales were as follows:
INCREASE (DECREASE)
FROM PRIOR YEAR
(IN MILLIONS)
REVENUES 1993 1992
Change attributable to:
Volume of sales to regular customers $ 7.0 $ 3.6
Recovered purchased power and fuel costs $ 23.8 $ 4.7
1993 1992
MILLION % MILLION %
SALES KWH CHANGE KWH CHANGE
Regular customers:
Residential 2,470 5.0 2,353 1.7
Commercial 1,109 4.4 1,062 1.8
Industrial 2,005 1.7 1,972 2.3
Other 463 (2.9) 477 2.8
Sales for resale 175 19.9 146 3.5
Total sales to regular customers 6,222 3.5 6,010 2.1
Short-term sales to other utilities 266 202.3 88 (27.3)
Total kilowatt-hour sales 6,488 6.4 6,098 1.5
The Company's base rates did not change in 1993 or 1992. Revenues
associated with fuel costs increased in 1993 and 1992 due primarily to
a rise in natural gas prices since 1991. Revenues from short-term
sales to other utilities are used to reduce the cost of fuel and
purchased power. Net income is not affected by changes in the cost of
fuel and purchased power because these costs are recovered in revenues
from customers through fuel adjustment clauses.
Kilowatt-hour sales are significantly influenced by the weather.
Both summer and winter temperatures were more favorable for sales
during 1993 as compared to 1992. About half of the increase in sales
to regular customers in 1992 was from the city of Opelousas, which was
added to the system in mid-1991.
During the past five years, sales growth averaged 2.9% per year.
During the next five years, retail sales growth is expected to range
from 2% to 2.5%. The levels of future sales will depend upon weather
conditions, customer conservation efforts, the Company's retail
marketing and business development programs and the overall economy of
the service area. Sales to industrial customers are also affected by
the national economy and worldwide demand for wood products, since the
Company's two largest customers are producers of such products. In
general, issues facing the electric utility industry that
14
could affect sales include deregulation, increased competition,
retention of large industrial customers and municipal franchises,
transmission access and demand side management programs.
In 1993 the Company signed an agreement with the city of St.
Martinville to provide wholesale service beginning in 1995. Sales to
the city will result in 13 megawatts of additional load through the
year 2000. The contract has been filed with the Federal Energy
Regulatory Commission (FERC) for approval. The Louisiana Energy and
Power Authority, the city of Lafayette and the American Public Power
Association have intervened before the FERC asserting unduly
preferential, discriminatory and predatory pricing. The Company is
contesting these assertions.
In July 1994 a nonexclusive municipal franchise affecting about
6,000 customers, or about 2.8% of the Company's customers, will
expire. The Company has begun negotiations for a new franchise, but
the city administration has indicated that it may seek ownership of
the Company's electric system within the city limits by condemnation
or otherwise. The outcome of the continuing negotiations for the
franchise is uncertain, but the Company will contest any attempt to
acquire its customers or local electric system.
In December 1992 England Air Force Base (EAFB) at Alexandria was
closed. In 1992 base revenues from EAFB totaled $1.2 million. The air
base property is now managed by a public authority comprised of local
community leaders responsible for developing and implementing a reuse
plan for base facilities. A national trucking company has relocated
its training facility to the site and the U.S. Army has contracted to
use a portion of the property for military training exercises. In 1993
the airfield and control tower reopened for commercial use. Other
companies are considering the site for possible use.
FUEL AND PURCHASED POWER
Changes in fuel and purchased power expenses reflect fluctuations in
generation mix, fuel costs, availability of economy power and deferral
of expenses for recovery from customers through fuel adjustment
clauses in subsequent months.
The Company obtains natural gas, coal and lignite under long-term
contracts and purchases natural gas on the spot market when prices are
advantageous. Power is purchased from other utilities when the
purchase price is less than the Company's cost to generate or when
needed to meet system requirements.
RESTRUCTURING
A six-month organizational effectiveness study was completed in 1993
which identified opportunities to improve Company operations and
provide better service to customers. As a result of the study, the
Company's organizational structure was streamlined, reflecting a
reduction of up to 150 positions. So far, about 100 positions have
been eliminated through enhanced early retirement and voluntary
severance programs that were offered to eligible employees. The costs
associated with restructuring resulted in a charge to earnings of
$10.9 million, or $7.0 million on an after-tax basis, consisting
mainly of long-term employee benefit obligations. Future benefit plan
costs will not be affected significantly by the effects of the
restructuring. The restructuring will benefit the Company in future
years through reductions in operating costs and accompanying
improvements in work processes.
NONFUEL OPERATING EXPENSES AND INCOME TAXES
The changes in nonfuel operating expenses for 1993 and 1992 were as
follows:
INCREASE (DECREASE) FROM PRIOR YEAR
(IN THOUSANDS, EXCEPT %)
1993 1992
Other operation $ (1,232) (2.4)% $ 2,845 5.8%
Maintenance $ (1,216) (4.6)% $ 438 1.7%
Depreciation $ 2,474 7.1% $ 832 2.4%
Other taxes $ 1,556 6.1% $ 2,501 10.9%
Income taxes $ 970 5.2% $ (323) (1.7)%
In 1993 other operation expenses decreased due to the recognition of
pension plan income on the accrual basis and the amortization of prior
regulatory liabilities of $5.4 million related to the pension plan
over a five-year period. This presentation was approved by the
Louisiana Public Service Commission (LPSC) staff, subject to review by
the LPSC in future proceedings. Maintenance expenses declined mainly
because of delays in maintenance projects attributable to the
restructuring. Depreciation expenses reflect the amortization of the
tax effect on prior years' AFUDC resulting from a new accounting
standard implemented January 1, 1993, and the completion of a large
transmission project in 1993 and other additions to utility plant
balances. Other taxes increased primarily due to additional property
taxes resulting from the expiration of a tax exemption on a generating
unit and normal additions to utility plant. Income taxes reflect the
increase in the federal tax rate in 1993.
In 1992 the increase in other operation expenses reflects the
early termination of an interest rate swap, the start-up of the
organizational effectiveness study and increases in employee benefit
costs. Maintenance expenses in total were slightly higher because
15
of Hurricane Andrew. Other taxes increased in 1992 due to higher
assessed property values and millages and additional state franchise
taxes. Other taxes also increased because of higher municipal
franchise taxes due to higher revenues, renegotiated franchise
agreements at higher rates and a full year of franchise payments to
the city of Opelousas. Income tax expense, like net income, did not
change significantly in 1992.
A number of parishes have attempted in recent years to impose
franchise fees on retail revenues earned within the unincorporated
areas served by the Company. If the parishes are ultimately
successful, taxes other than income taxes could increase substantially
in future years.
INTEREST INCOME AND EXPENSE
During 1992 a note receivable and equity investments held by the
Company were redeemed by the issuers. Interest income declined in 1993
and the latter part of 1992 as these funds were reinvested by the
Company at lower rates.
