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 June 30, 1994.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number 1-7629
HOUSTON INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)
Texas 74-1885573
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
5 Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027
(Address of principal executive offices) (Zip Code)
(713) 629-3000
(Registrant's telephone number, including area code)
Commission file number 1-3187
HOUSTON LIGHTING & POWER COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-0694415
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
611 Walker Avenue
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 228-9211
(Registrant's telephone number, including area code)
______________________________
Indicate by check mark whether the registrants (1) have 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 registrants were required to
file such reports), and (2) have been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
As of July 31, 1994, Houston Industries Incorporated had
131,296,631 shares of common stock outstanding. As of July 31,
1994, all 1,000 authorized and outstanding shares of Houston
Lighting & Power Company's Class A voting common stock, without
par value, were held by Houston Industries Incorporated and all
100 authorized and outstanding shares of Houston Lighting & Power
Company's Class B non-voting common stock were held by Houston
Industries (Delaware) Incorporated.
HOUSTON INDUSTRIES INCORPORATED AND HOUSTON LIGHTING & POWER COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1994
This combined Form 10-Q is separately filed by Houston Industries
Incorporated and Houston Lighting & Power Company. Information
contained herein relating to Houston Lighting & Power Company is
filed by Houston Industries Incorporated and separately by
Houston Lighting & Power Company on its own behalf. Houston
Lighting & Power Company makes no representation as to
information relating to Houston Industries Incorporated (except
as it may relate to Houston Lighting & Power Company) or to any
other affiliate or subsidiary of Houston Industries Incorporated.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Houston Industries Incorporated and Subsidiaries
Statements of Consolidated Income
Three Months and Six Months Ended
June 30, 1994 and 1993 3
Consolidated Balance Sheets
June 30, 1994 and December 31, 1993 5
Statements of Consolidated Cash Flows
Six Months Ended June 30, 1994 and 1993 7
Statements of Consolidated Retained Earnings
Three Months and Six Months Ended
June 30, 1994 and 1993 9
Notes to Consolidated Financial Statements 16
Houston Lighting & Power Company
Statements of Income
Three Months and Six Months Ended
June 30, 1994 and 1993 10
Balance Sheets
June 30, 1994 and December 31, 1993 11
Statements of Cash Flows
Six Months Ended June 30, 1994 and 1993 13
Statements of Retained Earnings
Three Months and Six Months Ended
June 30, 1994 and 1993 15
Notes to Financial Statements 16
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 35
Item 4. Submission of Matters to a Vote
of Security-Holders 35
Item 6. Exhibits and Reports on Form 8-K 36
Signatures 38
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
1994 1993 1994 1993
REVENUES:
Electric...................................... $1,004,906 $1,005,149 $1,826,487 $1,810,834
Cable television.............................. 61,754 62,604 122,274 122,878
---------- ---------- ---------- ----------
Total........................... 1,066,660 1,067,753 1,948,761 1,933,712
---------- ---------- ---------- ----------
EXPENSES:
Electric:
Fuel.......................................... 235,514 262,603 452,702 461,166
Purchased power............................... 103,906 129,224 202,455 258,923
Operation and maintenance..................... 204,089 212,866 397,940 408,102
Taxes other than income taxes................. 62,959 62,468 126,071 124,332
Cable television operating expenses........... 38,923 36,950 78,150 73,791
Depreciation and amortization................. 120,472 115,956 239,973 231,731
---------- ---------- ---------- ----------
Total........................... 765,863 820,067 1,497,291 1,558,045
---------- ---------- ---------- ----------
OPERATING INCOME............................... 300,797 247,686 451,470 375,667
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Allowance for other funds used
during construction........................ 93 1,080 1,409 1,788
Interest income............................... 8,125 8,598 16,543 16,738
Equity in income of cable television
partnerships............................... 7,790 7,987 15,700 15,009
Other - net................................... (4,058) (5,890) (12,387) (3,958)
---------- ---------- ---------- ----------
Total........................... 11,950 11,775 21,265 29,577
---------- ---------- ---------- ----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt.................... 86,449 96,547 173,462 193,623
Other interest................................ 5,931 4,505 11,657 8,294
Allowance for borrowed funds used
during construction........................ (129) (1,170) (1,817) (1,914)
Preferred dividends of subsidiary............. 8,403 8,789 16,676 17,934
---------- ---------- ---------- ----------
Total........................... 100,654 108,671 199,978 217,937
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS....................... 212,093 150,790 272,757 187,307
INCOME TAXES................................... 78,265 50,581 100,554 60,043
---------- ---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS...................................... 133,828 100,209 172,203 127,264
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR POSTEMPLOYMENT BENEFITS (NET OF
INCOME TAXES OF $4,415)....................... (8,200)
---------- ---------- --------- ----------
NET INCOME..................................... $ 133,828 $ 100,209 $ 164,003 $ 127,264
========== ========== ========== ==========
(Continued)
-3-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS)
(Continued)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1994 1993 1994 1993
EARNINGS PER COMMON SHARE:
EARNINGS PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS................................... $ 1.02 $ .77 $ 1.31 $ .98
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS................................... (.06)
--------- --------- --------- ---------
EARNINGS PER COMMON SHARE..................... $ 1.02 $ .77 $ 1.25 $ .98
========= ========= ========= =========
DIVIDENDS DECLARED PER COMMON
SHARE...................................... $ .75 $ .75 $ 1.50 $ 1.50
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (000).......................... 130,709 129,849 130,708 129,725
See Notes to Consolidated Financial Statements.
-4-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
June 30, December 31,
1994 1993
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Plant in service .......................... $11,637,250 $11,480,244
Construction work in progress ............. 246,852 242,661
Nuclear fuel .............................. 211,874 211,785
Plant held for future use ................. 197,491 196,330
Electric plant acquisition adjustments ....... 3,166 3,166
Cable television property .................... 393,229 372,178
Other property ............................... 59,998 47,494
----------- -----------
Total ................................. 12,749,860 12,553,858
Less accumulated depreciation and amortization 3,522,695 3,355,616
----------- -----------
Property, plant and equipment - net ... 9,227,165 9,198,242
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents .................... 8,098 14,884
Special deposits ............................. 13 11,834
Accounts receivable:
Customers - net ........................... 6,854 4,985
Others .................................... 26,429 11,153
Accrued unbilled revenues .................... 17,170 29,322
Fuel stock, at lifo cost ..................... 60,922 58,585
Materials and supplies, at average cost ...... 165,259 166,477
Prepayments .................................. 18,939 20,432
----------- -----------
Total current assets ................ 303,684 317,672
----------- -----------
OTHER ASSETS:
Cable television franchises and intangible
assets - net .............................. 961,233 984,032
Deferred plant costs ......................... 651,808 664,699
Deferred debits .............................. 357,838 371,773
Unamortized debt expense and premium on
reacquired debt ........................... 166,229 169,465
Equity investment in cable television
partnerships .............................. 142,745 122,531
Equity investment in foreign electric utility 35,529 36,984
Regulatory asset - net ....................... 241,194 246,763
Recoverable project costs .................... 108,085 118,016
----------- -----------
Total other assets .................. 2,664,661 2,714,263
----------- -----------
Total ............................ $12,195,510 $12,230,177
=========== ===========
See Notes to Consolidated Financial Statements.
-5-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
June 30, December 31,
1994 1993
CAPITALIZATION:
Common Stock Equity:
Common stock, no par value ......................... $ 2,418,455 $ 2,415,256
Note receivable from ESOP .......................... (327,916) (332,489)
Retained earnings .................................. 1,164,822 1,191,230
-------------- --------------
Total common stock equity ..................... 3,255,361 3,273,997
-------------- --------------
Preference Stock, no par value, authorized
10,000,000 shares; none outstanding
Cumulative Preferred Stock of Subsidiary, no par value:
Not subject to mandatory redemption ....... 351,345 351,354
Subject to mandatory redemption ........... 121,910 167,236
-------------- --------------
Total cumulative preferred stock .... 473,255 518,590
-------------- --------------
Long-Term Debt:
Debentures ......................................... 548,636 548,544
Long-term debt of subsidiaries:
Electric:
First mortgage bonds ....................... 3,020,122 3,019,843
Pollution control revenue bonds ............ 155,232 155,218
Other ...................................... 12,875 15,010
Cable television:
Senior bank debt .......................... 364,000 364,000
Senior and subordinated notes ............. 124,783 140,580
-------------- --------------
Total long-term debt .................. 4,225,648 4,243,195
-------------- --------------
Total capitalization .............. 7,954,264 8,035,782
-------------- --------------
CURRENT LIABILITIES:
Notes payable ......................................... 649,800 591,385
Accounts payable ...................................... 205,673 239,814
Taxes accrued ......................................... 125,870 187,503
Interest accrued ...................................... 81,247 84,178
Dividends accrued ..................................... 104,607 105,207
Accrued liabilities to municipalities ................. 22,311 22,589
Customer deposits ..................................... 65,717 65,604
Current portion of long-term debt and
preferred stock .................................... 67,312 55,109
Other ................................................. 65,541 62,688
-------------- --------------
Total current liabilities .................... 1,388,078 1,414,077
-------------- --------------
DEFERRED CREDITS:
Accumulated deferred income taxes ..................... 2,009,608 1,987,336
Unamortized investment tax credit ..................... 424,705 434,597
Other ................................................. 418,855 358,385
-------------- --------------
Total deferred credits ....................... 2,853,168 2,780,318
-------------- --------------
COMMITMENTS AND CONTINGENCIES
Total ........................................ $ 12,195,510 $ 12,230,177
============== ==============
See Notes to Consolidated Financial Statements.
