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 September 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 (I.R.S. Employer Identification No.)
incorporation or organization)
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 (I.R.S. Employer Identification No.)
incorporation or organization)
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 October 31, 1994, Houston Industries Incorporated had 131,296,631 shares
of common stock outstanding, including 7,895,308 shares not outstanding for
financial statement purposes. See Note 2 to the financial statements in Item 1
of this Report. As of October 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 SEPTEMBER 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 Nine Months Ended
September 30, 1994 and 1993 ....................... 3
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993 .......... 5
Statements of Consolidated Cash Flows
Nine Months Ended September 30, 1994 and 1993 ..... 7
Statements of Consolidated Retained Earnings
Three Months and Nine Months Ended
September 30, 1994 and 1993 ....................... 9
Notes to Consolidated Financial Statements ........ 16
Houston Lighting & Power Company
Statements of Income
Three Months and Nine Months Ended
September 30, 1994 and 1993 ....................... 10
Balance Sheets
September 30, 1994 and December 31, 1993 .......... 11
Statements of Cash Flows
Nine Months Ended September 30, 1994 and 1993 ..... 13
Statements of Retained Earnings
Three Months and Nine Months Ended
September 30, 1994 and 1993 ....................... 15
Notes to Financial Statements ..................... 16
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations ................................. 29
PART II OTHER INFORMATION
Item 1. Legal Proceedings .......................... 37
Item 6. Exhibits and Reports on Form 8-K ........... 37
Signatures............................................ 39
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
REVENUES:
Electric............................... $1,150,946 $1,355,339 $2,977,433 $3,166,173
Cable television....................... 65,034 60,993 187,308 183,871
---------- ---------- ---------- ----------
Total .............................. 1,215,980 1,416,332 3,164,741 3,350,044
---------- ---------- ---------- ----------
EXPENSES:
Electric:
Fuel................................... 211,235 345,580 663,937 806,746
Purchased power........................ 102,225 127,705 304,680 386,628
Operation and maintenance.............. 212,507 225,525 610,447 633,627
Taxes other than income taxes.......... 65,184 51,021 191,255 175,353
Cable television operating expenses.... 39,942 36,562 118,092 110,353
Depreciation and amortization.......... 120,849 116,079 360,822 347,810
---------- ---------- ---------- ----------
Total .............................. 751,942 902,472 2,249,233 2,460,517
---------- ---------- ---------- ----------
OPERATING INCOME........................ 464,038 513,860 915,508 889,527
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Allowance for other funds used
during construction................. 1,170 981 2,579 2,769
Interest income........................ 1,174 8,355 1,591 25,093
Equity in income of cable television
partnerships........................ 8,125 8,554 23,825 23,563
Other - net............................ (8,425) (5,741) (21,758) (9,699)
---------- ---------- ---------- ----------
Total............................... 2,044 12,149 6,237 41,726
---------- ---------- ---------- ----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt............. 62,851 96,826 236,313 290,449
Other interest......................... 28,950 871 40,607 9,165
Allowance for borrowed funds used
during construction................. (1,616) (1,062) (3,433) (2,976)
Preferred dividends of subsidiary...... 8,305 8,238 24,981 26,172
---------- ---------- ---------- ----------
Total............................... 98,490 104,873 298,468 322,810
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS................ 367,592 421,136 623,277 608,443
INCOME TAXES............................ 131,624 160,727 226,486 220,770
---------- ---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS............................... 235,968 260,409 396,791 387,673
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR POSTEMPLOYMENT BENEFITS (NET OF
INCOME TAXES OF $4,415)................ (8,200)
---------- ---------- ---------- ----------
NET INCOME.............................. $ 235,968 $ 260,409 $ 388,591 $ 387,673
========== ========== ========== ==========
-3-
EARNINGS PER COMMON SHARE:
EARNINGS PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS............................ $ 1.92 $ 2.00 $ 3.23 $ 2.99
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS............................ (.06)
--------- --------- --------- ---------
EARNINGS PER COMMON SHARE.............. $ 1.92 $ 2.00 $ 3.17 $ 2.99
========= ========= ========= =========
DIVIDENDS DECLARED PER COMMON
SHARE............................... $ .75 $ 1.50 $ 2.25 $ 3.00
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (000)................... 123,060 130,114 122,665 129,856
See Notes to Consolidated Financial Statements.
-4-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
September 30, December 31,
1994 1993
------------- -------------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Plant in service.................................... $ 11,677,330 $ 11,480,244
Construction work in progress....................... 298,405 242,661
Nuclear fuel........................................ 212,195 211,785
Plant held for future use........................... 197,710 196,330
Electric plant acquisition adjustments................ 3,166 3,166
Cable television property............................. 433,639 372,178
Other property........................................ 61,081 47,494
------------- -------------
Total........................................... 12,883,526 12,553,858
Less accumulated depreciation and amortization........ 3,617,257 3,355,616
------------- -------------
Property, plant and equipment - net............. 9,266,269 9,198,242
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents............................. 7,878 14,884
Special deposits...................................... 13 11,834
Accounts receivable:
Customers - net..................................... 16,475 4,985
Others.............................................. 31,651 11,153
Accrued unbilled revenues............................. 19,823 29,322
Fuel stock, at lifo cost.............................. 56,972 58,585
Materials and supplies, at average cost............... 165,355 166,477
Prepayments........................................... 17,751 20,432
------------- -------------
Total current assets............................ 315,918 317,672
------------- -------------
OTHER ASSETS:
Cable television franchises and intangible
assets - net........................................ 1,042,159 984,032
Deferred plant costs.................................. 645,362 664,699
Deferred debits....................................... 286,609 371,773
Unamortized debt expense and premium on
reacquired debt..................................... 164,057 169,465
Equity investment in cable television
partnerships........................................ 150,876 122,531
Equity investment in foreign electric utility......... 35,473 36,984
Regulatory asset - net................................ 238,556 246,763
Recoverable project costs............................. 103,519 118,016
------------- -------------
Total other assets.............................. 2,666,611 2,714,263
------------- -------------
Total........................................ $ 12,248,798 $ 12,230,177
============= =============
See Notes to Consolidated Financial Statements.