Interest expense declined in 1993 and 1992 as the Company
redeemed higher cost debt. The Company refunded $34 million of high
coupon debt and reduced short-term debt levels by about $35 million in
1993 by issuing long-term debt. In 1992 $96.7 million of debt was
refinanced by issuing lower-cost debt and by using temporary
investments. The decline in total debt in 1992, together with lower
interest rates on the new debt and on variable-rate debt in 1993 and
1992, reduced interest expense in both years.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
AFUDC represents the estimated cost of financing construction
work-in-progress and is not a current source of cash. A return on
and recovery of AFUDC is generally permitted by regulatory bodies in
setting rates charged for utility services. Prior to 1993 AFUDC was
recorded on a net-of-tax basis; but beginning in 1993 AFUDC was recorded
on a pre-tax basis as required by a new accounting standard. For 1993,
$1 million of the increase in total AFUDC is due to the effect of the
change to a pre-tax method. The increase in 1992 is primarily due to higher
accruals on cumulative construction work-in-progress. AFUDC accounted
for 7.6% of net income applicable to common stock in 1993, as compared
to 4.5% in 1992 and 2.3% in 1991.
EARNINGS PER SHARE
Common stock equivalents during the three-year period ended 1993 had
no material annual dilutive effect on net income per common share. The
Company expects that the effects of the Incentive Stock Option Plan
and the Employee Stock Ownership Plan (ESOP) will dilute earnings per
share by about 3%-4% in 1994. Therefore, both primary and fully-diluted
earnings per share are expected to be presented in Consolidated Statements
of Income beginning in 1994.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Financing for construction requirements and operational needs is
dependent upon the cost and availability of external funds through
capital markets and from financial institutions. Access to funds is
dependent upon factors such as general economic conditions, regulation
and the Company's credit rating.
Since 1990 the Company has participated in a program where up to
$35 million of receivables can be sold on an ongoing basis. The amount
of receivables that may be sold at any time depends upon seasonal
fluctuations in the amount of eligible receivables. The program is
presently scheduled to continue through April 1995.
The Company has an effective shelf registration statement and all
regulatory approvals necessary to issue up to $50 million of debt and
$50 million of preferred stock.
At December 31, 1993 and 1992, the Company had $28.4 million and
$63.9 million of short-term debt outstanding in the form of commercial
paper borrowings and bank loans. A $100 million revolving credit
facility, which provides support for the issuance of commercial paper,
is presently scheduled to continue through July 1996. Uncommitted
lines of credit with banks totaling $23 million are available to meet
short-term working capital needs. (See Note E to consolidated
financial statements.) Additionally, at December 31, 1993, an
unregulated subsidiary of the Company had $18 million of cash and
marketable securities.
In order to take advantage of the potential benefits inherent in
a larger energy system, the Company may use available investments,
issue additional debt or issue equity securities to finance growth
opportunities.
CASH GENERATION AND CASH REQUIREMENTS
During 1993 the Company generated $76.2 million of cash flows from
operating activities as shown in the Consolidated Statements of Cash
Flows. Net cash provided by operating activities results primarily
from net income adjusted for noncash charges to income and changes in
certain assets and liabilities. Net cash used in investing activities
is related to additions to utility plant and changes in utility and
nonutility investments. Net cash used in financing activities results
principally from the payment of
16
dividends to shareholders and long-term financing activities. The
decrease in net cash used in financing activities in 1993 was
primarily due to the Company's purchase of the ESOP note in 1992.
In recent years the construction program has consisted primarily
of enhancements to the transmission and distribution systems.
Expenditures, excluding AFUDC, totaled $48 million in 1993 and $62
million in 1992. In 1992 Hurricane Andrew severely damaged the
southwestern portion of the Company's service territory. The cost of
reconstruction totaled about $17 million. Approximately $14 million of
the cost was capitalized and is being depreciated at about 3%
annually; about $1 million of repairs was charged to the storm damage
reserve; and the balance was recognized as operation and maintenance
expense.
Construction expenditures for 1994 are estimated to be $52
million, excluding AFUDC, and for the five-year period ending 1998 are
expected to total $278 million, excluding AFUDC. The projected
expenditures for the five-year period ending 1998 include about $9
million for the refurbishment of a retired natural gas unit and demand
side management program costs required to keep the Company's capacity
margins at acceptable levels through the five-year construction
forecast period. Also included in the projected expenditures is about
$15 million of initial construction costs for generating capacity
requirements after 1998.
Scheduled maturities of debt and preferred stock will total about
$1 million for 1994 and approximately $48 million for the five-year
period ending 1998. If economical, certain issues of debt may be
refinanced in 1994, and the Company may require additional funds to
purchase outstanding shares of common stock on the open market as part
of a $30 million buyback plan begun in 1991. No shares were purchased
in 1993 or 1992, but $6.6 million was used in 1991 to reacquire common
shares.
In 1993 about 90% of total construction requirements was funded
internally as compared to 70% in 1992 and 100% in 1991. Without the
costs of restructuring in 1993 and reconstruction costs required by
Hurricane Andrew in 1992, construction requirements in both years
would have been substantially funded with internally generated funds.
In 1994 and for the five-year period ending 1998, essentially all
construction requirements are expected to be funded internally. Other
capital requirements for 1993 and 1992 were funded by the issuance of
debt and in 1992 by the use of temporary investments.
CHANGES IN DEFERRED INCOME TAXES, PREPAYMENTS AND DEFERRED CHARGES
The increases in accumulated deferred taxes and the associated
increases in prepayments and deferred credits are primarily
attributable to the implementation of a new method of accounting for
income taxes. A new accounting standard, implemented January 1, 1993,
required the recognition of deferred taxes and regulatory assets and
liabilities for items which had not been previously recognized because
of ratemaking treatment. These regulatory assets and liabilities will
be realized over the accounting lives of the related properties to the
extent past ratemaking practices are continued by regulators.
RETAIL RATES
Retail rates, which are regulated by the LPSC, account for 95% of
total revenues. Fuel costs and monthly fuel adjustment billing factors
are subject to audit by the LPSC. The LPSC establishes base rates for
the Company which reflect nonfuel costs, including the cost of
capital, and sales. In the past the Company has sought increases in
base rates to reflect the cost of service related to plant facility
additions and increases in operating costs. If the Company were to
request an increase in its rates and adequate rate relief were not
granted on a timely basis, the Company's ability to attract capital at
reasonable costs to finance its operations and capital improvements
may be impaired.
The LPSC has elected to review the earnings of all electric, gas,
water and telecommunication utilities regulated by it to determine if
the returns on equity of these companies may be higher than returns
that might be awarded in the current economic environment. The Company
expects to be reviewed in early 1995 and believes its current return
on equity is in line with business conditions.
INFLATION
The Company is a capital-intensive electric utility. As such, it is
affected by inflation since depreciation, which is based on the
historical cost of assets, will in all likelihood not fully reflect
the cost of replacing assets. Although the cost of fuel used for
electric generation is a major component of total costs, the Company
is not exposed to the effects of inflation in fuel prices since fuel
costs are recovered from customers through fuel adjustment clauses.