-6-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
Six Months Ended
June 30,
---------------------
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 164,003 $ 127,264
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................... 239,973 231,731
Amortization of nuclear fuel ..................................... 5,421 2,101
Deferred income taxes ............................................ 26,687 29,546
Investment tax credits ........................................... (9,892) (10,143)
Allowance for other funds used during
construction ................................................... (1,409) (1,788)
Fuel cost (refund) and over/(under) recovery
- net .......................................................... 27,408 (45,799)
Equity in income of cable television
partnerships ................................................... (15,700) (15,009)
Cumulative effect of change in accounting
for postemployment benefits .................................... 8,200
Changes in other assets and liabilities:
Accounts receivable and accrued unbilled
revenues ..................................................... (4,993) 302,123
Inventory ...................................................... (1,119) 3,057
Other current assets ........................................... 13,314 (6,509)
Accounts payable ............................................... (34,141) (6,293)
Interest and taxes accrued ..................................... (58,564) (60,106)
Other current liabilities ...................................... 2,050 (19,512)
Other - net .................................................... 62,851 51,241
---------- ----------
Net cash provided by operating activities ........................ 424,089 581,904
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Electric capital expenditures
(including allowance for borrowed funds
used during construction) ........................................ (191,637) (132,429)
Cable television additions .......................................... (32,692) (23,280)
Other construction expenditures ..................................... (12,253)
Other - net ......................................................... (20,532) (5,686)
---------- ----------
Net cash used in investing activities ............................ (257,114) (161,395)
---------- ----------
-7-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
(Continued)
Six Months Ended
June 30,
---------------------
1994 1993
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock .......................................... $ 21,001
Decrease in note receivable from ESOP ............................... $ 4,573
Proceeds from first mortgage bonds .................................. 545,243
Proceeds from senior bank debt ...................................... 20,000
Extinguishment of long-term debt .................................... (477,083)
Payment of matured bonds ............................................ (19,500) (136,000)
Payment of senior bank debt ......................................... (182,349)
Payment of senior and subordinated notes ............................ (10,384) (6,372)
Payment of common stock dividends ................................... (196,064) (194,555)
Increase (decrease) in notes payable - net .......................... 58,415 (27,999)
Redemption of preferred stock ....................................... (20,000) (40,000)
Other - net ......................................................... 9,199 (733)
---------- ----------
Net cash used in financing activities ............................ (173,761) (478,847)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ................................. (6,786) (58,338)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 14,884 69,317
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 8,098 $ 10,979
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized) ............................ $ 187,333 $ 210,534
Income taxes ..................................................... 65,090 33,814
See Notes to Consolidated Financial Statements.
-8-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1994 1993 1994 1993
Balance at Beginning of Period .............................. $ 1,125,167 $ 1,186,012 $ 1,191,230 $ 1,254,584
Net Income for the Period ................................... 133,828 100,209 164,003 127,264
----------- ----------- ----------- -----------
Total .............................................. 1,258,995 1,286,221 1,355,233 1,381,848
Common Stock Dividends ...................................... (98,032) (97,365) (196,102) (194,555)
Tax Benefit of ESOP Dividends ............................... 3,859 2,449 5,691 4,012
Redemption of HL&P Preferred Stock .......................... (402) (402)
----------- ----------- ----------- -----------
Balance at End of Period .................................... $ 1,164,822 $ 1,190,903 $ 1,164,822 $ 1,190,903
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
-9-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1994 1993 1994 1993
OPERATING REVENUES ................ $ 1,004,906 $ 1,005,149 $ 1,826,487 $ 1,810,834
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Fuel ............................ 235,514 262,603 452,702 461,166
Purchased power ................. 103,906 129,224 202,455 258,923
Operation ....................... 141,835 143,898 274,802 284,505
Maintenance ..................... 62,254 68,968 123,138 123,597
Depreciation and amortization ... 99,675 96,217 198,604 192,432
Income taxes .................... 81,921 52,705 108,994 63,653
Other taxes ..................... 62,959 62,468 126,071 124,332
------------ ------------ ------------ ------------
Total ................... 788,064 816,083 1,486,766 1,508,608
------------ ------------ ------------ ------------
OPERATING INCOME .................. 216,842 189,066 339,721 302,226
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Allowance for other funds used
during construction ........... 93 1,080 1,409 1,788
Other - net ..................... (2,773) (1,543) (5,759) (1,176)
------------ ------------ ------------ ------------
Total ................... (2,680) (463) 4,350) 612
------------ ------------ ------------ ------------
INCOME BEFORE INTEREST CHARGES .... 214,162 188,603 335,371 302,838
------------ ------------ ------------ ------------
INTEREST CHARGES:
Interest on long-term debt ...... 61,557 70,853 123,399 140,458
Other interest .................. 1,853 4,366 4,749 9,021
Allowance for borrowed funds used
during construction ............ (129) (1,170) (1,817) (1,914)
------------ ------------ ------------ ------------
Total .................... 63,281 74,049 126,331 147,565
------------ ------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS ......... 150,881 114,554 209,040 155,273
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS (NET OF INCOME TAXES OF
$4,415) ......................... (8,200)
------------ ------------ ------------ ------------
NET INCOME ........................ 150,881 114,554 200,840 155,273
DIVIDENDS ON PREFERRED STOCK ...... 8,403 8,789 16,676 17,934
------------ ------------ ------------ ------------
INCOME AFTER PREFERRED DIVIDENDS .. $ 142,478 $ 105,765 $ 184,164 $ 137,339
============ ============ ============ ============
See Notes to Financial Statements.
-10-
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
June 30, December 31,
1994 1993
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant ................................ $11,637,250 $11,480,244
Construction work in progress ................. 246,852 242,661
Plant held for future use ..................... 197,491 196,330
Nuclear fuel .................................. 211,874 211,785
Electric plant acquisition adjustments ........ 3,166 3,166
----------- -----------
Total ................................. 12,296,633 12,134,186
Less accumulated depreciation and
amortization ............................... 3,349,081 3,194,127
----------- -----------
Property, plant and equipment - net .............. 8,947,552 8,940,059
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents ..................... 428 12,413
Special deposits .............................. 13 11,834
Accounts receivable:
Affiliated companies ....................... 988 1,792
Others ..................................... 13,765 2,540
Accrued unbilled revenues ..................... 17,170 29,322
Inventory:
Fuel stock, at lifo cost ................... 60,922 58,585
Materials and supplies, at average cost .... 157,456 160,371
Prepayments ................................... 15,271 9,234
----------- -----------
Total current assets ..................... 266,013 286,091
----------- -----------
OTHER ASSETS:
Deferred plant costs .......................... 651,808 664,699
Deferred debits ............................... 310,956 333,620
Unamortized debt expense and premium on
reacquired debt ............................ 162,291 164,368
Regulatory asset - net ........................ 241,194 246,763
Recoverable project costs ..................... 108,085 118,016
----------- -----------
Total other assets ....................... 1,474,334 1,527,466
----------- -----------
Total ............................................ $10,687,899 $10,753,616
=========== ===========
See Notes to Financial Statements.
-11-
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
June 30, December 31,
1994 1993
CAPITALIZATION:
Common Stock Equity:
Common stock, class A; no par value ........ $ 1,524,949 $ 1,524,949
Common stock, class B; no par value ........ 150,978 150,978
Retained earnings .......................... 2,048,593 2,028,924
----------- -----------
Total common stock equity .............. 3,724,520 3,704,851
----------- -----------
Cumulative Preferred Stock:
Not subject to mandatory redemption ........ 351,345 351,354
Subject to mandatory redemption ............ 121,910 167,236
----------- -----------
Total cumulative preferred stock ....... 473,255 518,590
----------- -----------
Long-Term Debt:
First mortgage bonds ....................... 3,020,122 3,019,843
Pollution control revenue bonds ............ 155,232 155,218
Other ...................................... 12,875 15,010
----------- -----------
Total long-term debt .................. 3,188,229 3,190,071
----------- -----------
Total capitalization .............. 7,386,004 7,413,512
----------- -----------
CURRENT LIABILITIES:
Notes payable ................................. 113,500 171,100
Accounts payable .............................. 157,401 190,583
Accounts payable to affiliated companies ...... 19,862 8,449
Taxes accrued ................................. 145,766 187,517
Interest and dividends accrued ................ 61,739 65,238
Accrued liabilities to municipalities ......... 22,311 22,589
Customer deposits ............................. 65,717 65,604
Current portion of long-term debt and
preferred stock ............................ 51,514 44,725
Other ......................................... 66,035 63,607
----------- -----------
Total current liabilities .............. 703,845 819,412
----------- -----------
DEFERRED CREDITS:
Accumulated deferred federal income taxes ..... 1,831,149 1,798,976
Unamortized investment tax credit ............. 421,301 430,996
Other ......................................... 345,600 290,720
----------- -----------
Total deferred credits ............. 2,598,050 2,520,692
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total .............................. $10,687,899 $ 10,753,616
=========== ============
See Notes to Financial Statements.