-5-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
September 30, December 31,
1994 1993
------------ -----------
CAPITALIZATION:
Common Stock Equity:
Common stock, no par value ............... $ 2,438,107 $ 2,415,256
Note receivable from ESOP ................ (332,489)
Unearned ESOP shares ..................... (295,973)
Retained earnings ........................ 1,303,139 1,191,230
------------- ------------
Total common stock equity ......... 3,445,273 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 ............................... 548,682 548,544
Long-term debt of subsidiaries:
Electric:
First mortgage bonds ................ 3,020,261 3,019,843
Pollution control revenue bonds ..... 155,240 155,218
Other ............................... 11,944 15,010
Cable television:
Senior bank debt .................... 364,000 364,000
Senior and subordinated notes ....... 124,783 140,580
------------- ------------
Total long-term debt .............. 4,224,910 4,243,195
------------- ------------
Total capitalization ............ 8,143,438 8,035,782
------------- ------------
CURRENT LIABILITIES:
Notes payable .............................. 378,600 591,385
Accounts payable ........................... 173,892 239,814
Taxes accrued .............................. 181,318 187,503
Interest accrued ........................... 96,426 84,178
Dividends accrued .......................... 105,095 105,207
Accrued liabilities to municipalities ...... 31,124 22,589
Customer deposits .......................... 65,515 65,604
Current portion of long-term debt and
preferred stock .......................... 83,391 55,109
Other ...................................... 68,601 62,688
------------- ------------
Total current liabilities ....... 1,183,962 1,414,077
------------- ------------
DEFERRED CREDITS:
Accumulated deferred income taxes .......... 2,081,460 1,987,336
Unamortized investment tax credit .......... 419,742 434,597
Other ...................................... 420,196 358,385
------------- ------------
Total deferred credits .......... 2,921,398 2,780,318
------------- ------------
COMMITMENTS AND CONTINGENCIES
Total ........................ $ 12,248,798 $ 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)
Nine Months Ended
September 30,
------------------------
1994 1993
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................... $ 388,591 $ 387,673
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............... 360,822 347,810
Amortization of nuclear fuel ................ 13,352 2,101
Deferred income taxes ....................... 64,702 204,657
Investment tax credits ...................... (14,855) (15,209)
Allowance for other funds used during
construction ............................. (2,579) (2,769)
Fuel cost (refund) and over/(under)
recovery - net ........................... 152,130 (81,540)
Equity in income of cable television
partnerships ............................. (23,825) (23,563)
Regulatory asset - net ...................... 8,207 (72,602)
Cumulative effect of change in accounting
for postemployment benefits .............. 8,200
Changes in other assets and liabilities:
Accounts receivable and accrued
unbilled revenues....................... (22,489) 250,224
Inventory ................................ 2,735 15,079
Other current assets ..................... 14,502 263
Accounts payable ......................... (65,922) (33,947)
Interest and taxes accrued ............... 10,063 5,960
Other current liabilities ................ 13,767 11,471
Other - net .............................. 47,537 53,078
--------- -----------
Net cash provided by operating
activities ................................ 954,938 1,048,686
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Electric capital and nuclear fuel
expenditures (including allowance for
borrowed funds used during construction) .... (297,861) (216,177)
Cable television additions .................... (92,706) (36,328)
Other capital expenditures .................... (22,558)
Other - net ................................... (12,678) (10,201)
--------- -----------
Net cash used in investing activities ....... (425,803) (262,706)
--------- -----------
-7-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock .................. $ 32,796
Proceeds from first mortgage bonds .......... 743,284
Proceeds from senior bank debt .............. 20,000
Extinguishment of long-term debt ............ (477,433)
Payment of matured bonds .................... $ (19,500) (136,000)
Payment of senior bank debt ................. (238,349)
Payment of senior and subordinated notes .... (10,384) (6,390)
Payment of common stock dividends ........... (276,202) (292,122)
Decrease in notes payable - net ............. (212,785) (463,749)
Redemption of preferred stock ............... (20,000) (40,000)
Other - net ................................. 2,730 23,776
---------- ----------
Net cash used in financing activities ..... (536,141) (834,187)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ........ (7,006) (48,207)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD ......................................... 14,884 69,317
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....... $ 7,878 $ 21,110
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized) ..... $ 262,570 $ 294,412
Income taxes .............................. 136,933 85,375
See Notes to Consolidated Financial Statements.
-8-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
Balance at Beginning of Period............. $1,160,081 $1,190,903 $1,191,230 $1,254,584
Net Income for the Period.................. 235,968 260,409 388,591 387,673
---------- ---------- ---------- ----------
Total............................... 1,396,049 1,451,312 1,579,821 1,642,257
Common Stock Dividends..................... (92,910) (195,245) (276,682) (389,800)
Tax Benefit of ESOP Dividends.............. 2,124 6,136
Redemption of HL&P Preferred
Stock.................................... (402)
---------- ---------- ---------- ----------
Balance at End of Period................... $1,303,139 $1,258,191 $1,303,139 $1,258,191
========== ========== ========== ==========
See Notes to Consolidated Financial Statements.
-9-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
OPERATING REVENUES.................... $1,150,946 $1,355,339 $2,977,433 $3,166,173
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Fuel................................ 211,235 345,580 663,937 806,746
Purchased power..................... 102,225 127,705 304,680 386,628
Operation........................... 156,809 161,018 431,611 445,523
Maintenance......................... 55,698 64,507 178,836 188,104
Depreciation and amortization....... 99,571 96,500 298,175 288,932
Income taxes........................ 139,365 153,787 248,359 217,440
Other taxes......................... 65,184 51,021 191,255 175,353
---------- ---------- ---------- ----------
Total............................. 830,087 1,000,118 2,316,853 2,508,726
---------- ---------- ---------- ----------
OPERATING INCOME...................... 320,859 355,221 660,580 657,447
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Allowance for other funds used
during construction............... 1,170 981 2,579 2,769
Other - net......................... (1,494) (3,554) (7,253) (4,730)
---------- ---------- ---------- ----------
Total........................... (324) (2,573) (4,674) (1,961)
---------- ---------- ---------- ----------
INCOME BEFORE INTEREST CHARGES........ 320,535 352,648 655,906 655,486
---------- ---------- ---------- ----------
INTEREST CHARGES:
Interest on long-term debt.......... 61,565 71,352 184,964 211,810
Other interest...................... 1,189 2,526 5,938 11,547
Allowance for borrowed funds used
during construction............... (1,616) (1,062) (3,433) (2,976)
---------- ---------- ---------- ----------
Total........................... 61,138 72,816 187,469 220,381
---------- ---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS............. 259,397 279,832 468,437 435,105
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS (NET OF INCOME TAXES OF
$4,415)............................. (8,200)
---------- ---------- ---------- ----------
NET INCOME............................ 259,397 279,832 460,237 435,105
DIVIDENDS ON PREFERRED STOCK.......... 8,305 8,238 24,981 26,172
---------- ---------- ---------- ----------
INCOME AFTER PREFERRED DIVIDENDS...... $ 251,092 $ 271,594 $ 435,256 $ 408,933
========== ========== ========== ==========
See Notes to Financial Statements.