NEW ACCOUNTING STANDARDS
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112, Employers' Accounting for
Postemployment Benefits, and
17
SFAS No. 115, Accounting for Certain Investments in Debt and Equity.
The adoption of these standards will not have a significant effect on
the Company's financial condition or the results of its operations.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws and
regulations with regard to protection of the environment. Violations
may result in substantial fines and penalties. To the best of management's
knowledge, the Company has obtained all environmental permits necessary
for its operations and is in substantial compliance with all applicable
environmental laws and regulations.
In 1986 the Company was one of a number of companies named by the
Environmental Protection Agency as potentially responsible parties for
the cleanup of a site in Missouri previously operated by an authorized
PCB (polychlorinated biphenyl) processor. The Company is
participating with other parties in the cleanup of this site and all
anticipated costs have been funded.
In 1993 McDermott, Inc. filed a third-party complaint in federal
court requesting that the Company and over 200 other entities be held
jointly and severally liable for the costs of removal and disposal of
chemicals at a site near Livingston, Louisiana. McDermott is also
seeking indemnification for possible damages, if any, resulting from a
class action suit filed against it alleging personal injuries caused
by substances delivered to the site from 1962 to 1984. The Company's
investigation found no evidence that it disposed of any wastes at the
site during that period, and in January 1994, the Company was
dismissed without prejudice from these proceedings.
The 1995 implementation of phase I of the 1990 National Clean Air
Act will not require the Company to reduce sulfur emissions at its
solid-fuel generating units, which either burn low-sulfur coal or
utilize pollution control equipment. However, the Company expects to
spend about $3 million to complete the installation of continuous
monitoring equipment on its generating units. Phase II of the
legislation, effective in 2000, involves more stringent limits on
emissions, which should not significantly affect the way the Company's
generating units are operated. However, some capital investment may
be necessary in order to comply with phase II requirements.
18
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31 1993 1992 1991
OPERATING REVENUES $382,433 $351,613 $343,350
Operating expenses
Fuel used for electric generation 119,197 113,944 114,431
Power purchased 28,088 9,647 4,515
Other operation 50,693 51,925 49,080
Restructuring charge 10,851
Maintenance 24,991 26,207 25,769
Depreciation 37,292 34,818 33,986
Other taxes 27,011 25,455 22,954
Federal and state income taxes 19,565 18,595 18,918
317,688 280,591 269,653
OPERATING INCOME 64,745 71,022 73,697
Interest income 358 1,937 2,649
Allowance for other funds used during
construction 2,556 1,412 642
Other income (expense), net (88) (642) (873)
INCOME BEFORE INTEREST CHARGES 67,571 73,729 76,115
Interest charges
Interest on debt and other 24,839 27,746 30,425
Allowance for borrowed funds used
during construction (482) (538) (357)
Amortization of debt discount,
premium and expense, net 1,402 1,282 1,118
25,759 28,490 31,186
NET INCOME 41,812 45,239 44,929
Preferred dividend requirements, net 1,985 2,229 1,972
NET INCOME APPLICABLE TO COMMON STOCK $ 39,827 $ 43,010 $ 42,957
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 22,350,475 22,279,852 22,361,852
NET INCOME PER AVERAGE COMMON SHARE $1.78 $1.93 $1.92
CASH DIVIDENDS PAID PER SHARE OF
COMMON STOCK $1.410 $1.370 $1.325
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
20
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
AT DECEMBER 31 1993 1992
ASSETS
Utility plant
Property, plant and equipment $ 1,241,147 $ 1,178,273
Accumulated depreciation (379,753) (356,659)
861,394 821,614
Construction work-in-progress 33,642 57,342
Total utility plant, net 895,036 878,956
Investments and other assets 20,197 23,771
Current assets
Cash and cash equivalents 5,802 1,798
Accounts receivable, net
Customer 3,981 1,280
Other 6,720 6,766
Unbilled revenues 1,506 1,122
Fuel inventory, at average cost 11,898 8,215
Material and supplies inventory,
at average cost 14,007 12,495
Prepayments and other 2,218 1,724
Total current assets 46,132 33,400
Prepayments and deferred charges 162,196 37,349
Accumulated deferred federal and
state income taxes 38,074 4,744
$ 1,161,635 $ 978,220
CAPITALIZATION AND LIABILITIES
Common shareholders' equity
Common stock, $2 par value,
authorized 50,000,000 shares,
issued 22,708,874 and
22,634,081 shares at December
31, 1993 and 1992, respectively $ 45,418 $ 45,268
Premium on capital stock 112,829 111,811
Retained earnings 200,908 192,637
Treasury stock, at cost, 326,380
and 328,334 shares at December
31, 1993 and 1992, respectively (6,600) (6,639)
352,555 343,077
Preferred stock not subject to
mandatory redemption 30,982 31,023
Preferred stock subject to mandatory
redemption 7,242 7,400
Deferred compensation related to
preferred stock held by ESOP (26,118) (28,306)
Long-term debt 351,087 310,814
Total capitalization 715,748 664,008
Commitments and contingencies (Notes
C, E, F, I and K)
Current liabilities
Short-term debt 28,373 63,870
Long-term debt due within one
year 790 649
Accounts payable 40,653 42,216
Customer deposits 18,638 17,771
Taxes accrued 5,069 2,697
Interest accrued 8,329 7,285
Accumulated deferred fuel 5,315 3,446
Other 2,355 2,637
Total current liabilities 109,522 140,571
Deferred credits
Accumulated deferred federal and
state income taxes 224,151 116,690
Accumulated deferred investment
tax credits 36,806 38,632
Other 75,408 18,319
Total deferred credits 336,365 173,641
$ 1,161,635 $ 978,220
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31 1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $41,812 $45,239 $44,929
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 37,940 36,299 35,335
Allowance for funds used during
construction (3,038) (1,950) (999)
Amortization of investment tax
credits (1,826) (1,830) (1,814)
Deferred income taxes 1,327 10,826 6,131
Deferred fuel costs 1,869 (1,057) 748
Restructuring charge 7,135
GAIN ON DISPOSITION OF UTILITY
PLANT, NET (66)
Changes in assets and
liabilities
Accounts receivable (2,655) (6,832) 2,506
Unbilled revenues (384) (753) 1,810
Inventories (5,195) (410) 4,930
Accounts payable (2,014) 4,250 (514)
Customer deposits 867 872 722
Taxes accrued 2,372 (2,456) (503)
Interest accrued 1,044 (1,511) 864
Other, net (3,075) (5,010) (4,596)
Net cash provided by
operating activities 76,179 75,611 89,549
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to utility plant (51,507) (64,425) (54,918)
Allowance for funds used during
construction 3,038 1,950 999
Sale of utility plant 377 673 522
Proceeds from long-term note
receivable 9,808
Purchase of investments (292,178) (527,754) (375,548)
Sale of investments 296,658 562,933 336,919
Net cash used in investing
activities (43,612) (16,815) (92,026)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,160 795 864
Repurchase of common stock (6,645)
Issuance of preferred stock 30,000
Redemption of preferred stock (150) (5,881) (513)
Issuance of long-term debt 75,000 75,000 111,260
Retirement of long-term debt (35,583) (106,139) (61,899)
Purchase of ESOP note (29,350)
Increase (decrease) in short-term
debt, net (35,497) 38,805 (39,272)
