UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
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.
incorporation or organization) Identification No.)
5 Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027
(Address of principal (Zip Code)
executive offices)
(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
incorporation or organization) Identification No.)
611 Walker Avenue
Houston, Texas 77002
(Address of principal (Zip Code)
executive offices)
(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 April 30, 1995, Houston Industries Incorporated had 131,336,234 shares of
common stock outstanding, including 7,569,547 ESOP shares not deemed outstanding
for financial statement purposes. As of April 30, 1994, all 1,100 shares of
Houston Lighting & Power Company's common stock were held, directly or
indirectly, by Houston Industries Incorporated.
-1-
HOUSTON INDUSTRIES INCORPORATED AND HOUSTON LIGHTING & POWER COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
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 Ended March 31, 1995 and 1994 3
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 5
Statements of Consolidated Cash Flows
Three Months Ended March 31, 1995 and 1994 7
Statements of Consolidated Retained Earnings
Three Months Ended March 31, 1995 and 1994 8
Notes to Consolidated Financial Statements 14
Houston Lighting & Power Company
Statements of Income
Three Months Ended March 31, 1995 and 1994 9
Balance Sheets
March 31, 1995 and December 31, 1994 10
Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994 12
Statements of Retained Earnings
Three Months Ended March 31, 1995 and 1994 13
Notes to Financial Statements 14
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 4. Submission of Matters to a Vote of
Security-Holders 32
Item 6. Exhibits and Reports on Form 8-K 33
Signatures 35
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
MARCH 31,
---------------------
1995 1994
--------- ---------
(Restated)
REVENUES ............................................... $ 746,166 $ 821,581
--------- ---------
EXPENSES:
Fuel ................................................. 183,602 217,188
Purchased power ...................................... 65,588 98,549
Operation and maintenance ............................ 198,529 193,851
Taxes other than income taxes ........................ 70,950 63,112
Depreciation and amortization ........................ 104,196 99,224
--------- ---------
Total ............................................ 622,865 671,924
--------- ---------
OPERATING INCOME ....................................... 123,301 149,657
--------- ---------
OTHER INCOME (EXPENSE):
Allowance for other funds used during
construction ....................................... 2,629 1,316
Interest income ...................................... 298 398
Other - net .......................................... (10,557) (7,478)
--------- ---------
Total ............................................ (7,630) (5,764)
--------- ---------
INTEREST AND OTHER CHARGES:
Interest on long-term debt ........................... 65,216 66,645
Other interest ....................................... 8,999 6,412
Allowance for borrowed funds used during
construction ....................................... (1,805) (1,688)
Preferred dividends of subsidiary .................... 8,985 8,273
--------- ---------
Total ............................................ 81,395 79,642
--------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING ........................................... 34,276 64,251
INCOME TAXES ........................................... 10,427 22,652
--------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING ....................... 23,849 41,599
DISCONTINUED OPERATIONS:
Loss from discontinued cable television operations
(net of income tax benefit of $2,196) .............. (7,501)
Tax benefit from discontinued cable television
operations ......................................... 90,607
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS (NET OF INCOME TAXES
OF $4,415) ........................................... (8,200)
--------- ---------
NET INCOME ............................................. $ 114,456 $ 25,898
========= =========
-3-
EARNINGS PER COMMON SHARE:
CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING ..................... $ .20 $ .34
DISCONTINUED OPERATIONS:
Loss from discontinued cable television
operations ....................................... (.06)
Tax benefit from discontinued cable television
operations ....................................... .73
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR POSTEMPLOYMENT BENEFITS ........................ (.07)
--------- ---------
EARNINGS PER COMMON SHARE ............................ $ .93 $ .21
========= =========
DIVIDENDS DECLARED PER COMMON SHARE .................. $ .75 $ .75
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (000) .................................. 123,598 122,421
See Notes to Consolidated Financial Statements.