-10-
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
September 30, December 31,
1994 1993
------------ ------------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant ................................. $11,677,330 $11,480,244
Construction work in progress .................. 298,405 242,661
Plant held for future use ...................... 197,710 196,330
Nuclear fuel ................................... 212,195 211,785
Electric plant acquisition adjustments ......... 3,166 3,166
----------- -----------
Total ..................................... 12,388,806 12,134,186
Less accumulated depreciation and
amortization ................................. 3,433,716 3,194,127
----------- -----------
Property, plant and equipment - net ....... 8,955,090 8,940,059
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents ...................... 229,087 12,413
Special deposits ............................... 13 11,834
Accounts receivable:
Affiliated companies ......................... 2,925 1,792
Others ....................................... 23,856 2,540
Accrued unbilled revenues ...................... 19,823 29,322
Inventory:
Fuel stock, at lifo cost ..................... 56,972 58,585
Materials and supplies, at average cost ...... 155,051 160,371
Prepayments .................................... 11,715 9,234
----------- -----------
Total current assets ...................... 499,442 286,091
----------- -----------
OTHER ASSETS:
Deferred plant costs ........................... 645,362 664,699
Deferred debits ................................ 234,057 333,620
Unamortized debt expense and premium on
reacquired debt .............................. 160,326 164,368
Regulatory asset - net ......................... 238,556 246,763
Recoverable project costs ...................... 103,519 118,016
----------- -----------
Total other assets ........................ 1,381,820 1,527,466
----------- -----------
Total ................................... $10,836,352 $10,753,616
=========== ===========
See Notes to Financial Statements.
-11-
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
September 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 ........................... 2,217,434 2,028,924
----------- -----------
Total common stock equity ................. 3,893,361 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 ........................ 3,020,261 3,019,843
Pollution control revenue bonds ............. 155,240 155,218
Other ....................................... 11,944 15,010
----------- -----------
Total long-term debt ...................... 3,187,445 3,190,071
----------- -----------
Total capitalization ................... 7,554,061 7,413,512
----------- -----------
CURRENT LIABILITIES:
Notes payable ................................. 171,100
Accounts payable .............................. 127,277 190,583
Accounts payable to affiliated companies ...... 12,934 8,449
Taxes accrued ................................. 197,487 187,517
Interest and dividends accrued ................ 67,709 65,238
Accrued liabilities to municipalities ......... 31,124 22,589
Customer deposits ............................. 65,515 65,604
Current portion of long-term debt and
preferred stock ............................. 51,553 44,725
Other ......................................... 68,642 63,607
----------- -----------
Total current liabilities .............. 622,241 819,412
----------- -----------
DEFERRED CREDITS:
Accumulated deferred federal income taxes ..... 1,877,648 1,798,976
Unamortized investment tax credit ............. 416,436 430,996
Other ......................................... 365,966 290,720
----------- -----------
Total deferred credits ................. 2,660,050 2,520,692
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total ................................ $10,836,352 $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)
Nine Months Ended
September 30,
------------------------
1994 1993
------------ ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 460,237 $ 435,105
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................. 298,175 288,932
Amortization of nuclear fuel ................... 13,352 2,101
Deferred income taxes .......................... 83,088 200,862
Investment tax credits ......................... (14,560) (14,919)
Allowance for other funds used during
construction ................................. (2,579) (2,769)
Fuel cost (refund) and over/(under) recovery
- net ........................................ 152,130 (81,540)
Regulatory asset - net ......................... 8,207 (72,602)
Cumulative effect net of change in accounting
for postemployment benefits .................. 8,200
Changes in other assets and liabilities:
Accounts receivable - net .................... (12,950) 116,399
Material and supplies ........................ 5,320 3,285
Fuel stock ................................... 1,612 14,391
Accounts payable ............................. (58,821) (26,197)
Interest and taxes accrued ................... 12,441 12,940
Other current liabilities .................... 14,537 38,567
Other - net .................................. 34,902 58,506
------------ ---------
Net cash provided by operating activities ........ 1,003,291 973,061
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) ...................... (297,861) (216,177)
Other - net ...................................... (9,808) (8,930)
------------ ---------
Net cash used in investing activities .......... (307,669) (225,107)
------------ ---------
-13-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from first mortgage bonds ................ $ 743,284
Payment of matured bonds .......................... $ (19,500) (136,000)
Payment of dividends .............................. (272,259) (290,376)
Decrease in notes payable ......................... (171,100) (139,440)
Decrease in notes payable to affiliated
company ......................................... (19,000)
Redemption of preferred stock ..................... (20,000) (40,000)
Extinguishment of long-term debt .................. (477,433)
Other - net ....................................... 3,911 6,205
--------- ---------
Net cash used in financing activities ........... (478,948) (352,760)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............ 216,674 395,194
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..... 12,413 4,254
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 229,087 $ 399,448
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized) ........... $ 186,778 $ 226,488
Income taxes .................................... 136,889 82,142
See Notes to Financial Statements.
-14-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
Balance at Beginning of
Period ................ $ 2,048,593 $ 1,876,504 $ 2,028,924 $ 1,922,558
Net Income for the Period . 259,397 279,832 460,237 435,105
Redemption of Preferred
Stock ................. (402)
----------- ----------- ----------- -----------
Total ................. 2,307,990 2,156,336 2,489,161 2,357,261
----------- ----------- ----------- -----------
Deductions - Cash
Dividends:
Preferred ............. 8,305 8,238 24,981 26,172
Common ................ 82,251 79,995 246,746 262,986
----------- ----------- ----------- -----------
Total .............. 90,556 88,233 271,727 289,158
----------- ----------- ----------- -----------
Balance at End of Period .. $ 2,217,434 $ 2,068,103 $ 2,217,434 $ 2,068,103
=========== =========== =========== ===========
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 financial statements
included in Item 8 thereof. Notes 9, 10 and 11 of the notes to the
financial statements included 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 to these financial
statements, are incorporated herein by reference as they relate to the
Company and HL&P, respectively.
(2) COMMON STOCK
COMPANY. At September 30, 1994, and December 31, 1993, the Company had
authorized 400,000,000 shares of common stock, of which 123,360,067
and 130,658,755 shares, respectively, were outstanding. The decrease
in shares outstanding at September 30, 1994 reflects a change in
accounting related to the employee stock ownership plan (ESOP)
component of the Company's savings plan, as discussed below. For a
discussion of additional shares issued by the Company in July 1994,
see Note 12 to these financial statements.
In October 1990, the Company amended its savings plan to add a
leveraged ESOP component. The Company may use ESOP shares to
satisfy its obligation to make matching contributions under the
savings plan. For information regarding the formation of the ESOP
(including the ESOP loan), see Note 7(b) of the notes to the
financial statements included in the 1993 Combined Form 10-K.
Debt service on the ESOP loan is paid using all dividends on
shares in the ESOP, interest earnings on funds held in the ESOP
and cash contributions by the Company. Shares of the Company's
common stock are released from encumbrance of the ESOP loan based
on the proportion of debt service paid during the period.