-12-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
Six Months Ended
June 30,
-----------------------
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................... $ 200,840 $ 155,273
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................ 198,604 192,432
Amortization of nuclear fuel ................. 5,421 2,101
Deferred income taxes ........................ 36,588 26,352
Investment tax credits ....................... (9,695) (9,946)
Allowance for other funds used during
construction .............................. (1,409) (1,788)
Fuel cost (refund) and over/(under) recovery
- net ..................................... 27,408 (45,799)
Cumulative effect of change in accounting for
postemployment benefits ................... 8,200
Changes in other assets and liabilities:
Accounts receivable - net ................. 1,731 170,111
Material and supplies ..................... 2,915 1,091
Fuel stock ................................ (2,337) 3,550
Accounts payable .......................... (21,769) 801
Interest and taxes accrued ................ (45,250) (46,248)
Other current liabilities ................. 3,547 (209)
Other - net ............................... 58,217 40,399
---------- ----------
Net cash provided by operating activities ....... 463,011 488,120
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) .................... (191,637) (132,429)
Other - net ..................................... (6,355) (5,661)
---------- ----------
Net cash used in investing activities ........ (197,992) (138,090)
---------- ----------
(Continued)
-13-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
(CONTINUED)
Six Months Ended
June 30,
-----------------------
1994 1993
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from first mortgage bonds ................ $ 545,243
Payment of matured bonds .......................... $ (19,500) (136,000)
Payment of dividends .............................. (181,885) (202,817)
Decrease in notes payable ......................... (57,600) (4,590)
Decrease in notes payable to affiliated
company ........................................ (19,000)
Redemption of preferred stock ..................... (20,000) (40,000)
Extinguishment of long-term debt .................. (477,083)
Other - net ....................................... 1,981 (3,036)
--------- ---------
Net cash used in financing activities .......... (277,004) (337,283)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ....................................... (11,985) 12,747
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..... 12,413 4,254
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 428 $ 17,001
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized) .......... $ 131,634 $ 159,622
Income taxes ................................... 57,913 31,002
See Notes to Financial Statements.
-14-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1994 1993 1994 1993
Balance at Beginning of
Period ................. $ 1,990,614 $ 1,851,136 $ 2,028,924 $ 1,922,558
Net Income for the Period .. 150,881 114,554 200,840 155,273
Redemption of Preferred
Stock .................. (402) (402)
------------ ------------ ------------ ------------
Total .................. 2,141,495 1,965,288 2,229,764 2,077,429
------------ ------------ ------------ ------------
Deductions - Cash Dividends:
Preferred .............. 8,403 8,789 16,676 17,934
Common ................. 84,499 79,995 164,495 182,991
------------ ------------ ------------ ------------
Total .............. 92,902 88,784 181,171 200,925
------------ ------------ ------------ ------------
Balance at End of Period ... $ 2,048,593 $ 1,876,504 $ 2,048,593 $ 1,876,504
============ ============ ============ ============
See Notes to Financial Statements.
-15-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AND
HOUSTON LIGHTING & POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) REGULATORY PROCEEDINGS AND LITIGATION REFERENCE
The information presented in the following Notes in this Form
10-Q should be read in conjunction with the Houston Industries
Incorporated (Company) Annual Report on Form 10-K for the year
ended December 31, 1993 (File No. 1-7629), filed in combined
form with the Houston Lighting & Power Company (HL&P) Annual
Report on Form 10-K for the year ended December 31, 1993 (File
No. 1-3187) (collectively, the 1993 Combined Form 10-K),
including the Notes to the Company's Consolidated and HL&P's
Financial Statements included in Item 8 thereof. Notes 9, 10 and
11 to the Company's Consolidated and HL&P's Financial Statements
in the 1993 Combined Form 10-K, as updated by the description of
developments in the regulatory and litigation matters contained
in Notes 8, 9 and 10 of the Notes to the Company's Consolidated
and HL&P's Financial Statements included in this Report, are
incorporated herein by reference as they relate to the Company
and HL&P, respectively.
(2) COMMON STOCK
COMPANY. At June 30, 1994, and December 31, 1993, the Company
had authorized 400,000,000 shares of common stock, of which
130,708,985 and 130,658,755 shares, respectively, were
outstanding. For a discussion of additional shares issued by the
Company in July 1994, see Note 12 of the Notes to the Company's
Consolidated and HL&P's Financial Statements in this Report.
HL&P. All issued and outstanding Class A voting common stock of
HL&P is held by the Company and all issued and outstanding Class
B non-voting common stock of HL&P is held by Houston Industries
(Delaware) Incorporated (Houston Industries Delaware), a
wholly-owned subsidiary of the Company.
(3) HL&P PREFERRED STOCK
At June 30, 1994, and December 31, 1993, HL&P had 10,000,000
shares of preferred stock authorized, of which 5,232,397 and
5,432,397 shares, respectively, were outstanding.
In June 1994, HL&P redeemed, at $100 per share, 200,000 shares
of its $8.50 cumulative preferred stock in satisfaction of
mandatory sinking fund requirements.
(4) EARNINGS PER COMMON SHARE
COMPANY. Earnings per common share for the Company is computed
by dividing net income by the weighted average number of shares
outstanding during the respective period.
-16-
HL&P. Earnings per share data for HL&P is not computed since all
of its common stock is held by the Company and Houston
Industries Delaware.
(5) LONG-TERM DEBT
COMPANY. In March 1994, KBL Cable, Inc. made a scheduled
repayment of $10.4 million principal amount of its senior notes
and senior subordinated notes.
HL&P. In January 1994, HL&P repaid at maturity $19.5 million
principal amount of Series A collateralized medium-term notes.
(6) POSTEMPLOYMENT BENEFITS FOR THE COMPANY AND HL&P
The Company and HL&P adopted Statement of Financial Accounting
Standards (SFAS) No. 112, "Employer's Accounting for
Postemployment Benefits", effective January 1, 1994. SFAS No.
112 requires the recognition of a liability for benefits, not
previously accounted for on the accrual basis, provided to
former or inactive employees, their beneficiaries and covered
dependents, after employment but before retirement. In the
Company's and HL&P's case, this liability is principally health
care and life insurance benefits for participants in the
long-term disability plan. As required by SFAS No. 112, the
Company and HL&P expensed the transition obligation (liability
from prior years) upon adoption, and recorded a one-time,
after-tax charge to income of $8.2 million in the first quarter
of 1994. Ongoing 1994 charges to income are expected to be
immaterial.
(7) ENVIRONMENTAL AND CABLE REGULATIONS
(A) ENVIRONMENTAL REGULATIONS. For information regarding the impact
of environmental regulations on the Company and its
subsidiaries, see the fifth paragraph of Note 8(a) to the
Company's Consolidated and HL&P's Financial Statements included
in the 1993 Combined Form 10-K, which paragraph is incorporated
herein by reference.
(B) IMPACT OF THE CABLE TELEVISION CONSUMER PROTECTION AND
COMPETITION ACT OF 1992 ON KBLCOM INCORPORATED (KBLCOM). In
March 1994, the Federal Communications Commission (FCC) issued
its revised benchmark rules (Rate Rule II) as well as its
interim cost-of-service rule (Interim COS Rule). Each of these
rules became effective on May 15, 1994. Rate Rule II revises the
"benchmark formulas" established by the FCC in May 1993. Under
Rate Rule II (which will be applied prospectively), cable
operators must reduce their existing rates to the higher of (i)
the rates calculated using the revised benchmark formulas
(Revised Benchmarks) or (ii) a level 17% below such cable
operators' rates as of September 30, 1992, adjusted for
inflation. Cable operators which cannot or do not wish to comply
with the Revised Benchmarks may choose to justify their existing
rates under the Interim COS Rule. The Interim COS Rule
establishes a cost-of-service rate system similar to that used
in the telephone industry. KBLCOM expects that it will incur
increased administrative burdens under these new rules, and that
the Revised Benchmarks will impose some additional reductions in
KBLCOM's rates for regulated services. The extent of the
anticipated decline in revenues cannot be determined at this
time, but will have an adverse impact on KBLCOM's financial
position and results of operations.
-17-
(8) JOINTLY-OWNED NUCLEAR PLANT
(A) HL&P INVESTMENT. HL&P is project manager and one of four co-owners
in the South Texas Project Electric Generating Station (South
Texas Project), which consists of two 1,250 megawatt nuclear
generating units. Each co-owner funds its own share of capital
and operating costs associated with the plant, with HL&P's
interest in the project being 30.8%. HL&P's share of the
operation and maintenance expenses is included in electric
operation and maintenance expenses on the Company's Statements
of Consolidated Income and in the corresponding operating
expense amounts on HL&P's Statements of Income. As of June 30,
1994, HL&P's investments (net of accumulated depreciation and
amortization) in the South Texas Project and in nuclear fuel,
including Allowance for Funds Used During Construction, were
$2.1 billion and $114.1 million, respectively.
(B) CITY OF AUSTIN LITIGATION. In February 1994, the City of Austin
(Austin), one of the other owners of the South Texas Project,
filed suit against HL&P. That suit remains pending in the
152nd District Court for Harris County, Texas. Austin alleges
that the outages at the South Texas Project were due to
HL&P's failure to perform obligations it owed to Austin under
the Participation Agreement among the four co-owners of the
South Texas Project (Participation Agreement). Austin also
asserts that HL&P breached certain undertakings voluntarily
assumed by HL&P under the terms and conditions of the
Operating Licenses and Technical Specifications relating to
the South Texas Project. Austin claims that such failures
have caused Austin damages of at least $125 million due to
the incurrence of increased operating and maintenance costs,
the cost of replacement power and lost profits on wholesale
transactions that did not occur.
As it did in litigation filed against HL&P in 1983, Austin
asserts that HL&P breached obligations HL&P owed under the
Participation Agreement to Austin, and Austin seeks a
declaration that HL&P had a duty to exercise reasonable care in
the operation and maintenance of the South Texas Project. In
that earlier litigation (which was won by HL&P at trial,
affirmed on appeal and became final in 1993), however, the
courts concluded that the Participation Agreement did not impose
on HL&P a duty to exercise reasonable skill and care as project
manager. In April 1994, HL&P filed a motion for partial summary
judgment on the grounds that Austin's negligence claims are
barred by RES JUDICATA and collateral estoppel. Following a
hearing in June 1994, HL&P's motion for summary judgment was
denied. Trial has been set for October 1995.