Dividends paid on common and
preferred stock, net (33,493) (32,146) (31,622)
Net cash provided by (used
in) financing activities (28,563) (58,916) 2,173
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,004 (120) (304)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,798 1,918 2,222
CASH AND CASH EQUIVALENTS AT END OF
YEAR $ 5,802 $ 1,798 $ 1,918
Supplementary cash flow information
Interest paid (net of amount
capitalized) $24,116 $28,748 $28,354
Income taxes paid $17,326 $11,015 $14,500
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
22
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PREMIUM
FOR THE YEARS ENDED DECEMBER 31, COMMON STOCK ON CAPITAL RETAINED TREASURY STOCK
1991, 1992, AND 1993 SHARES AMOUNT STOCK EARNINGS SHARES COST
BALANCE, JANUARY 1, 1991 22,498,502 $ 44,997 $ 110,411 $ 166,962
Redemptions of preferred stock 93
Incentive stock options exercised 71,910 144 720
Repurchases of common stock 328,600 $ 6,645
Dividend requirements, preferred
stock, net (1,972)
Cash dividends paid, common stock,
$1.325 per share (29,650)
Net income 44,929
BALANCE, DECEMBER 31, 1991 22,570,412 45,141 111,224 180,269 328,600 6,645
Redemptions of preferred stock (81)
Incentive stock options exercised 63,669 127 668
Issuance of treasury stock (266) (6)
Costs associated with stock split (116)
Dividend requirements, preferred
stock, net (2,229)
Cash dividends paid, common stock,
$1.370 per share (30,526)
Net income 45,239
BALANCE, DECEMBER 31, 1992 22,634,081 45,268 111,811 192,637 328,334 6,639
Redemptions of preferred stock 8
Incentive stock options exercised 74,793 150 1,010
Issuance of treasury stock (1,981) (40)
Incentive shares forfeited 27 1
Capital stock expense (48)
Dividend requirements, preferred
stock, net (1,985)
Cash dividends paid, common stock,
$1.410 per share (31,508)
Net income 41,812
BALANCE DECEMBER 31, 1993 22,708,874 $ 45,418 $ 112,829 $ 200,908 326,380 $ 6,600
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION AND REGULATION
The consolidated financial statements include the accounts of Central
Louisiana Electric Company, Inc. (the Company) and its wholly owned
subsidiaries.
The Company maintains its accounts in accordance with the Uniform
System of Accounts prescribed for electric utilities by the Federal
Energy Regulatory Commission (FERC), as adopted by the Louisiana
Public Service Commission (LPSC). The Company provides electric
service to a diversified base of residential, commercial and
industrial customers in 23 parishes of Louisiana. The Company's
retail rates for residential, commercial and industrial customers and
other retail sales are regulated by the LPSC, and its rates for
transmission services and wholesale power sales are regulated by the
FERC.
UTILITY PLANT AND DEPRECIATION
Utility plant is stated at the original cost of construction, which
includes certain materials, labor, payroll taxes and benefits,
administrative and general costs, and the estimated cost of funds used
during construction. The cost of repairs and minor replacements is
charged as incurred to the appropriate operating expense and clearing
accounts. The cost of improvements is capitalized. Upon retirement
or disposition, the recorded cost of depreciable plant and the cost of
removal, net of salvage value, are charged to accumulated
depreciation.
The provision for depreciation is computed using the
straight-line method at rates which will amortize the unrecovered cost
of depreciable property over its estimated useful life. Annual
depreciation provisions expressed as a percentage of average
depreciable property were 3.11% for 1993, 3.13% for 1992 and 3.15% for
1991.
CASH EQUIVALENTS
The Company considers highly liquid, marketable securities and other
similar instruments with original maturity dates of less than three
months to be cash equivalents.
INCOME TAXES
Deferred income taxes are provided at the current enacted income tax
rate on all temporary differences between tax and book bases of assets
and liabilities. The Company recognizes regulatory assets and
liabilities for the tax effect of temporary differences which, to the
extent past ratemaking practices are continued by regulators, will be
realized over the accounting lives of the related properties.
INVESTMENT TAX CREDITS
Investment tax credits which were deferred for financial statement
purposes are amortized to income over the estimated service lives of
the properties which gave rise to the credits.
DEBT EXPENSE, PREMIUM AND DISCOUNT
Expense, premium and discount applicable to debt securities are being
amortized to income ratably over the lives of the related issues.
Expense and call premium related to refinanced debt are amortized over
the remaining life of the original issue.
REVENUES AND FUEL COSTS
Revenues from sales of electricity are recognized based upon the
amount of energy delivered. The cost of fuel is recovered from
customers through fuel adjustment clauses, based upon fuel costs
incurred in prior months. These adjustments are subject to audit and
final determination by regulators.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
The capitalization of AFUDC is a utility accounting practice
prescribed by the FERC. AFUDC represents the estimated cost of
financing construction work-in-progress. AFUDC does not represent a
current source of cash, but under regulatory practices, a return on
and recovery of AFUDC is permitted in setting rates charged for
utility services. The composite AFUDC rate used for 1993 was 15.1% on
a pre-tax basis (9.29% on a net-of-tax basis) and was 9.35% on a
net-of-tax basis for 1992 and 1991.
NET INCOME PER COMMON SHARE
Net income per common share has been computed using the weighted
average number of shares of common stock outstanding during the year.
Common stock equivalents during the three-year period ended 1993 had
no material annual dilutive effect on net income per common share.
For 1994 the Company expects the effects of the Incentive Stock Option
Plan and the Employee Stock Ownership Plan (ESOP) will dilute earnings
per share by about 3%-4%. All prior-period share and per share amounts
have been restated for a two-for-one stock split in May 1992.
RECLASSIFICATIONS
Certain prior-period amounts have been reclassified to conform with
the presentation shown in the current year's consolidated financial
statements. These reclassifications had no effect on net income
applicable to common stock or common shareholders' equity.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE B JOINTLY OWNED GENERATING UNITS
Two electric generating units operated by the Company are jointly
owned with other utilities. The Company's proportionate share of
operation and maintenance expenses associated with these two units are
reflected in the financial statements. Information about each of
these units at December 31, 1993, was as follows:
(DOLLAR AMOUNTS IN THOUSANDS)
RODEMACHER DOLET HILLS
UNIT #2 UNIT #1
Percentage of ownership 30% 50%
Utility plant in service* $ 84,631 $ 268,846
Accumulated depreciation $ 29,028 $ 61,527
Unit capability (thousand kilowatts) 523.0 650.0
Share of capability (thousand
kilowatts) 156.9 325.0
* INCLUDES GENERATING PLANT AND RELATED TRANSMISSION AND OTHER FACILITIES
NOTE C RECEIVABLES
The Company sells an ownership interest in certain types of accounts
receivable and a portion of accrued but unbilled revenues. A maximum
of $35,000,000 of receivables may be sold at any time, and new
receivables are sold as previously sold receivables are collected.