In the third quarter of 1994, the Company adopted the American
Institute of Certified Public Accountants Statement of Position 93-6
(SOP 93-6), "Employers' Accounting for Employee
-16-
Stock Ownership Plans" effective January 1, 1994. SOP 93-6 requires
that the Company recognize benefit expense for the ESOP equal to
fair value of the ESOP shares committed to be released. Following
the adoption of SOP 93-6, the Company no longer reports the ESOP
loan as a note receivable from the ESOP or recognizes interest
income on such receivable. The Company is instead required to
establish a new contra-equity account (unearned ESOP shares)
which reflects shares not yet committed for release at their
original purchase price. As shares are committed to be released,
they are credited to the unearned ESOP shares account based on
the original purchase price of the shares. The difference between
the fair value of the shares at the time such shares are
committed for release and the original purchase price is charged
or credited to common stock. Dividends on allocated ESOP shares
are recorded as a reduction to retained earnings; dividends on
unallocated ESOP shares are recorded as a reduction of debt or
accrued interest on the ESOP loan. SOP 93-6 is effective only
with respect to financial statements for periods after January 1,
1994 and no restatements have been made for prior periods.
Earnings for the three and nine months ended September 30, 1994
were reduced by $.4 million and $11.8 million, respectively, as a
result of the adoption of SOP 93-6. For a discussion of the
impact of SOP 93-6 on the earnings per common share calculation,
see Notes 4 and 14 to these financial statements.
As computed under SOP 93-6, the Company's benefit expenses for the
ESOP for the three and nine months ended September 30, 1994 are
approximately $4.6 million and $13.6 million, respectively. The ESOP
shares as of September 30, 1994 and December 31, 1993 were as follows:
September 30, 1994 December 31, 1993
------------------ -----------------
Allocated Shares ............... 1,410,211 1,031,187
Unallocated Shares ............. 7,936,564 8,317,649
--------- ---------
Total ESOP Shares .............. 9,346,775 9,348,836
========= =========
Fair value of unallocated
ESOP shares................... $279,763,881 $396,128,034
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 September 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.
-17-
(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.
Pursuant to the adoption of SOP 93-6, the number of weighted average
common shares outstanding for the three and nine months ended
September 30, 1994 reflects a reduction for ESOP shares not yet
committed for release to savings plan participants. In accordance with
SOP 93-6, earnings per common share for periods prior to January 1,
1994 have not been restated. The unallocated shares as of September
30, 1994 and 1993 were 7,936,564 and 8,410,108, respectively. See also
Notes 2 and 14 to these financial statements.
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 principal
repayment of $10.4 million 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
For a description of the Company's and HL&P's adoption, effective
January 1, 1994, of Statement of Financial Accounting Standards No.
112, "Employer's Accounting for Postemployment Benefits" and the
recording of a one-time, after-tax charge to income of $8.2 million in
the first quarter of 1994, see Note 6 of the notes to the financial
statements included in the Combined Form 10-Q (Combined Form 10-Q) for
the quarter ended June 30, 1994, which Note is incorporated herein by
reference.
(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) of the notes to the 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). For a description of the 1992
Cable Act's benchmark rate rules and interim cost of service rules,
as revised in March 1994 (each of which became effective in May of
1994), see Note 7(b) of the notes to the financial statements included
in the Combined Form 10-Q for the quarter ended June 30, 1994, which
Note, as updated by this Note, is incorporated herein by reference.
-18-
KBLCOM incurred increased administrative burdens under these new
rules, and the revised benchmark rate rules resulted in some
additional reductions in KBLCOM's rates for regulated services. The
decline in revenue due to such rules is not expected to have a
material adverse effect on KBLCOM's financial position or results of
operations.
(8) JOINTLY-OWNED NUCLEAR PLANT
(a) HL&P INVESTMENT. As of September 30, 1994, HL&P's 30.8% interest in
the South Texas Project Electric Generating Station (South Texas
Project) and in nuclear fuel, including Allowance for Funds Used
During Construction, were $2.1 billion and $106.5 million,
respectively. For a further discussion regarding the South Texas
Project, see Note 9(a) of the notes to the financial statements
included in the 1993 Combined Form 10-K.
(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 from early 1993 to early 1994 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), 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, that motion for summary
judgment was denied, and 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
-19-
permitted by the Participation Agreement, but to proceed to trial in
the Harris County district court.
In May 1994, the City of San Antonio (San Antonio), another co-owner
of the South Texas Project, 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 has opposed 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) to these financial
statements). However, in September 1994, the Harris County district
court ruled that San Antonio may participate in the Austin litigation.
HL&P is seeking appellate review of the district court's decision.
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 financial statements included in the 1993
Combined Form 10-K. Also, see Note 8(f) to these financial statements.
(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) to these financial statements and Note 9(c)
of the notes to the 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. For information regarding the nuclear property and
liability insurance maintained in connection with the South Texas
Project and potential assessments connected therewith, see Note 8(d)
of the notes to the financial statements included in the Combined Form
10-Q for the quarter ended June 30, 1994, which Note is incorporated
herein by reference.
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 $9.2 billion to $9.0 billion effective
August 29, 1994.
-20-
(e) NUCLEAR DECOMMISSIONING. For information regarding the nuclear
decommissioning costs of the South Texas Project, the estimate of such
costs as recently calculated by an outside consultant and the effect
of HL&P's pending rate proceeding on the determination of the funding
requirements for such decommissioning costs, see Note 8(e) of the
notes to the financial statements included in the Combined Form 10-Q
for the quarter ended June 30, 1994, which Note is incorporated herein
by reference, and Note 9(a) to these financial statements.
(f) UNITED STATES NUCLEAR REGULATORY COMMISSION (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.
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 early
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 has jurisdiction to
take enforcement action against HL&P and/or individual employees with
respect to these matters. Based on its own internal investigation, in
October 1994 the NRC issued a notice of violation and proposed a
$100,000 civil penalty against HL&P in connection with HL&P's
termination of the site access of a former contractor employee and
requested information relating to possible further enforcement action
in this matter against two HL&P managers involved in such termination.
HL&P strongly disagrees with the NRC's conclusions, but HL&P is not
required to respond to the NRC's proposed enforcement action until
after completion of currently pending proceedings before the
Department of Labor.
A subcommittee of the U.S. House of Representatives (Subcommittee)
has notified HL&P that the Subcommittee is conducting an inquiry
related to the South Texas Project, and HL&P has provided documents
and other assistance to the Subcommittee's staff in connection with
that
-21-
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
employee concerns 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
financial statements included in the 1993 Combined Form 10-K. Also,
see Note 9(a) to these financial statements.
(g) LOW-LEVEL RADIOACTIVE WASTE. For information regarding the federal
Low-Level Radioactive Waste Policy Act of 1980 and the closing of the
low-level waste disposal facility at Barnwell, South Carolina, to
certain generators of nuclear waste and the utilization of a temporary
Low-Level Radioactive waste disposal facility at the South Texas
Project, see Note 8(g) of the notes to the financial statements
included in the Combined Form 10-Q for the quarter ended June 30,
1994, which Note is incorporated herein by reference.