Austin also asserts in the pending suit that certain terms of a
settlement reached in 1992 among HL&P and Central and South West
Corporation (CSW) and its subsidiary, Central Power and Light
Company (CPL), another co-owner of the South Texas Project, are
invalid and void. The Participation Agreement permits
arbitration of certain disputes among the owners, and the
challenged settlement terms provide that in any future
arbitration, HL&P and CPL would each appoint an arbitrator
acceptable to the other. Austin asserts that, as a result of
this agreement, the arbitration provisions of the Participation
Agreement are void and Austin should not be required to
participate in or be bound by arbitration proceedings. HL&P,
however, considers that Austin's claims on this issue have
largely been rendered moot in this case as a result of HL&P's
election not to demand arbitration of Austin's current claims
as permitted by the Participation Agreement, but to proceed
to trial in the Harris County district court.
-18-
In May 1994, the City of San Antonio (San Antonio) intervened
in the litigation filed by Austin against HL&P and asserted
claims similar to those asserted by Austin, though San
Antonio has not identified the amount of damages it seeks
from HL&P. In its petition, San Antonio has also adopted
arguments similar to those of Austin regarding the effect of
HL&P's settlement with CPL on the arbitration provisions of
the Participation Agreement. HL&P opposes San Antonio's
intervention on the grounds that San Antonio has already
elected to arbitrate its claims against HL&P regarding HL&P's
management of the South Texas Project in the arbitration
proceeding currently pending among HL&P, San Antonio, Austin
and CPL, and to that end, HL&P has asserted its own demand
for arbitration of San Antonio's 1993-94 outage claims
pursuant to the terms of the Participation Agreement (see
Note 8(c) of the Notes to the Company's Consolidated and
HL&P's Financial Statements in this Report). The Harris
County district court has scheduled a hearing on HL&P's
opposition to San Antonio's intervention for September 1994.
HL&P and the Company do not believe there is merit to either
Austin's or San Antonio's claims, and they intend to defend
vigorously against them. However, there can be no assurance as
to the ultimate outcome of these matters.
For more detailed information regarding the outage of the South
Texas Project, the previous litigation filed by Austin and the
settlement with CSW and CPL referred to above, see Notes 9(b),
9(c) and 9(f) of the Notes to the Company's Consolidated and
HL&P's Financial Statements included in the 1993 Combined Form
10-K. Also, see Note 8(f) of the Notes to the Company's
Consolidated and HL&P's Financial Statements in this Report.
(C) ARBITRATION WITH CO-OWNERS. For a discussion of the arbitration
requested by San Antonio for its claim under the Participation
Agreement, see Note 8(b) of the Notes to the Company's
Consolidated and HL&P's Financial Statements in this Report and
Note 9(c) of the Notes to the Company's Consolidated and HL&P's
Financial Statements included in the 1993 Combined Form 10-K.
The four arbitrators appointed by the owners to consider San
Antonio's claims against HL&P in this arbitration have met and
are currently considering the appointment of a fifth arbitrator
which they are to select under the terms of the arbitration
provisions in the Participation Agreement.
(D) NUCLEAR INSURANCE. HL&P and the other owners of the South Texas
Project maintain nuclear property and nuclear liability
insurance coverages as required by law and periodically review
available limits and coverage for additional protection. The
owners of the South Texas Project currently maintain $500
million in primary property damage insurance from American
Nuclear Insurers (ANI). Additionally, the owners of the South
Texas Project maintain the maximum amounts of excess property
insurance available through the insurance industry, $2.25
billion. This excess property insurance coverage consists
of $850 million of excess insurance from ANI and $1.4 billion of
excess property insurance coverage through participation in the
Nuclear Electric Insurance Limited (NEIL) II program. Under NEIL
II, HL&P and the other owners of the South Texas Project are
subject to a maximum assessment, in the aggregate, of
approximately $15.9 million in any one policy year. The
application of the proceeds of such property insurance is
subject to the priorities established by the United States
-19-
Nuclear Regulatory Commission (NRC) regulations relating to the
safety of licensed reactors and decontamination operations.
Pursuant to the Price Anderson Act, the maximum liability to the
public for owners of nuclear power plants, such as the South
Texas Project, was decreased from $9.3 billion to $9.2 billion
effective June 3, 1994. Owners are required under the Act to
insure their liability for nuclear incidents and protective
evacuations by maintaining the maximum amount of financial
protection available from private sources and by maintaining
secondary financial protection through an industry retrospective
rating plan. The assessment of deferred premiums provided by the
plan is $75.5 million per reactor subject to indexing for
inflation, a possible 5% surcharge (but no more than $10 million
per reactor per incident in any one year) and a 3% state premium
tax. HL&P and the other owners of the South Texas Project
currently maintain the required nuclear liability insurance and
participate in the industry retrospective rating plan.
There can be no assurance that all potential losses or
liabilities will be insurable, or that the amount of insurance
will be sufficient to cover them. Any substantial losses not
covered by insurance could have a material adverse effect on
HL&P's and the Company's financial condition.
(E) NUCLEAR DECOMMISSIONING. HL&P and the other co-owners of the South
Texas Project are required by the NRC to meet minimum
decommissioning funding requirements to pay the costs of
decommissioning the South Texas Project. Pursuant to the terms
of the order of the Public Utility Commission of Texas (Utility
Commission) in Docket No. 9850, HL&P is currently funding
decommissioning costs with an independent trustee at an annual
amount of $6 million. This funding level was estimated to
provide approximately $146 million in 1989 dollars at the time
of scheduled decommissioning. In May 1994, an outside consultant
estimated HL&P's portion of decommissioning costs to be
approximately $318 million in 1994 dollars with a corresponding
funding level of $16 million per year. The consultant's calculation
of decommissioning costs for financial planning purposes used
the DECON methodology (prompt removal/dismantling), one of three
alternatives acceptable to the NRC, and assumed deactivation of
Unit No. 1 and Unit No. 2 upon expiration of their 40 year
operating licenses. HL&P is currently in a rate proceeding, see
Note 9(e) of the Notes to the Company's Consolidated and HL&P's
Financial Statements in this Report. Until the issuance of an
order in the pending rate proceeding, the exact funding level in
excess of the minimum NRC requirements cannot be determined.
While the current funding levels exceed minimum NRC
requirements, no assurance can be given that (i) the amount held
in the trust will be adequate to cover the actual
decommissioning costs of the South Texas Project or (ii) the
assumptions used in estimating decommissioning costs will
ultimately prove to be correct.
(F) NRC INSPECTIONS AND OPERATIONS. Both generating units at the
South Texas Project were out of service from February 1993 to
February 1994, when Unit No. 1 was returned to service. Unit
No. 2 was returned to service in May 1994. HL&P removed the
units from service in February 1993 when a problem was
encountered with certain of the units' auxiliary feedwater
pumps. At that time HL&P concluded, and the NRC confirmed,
that the units should not resume operation until HL&P had
determined the root cause of the failure, had briefed the
NRC, and had taken corrective action.
-20-
The South Texas Project is currently listed on the NRC's "watch
list" of plants with "weaknesses that warrant increased NRC
attention." The decision to place the South Texas Project on the
"watch list" followed the June 1993 issuance of a report by a
Diagnostic Evaluation Team (DET) which conducted a review of the
South Texas Project and identified a number of areas requiring
improvement at the South Texas Project. Plants in this category
are authorized to operate but are subject to close monitoring by
the NRC. The NRC reviews the status of plants on the list
semi-annually with the last review conducted in June 1994 and
the next review planned in January 1995.
Other proceedings concerning the South Texas Project also
remain pending. As previously reported, certain former
employees and an employee of a contractor have asserted
claims that their employment was terminated or disrupted in
retaliation for their having made safety related complaints
to the NRC. In 1993, it was reported that the NRC had
referred these claims to the Department of Justice. HL&P
understands that these matters are no longer under
consideration by the Department of Justice. However, civil
proceedings by the complaining personnel and administrative
proceedings by the Department of Labor remain pending against
HL&P, and the NRC could take enforcement action against HL&P
and/or individual employees with respect to these
matters. Also, a subcommittee of the U.S. House of
Representatives (Subcommittee) has notified HL&P that it is
conducting an inquiry related to the South Texas Project, and
HL&P has begun to provide documents and other assistance to
that Subcommittee's Staff in connection with that inquiry.
Although the precise focus and timing of the inquiry has not
been identified by the Subcommittee, it is anticipated that
the Subcommittee will inquire into matters related to HL&P's
handling of "whistleblower" complaints and to issues related
to the NRC's DET review of the South Texas Project. In
connection with that inquiry, HL&P has been advised that the
U. S. General Accounting Office (GAO) has begun a review of
the NRC's inspection process as it relates to the South Texas
Project and other plants, and HL&P is cooperating with the
GAO in its investigation and with the NRC in a similar review
it has initiated.
For additional information regarding the foregoing matters,
including the DET's report on weaknesses at the South Texas
Project, increases in fuel and non-fuel expenditures relating to
the outage, the possible impact of the outage on the results of
HL&P's pending rate proceeding under Section 42 of the Texas
Public Utility Regulatory Act of 1975, as amended (PURA),
involving the Company's rates, and various civil and
administrative proceedings relating to the South Texas Project,
see Notes 9(f) and 10(g) of the Notes to the Company's
Consolidated and HL&P's Financial Statements included in the
1993 Combined Form 10-K. Also, see Notes 9(e) and 9(f) of the
Notes to the Company's Consolidated and HL&P's Financial
Statements included in this Report.
(G) LOW-LEVEL RADIOACTIVE WASTE. In response to the federal Low-Level
Radioactive Waste Policy Act of 1980 which assigns
responsibility for low-level waste disposal to the states, Texas
has created the Texas Low-Level Radioactive Waste Disposal
Authority (Waste Disposal Authority) to build and operate a
low-level waste disposal facility. HL&P's portion of the State
of Texas assessment for the development work on this facility
was approximately $0.7 million in 1994 and will be approximately
$1.3 million for 1995. Nuclear facilities in Texas formerly had
access to the low-level waste disposal facility at Barnwell,
South Carolina which was closed in June 1994 to generators
-21-
of radioactive waste located in states which are not members
of the Southeast compact.