The Company is obligated to repurchase a limited amount of receivables
if such receivables were to become uncollectible. The Company
maintains an allowance for uncollectible accounts based on historical
experience against which losses on all receivables are charged.
Information about the sale of accounts receivable for 1993 and 1992 is
as follows:
(IN THOUSANDS)
1993 1992
Receivables sold but not collected* $ 35,000 $ 35,000
Average amount of receivables sold $ 34,366 $ 33,373
Costs charged to operating expense $ 1,311 $ 1,472
Receivables subject to repurchase* $ 3,374 $ 3,438
Accumulated provision for
uncollectible accounts* $ 537 $ 779
* AT YEAR END
NOTE D FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts reflected in the financial statements at December 31, 1993
and 1992, for cash and cash equivalents, accounts receivable, accounts
payable and short-term debt approximate fair value because of their
short-term nature. The fair value of investments at December 31, 1993
and 1992, is estimated based on quoted market prices for these or
similar investments. The fair value of the Company's long-term debt
and nonconvertible preferred stock is estimated based upon the quoted
market price for the same or similar issues or by a discounted present
value analysis of future cash flows using current rates obtainable by
the Company for debt and preferred stock with similar maturities. The
fair value of convertible preferred stock is estimated assuming its
conversion into common stock at the market price per common share at
December 31, 1993 and 1992, with proceeds from the sale of the common
stock used to repay the principal balance of the Company's loan to the
ESOP.
(IN THOUSANDS)
1993 1992
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
Investments $ 19,572 $ 19,657 $ 23,358 $ 23,358
Long-term debt $ 352,391 $ 379,127 $ 312,040 $ 332,727
Preferred stock not subject to
Mandatory redemption $ 4,864 $ 8,165 $ 2,717 $ 5,981
Preferred stock subject to mandatory
redemption $ 7,242 $ 5,978 $ 7,400 $ 5,741
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE E DEBT
The Company has a $100,000,000 revolving credit facility with a group
of banks that provides for uncollateralized borrowings at prevailing
market interest rates or at interest rates established by competitive
bids. Each year, subject to the approval of the banks, the facility
may be extended for a one-year period. In 1993 the scheduled
expiration date of the facility was extended for one year to July 31,
1996. The Company pays a commitment fee (currently 0.1875%) on the
full amount of the facility, based upon the Company's lowest senior
secured debt or unsecured commercial paper rating. The Company is not
required to maintain compensating balances in connection with the
revolving credit facility. Since the revolving credit facility
provides liquidity support for the issuance of commercial paper, the
aggregate amount of commercial paper notes and borrowings under the
revolving credit facility cannot exceed $100,000,000. In addition to
its revolving credit facility, the Company also has various
uncommitted borrowing arrangements with banks totaling $23,000,000.
The banks are not obligated to lend under these arrangements, and any
borrowings are made at negotiated interest rates and are
uncollateralized. The Company pays no fees on any of these
arrangements, nor are compensating balances required.
Debt at December 31, 1993 and 1992, consisted of the following:
(IN THOUSANDS)
1993 1992
Short-term debt
Commercial paper, net $ 25,073 $ 57,870
Bank loans 3,300 6,000
Total short-term debt $ 28,373 $ 63,870
Long-term debt
First mortgage bonds
Series L, 5%, due 1995 $ 14,000 $ 14,000
Series M, 7 3/4%, due 1999 12,000
Series P, 7 3/4%, due 2002 12,000
Series X, 9 1/2%, due 2005 60,000 60,000
Series Y, 9 5/8%, due 2021 50,000 50,000
Pollution control revenue bonds,
variable rate, due 2018 61,260 61,260
Medium-term notes
10.05%, due 2001 10,000
9.13%, due 1997 15,000 15,000
7.85%, due 2000 25,000 25,000
7.53%, due 2004 25,000 25,000
7.00%, due 2003 10,000 10,000
6.90%, due 1998 15,000 15,000
5.90%, due 1999 10,000
6.55%, DUE 2003 15,000
6.33%, DUE 2002 25,000
5.78%, DUE 2001 10,000
6.20%, DUE 2006 15,000
MORTGAGE NOTES, 2%, DUE 1994-1995 346 545
Capitalized lease obligations,
5.40% - 6.875%, due 1994-2001 1,785 2,235
352,391 312,040
Amount due within one year (790) (649)
Unamortized premium and discount,
net (514) (577)
Total long-term debt $ 351,087 $ 310,814
In 1991 the ESOP borrowed funds needed to purchase convertible
preferred stock of the Company, and the Company guaranteed the
repayment of the loan. The Company subsequently purchased the balance
of the loan. The purchased ESOP note offsets the Company's guarantee
of the ESOP's loan. The ESOP makes debt service payments to the
Company from dividends received on the Company's convertible preferred
stock and, if necessary, from additional contributions by the Company
in amounts sufficient to satisfy debt service requirements.
Long-term debt due within one year includes $140,000 of annual
sinking fund requirements associated with the Company's first mortgage
bonds, which the Company may elect to satisfy by pledging property
additions in accordance with the indenture under which substantially
all of the Company's utility plant is pledged as collateral.
The amounts payable under long-term debt agreements over the next
five years and thereafter are as follows:
(IN THOUSANDS)
1994 1995 1996 1997 1998 Thereafter Total
Amount payable under long-term debt
agreements $ 790 $ 14,536 $ 535 $ 15,250 $ 15,005 $ 306,275 $ 352,391
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE F COMMON STOCK
In April 1992 shareholders approved a two-for-one split of the
Company's common stock. The stock split reduced the par value of the
common stock from $4.00 per share to $2.00 per share and increased the
number of authorized shares of common stock from 25,000,000 shares to
50,000,000 shares.