(9) PUBLIC UTILITY COMMISSION OF TEXAS (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 Texas Supreme Court 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.
-22-
Judicial review is pending on the final orders of the Utility
Commission in (b) through (e) described below.
(a) DOCKET NOS. 12065 AND 13126. 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 can demonstrate an entitlement to an increase in rates if it
were to file for a rate increase. No such increase is currently being
sought.
In connection with the review of HL&P's current rates, the Utility
Commission will also reconcile the amounts incurred by HL&P for
fuel during the period from April 1, 1990 through July 31, 1994.
A major issue in the fuel reconciliation phase of Docket No.
12065 will be whether the incremental fuel costs incurred as a
result of outages at the South Texas Project represent reasonable
costs. A separate inquiry (Docket No. 13126) will be conducted by
the Utility Commission into the prudence of the management of the
South Texas Project. The results of this separate inquiry will be
utilized in Docket No. 12065. In July 1994, the Utility
Commission approved the hiring of a consultant to conduct the
review of the 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 January 1995. No final decision by the
Utility Commission on these matters is expected before the summer
of 1995.
HL&P has filed testimony in Docket No. 13126, which testimony
concludes that the outages at the South Texas Project had not resulted
from imprudent management. HL&P has also prepared testimony analyzing
(i) the prudence of the management of the South Texas Project during
the outages and (ii) the extent to which regulatory issues, such as
those raised in the DET report, extended the outages. In that
testimony, an outside consultant retained by HL&P concludes that the
duration of the outages was controlled by both the resolution of NRC
regulatory issues as well as necessary equipment repairs unrelated to
NRC regulatory issues and that the incremental effect of NRC
regulatory issues on the duration of the outages was only 39 days per
unit. Estimates as to the cost of replacement power may vary
significantly based on a number of factors, including the capacity
factor at which the South Texas Project might be assumed to have
operated had it not been out of service due to the outages. However,
HL&P believes that applying a reasonable range of assumptions will
result in replacement fuel costs of less than $10 million for the 39
day periods identified by HL&P's consultant and less than $100 million
for the entire length of the outages.
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. Any fuel costs that are determined to have been
-23-
unreasonably incurred would not be recoverable from customers and
would be charged against the Company's earnings.
For additional information regarding Docket No. 12065 and the fuel
reconciliation, see Notes 10(f) and 10(g) of the notes to the
financial statements included in the 1993 Combined Form 10-K.
(b) 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 financial
statements included in the 1993 Combined Form 10-K. For information on
the decision of the Texas Supreme Court regarding deferred accounting
with respect to Docket Nos. 8230 and 9010, see Note 9(e) to these
financial statements.
In August 1994, the Austin Court of Appeals affirmed the Utility
Commission's order in Docket No. 8425 with respect to (i) the
inclusion of certain upgrades at the W. A. Parish Electric Generating
Station in HL&P's rate base, (ii) the inclusion of a portion of the
costs of HL&P's Malakoff Electric Generating Station (Malakoff)
Project, then designated as plant held for future use, in HL&P's rate
base and (iii) the application of deferred accounting of certain costs
associated with Unit No. 2 of the South Texas Project. The Austin
Court of Appeals held that the Utility Commission had failed to
require that tax savings associated with deductions taken for expenses
disallowed in cost of service be passed on to ratepayers, and ordered
that the case be remanded to the Utility Commission with instructions
to adjust HL&P's cost of service consistent with the ruling on the tax
issue. Discretionary review is being sought from the Texas Supreme
Court.
(c) DOCKET NO. 9850. For a discussion of Docket No. 9850 (1991 rate case),
the settlement agreement approved by the Utility Commission, and the
status of appeals relating thereto, see Note 10(c) of the notes to the
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 Docket No. 9850. That decision was
appealed by certain parties to the Austin Court of Appeals, raising
issues concerning the Utility Commission's approval 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. (See Note 9(e) to these financial
statements.) 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 filed a statement of facts in the time
allowed.
On review of that decision in June 1994, the Texas Supreme Court
reversed the decision of the Austin Court of Appeals insofar as it
refused to consider all assertions of error by the appellant. The
Texas Supreme Court held that, even in the absence of a timely filed
statement of facts, the Austin 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 Austin Court of
Appeals. For a discussion of certain other judicial decisions which
may affect the Utility Commission's
-24-
calculation of federal income tax expense in Docket No. 9850, see Note
10(b) of the notes to the financial statements included in the 1993
Combined Form 10-K.
(d) 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 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(b) and 9(c) above.
(e) 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 financial statements included in the 1993
Combined Form 10-K.
In June 1994, the Texas Supreme Court 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 Texas Supreme Court remanded
Docket Nos. 8230 and 9010 to the Austin Court of Appeals to consider
the points of error challenging the granting of deferred accounting
for carrying costs which it had not reached in its earlier
consideration of the case. The Texas 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.
(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). For a discussion of the status of
the judicial review of Docket No. 8425 and Docket Nos. 8230 and 9010,
see Notes 9(b) and 9(e) to these financial statements.
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 $19.3 million for the three months and nine months ended
September 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.
-25-
The following table shows the original balance of the deferrals and
the unamortized balance at September 30, 1994.
Balance at
Original September 30,
Balance 1994
--------------- ----------------
(Thousands of Dollars)
Deferred Accounting: (a)
Deferred Expenses........... $ 250,151 $ 228,538
Deferred Carrying Costs
on Plant Investment..... 399,972 365,414
-------------- ---------------
Total....................... 650,123 593,952
Qualified Phase-In Plan: (b).. 82,254 51,410
-------------- ---------------
Total Deferred Plant Costs.... $ 732,377 $ 645,362
============== ===============
------------
(a) Amortized over the estimated depreciable life of the South Texas
Project.
(b) Amortized over nine years beginning in May 1991.
As of September 30, 1994, HL&P has recorded deferred income taxes of
$196.9 million with respect to deferred accounting and $12.8 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 11 of the notes to the financial statements included in the
1993 Combined Form 10-K.
(11) MALAKOFF
As previously disclosed, HL&P ceased all development work on 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, 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 financial statements included
in the 1993 Combined Form 10-K, which Note is incorporated herein by
reference and Note 9(b) to these financial statements.
In Docket No. 12065 (described in Note 9(a) to these financial
statements), HL&P has filed testimony in support of the amortization
of substantially all of its remaining investment in Malakoff,
including $78.2 million attributable to
-26-
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) CABLE TELEVISION ACQUISITION
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.
(13) RAILROAD SETTLEMENT PAYMENTS
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 recorded the
transaction as a $66.1 million reduction to reconcilable fuel expense
in July 1994. The reduction to reconcilable fuel expense had no effect
on earnings.