HL&P has constructed a temporary low-level radioactive waste
storage facility at the South Texas Project which will be
utilized for interim storage of low-level radioactive waste
prior to the opening of the Texas Low-Level Radioactive Waste
Site. The Waste Disposal Authority currently estimates that the
Texas site could begin receiving waste in mid-1997.
(9) UTILITY COMMISSION PROCEEDINGS
Pursuant to a series of applications filed by HL&P in recent
years, the Utility Commission has granted HL&P rate increases to
reflect in electric rates HL&P's substantial investment in new
plant construction, including the South Texas Project. Although
Utility Commission action on those applications has been
completed, judicial review of a number of the Utility Commission
orders is pending. In Texas, Utility Commission orders may be
appealed to a District Court in Travis County, and from that
court's decision an appeal may be taken to the Court of Appeals
for the 3rd District at Austin (Austin Court of Appeals).
Discretionary review by the Supreme Court of Texas may be sought
from decisions of the Austin Court of Appeals. The pending
appeals from the Utility Commission orders are in various
stages. In the event the courts ultimately reverse actions of
the Utility Commission in any of these proceedings, such matters
would be remanded to the Utility Commission for action in light
of the courts' orders. Because of the number of variables which
can affect the ultimate resolution of such matters on remand,
the Company and HL&P generally are not in a position at this
time to predict the outcome of the matters on appeal or the
ultimate effect that adverse action by the courts could have on
the Company and HL&P. On remand, the Utility Commission's action
could range from granting rate relief substantially equal to the
rates previously approved to a reduction in the revenues to
which HL&P was entitled during the time the applicable rates
were in effect, which could require a refund to customers of
amounts collected pursuant to such rates.
Judicial review is pending on the final orders of the Utility
Commission in (a) through (d) described below.
(A) DOCKET NO. 8425. For information concerning HL&P's application for
a rate increase in Docket No. 8425 (1988 rate case) and the
status of appeals relating thereto, see Note 10(b) of the Notes
to the Company's Consolidated and HL&P's Financial Statements
included in the 1993 Combined Form 10-K. For information on the
decision of the Supreme Court of Texas regarding deferred
accounting with respect to Docket Nos. 8230 and 9010, see Note
9(d) of the Notes to the Company's Consolidated and HL&P's
Financial Statements in this Report.
(B) DOCKET NO. 9850. For a discussion of HL&P's 1991 rate case (Docket
No. 9850), the settlement agreement approved by the Utility
Commission, and the status of appeals relating thereto, see Note
10(c) of the Notes to the Company's Consolidated and HL&P's
Financial Statements included in the 1993 Combined Form 10-K.
In August 1992, a district court in Travis County affirmed the
Utility Commission's final order in HL&P's 1991 rate case
(Docket No. 9850). That decision was appealed by certain parties
to the Austin Court of Appeals, raising issues concerning the
Utility Commission's approval
-22-
of a non-unanimous settlement in that docket, the Utility
Commission's calculation of federal income tax expense and
the allowance of deferred accounting reflected in the
settlement. In August 1993, the Austin Court of Appeals
affirmed the ruling by the Travis County District Court on
the procedural ground that the appellant had not timely filed
a statement of facts.
On review of that decision in June 1994, the Supreme Court of
Texas reversed the decision of the Austin Court of Appeals
insofar as it refused to consider all assertions of error by the
appellant. The Supreme Court held that, even in the absence of a
timely filed statement of facts, the Court of Appeals could take
judicial notice of the Utility Commission's published order and
consider errors of law that may be evident from the face of the
order, and do not require reference to the administrative
record. Accordingly, it remanded the case for limited
reconsideration by the Court of Appeals. For a discussion of
certain other judicial decisions which may affect the Utility
Commission's calculation of federal income tax expense in Docket
No. 9850, see Note 10(b) of the Notes to the Company's
Consolidated and HL&P's Financial Statements included in the
1993 Combined Form 10-K.
(C) DOCKET NO. 6668. For a discussion of Docket No. 6668, the Utility
Commission's inquiry into the prudence of the planning,
management and construction of the South Texas Project, see Note
10(d) of the Notes to the Company's Consolidated and HL&P's
Financial Statements included in the 1993 Combined Form 10-K.
Separate appeals are pending from Utility Commission orders in
Docket Nos. 8425 and 9850 in which the findings of the order in
Docket No. 6668 are reflected in rates. See also Notes 9(a) and
9(b) above.
(D) DOCKET NOS. 8230 AND 9010. For a description of the Utility
Commission's authorization of deferred accounting for the South
Texas Project (Docket Nos. 8230 and 9010) and appeals thereof,
see Note 10(e) of the Notes to the Company's Consolidated and
HL&P's Financial Statements included in the 1993 Combined Form
10-K.
In June 1994, the Supreme Court of Texas decided the appeal
of Docket Nos. 8230 and 9010, as well as all other pending
deferred accounting cases, upholding deferred accounting
treatment for both carrying costs and operation and
maintenance expenses as within the Utility Commission's
statutory authority and reversed the Austin Court of Appeals
decision to the extent that the Austin Court of Appeals had
rejected deferred accounting treatment for carrying charges.
Because the lower appellate court had upheld deferred
accounting only as to operating and maintenance expenses, the
Supreme Court remanded Docket Nos. 8230 and 9010 to the
Austin Court of Appeals to consider the points of error
challenging the grant of deferred accounting for carrying
costs which it had not reached in its earlier consideration
of the case. The Supreme Court opinion did state, however,
that when deferred costs are considered for addition to the
utility's rate base in an ensuing rate case, the Utility
Commission must then determine to what extent inclusion of
the deferred costs is necessary to preserve the utility's
financial integrity.
A motion for rehearing of the Supreme Court of Texas's decision
has been filed. The decision will not be final until this motion
is decided.
-23-
(E) DOCKET NO. 12065. In February 1994, an administrative law judge
(ALJ) of the Utility Commission ruled that a proceeding should
be conducted pursuant to Section 42 of PURA in order to inquire
into HL&P's existing rates. That order subsequently was affirmed
by the Utility Commission, and in July 1994, HL&P filed data in
support of its existing rates, as required by the ALJ. In that
material, HL&P asserts that its existing rates continue to be
just and reasonable and should not be reduced by the Utility
Commission. HL&P further asserts that it would be able to
demonstrate an entitlement of an increase in rates if it were to
file for a rate increase. No such increase is currently being
sought. In addition, HL&P will file a request in connection with
Docket No. 12065 for reconciliation of fuel related expenses
incurred during the period from April 1, 1990 through July 31,
1994, a period which includes the 1993-94 outages at the South
Texas Project units. Also in connection with Docket No. 12065,
the Utility Commission has determined to conduct an inquiry
(Docket No. 13126) into the prudence of HL&P's operation of
the South Texas Project, the results of which will be
considered in determining whether additional fuel expense
incurred during the 1993-94 outage at the South Texas Project
should be deemed by the Utility Commission to be unreasonable
and whether there has been mismanagement of the South Texas
Project by HL&P which should be taken into account in
considering the appropriate rate of return in the Section 42
proceeding. In July 1994, the Utility Commission approved the
hiring of a consultant to conduct a review of HL&P's prudence
in the management of the South Texas Project in order to
assist the Utility Commission Staff in preparing testimony
for the prudence inquiry. Hearings regarding the matters to
be considered in connection with Docket No. 12065 are
expected to begin in late November 1994. No final decision by
the Utility Commission on these matters is expected before
the summer of 1995. Although HL&P and the Company believe
that the Section 42 inquiry into HL&P's rates is unwarranted
and that the South Texas Project has not been imprudently
managed, there can be no assurance as to the outcome of this
proceeding, and HL&P's rates could be reduced following a
hearing. HL&P believes that any reduction in base rates as a
result of a Section 42 inquiry would take effect
prospectively.
For additional information regarding Docket No. 12065, see Note
10(f) of the Notes to the Company's Consolidated and HL&P's
Financial Statements included in the 1993 Combined Form 10-K.
(F) FUEL RECONCILIATION. At June 30, 1994, HL&P had recovered through
the fuel factor included in its rates approximately $89
million (including interest) less than the amounts expended
for fuel, a significant portion of which under recovery
occurred in 1993 during the outage of the South Texas
Project. Although over or under recoveries do not affect
earnings until reconciled in a proceeding before the Utility
Commission, any amounts disallowed as unreasonably incurred
would not be recoverable from customers and charged against
earnings. As discussed above, in August 1994, a fuel
reconciliation will be filed in Docket No. 12065. For
additional information regarding HL&P's recovery of fuel
costs incurred in electric generation (including possible
assertions in Docket No. 12065 that a portion of such costs
should be disallowed as unreasonable), see Note 10(g) of the
Notes to the Company's Consolidated and HL&P's Financial
Statements included in the 1993 Combined Form 10-K. Also, see
Note 9(e) of the Notes to the Company's Consolidated and
HL&P's Financial Statements included in this Report.
-24-
(10) DEFERRED PLANT COSTS
The Utility Commission authorized deferred accounting with respect
to the South Texas Project (Docket Nos. 8230 and 9010 for Unit
No. 1 and Docket No. 8425 for Unit No. 2).
In May 1991, HL&P implemented under bond, in Docket No. 9850, a
$313 million base rate increase. At that time, HL&P ceased all
cost deferrals related to the South Texas Project and began the
recovery of such amounts. These deferrals are being amortized on
a straight-line basis as allowed by the final order in Docket
No. 9850. The amortization of these deferrals totaled $6.4
million and $12.9 million for the three months and six months
ended June 30, 1994, respectively, and is recorded on the
Company's Statements of Consolidated Income and HL&P's
Statements of Income in depreciation and amortization expense.