In association with incentive compensation plans in effect during
the three-year period ended 1993, certain officers and key employees
could be awarded shares of restricted or unrestricted common stock or
held options to purchase shares of the Company's common stock at 100%
of the fair market value of the common stock at the dates the options
were granted. The cost of the restricted stock awards, as measured by
the fair market value of the common stock at the time of the grant, is
recorded as compensation expense during the periods in which the
restrictions on the common stock lapse. The Company makes no charge to
expense with respect to the options. At December 31, 1993, all
options were exercisable, while the number of shares of restricted
stock previously awarded for which restrictions had not lapsed totaled
20,546 shares. Changes in incentive shares for the three-year period
ended 1993 were as follows:
INCENTIVE SHARES
OPTION PRICE UNEXERCISED AVAILABLE FOR
PER SHARE OPTION SHARES FUTURE GRANTS
Balance, January 1, 1991 282,802 843,350
Options exercised $ 7.00 (11,800)
$8.875 (17,990)
$14.75 (42,120)
Options expired and returned to plan $14.75 (2,000) 2,000
Expiration of 1981 stock option plan (45,350)
Restricted stock granted (8,774)
Balance, December 31, 1991 208,892 791,226
Options exercised $ 7.00 (900)
$8.875 (25,668)
$14.75 (30,201)
$16.78 (6,900)
Restricted stock granted (6,994)
Balance, December 31, 1992 145,223 784,232
Options exercised $8.875 (6,118)
$14.75 (35,275)
$16.78 (33,400)
Restricted stock granted (10,320)
Restricted stock forfeited 27
Incentive stock awarded (2,624)
BALANCE, DECEMBER 31, 1993 70,430 771,315
Various debt agreements of the Company contain covenants which
restrict the amount of retained earnings that may be distributed as
dividends to common shareholders. The most restrictive covenant
requires that common shareholders' equity be not less than 30% of
total capitalization, including short-term debt. At December 31,
1993, approximately $129,000,000 of retained earnings was not
restricted.
NOTE G SUPPLEMENTARY PROFIT AND LOSS INFORMATION
(IN THOUSANDS)
1993 1992 1991
Operating revenue derived from one
customer $ 29,731 $ 29,193 $ 28,969
Other taxes included in income
statement $ 27,011 $ 25,455 $ 22,954
Other taxes capitalized to plant 882 775 684
Total other taxes $ 27,893 $ 26,230 $ 23,638
Other taxes consist of:
State and municipal property $ 14,174 $ 13,086 $ 11,901
State and municipal franchise 9,443 9,066 7,800
Other 4,276 4,078 3,937
Total other taxes $ 27,893 $ 26,230 $ 23,638
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H PREFERRED STOCK
Information about the components of preferred stock capitalization is
as follows:
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
BALANCE BALANCE BALANCE
JANUARY 1, DECEMBER 31, DECEMBER 31,
1991 Change 1991 Change 1992 Change
CUMULATIVE PREFERRED STOCK, $100 par
value
NOT SUBJECT TO MANDATORY REDEMPTION
4.50% $ 1,055 $ (26) $ 1,029 $ 1,029
Convertible, series of 1991,
variable rate 30,000 30,000 $ (6) 29,994 $ (41)
$ 1,055 $ 29,974 $ 31,029 $ (6) $ 31,023 $ (41)
SUBJECT TO MANDATORY REDEMPTION
4.50%, Series of 1955 $ 600 $ (40) $ 560 $ (40) $ 520 $ (40)
4.65%, Series of 1964 3,780 (140) 3,640 (140 3,500
4.75%, Series of 1965 3,640 (130) 3,510 (130) 3,380 (118)
7.50%, Series of 1973 5,760 (270) 5,490 (5,490)
$ 13,780 $ (580) $ 13,200 $(5,800) $ 7,400 $ (158)
Deferred compensation related to
convertible preferred stock held by
the ESOP $(29,291) $(29,291) $ 985 $(28,306) $2,188
CUMULATIVE PREFERRED STOCK, $100 par
value
Number of Shares
Authorized 1,483,800 (5,400) 1,478,400 (57,600) 1,420,800 (1,181)
Issued and Outstanding 148,345 293,943 442,288 (58,056) 384,232 (1,994)
CUMULATIVE PREFERRED STOCK, $25 par
value
Number of Shares
Authorized 3,000,000 3,000,000 3,000,000
Issued and Outstanding -- -- -- --
BALANCE
DECEMBER 31, 1993
CUMULATIVE PREFERRED STOCK, $100 par
value
NOT SUBJECT TO MANDATORY REDEMPTION
4.50% $ 1,029
Convertible, series of 1991,
variable rate 29,953
$ 30,982
SUBJECT TO MANDATORY REDEMPTION
4.50%, Series of 1955 $ 480
4.65%, Series of 1964 3,500
4.75%, Series of 1965 3,262
7.50%, Series of 1973
$ 7,242
Deferred compensation related to
convertible preferred stock held by
the ESOP $(26,118)
CUMULATIVE PREFERRED STOCK, $100 par
value
Number of Shares
Authorized 1,419,619
Issued and Outstanding 382,238
CUMULATIVE PREFERRED STOCK, $25 par
value
Number of Shares
Authorized 3,000,000
Issued and Outstanding --
In 1991 the Company sold 300,000 shares of convertible preferred
stock to an ESOP. The dividend rate on the preferred stock was 8.125%
in 1993 and 1992. Each share of preferred stock is convertible into 4.8
shares of common stock. The amount of total capitalization reflected
in the financial statements has been reduced by an amount of deferred
compensation expense related to the shares of convertible preferred
stock which have not yet been allocated to ESOP participants. The
amount shown in the financial statements for preferred dividend
requirements in 1993, 1992 and 1991 has been reduced by $840,000,
$919,000 and $680,000, respectively, to reflect the benefit of the
income tax deduction for dividend requirements on unallocated shares
held by the ESOP.
Preferred stock, other than the convertible preferred stock held
by the ESOP, is redeemable at the Company's option, subject to 30
days' prior written notice to holders. Preferred stock subject to
mandatory redemption is redeemable annually through sinking funds or
purchase funds at prices of not more than $100 per share until all
shares have been redeemed. The convertible preferred stock is
redeemable at any time upon the occurrence of certain events and,
after April 1, 1996, is redeemable at the Company's option. If the
Company were to elect to redeem the convertible preferred shares,
shareholders may elect to receive the optional redemption price or
convert the preferred shares into common stock. The redemption
provisions for the various series of preferred stock are shown in the
following table.
OPTIONAL REDEMPTION MANDATORY REDEMPTION
PRICE PER NUMBER OF PRICE PER
SERIES SHARE SHARES ANNUALLY SHARE
4.50% $ 101 -- --
4.50%, Series of 1955 $ 102 400 $ 100
4.65%, Series of 1964 $ 102 1,400 $ 100
4.75%, Series of 1965 $ 100 1,300 $ 100
Convertible, Series of 1991 -- --
Through April 1, 1996 $107.3125 to $104.875
Thereafter $ 104.0625 to $100
Upon involuntary liquidation preferred shareholders are entitled
to receive par value for shares held before any distribution is made
to common shareholders. Upon voluntary liquidation preferred
shareholders are entitled to receive the redemption price per share
applicable at the time such liquidation occurs plus any accrued
dividends. In 1993 no shares of the 4.65%, Series of 1964 preferred
stock were tendered by shareholders in response to the Company's
offers to purchase shares in satisfaction of the annual purchase fund
redemption requirement; the Company's offers to purchase shares of the
4.75%, Series of 1965 preferred stock were accepted only in part by
shareholders.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I PENSION PLAN AND EMPLOYEE BENEFITS
Substantially all employees are covered by a noncontributory, defined
benefit pension plan. Benefits under the plan reflect an employee's
years of service, age at retirement and highest total average
compensation for any consecutive five calendar years during the last
ten years of employment with the Company. The Company's policy is to
fund contributions to the employee pension plan based upon actuarial
computations utilizing the projected unit credit method, subject to
the Internal Revenue Service full funding limitation. Consistent with
regulatory accounting practices prior to 1993, the Company recognized
a regulatory adjustment to accrued pension costs so that pension
expense was equal to the amount funded. No contributions to the
pension plan were required during the three-year period ended 1993.