(14) 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.
-27-
As a result of the third quarter 1994 adoption of SOP 93-6 effective
January 1, 1994, quarterly net income and earnings per common share
amounts for the first and second quarter of 1994 required restatement
as follows:
Earnings
Operating Net per
Quarter Ended Revenues Income Income Share(a)
------------- ---------- -------- -------- ---------
1994 (Thousands of Dollars)
----
March 31............. $ 882,101 $150,673 $ 30,175 $ 0.23
Adjustment 1(b)...... (4,277) (0.03)
Adjustment 2(c)...... 0.01
---------- -------- -------- ---------
March 31 Restated.... $ 882,101 $150,673 $ 25,898 $ 0.21
========== ======== ======== =========
June 30.............. $1,066,660 $300,797 $133,828 $ 1.02
Adjustment 1(b)...... (7,103) (0.06)
Adjustment 2(c)...... 0.07
---------- -------- -------- ----------
June 30 Restated..... $1,066,660 $300,797 $126,725 $ 1.03
========== ======== ======== ==========
(a) Quarterly earnings per share are based on the weighted average
number of shares outstanding during the quarter.
(b) Adjustment to reflect the adoption of SOP 93-6. See Note 2 to
these financial statements.
(c) Adjustment to reflect the restatement of weighted average shares
outstanding. Pursuant to the adoption of SOP 93-6, weighted
average shares outstanding were reduced by the shares in the ESOP
not yet committed to be released to savings plan participants.
Adjusted weighted average shares outstanding for the three months
ended March 31, 1994 and June 30, 1994 were 122,421,159 and
122,507,671, respectively. See Note 4 to these financial
statements.
-28-
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
September 30,
---------------------------- Percent
1994 1993 Change
---------- ---------- ------
(Thousands of Dollars)
Revenues .................... $1,215,980 $1,416,332 (14)
Operating Expenses .......... 751,942 902,472 (17)
Operating Income ............ 464,038 513,860 (10)
Other Income ................ 2,044 12,149 (83)
Interest and Other Charges .. 98,490 104,873 (6)
Income Taxes ................ 131,624 160,727 (18)
Net Income .................. 235,968 260,409 (9)
Nine Months Ended
September 30,
---------------------------- Percent
1994 1993 Change
---------- ---------- ------
(Thousands of Dollars)
Revenues .................... $3,164,741 $3,350,044 (6)
Operating Expenses .......... 2,249,233 2,460,517 (9)
Operating Income ............ 915,508 889,527 3
Other Income ................ 6,237 41,726 (85)
Interest and Other Charges .. 298,468 322,810 (8)
Income Taxes ................ 226,486 220,770 3
Net Income .................. 388,591 387,673 --
The Company had consolidated earnings per share of $1.92 for the third
quarter of 1994, compared to consolidated earnings per share of $2.00 for the
third quarter of 1993. Consolidated earnings per share for the nine months ended
September 30, 1994 was $3.17, compared to $2.99 per share for the same period in
1993. Earnings per share for the third quarter of 1994 compared to the same
period in 1993 decreased primarily due to the decline in earnings at Houston
Lighting & Power (HL&P) partially offset by the effects of the adoption of
Statement of Position 93-6 (SOP 93-6), both discussed below. Earnings per share
for the first nine months of 1994 were positively affected by both increased
earnings at HL&P and the adoption of SOP 93-6 when compared to the same period
in 1993.
-29-
In the third quarter of 1994, the Company adopted the American Institute
of Certified Public Accountants SOP 93-6, "Employers' Accounting for Employee
Stock Ownership Plans" effective January 1, 1994, which reduced net income but
increased earnings per share. Earnings for the three and nine months ended
September 30, 1994 were reduced by $.4 million and $11.8 million, respectively,
as a result of the adoption of SOP 93-6. SOP 93-6 required that weighted average
common shares outstanding be reduced by the shares in the Employee Stock
Ownership Plan not yet allocated to savings plan participants (7,936,564 shares
at September 30, 1994). The net effect was an increase in consolidated earnings
per share for the third quarter and first nine months of 1994. Without the
effects of the SOP 93-6 adoption, the Company's consolidated earnings per share
for the three and nine months ended September 30,1994 would have been $1.80 and
$3.06, respectively. For a further discussion of the effects of adoption of SOP
93-6, see Notes 2, 4 and 14 to the financial statements in Item 1 of this
Report.
The Company recorded in the first quarter of 1994 a one-time, after-tax
charge to income of $8.2 million in connection with the adoption of Statement
of Financial Accounting Standards (SFAS) No.112, "Employer's Accounting for
Postemployment Benefits". The ongoing 1994 charges to income related to SFAS
No. 112 are not expected to be material.
Electric Utility Operations:
HL&P. GENERAL. Selected financial data for HL&P is set forth below:
Three Months Ended
September 30,
---------------------------- Percent
1994 1993 Change
---------- ---------- ------
(Thousands of Dollars)
Revenues .......................... $1,150,946 $1,355,339 (15)
Operating Expenses ................ 830,087 1,000,118 (17)
Operating Income .................. 320,859 355,221 (10)
Interest Charges .................. 61,138 72,816 (16)
Income After Preferred Dividends .. 251,092 271,594 (8)
Nine Months Ended
September 30,
---------------------------- Percent
1994 1993 Change
---------- ---------- ------
(Thousands of Dollars)
Revenues .......................... $2,977,433 $3,166,173 (6)
Operating Expenses ................ 2,316,853 2,508,726 (8)
Operating Income .................. 660,580 657,447 --
Interest Charges .................. 187,469 220,381 (15)
Income After Preferred Dividends .. 435,256 408,933 6
-30-
The decrease in HL&P's earnings for the third quarter of 1994 as compared
to the same period in 1993 resulted primarily from lower residential kilowatt
hour (KWH) sales due to relatively mild weather in August and September of 1994
as compared to the hotter-than-normal weather in the third quarter of 1993,
partially offset by increased commercial sales. Additionally, a $13.0 million
franchise tax refund received in the third quarter of 1993 and reduced interest
expense resulting from previous refinancing activities contributed to the change
in earnings. HL&P's earnings for the nine month period of 1994 increased in
comparison to earnings for the nine month period of 1993 primarily due to
improved sales and reduced interest expense in 1994. The reduced interest
expense reflects the continuing effects of previous refinancing activities.
Additionally, the change in earnings between the first nine months of 1994 and
1993 was affected by the franchise tax refund received in the third quarter of
1993.
OPERATING REVENUES AND SALES. Electric operating revenues decreased
$204.4 million for the third quarter and $188.7 million for the first nine
months of 1994, compared to the same periods in 1993. The decrease in the third
quarter of 1994 was primarily due to a 3% decrease in residential KWH sales and
a decrease in reconcilable fuel revenues, partially offset by a 2% increase in
commercial KWH sales. The decrease for the first nine months of 1994 was
primarily due to a decrease in reconcilable fuel revenues, partially offset by
increases in residential and commercial KWH sales of 2% and 4%, respectively.