The following table shows the original balance of the deferrals
and the unamortized balance at June 30, 1994.
Balance at
Original June 30,
Balance 1994
--------- -----------
(Thousands of Dollars)
Deferred Accounting: (a)
Deferred Expenses ................ $250,151 $230,139
Deferred Carrying Costs
on Plant Investment ......... 399,972 367,975
-------- --------
Total ............................ 650,123 598,114
Qualified Phase-In Plan: (b) ..... 82,254 53,694
-------- --------
Total Deferred Plant Costs ....... $732,377 $651,808
======== ========
------------
(a) Amortized over the estimated depreciable life of the South
Texas Project.
(b) Amortized over nine years beginning in May 1991.
As of June 30, 1994, HL&P has recorded deferred income taxes of
$198.2 million with respect to deferred accounting and $13.4
million with respect to the deferrals associated with the
qualified phase-in plan.
The accounting for deferred plant costs is described in greater
detail in Note 9(d) of the Notes to the Company's Consolidated
and HL&P's Financial Statements in this Report and Note 11 of
the Notes to the Company's Consolidated and HL&P's Financial
Statements included in the 1993 Combined Form 10-K.
(11) MALAKOFF ELECTRIC GENERATING STATION
As previously disclosed, HL&P ceased all development work on
the Malakoff Electric Generating Station (Malakoff) in 1987.
HL&P is no longer considering construction of the power
generating units due to the availability of other cost
effective options. Previously, the Utility Commission has
addressed portions of HL&P's investment in Malakoff and has
accorded various rate treatments for those costs,
-25-
including amortization of portions of those costs. For a
further discussion of the accounting treatment of costs
related to Malakoff and the Utility Commission's previous
treatment of those costs, see Note 12 of the Notes to the
Company's Consolidated and HL&P's Financial Statements
included in the 1993 Combined Form 10-K, which note is
incorporated herein by reference.
In its recent filing in Docket No. 12065 described in Note
9(e) of the Notes to the Company's Consolidated and HL&P's
Financial Statements in this Report, HL&P provided for
amortization of its entire remaining investment in Malakoff,
including $78.2 million attributable to the portion of the
engineering design costs for which amortization had not
previously been authorized and $147.6 million attributable to
related lignite reserves which had not previously been
addressed by the Utility Commission. If appropriate rate
treatment of these amounts is not ultimately received, HL&P
could be required to write off any unrecoverable portions of
its Malakoff investment.
(12) SUBSEQUENT EVENTS
COMPANY. In July 1994, KBLCOM acquired the stock of three cable
companies serving approximately 48,000 customers in the
Minneapolis area in exchange for 587,646 shares of common stock
of the Company. The total purchase price of approximately $80
million included the assumption of approximately $60 million in
liabilities.
HL&P. In July 1994, HL&P contributed as equity its rights to
receive certain railroad settlement payments to HL&P
Receivables, Inc. (HLPR), a wholly-owned subsidiary of HL&P.
HLPR transferred the receivables to a trust. A bank purchased
certificates evidencing a senior interest in the trust and HLPR
holds a certificate evidencing a subordinate interest in the
trust. HL&P received as a dividend on its equity investment in
HLPR approximately $66.1 million, an amount equal to HLPR's
proceeds from the sale. Consistent with the manner in which HL&P
recorded receipts of the settlement payments, HL&P has recorded
the transaction as a $66.1 million reduction to reconcilable
fuel expense in July 1994.
(13) INTERIM PERIOD RESULTS: RECLASSIFICATIONS
The results of interim periods are not necessarily indicative of
results expected for the year due to the seasonal nature of
HL&P's business. In the opinion of management, the interim
information reflects all adjustments (consisting only of normal
recurring adjustments) necessary for a full presentation of the
results for the interim periods. Certain amounts from the
previous year have been reclassified to conform to the 1994
presentation of consolidated financial statements. Such
reclassifications do not affect earnings.
-26-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPANY. Selected financial data for Houston Industries Incorporated
(Company) is set forth below:
Three Months Ended
June 30,
-----------------------
Percent
1994 1993 Change
(Thousands of Dollars)
Revenues ................ $1,066,660 $1,067,753 --
Operating Expenses ...... 765,863 820,067 (7)
Operating Income ........ 300,797 247,686 21
Other Income ............ 11,950 11,775 1
Interest and Other
Charges ............... 100,654 108,671 (7)
Income Taxes ............ 78,265 50,581 55
Net Income .............. 133,828 100,209 34
Six Months Ended
June 30,
---------------------
Percent
1994 1993 Change
(Thousands of Dollars)
Revenues ................ $1,948,761 $1,933,712 1
Operating Expenses ...... 1,497,291 1,558,045 (4)
Operating Income ........ 451,470 375,667 20
Other Income ............ 21,265 29,577 (28)
Interest and Other
Charges ............... 199,978 217,937 (8)
Income Taxes ............ 100,554 60,043 67
Net Income .............. 164,003 127,264 29
The Company had consolidated earnings per share of $1.02 for the
second quarter of 1994, compared to consolidated earnings per share of $.77
for the second quarter of 1993. Consolidated earnings per share for the six
months ended June 30, 1994 was $1.25, compared to $.98 per share for the
same period in 1993.
-27-
Electric Utility Operations:
HL&P. GENERAL. Selected financial data for Houston Lighting & Power
Company (HL&P) is set forth below:
Three Months Ended
June 30,
----------------------
Percent
1994 1993 Change
(Thousands of Dollars)
Revenues ................ $1,004,906 $1,005,149 --
Operating Expenses ...... 788,064 816,083 (3)
Operating Income ........ 216,842 189,066 15
Interest Charges ........ 63,281 74,049 (15)
Income After Preferred
Dividends ............. 142,478 105,765 35
Six Months Ended
June 30,
-----------------------
Percent
1994 1993 Change
(Thousands of Dollars)
Revenues ................ $1,826,487 $1,810,834 1
Operating Expenses ...... 1,486,766 1,508,608 (1)
Operating Income ........ 339,721 302,226 12
Interest Charges ........ 126,331 147,565 (14)
Income After Preferred
Dividends ............ 184,164 137,339 34
The increase in HL&P's earnings for the second quarter and first
six months of 1994 resulted primarily from increased energy sales due
primarily to improved economic activities in the service area and unusually
mild weather in 1993, and reduced interest expense resulting from
refinancing activities.
OPERATING REVENUES AND SALES. Electric operating revenues were
relatively unchanged for the second quarter, while they increased $15.7
million for the first six months of 1994, compared to the same periods in
1993. The increase in the first six months of 1994 was primarily due to
increased residential and commercial kilowatt-hour (KWH) sales. Residential
KWH sales for the second quarter and first six months of 1994 increased 11%
and 8%, respectively, compared to the same periods in 1993, while
commercial KWH sales increased 8% and 6%, respectively, for the same
periods. Base revenues for the second quarter and first six months of 1994
increased $51.3 million and $80.2 million, respectively, compared to the
same periods in 1993. These increases were due mainly to the unusually mild
weather experienced in the first six months of 1993, and a 1.7% increase in
the number of customers for the second quarter and first six months of 1994
compared to 1993.
FUEL AND PURCHASED POWER EXPENSES. Fuel expenses decreased $27.1
million and $8.5 million for the second quarter and first six months of
1994, respectively, compared to the same periods of the previous year.
These decreases were primarily due to decreases in the unit cost of gas and
the resumption of the use of nuclear fuel coinciding with the start up of
Unit Nos. 1 and 2 of the South Texas Project Electric Generating Station
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(South Texas Project). For additional information regarding the South Texas
Project, see Notes 8(f), 9(e) and 9(f) of the Notes to the Company's
Consolidated and HL&P's Financial Statements in Item 1 of this Report.
Purchased power expense decreased $25.3 million for the second quarter and
$56.5 million for the first six months of 1994 due to the expiration of a
purchase power contract. The average cost of fuel for the second quarter
and first six months of 1994 was $1.63 per million British Thermal Units
(MMBtu) and $1.71 per MMBtu, respectively, compared to $1.93 per MMBtu and
$1.86 per MMBtu for the same periods in 1993. The combined costs of fuel
used by HL&P and the fuel portion of purchased power was 1.76 cents per KWH
for the second quarter and 1.83 cents per KWH for the first six months of
1994. These costs decreased from 2.06 cents per KWH and 2.00 cents per KWH
for the comparable periods in 1993.
OPERATION AND MAINTENANCE, DEPRECIATION AND AMORTIZATION, AND
INTEREST EXPENSES. Electric operation and maintenance expense for the
second quarter and first six months of 1994 decreased $8.8 million and
$10.2 million, respectively, compared to the same periods in 1993.
Depreciation and amortization expense for the second quarter and first six
months of 1994 increased $3.5 million and $6.2 million, respectively,
compared to the same periods in 1993, primarily due to an increase in
depreciable property and the amortization, beginning in January 1994, of
Demand Side Management expenditures. Interest expense for the second
quarter and first six months of 1994 decreased $11.8 million and $21.3
million, respectively, compared to the same periods in 1993, primarily due
to refinancing activities.