Effective January 1, 1993, the Company began accounting for its
pension plan on an accrual basis for ratemaking purposes with the
approval of the LPSC staff. Additionally, the previously recorded
regulatory asset is being amortized to income over a five-year period,
subject to review by the LPSC in future proceedings. The components of
pension expense and the actuarial assumptions for the three-year
period ended 1993 were as follows:
(IN THOUSANDS)
1993 1992 1991
Service costs for benefits earned
during the period $ 2,559 $ 2,422 $ 2,237
Interest costs on projected benefit
obligation 5,674 5,206 4,578
Actual gain on assets (8,164) (4,175) (22,866)
Special termination benefits 3,903 -- --
Net amortization and deferral (1,109) (4,490) 15,075
Net pension benefit cost 2,863 (1,037) (976)
Regulatory adjustment -- (1,037) 976
Net pension cost expensed $ 2,863 $ 0 $ 0
Actuarial assumptions
Weighted average discount rate 7.00% 8.50% 7.75%
Rate of increase in future
compensation 5.00% 6.40% 6.40%
Rate of return on plan assets 9.50% 9.50% 9.50%
Employee pension plan assets are invested in publicly traded
domestic common stocks, U.S. government, federal agency and corporate
obligations, an international equity fund, commercial real estate
funds and pooled temporary investments.
The employee pension plan's funded status as determined by the
actuary at December 31, 1993 and 1992, is presented in the following
table.
(IN THOUSANDS)
1993 1992
Actuarial present value of benefit
obligation
Vested benefits $ (68,463) $ (49,037)
Nonvested benefits (3,038) (2,562)
Accumulated benefit obligation (71,501) (51,599)
Effect of projected future
compensation levels (14,547) (15,966)
Projected benefit obligation for
service rendered to date (86,048) (67,565)
Plan assets at fair market value 105,105 101,540
Plan assets in excess of projected
benefit obligation 19,057 33,975
Unamortized transition asset (13,214) (14,531)
Unrecognized net gain (2,980) (19,444)
Accrued pension asset $ 2,863 $ 0
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I (continued)
Substantially all employees are eligible to participate in a
savings and investment plan (401(k) Plan). The Company makes matching
contributions to 401(k) Plan participants by allocating shares of
convertible preferred stock held by the ESOP. Compensation expense
related to the 401(k) Plan is based upon the value of shares of
preferred stock allocated to ESOP participants, and the amount of
interest incurred by the ESOP, less dividends on unallocated shares
held by the ESOP. Prior to the establishment of the ESOP, matching
contributions to the 401(k) Plan were made by the Company in cash.
The table below contains information about the 401(k) Plan and the
ESOP for the three-year period ended 1993.
(IN THOUSANDS)
1993 1992 1991
401(k) Plan expense $ 1,449 $ 870 $ 1,109
Dividend requirements to ESOP on
convertible preferred stock $ 2,434 $ 2,436 $ 1,808
Interest incurred by ESOP on its
indebtedness $ 2,079 $ 1,535 $ 1,374
Company contributions to ESOP $ 1,270 $ 325 $ 22
The Company's retirees and their dependents are eligible to
receive health, dental and life insurance benefits. Prior to 1993 the
Company recognized the cost of postretirement benefits as claims were
paid, which was approximately $764,000 in 1992 and $552,000 in 1991.
In 1993 the Company began recognizing the expected cost of these
benefits during the periods in which the benefits are earned.
The components of net postretirement benefit cost for 1993 were
as follows:
(IN THOUSANDS)
Service costs for benefits earned in 1993 $ 507
INTEREST COSTS 1,010
AMORTIZATION OF TRANSITION OBLIGATION 572
PLAN CURTAILMENT COST 441
RECOGNITION OF PRIOR SERVICE COSTS 1,512
NET POSTRETIREMENT BENEFIT COST $ 4,042
The financial status of the postretirement benefit plan at
December 31, 1993, as determined by the actuary is presented in the
following table.
(IN THOUSANDS)
Accumulated benefit obligation
Retirees $ 10,600
FULLY ELIGIBLE PARTICIPANTS 1,181
OTHER ACTIVE PARTICIPANTS 3,070
TOTAL ACCUMULATED BENEFIT OBLIGATION 14,851
UNAMORTIZED TRANSITION OBLIGATION (9,753)
UNRECOGNIZED LOSS (1,697)
ACCRUED UNFUNDED POSTRETIREMENT
BENEFIT LIABILITY $ 3,401
Effective October 1, 1993, the Company revised certain actuarial
assumptions used in the computation of postretirement benefit expense,
which resulted in an unrecognized gain of $961,000. The unrecognized
gain was subsequently eliminated against the increase in
postretirement benefit costs due to the curtailment associated with
the restructuring.
The assumed health care cost trend rate used to measure the
expected cost of benefits was 10% in 1993, declining to 5.5% by 2006
and remains at 5.5% thereafter. If the health care cost trend rate
assumptions were increased by 1%, the accumulated benefit obligation
would be $15,310,000 at December 31, 1993, and the aggregate of the
service and interest cost components of the net periodic cost of
health care benefits would be $1,552,000 annually. The weighted
average assumed discount rate used to measure the accumulated benefit
obligation was changed from 8.5% to 7% in 1993 and resulted in an
unrecognized loss.
In 1993 the Company's organizational structure was streamlined.
The resulting reduction in staff was achieved through enhanced early
retirement and voluntary severance programs. The restructuring charge,
which totaled $10,851,000, included $3,903,000 for special pension
termination benefit costs, $1,953,000 for net postretirement plan
curtailment costs, and $4,995,000 for voluntary severance, relocation
and other costs.