Base revenues for the third quarter of 1994 decreased $40.1 million compared to
1993 due mainly to differences in weather conditions between the two periods,
partially offset by a 1.7% increase in the number of customers in 1994. The
increase in base revenues of $40.1 million for the first nine months of 1994
when compared to 1993 resulted primarily from improved sales in the service
area.
FUEL AND PURCHASED POWER EXPENSES. Fuel expenses decreased $134.3 million
and $142.8 million for the third quarter and first nine 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 all fuels, a reduction to
reconcilable fuel expense resulting from payments HL&P received upon the
transfer of its rights to receive certain railroad settlement payments, 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 (South Texas
Project). For information regarding the railroad settlement payments, see Note
13 to the financial statements in Item 1 of this Report. Purchased power expense
decreased $25.5 million for the third quarter and $81.9 million for the first
nine months of 1994 when compared to the same period in 1993 due to the
expiration of a purchase power contract. For information regarding reconcilable
fuel revenues and HL&P's fuel reconciliation proceeding, see Note 9(a) to the
financial statements in Item 1 of this Report and 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.
OPERATION AND MAINTENANCE, DEPRECIATION AND AMORTIZATION, AND INTEREST
EXPENSES. Electric operation and maintenance expense for the third quarter and
first nine months of 1994 decreased $13.0 million and $23.2 million,
respectively, compared to the same periods in 1993. Depreciation and
amortization expense for the third quarter and first nine months of 1994
increased $3.1 million and $9.2 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
-31-
Management expenditures. Interest expense for the third quarter and first nine
months of 1994 decreased $11.1 million and $32.5 million, respectively, compared
to the same periods in 1993, primarily due to previous refinancing activities.
RATE PROCEEDINGS, SOUTH TEXAS PROJECT AND RELATED MATTERS. HL&P is a
party to a proceeding (Docket No. 12065) pursuant to Section 42 of the Texas
Public Utility Regulatory Act of 1975, as amended (PURA), to determine whether
its existing rates are just and reasonable. Other issues to be addressed in this
and related proceedings before the Public Utility Commission of Texas (Utility
Commission) include (i) whether additional fuel-related expenses incurred during
the 1993-1994 outages at the South Texas Project should be deemed unreasonable
and not recoverable by HL&P; (ii) an inquiry into the prudence of HL&P's
operation of the South Texas Project; and (iii) whether any mismanagement of the
South Texas Project should be taken into account in considering HL&P's
appropriate rate of return in the pending Section 42 rate proceeding. No final
decisions by the Utility Commission are expected before the summer of 1995.
In a Section 42 rate proceeding involving Central Power & Light Company
(CPL), one of the South Texas Project's other owners, a staff member of the
Utility Commission recommended removal from CPL's rate base of an aggregate
amount equal to 19% of CPL's investment in the South Texas Project Unit No. 1,
16% of CPL's investment in the South Texas Project Unit No. 2, and 17.5% of
CPL's investment in the South Texas Project's common facilities. The staff
member's recommendation is based on his conclusion that these portions of the
South Texas Project are not "used and useful." The staff member contends that
because the South Texas Project has not operated at a capacity in accordance
with alleged preconstruction projections of operating capacity, the percentage
difference between those alleged projections and the units' actual performance
represents capacity not used and useful in providing service. The staff member
who made the recommendations in CPL's Section 42 proceeding is expected to
testify in HL&P's Section 42 proceeding (Docket No. 12065). HL&P intends to
vigorously oppose the adoption of such a recommendation by the Utility
Commission in HL&P's proceeding.
Although the Company and HL&P believe that the Section 42 inquiry into
HL&P's rates is unwarranted and that the South Texas Project has been prudently
managed, there can be no assurance as to the outcome of this proceeding, and
HL&P's rates could be reduced following such a hearing. HL&P believes, however,
that any reduction in base rates as a result of a Section 42 inquiry would take
effect prospectively.
For additional information concerning these and other related matters
(including the United States Nuclear Regulatory Commission (NRC) diagnostic
evaluation of the South Texas Project and the NRC's listing of the South Texas
Project on the "watch list" as well as litigation on administrative proceedings
involving the South Texas Project), see Notes 8, 9(a), and 11 to the financial
statements in Item 1 of this Report.
-32-
Cable Television Operations:
KBLCOM. KBLCOM Incorporated (KBLCOM), the Company's cable television
subsidiary, experienced a loss, before long-term financing cost with parent, of
$2.5 million in the third quarter of 1994 compared to a loss of $7.2 million for
the same period in 1993. For the nine months ended September 30, 1994, KBLCOM
experienced a loss of $8.6 million compared to $11.4 million for the same period
in the prior year.
KBLCOM's results of operations for the third quarter of 1994 improved
from the third quarter of 1993 due to higher revenues resulting from the
addition of approximately 86,000 customers, including 48,000 from the July 1994
cable television acquisition. For a discussion of the cable television
acquisition, see Note 12 to the financial statements in Item 1 of this Report.
This growth was partially offset by the introduction of 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 for the first nine
months of 1994 improved, when compared to the same period of 1993, due to a
one-time charge in 1993 of $6.9 million resulting from a 1% increase in the
corporate tax rate. This increase was partially offset by the effects of the
mandatory rate reduction noted above, as well as, higher operating expenses and
higher depreciation and amortization costs.
REVENUES AND EXPENSES. Revenues for the third quarter and first nine
months of 1994 increased $4.0 million or 6.6% and $3.4 million or 1.9%,
respectively, compared to the same periods in 1993. Operating expenses for the
third quarter and first nine months of 1994 increased $3.4 million or 9.2% and
$7.7 million or 7.0%, respectively, compared to the same periods in 1993.
Operating margins (revenue less operating expenses exclusive of depreciation and
amortization) decreased from 40% to 39% for the third quarter of 1993 and 1994,
respectively, and from 40% to 37% for the nine months ended September 30, 1993
and 1994, respectively. Depreciation and amortization expense for the third
quarter and nine months ended September 30, 1994 increased $1.7 million or 8.8%
and $3.8 million or 6.5%, 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 (Paragon), for the third quarter
of 1994 was $8.2 million, a decrease of $.3 million or 3.7% from the third
quarter of 1993. KBLCOM's share of Paragon's earnings for the nine months ended
September 30, 1994 was $23.9 million, an increase of $.1 million or .5% over the
same periods of the previous year.
Basic service revenues for the third quarter of 1994 increased $1.5
million or 3.7% while they decreased $3.4 million or 2.7% for the nine months
ended September 30, 1994 compared to the same periods of the previous year. The
decline was 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 86,000 customers (including 48,000 acquired in
the cable television acquisition) from the third quarter of 1993. At September
30, 1994 and 1993, KBLCOM operated systems serving approximately 678,000 and
592,000 basic subscribers, respectively.