RATE PROCEEDINGS. In February 1994, an administrative law judge
(ALJ) of the Public Utility Commission of Texas (Utility Commission) ruled
that a proceeding should be conducted pursuant to Section 42 of the Texas
Public Utility Regulatory Act of 1975, as amended (PURA), in order to
inquire into HL&P's existing rates. That order subsequently was affirmed by
the Utility Commission, and in July 1994, HL&P filed data in support of its
existing rates, as required by the ALJ. In that material, HL&P asserts that
its existing rates continue to be just and reasonable and should not be
reduced by the Utility Commission. HL&P further asserts that it would be
able to demonstrate an entitlement of an increase in rates if it were to
file for a rate increase. No such increase is currently being sought. In
addition, HL&P will file a request in connection with Docket No. 12065 for
reconciliation of fuel related expenses incurred during the period from
April 1, 1990 through July 31, 1994, a period which includes the 1993-94
outages at the South Texas Project units (see Note 9(f) of the Notes to the
Company's Consolidated and HL&P's Financial Statements in Item I of this
Report). Also in connection with Docket No. 12065, the Utility Commission
has determined to conduct an inquiry into the prudence of HL&P's operation
of the South Texas Project, the results of which will be considered in
determining whether additional fuel expense incurred during the 1993-94
outage at the South Texas Project should be deemed by the Utility
Commission to be unreasonable and whether there has been mismanagement of
the South Texas Project by HL&P which should be taken into account in
considering the appropriate rate of return in the Section 42 proceeding. In
July 1994, the Utility Commission approved the hiring of a consultant to
conduct a review of HL&P's prudence in the management of the South Texas
Project in order to assist the Utility Commission Staff in preparing
testimony for the prudence inquiry. Hearings regarding the matters to be
considered in connection with Docket No. 12065 are expected to begin in
late November 1994. No final decision by the Utility Commission on these
matters is expected before the summer of 1995. Although HL&P and the
Company believe that the Section 42 inquiry into HL&P's rates is
unwarranted and that the South Texas Project has not been imprudently
managed, there can be no assurance as to the outcome of this proceeding,
-29-
and HL&P's rates could be reduced following a hearing. HL&P believes that
any reduction in base rates as a result of a Section 42 inquiry would take
effect prospectively.
UNITED STATES NUCLEAR REGULATORY COMMISSION (NRC) DIAGNOSTIC
EVALUATION OF THE SOUTH TEXAS PROJECT. In June 1993, the NRC announced that
the South Texas Project had been placed on its "watch list" of plants with
"weaknesses that warrant increased NRC attention." For a discussion of the
NRC diagnostic evaluation of the South Texas Project and related matters,
see Note 8(f) of the Notes to the Company's Consolidated and HL&P's
Financial Statements in Item 1 of this Report and Note 9(f) of the Notes to
the Company's Consolidated and HL&P's Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993
(File No. 1-7629), filed in combined form with the HL&P Annual Report on
Form 10-K for the year ended December 31, 1993 (File No. 1-3187)
(collectively, the 1993 Combined Form 10-K).
Cable Television Operations:
KBLCOM. KBLCOM Incorporated (KBLCOM), the Company's cable
television subsidiary, experienced a loss, before long-term financing cost
with parent, of $2.9 million in the second quarter of 1994 compared to a
loss of $.1 million for the same period in 1993. For the six months ended
June 30, 1994, KBLCOM experienced a loss of $6.1 million compared to $4.2
million for the same period in the prior year.
KBLCOM's results of operations for the second quarter and first six
months of 1994 declined due to lower revenues resulting from lower rates
for basic service mandated by the Cable Television Consumer Protection and
Competition Act of 1992 (1992 Cable Act). KBLCOM's results of operations
also declined due to higher operating expenses and higher depreciation and
amortization costs.
REVENUES AND EXPENSES. Revenues for the second quarter and first
six months of 1994 decreased 1.4% and .5%, respectively, compared to the
same periods in 1993. Operating expenses for the second quarter and first
six months of 1994 increased 5.3% and 5.9%, respectively, compared to the
same periods in 1993. Operating margins (revenue less operating expenses
exclusive of depreciation and amortization) decreased from 41% to 37% for
the second quarter of 1993 and 1994, respectively, and from 40% to 36% for
the six months ended June 30, 1993 and 1994, respectively. Depreciation and
amortization expense for the quarter and six months ended June 30, 1994
increased $1.1 million or 5.5% and $2.1 million or 5.4%, respectively,
compared to the same periods in 1993. KBLCOM's equity interest in the
pre-tax earnings of its jointly-owned cable television partnership, Paragon
Communications, for the second quarter of 1994 was $7.7 million, a decrease
of $.5 million or 6.4%, while earnings for the six months ended June 30,
1994 were $15.6 million, an increase of $.4 million or 2.8% when compared
to the same periods of the previous year.
Basic service revenues for the second quarter and six months ended
June 30, 1994 decreased $3 million or 7% and $4.9 million or 5.8%,
respectively, compared to the same periods of the previous year due to the
regulation (commencing in the third quarter of 1993) of basic service rates
under the 1992 Cable Act. This decrease was partially offset by the
addition of approximately 33,000 customers from the second quarter of
1993. At June 30, 1994 and 1993, KBLCOM operated systems serving
approximately 621,000 and 588,000 basic subscribers, respectively.
-30-
Premium service revenues for the quarter and six months ended June
30, 1994 increased $.6 million or 6.3% and $1 million or 5%, respectively,
compared to the same periods in the previous year due primarily to
increased sales of premium products.
Pay-per-view revenues for the quarter and six months ended June 30,
1994 decreased $.3 million or 10% and $.3 million or 4%, respectively,
compared to the same periods of the previous year.
Ancillary revenues including advertising and installation fees for
the quarter and six months ended June 30, 1994 increased $1.8 million or
25% and $3.6 million or 26%, respectively, compared to the same periods of
the previous year.
1992 CABLE ACT. In October 1992, the 1992 Cable Act became law. The
1992 Cable Act significantly revised various provisions of the Cable
Communications Policy Act of 1984. For a further discussion regarding the
1992 Cable Act, see "Business-Business of KBLCOM Regulation" in Item 1 of
the 1993 Combined Form 10-K and Item 5 of Part II of the Combined Form 10-Q
filed for the quarter ended March 31, 1994.
In February 1994, the Federal Communications Commission (FCC)
announced further changes in the rate regulations and announced its interim
cost-of-service standards. In March 1994, the FCC issued its revised
benchmark rules (Rate Rule II) as well as its interim cost-of-service rule
(Interim COS Rule). Each of these rules became effective on May 15, 1994.
Rate Rule II revises the "benchmark formulas" established by the FCC in May
1993. Under Rate Rule II (which will be applied prospectively), cable
operators must reduce their existing rates to the higher of (i) the rates
calculated using the revised benchmark formulas (Revised Benchmarks) or
(ii) a level 17% below such cable operators' rates as of September 30,
1992, adjusted for inflation. The FCC believes that the application of the
Revised Benchmarks will result in a reduction of cable system rates to
approximately 17% below September 1992 rate levels. Cable operators which
cannot or do not wish to comply with the Revised Benchmarks may choose to
justify their existing rates under the Interim COS Rule. The Interim COS
Rule establishes a cost-of-service rate system similar to that used in the
telephone industry.
Rate Rule II and the Interim COS Rule are lengthy and complex.
KBLCOM expects that it will incur increased administrative burdens under
these new rules, as well as additional reductions in KBLCOM's rates for
regulated services. The extent of the anticipated decline in revenues
cannot be determined at this time, but will have an adverse impact on
KBLCOM's financial position and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company:
GENERAL. The Company's cash requirements stem primarily from
operating expenses, capital expenditures, payment of common stock
dividends, payment of preferred stock dividends and interest and principal
payments on debt. Net cash provided by operating activities totaled $424.1
million for the six months ended June 30, 1994.
Net cash used in investing activities for the six months ended June
30, 1994, totaled $257.1 million, primarily due to electric capital
expenditures of $191.6 million, cable television additions of $32.7 million
and other construction expenditures of $12.3 million.
-31-
Financing activities for the six months of 1994 resulted in a net
cash outflow of $173.8 million. The Company's primary financing activities
reflect the incurrence of additional short-term borrowings offset by the
redemption of preferred stock, the payment of dividends and the repayment
of matured long-term debt. For further information with respect to these
matters, reference is made to Notes 3 and 5 of the Notes to the Company's
Consolidated and HL&P's Financial Statements in Item 1 of this Report.
SOURCES OF CAPITAL RESOURCES AND LIQUIDITY. The Company has
registered with the Securities and Exchange Commission (SEC) $250 million
of debt securities which remain unissued. Proceeds from any sales of these
securities are expected to be used for general corporate purposes including
investments in and loans to subsidiaries.
The Company also has registered with the SEC five million shares of
its common stock. Proceeds from the sale of these securities will be used
for general corporate purposes, including, but not limited to, the
redemption, repayment or retirement of outstanding indebtedness of the
Company or the advance or contribution of funds to one or more of the
Company's subsidiaries to be used for their general corporate purposes,
including, without limitation, the redemption, repayment or retirement of
indebtedness or preferred stock.
The Company's outstanding commercial paper at June 30, 1994 was
approximately $536.3 million, which is supported by a $600 million bank
credit facility.
RATIOS OF EARNINGS TO FIXED CHARGES. The Company's ratios of
earnings to fixed charges for the six and twelve months ended June 30, 1994
were 2.28 and 2.69, respectively. The Company believes that the ratio for
the six-month period is not necessarily indicative of the ratio for a
twelve-month period due to the seasonal nature of HL&P's business.
Electric Utility:
HL&P. GENERAL. HL&P's cash requirements stem primarily from
operating expenses, capital expenditures, payment of dividends and interest
and principal payments on debt. HL&P's net cash provided by operating
activities for the first six months of 1994 totaled $463.0 million.
In January 1994, HL&P repaid at maturity $19.5 million principal
amount of Series A collateralized medium-term notes.
In June 1994, HL&P redeemed, at $100 per share, 200,000 shares of
its $8.50 cumulative preferred stock in satisfaction of mandatory sinking
fund requirements.