Beginning in 1994, the Company will recognize the cost of
providing postemployment benefits, primarily an insurance deductible
associated with an employee disability plan, when incurred. The
estimated liability recognized effective January 1, 1994, was
approximately $109,000.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE J INCOME TAXES
Federal income tax expense for the three-year period ended 1993 is
less than the amount computed by applying the statutory federal rate
to book income before tax as follows:
(IN THOUSANDS, EXCEPT FOR %)
1993 1992 1991
AMOUNT % Amount % Amount %
Book income before tax $ 61,377 100.0 $ 63,834 100.0 $ 63,847 100.0
Tax at statutory rate on book income
before tax $ 21,482 35.0 $ 21,704 34.0 $ 21,708 34.0
Increase (decrease):
Tax effect of AFUDC (1,063) (1.7) (663) (1.0) (340) (0.5)
Amortizaton of investment tax
credits (1,827) (2.9) (1,830) (2.9) (1,836) (2.9)
Tax effect of prior-year tax
benefits not deferred 444 0.7 297 0.5 383 0.6
Other, net (2,194) (3.6) (2,263) (3.6) (3,185) (5.0)
Total federal income tax expense 16,842 27.5 17,245 27.0 16,730 26.2
Current state income tax expense 2,723 4.4 1,350 2.1 2,188 3.4
Total federal and state income tax
expense $ 19,565 31.9 $ 18,595 29.1 $ 18,918 29.6
Information about current and deferred income tax expense is as follows:
(IN THOUSANDS)
1993 1992 1991
Current federal income tax expense $ 17,342 $ 8,249 $ 12,413
Deferred federal income tax expense 1,327 10,826 6,131
Amortization of accumulated deferred
investment tax credits (1,827) (1,830) (1,814)
Total federal income tax expense 16,842 17,245 16,730
Current state income tax expense 2,723 1,350 2,188
Total federal and state income tax
expense $ 19,565 $ 18,595 $ 18,918
Deferred federal income tax expense
attributable to:
Depreciation $ 5,022 $ 4,852 $ 4,815
Storm damages 414 4,801 (61)
Asset basis differences (882) 380 1,243
Employee benefits (2,074) -- --
Fuel costs (620) 407 302
Other (533) 386 (168)
Total deferred federal income tax
expense $ 1,327 $ 10,826 $ 6,131
Cumulative net amounts of timing
differences for which
deferred federal income taxes have
not been provided -- $ 21,480 $ 22,880
The balance of accumulated deferred federal and state income tax assets and
liabilities at December 31, 1993, was comprised of the tax effect of the
following:
(IN THOUSANDS)
Asset Liability
Depreciation and property basis
differences $ 4,974 $ 117,087
Allowance for funds used during
construction -- 42,110
Investment tax credits 23,116 --
Other 9,984 64,954
Accumulated deferred federal and
state income taxes $ 38,074 $ 224,151
In 1993 there was no material effect on the Company's results of
operations from the implementation of the new accounting standard for
income taxes or the increase in the federal corporate income tax rate.
The implementation of the new standard increased deferred tax
liabilities by $96,000,000, which was offset by an increase in AFUDC
of $40,000,000 and an increase in regulatory assets of $56,000,000.
Additionally, deferred tax assets of $42,000,000, and a corresponding
regulatory liability, were recognized. Regulatory assets and
liabilities will be realized over the accounting lives of the related
properties to the extent past ratemaking practices are continued by
regulators. Prior to 1993 deferred federal and state taxes were not
provided for these temporary differences due to their treatment for
ratemaking purposes.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE K COMMITMENTS AND CONTINGENCIES
In connection with its construction program and general operations,
the Company had outstanding commitments of approximately $31,000,000
at December 31, 1993. Additionally, the Company has entered into
various long-term contracts for the procurement of lignite, coal and
natural gas to fuel its generating stations. Most of these contracts
contain provisions of price escalation, minimum purchase levels or
other financial commitments.
The Company's electric rates include fuel adjustment clauses to
enable the Company to recover from customers the cost of generating
fuel. These adjustments are subject to audit and final determination
by regulatory authorities.
The Company has accrued for liabilities to third parties,
environmental claims, employee medical benefits, storm damages and
deductibles under insurance policies which it maintains on major
properties, primarily generating stations and transmission
substations. Consistent with regulatory treatment, annual charges to
operating expense to provide a reserve for future storm damages are
based upon the average amount of noncapital, uninsured storm damages
experienced by the Company during the previous five years.
In the ordinary course of business, the Company becomes involved
in various lawsuits, claims, environmental actions and governmental or
regulatory proceedings. Management, after consultation with legal
counsel, does not expect that any liability which may arise out of any
asserted or unasserted claim would have a material effect on the
Company's financial position or results of operations.
NOTE L MISCELLANEOUS FINANCIAL INFORMATION (UNAUDITED)
Quarterly information for 1993 and 1992 is shown below.
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
1993
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
Operating revenues $ 75,448 $ 92,070 $ 126,110 $ 88,805
Operating income $ 12,761 $ 17,523 $ 20,252 $ 14,209
Net income applicable to common stock $ 7,024 $ 11,545 $ 13,665 $ 7,594
Net income per average common share $ .31 $ .52* $ .61* $ .34
Dividends paid per common share $ .345 $ .355 $ .355 $ .355
Market price per share
High $ 25 3/8 $ 26 3/4 $ 27 1/8 $ 27
Low $ 23 1/2 $ 24 3/4 $ 25 1/4 $ 23
* FOR THE THREE MONTHS ENDED JUNE 30 AND SEPTEMBER 30, 1993, FULLY-DILUTED NET
INCOME PER AVERAGE COMMON SHARE WAS $.50 AND $.59, RESPECTIVELY. THERE WAS NO
MATERIAL DILUTIVE EFFECT ON AN ANNUAL BASIS.
1992
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
Operating revenues $ 75,838 $ 85,662 $ 105,728 $ 84,385
Operating income $ 14,108 $ 19,159 $ 225,549 $ 12,206
Net income applicable to common stock $ 6,518 $ 11,764 $ 18,482 $ 6,246
Net income per average common share $ .29 $ .53 $ .83* $ .28
Dividends paid per common share $ .335 $ .345 $ .345 $ .345
Market price per share
High $ 2415/16 $ 26 1/4 $ 25 5/8 $ 24 3/4
Low $ 22 3/4 $ 23 1/8 $ 23 3/8 $ 23
* FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1992, FULLY-DILUTED NET INCOME PER
AVERAGE COMMON SHARE WAS $.80. THERE WAS NO MATERIAL DILUTIVE EFFECT ON AN
ANNUAL BASIS.
The Company's common stock is listed for trading on the New York
and Pacific stock exchanges under the ticker symbol CNL. The
Company's preferred stock is not listed on any stock exchange. On
December 31, 1993, the Company had 12,946 common and 232 preferred
shareholders, as determined from the records of the transfer agent.
On January 21, 1994, the Company's Board of Directors declared a
quarterly dividend of 35 1/2 cents per share payable February 15, 1994,
to common shareholders of record January 31, 1994.
32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Central Louisiana
Electric Company, Inc.
We have audited the accompanying consolidated balance sheets of
Central Louisiana Electric Company, Inc. as of December 31, 1993 and
1992, and the related consolidated statements of income, cash flows
and changes in common shareholders' equity for each of the three years
in the period ended December 31, 1993.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Central Louisiana Electric Company, Inc. as of
December 31, 1993 and 1992, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in Notes I and J to the consolidated financial
statements, in 1993 the Company changed its methods of accounting for
postretirement benefits other than pensions and income taxes.
COOPERS & LYBRAND
New Orleans, Louisiana
January 21, 1994
33