Premium service revenues for the quarter and nine months ended September
30, 1994 increased $1.1 million or 11.4% and $2.1 million or 7.1%, respectively,
compared to the same periods in the previous year due primarily to the
additional revenue derived from the cable television acquisition and increased
sales of premium products.
-33-
Pay-per-view revenues for the third quarter of 1994 were unchanged from
the same period of the prior year. For the nine months ended September 30, 1994,
pay-per-view revenues decreased $.3 million or 3.4% compared to the same period
of the previous year.
Ancillary revenues including advertising and installation fees for the
quarter and nine months ended September 30, 1994 increased $1.4 million or 18.1%
and $5.0 million or 23.2%, 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, Item 5 of Part II of the Combined Form 10-Q filed for the quarter ended
March 31, 1994 and Note 7(b) to the financial statements in Item 1 of this
Report.
Regulations issued under the 1992 Cable Act are lengthy and complex.
KBLCOM has adjusted its rates for regulated services in accordance with these
rules. Due to continuing ambiguity and uncertainty in the enforcement of the
1992 Cable Act, KBLCOM's basic, tier, equipment and installation rates may be
further reduced. The decline in revenue due to such rules is not expected to
have a material adverse effect on KBLCOM's financial position or 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 of subsidiary and interest and principal payments on
debt. Net cash provided by operating activities totaled $954.9 million for the
nine months ended September 30, 1994.
Net cash used in investing activities for the nine months ended September
30, 1994, totaled $425.8 million, primarily due to electric capital and nuclear
fuel expenditures of $297.9 million, cable television additions of $92.7 million
and other capital expenditures of $22.6 million.
Financing activities for the nine months of 1994 resulted in a net cash
outflow of $536.1 million. The Company's primary financing activities include
the repayment of short-term borrowings, 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 to
the 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.
-34-
The Company also has registered with the SEC five million shares of its
common stock. Proceeds from the sale of these securities could 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 September 30, 1994, was
approximately $378.6 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 nine and twelve months ended September 30, 1994 were 2.95
and 2.56, respectively. The Company believes that the ratio for the nine-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
nine months of 1994 totaled $1.0 billion. 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. Following the transfer of
such receivables to a trust, HL&P received $66.1 million, which was recorded as
a reduction to its reconcilable fuel expense in July 1994. The reduction to
reconcilable fuel expense had no effect on earnings. For a further discussion
of this transaction, see Note 13 to the financial statements in Item 1 of this
Report.
Net cash used in HL&P's investing activities for the first nine months of
1994 totaled $307.7 million. HL&P's capital and nuclear fuel expenditures
(excluding Allowance for Funds Used During Construction) for the first nine
months of 1994 totaled $297.9 million out of the $478 million annual budget.
HL&P expects to finance its remaining 1994 capital expenditures through funds
generated internally from operations.
HL&P's financing activities for the first nine months of 1994 resulted in
a net cash outflow of approximately $478.9 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 to the 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 any sales of these securities could 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 HL&P's
outstanding indebtedness or preferred stock.
-35-
At September 30, 1994, HL&P had approximately $229 million in cash and
cash equivalents invested in short-term investments. In addition, HL&P has a
commercial paper program supported by a bank line of credit of $400 million.
HL&P had no commercial paper outstanding at September 30, 1994.
RATIOS OF EARNINGS TO FIXED CHARGES. HL&P's ratios of earnings to fixed
charges for the nine and twelve months ended September 30, 1994, were 4.58 and
3.91, respectively. HL&P's ratios of earnings to fixed charges and preferred
dividends for the nine and twelve months ended September 30, 1994, were 3.84 and
3.30, respectively. HL&P believes that the ratios for the nine-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 $35.5 million
for the nine months ended September 30, 1994.
Net cash used in KBLCOM's investing activities for the nine months ended
September 30, 1994 totaled $57.6 million, primarily due to cable television
additions of $51.0 million. These amounts were financed principally through
internally generated funds and intercompany borrowings.
KBLCOM's financing activities for the nine months ended September 30,
1994 resulted in a net cash inflow of $22.1 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.
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 operations and intercompany borrowings.
-36-
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 quarters ended March 31, 1994 and June 30,
1994, and Item 3 of the 1993 Combined Form 10-K and Notes 9, 10
and 11 to the Company'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 in Part 1 to the financial
statements of this Report, all of which are incorporated herein
by reference.
In October 1994, the United States Court of Appeals for
the Fifth Circuit affirmed a district court's decision granting
summary judgment in favor of the Company and HL&P and dismissing
a lawsuit filed by former HL&P employees who claimed their
employment had been terminated in violation of the WORKER
ADJUSTMENT AND RETRAINING NOTIFICATION ACT.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
HOUSTON INDUSTRIES INCORPORATED:
Exhibit 11 - Computation of Earnings per Common Share and Common
Equivalent Share.
Exhibit 12 - Computation of Ratios of Earnings to Fixed Charges.
Exhibit 27 - Financial Data Schedule.
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).
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).
Exhibit 99(d) - Part II, Item 1 - Legal Proceedings included on page
35 of the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994 (File No. 1-7629).
Exhibit 99(e) - Notes 6, 7(b), 8(d), 8(e) and 8(g) of the Notes to
the Consolidated Financial Statements included on pages
17 through 20 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994 (File No.
1-7629).
Exhibit 99(f) - Second Amendment to Houston Industries Incorporated
Savings Plan as Amended and Restated effective January
1, 1994, effective as of January 1, 1994.
-37-
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 27 - Financial Data Schedule.
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 September 30, 1994
(File No. 1-7269).)
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 September 30, 1994 (File No. 1-7269).)
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 September 30, 1994 (File No. 1-7269).)
Exhibit 99(d) - Part II, Item 1 - Legal Proceedings included on page
35 of HL&P's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 (File No. 1-7629)
(incorporated by reference to Exhibit 99(d) to the
Quarterly Report on Form 10-Q of the Company for the
quarter ended September 30, 1994 (File No. 1-7269).)
Exhibit 99(e) - Notes 6, 7(b), 8(d), 8(e) and 8(g) of the Notes to
the Financial Statements included on pages 17 through
20 of HL&P's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 (File No. 1-7629)
(incorporated by reference to Exhibit 99(e) to the
Quarterly Report on Form 10-Q of the Company for the
quarter ended September 30, 1994 (File No. 1-7269).)
(b) Reports on Form 8-K.
None.
-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 INDUSTRIES INCORPORATED
(Registrant)
/s/ Mary P. Ricciardello
Mary P. Ricciardello
Comptroller and Principal
Accounting Officer
Date: November 11, 1994
-39-
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: November 11, 1994
-40-