In July 1994, HL&P contributed as equity its rights to receive
certain railroad settlement payments to HL&P Receivables, Inc., a
wholly-owned subsidiary of HL&P. For a further discussion, see Note 12 of
the Notes to the Company's Consolidated and HL&P's Financial Statements in
Item 1 of this Report.
Net cash used in HL&P's investing activities for the first six
months of 1994 totaled $198.0 million. HL&P's construction and nuclear fuel
expenditures (excluding Allowance for Funds Used During Construction) for
the first six months of 1994 totaled $189.8 million out of the $478 million
annual budget. HL&P expects to finance substantially all of its 1994
capital expenditures through funds generated internally from operations.
-32-
HL&P's financing activities for the first six months of 1994
resulted in a net cash outflow of approximately $277.0 million. Included in
these activities were the payment of dividends, repayment of short-term
borrowings, the redemption of preferred stock, and the repayment of matured
long-term debt. For further information with respect to these matters,
reference is made to Notes 3 and 5 of the Notes to the Company's
Consolidated and HL&P's Financial Statements in Item 1 of this Report.
SOURCES OF CAPITAL RESOURCES AND LIQUIDITY. HL&P has registered
with the SEC $230 million aggregate liquidation value of preferred stock
and $580 million aggregate principal amount of debt securities that may be
issued as first mortgage bonds and/or as debt securities collateralized by
first mortgage bonds. Proceeds from the sales of these securities are
expected to be used for general corporate purposes including the purchase,
redemption (to the extent permitted by the terms of the outstanding
securities), repayment or retirement of outstanding indebtedness or
preferred stock of HL&P.
HL&P's outstanding commercial paper at June 30, 1994 was
approximately $113.5 million, which is supported by a $400 million bank
credit facility.
RATIOS OF EARNINGS TO FIXED CHARGES. HL&P's ratios of earnings to
fixed charges for the six and twelve months ended June 30, 1994, were 3.37
and 3.94, respectively. HL&P's ratios of earnings to fixed charges and
preferred dividends for the six and twelve months ended June 30, 1994, were
2.83 and 3.33, respectively. HL&P believes that the ratios for the
six-month period are not necessarily indicative of the ratios for a
twelve-month period due to the seasonal nature of HL&P's business.
Cable Television:
KBLCOM. GENERAL. KBLCOM's cash requirements stem primarily from
operating expenses, capital expenditures, and interest and principal
payments on debt. KBLCOM's net cash provided by operating activities was
$24.1 million for the six months ended June 30, 1994.
Net cash used in KBLCOM's investing activities for the six months
ended June 30, 1994 totaled $36.7 million, primarily due to cable
television additions of $32.7 million. These amounts were financed
principally through internally generated funds and intercompany borrowings.
KBLCOM's financing activities for the six months ended June 30,
1994 resulted in a net cash inflow of $12.6 million. Included in these
activities were the reduction of third party debt, and an increase in
borrowings from the Company.
The Company has engaged an investment banking firm to assist in
finding a strategic partner or investor for KBLCOM in the
telecommunications industry.
In July 1994, KBLCOM acquired the stock of three cable companies
serving approximately 48,000 customers in the Minneapolis area in exchange
for 587,646 shares of common stock of the Company. The total purchase price
of approximately $80 million included the assumption of approximately $60
million in liabilities.
-33-
SOURCES OF CAPITAL RESOURCES AND LIQUIDITY. In March 1994, KBL
Cable, Inc. (KBL Cable) reduced its outstanding indebtedness by $10.4
million through scheduled principal payments. Additional borrowings under
KBL Cable's bank facilities are subject to certain covenants which relate
primarily to the maintenance of certain financial ratios, principally debt
to cash flow and interest coverages. KBL Cable presently is in compliance
with such covenants. KBLCOM's cash requirements for the remainder of 1994
are expected to be met primarily through intercompany borrowings.
-34-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For a description of legal proceedings affecting the
Company and its subsidiaries, including HL&P, reference is
made to the information set forth in Item 1 of Part II of the
Combined Form 10-Q for the quarter ended March 31, 1994, and
Item 3 of the 1993 Combined Form 10-K and Notes 9, 10 and 11
to the Company's Consolidated and HL&P's Financial Statements
in Item 8 of the 1993 Combined Form 10-K, as updated by the
description of developments in regulatory and litigation
matters contained in Notes 8, 9 and 10 of the Notes to the
Company's Consolidated and HL&P's Financial Statements
included in Part I of this Form 10- Q, all of which are
incorporated herein by reference.
In April 1994, the state district judge of the 268th
Judicial District Court, Fort Bend County, Texas, dismissed
for lack of subject matter jurisdiction a suit (PACE AND SCOTT
v. HL&P) in which it was alleged that HL&P was charging
illegal rates. The claim was based on the argument that the
Utility Commission had failed to allocate to ratepayers the
alleged tax benefits accruing to the Company and HL&P by
virtue of the fact that HL&P's federal income taxes are paid
as part of a consolidated group. The time within which an
appeal of the District Court's dismissal could be perfected
has now expired. However, one of the two plaintiffs filed a
second lawsuit (PACE, INDIVIDUALLY AND AS A REPRESENTATIVE FOR
ALL OTHERS SIMILARLY SITUATED v. HL&P) alleging substantially
the same causes of action in the 56th Judicial District Court
of Galveston County, Texas in June 1994. Management believes
that the suit is without merit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
THE COMPANY
At the annual meeting of shareholders of the Company on
May 4, 1994, the matters voted upon and the number of votes
cast for, against or withheld, as well as the number of
abstentions and broker non-votes as to each such matter
(including a separate tabulation with respect to each nominee
for office) were as follows:
Item 1. To elect five directors to hold office in accordance
with the Amended and Restated Bylaws of the Company.
CLASS I DIRECTORS - TERM EXPIRING 1997:
AGAINST OR BROKER
FOR WITHHELD NON-VOTE
Robert J. Cruikshank 112,719,184 1,733,472 0
Linnet F. Deily 112,732,302 1,720,354 0
Alexander F. Schilt 112,637,735 1,814,921 0
Jack T. Trotter 110,305,129 4,147,527 0
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CLASS II DIRECTOR - TERM EXPIRING 1995:
AGAINST OR BROKER
FOR WITHHELD NON-VOTE
Bertram Wolfe 110,794,934 3,657,722 0
Item 2. To ratify the appointment of Deloitte & Touche as
independent auditors for the Company for 1994.
BROKER
FOR AGAINST ABSTAIN NON-VOTE
112,492,116 1,223,252 737,288 0
HL&P
The annual shareholder meeting of HL&P was held on May 4,
1994. Houston Industries Incorporated, the owner and holder
of all of the outstanding Class A voting common stock of HL&P,
by the duly authorized vote of its Chairman and Chief
Executive Officer Don D. Jordan, elected the following Board
of Directors for the ensuing year or until their successors
shall have qualified:
Milton Carroll, John T. Cater, Robert J. Cruikshank, Linnet F.
Deily, Joseph M. Hendrie, Howard W. Horne, Don D. Jordan,
Alexander F. Schilt, Kenneth L. Schnitzer, Sr., Don D. Sykora,
Jack T. Trotter and Bertram Wolfe.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
HOUSTON INDUSTRIES INCORPORATED:
Exhibit 10(a) - Agreement dated June 6, 1994 between the Company and
Don D. Jordan.
Exhibit 10(b) - Agreement dated June 6, 1994 between the Company
and Don D. Sykora.
Exhibit 11 - Computation of Earnings per Common Share and Common
Equivalent Share.
Exhibit 12 - Computation of Ratios of Earnings to Fixed Charges.
Exhibit 99(a) - Notes 8(a), 9, 10, 11 and 12 of the Notes to the
Consolidated Financial Statements included on pages
83 through 97 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993
(File No. 1-7629).
Exhibit 99(b) - Part I, Item 3 - Legal Proceedings included on
pages 37 and 38 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993
(File No. 1- 7629).
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Exhibit 99(c) - Part II, Item 1 - Legal Proceedings included on
pages 31 and 32 of the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994
(File No. 1-7629).
HOUSTON LIGHTING & POWER COMPANY:
Exhibit 12 - Computation of Ratios of Earnings to Fixed Charges
and Ratios of Earnings to Fixed Charges and
Preferred Dividends.
Exhibit 99(a) - Notes 8(a), 9, 10, 11 and 12 of the Notes to the
Financial Statements included on page 104 of HL&P's
Annual Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-3187) (incorporated
by reference to Exhibit 99(a) to the Quarterly
Report on Form 10-Q of the Company for the quarter
ended June 30, 1994 (File No. 1-7629).
Exhibit 99(b) - Part I, Item 3 - Legal Proceedings included on
pages 37 and 38 of HL&P's Annual Report on Form
10-K for the year ended December 31, 1993 (File No.
1- 3187) (incorporated by reference to Exhibit
99(b) to the Quarterly Report on Form 10-Q of the
Company for the quarter ended June 30, 1994 (File
No. 1-7629).
Exhibit 99(c) - Part II, Item 1 - Legal Proceedings included on
pages 31 and 32 of HL&P's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994 (File No.
1- 3187) (incorporated by reference to Exhibit
99(c) to the Quarterly Report on Form 10-Q of the
Company for the quarter ended June 30, 1994 (File
No. 1-7629).
(b) Reports on Form 8-K.
None.
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SIGNATURE
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.
HOUSTON INDUSTRIES INCORPORATED
(Registrant)
/s/ MARY P. RICCIARDELLO
Mary P. Ricciardello
Comptroller and
Principal Accounting Officer
Date: August 12, 1994
-38-
SIGNATURE
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.
HOUSTON LIGHTING & POWER COMPANY
(Registrant)
/s/ KEN W. NABORS
Ken W. Nabors
Vice President and Comptroller
and Principal Accounting Officer
Date: August 12, 1994
-39-