-4-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
MARCH 31, DECEMBER 31,
1995 1994
----------- ------------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Plant in service .......................................................... $11,814,919 $11,743,070
Construction work in progress ............................................. 302,251 333,180
Nuclear fuel .............................................................. 212,748 212,795
Plant held for future use ................................................. 201,833 201,741
Electric plant acquisition adjustments ...................................... 3,166 3,166
Other property .............................................................. 123,094 85,529
----------- -----------
Total ................................................................. 12,658,011 12,579,481
Less accumulated depreciation and amortization .............................. 3,610,058 3,527,598
----------- -----------
Property, plant and equipment - net ................................... 9,047,953 9,051,883
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents ................................................... 17,167 10,443
Special deposits ............................................................ 15 10
Accounts receivable - net ................................................... 31,422 22,149
Accrued unbilled revenues ................................................... 41,587 38,372
Fuel stock, at lifo cost .................................................... 64,737 56,711
Materials and supplies, at average cost ..................................... 148,885 148,007
Prepayments ................................................................. 7,432 14,398
----------- -----------
Total current assets .................................................. 311,245 290,090
----------- -----------
OTHER ASSETS:
Net assets of discontinued cable television
operations ................................................................ 731,018 669,132
Deferred plant costs - net .................................................. 632,471 638,917
Deferred debits ............................................................. 280,972 271,454
Unamortized debt expense and premium on
reacquired debt ........................................................... 158,284 161,885
Equity investment in foreign electric utility ............................... 35,879 35,449
Regulatory asset - net ...................................................... 234,088 235,463
Recoverable project costs - net ............................................. 94,158 98,954
----------- -----------
Total other assets .................................................... 2,166,870 2,111,254
----------- -----------
Total .............................................................. $11,526,068 $11,453,227
=========== ===========
See Notes to Consolidated Financial Statements.
-5-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
MARCH 31, DECEMBER 31,
1995 1994
------------ ------------
CAPITALIZATION:
Common Stock Equity:
Common stock, no par value .................................................. $ 2,439,196 $ 2,437,638
Unearned ESOP shares ........................................................ (284,025) (289,611)
Retained earnings ........................................................... 1,242,925 1,221,221
------------ ------------
Total common stock equity ............................................... 3,398,096 3,369,248
------------ ------------
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 ....................................... 351,345 351,345
Subject to mandatory redemption ........................................... 121,910 121,910
------------ ------------
Total cumulative preferred stock ........................................ 473,255 473,255
------------ ------------
Long-Term Debt:
Debentures .................................................................. 548,775 548,729
Long-term debt of subsidiaries:
First mortgage bonds ...................................................... 2,910,539 3,020,400
Pollution control revenue bonds ........................................... 155,254 155,247
Other ..................................................................... 8,860 9,757
------------ ------------
Total long-term debt .................................................... 3,623,428 3,734,133
------------ ------------
Total capitalization ................................................. 7,494,779 7,576,636
------------ ------------
CURRENT LIABILITIES:
Notes payable ................................................................. 634,155 423,291
Accounts payable .............................................................. 88,023 159,225
Taxes accrued ................................................................. 110,217 212,226
Interest accrued .............................................................. 92,341 73,527
Dividends declared ............................................................ 98,499 98,469
Accrued liabilities to municipalities ......................................... 18,426 21,307
Customer deposits ............................................................. 63,940 64,905
Current portion of long-term debt and preferred
stock ....................................................................... 159,457 49,475
Fuel refund, including interest ............................................... 108,940
Other ......................................................................... 70,254 64,026
------------ ------------
Total current liabilities ............................................ 1,444,252 1,166,451
------------ ------------
DEFERRED CREDITS:
Accumulated deferred income taxes ............................................. 1,686,584 1,770,844
Unamortized investment tax credit ............................................. 406,722 411,580
Fuel-related credits .......................................................... 166,534 242,912
Other ......................................................................... 327,197 284,804
------------ ------------
Total deferred credits ............................................... 2,587,037 2,710,140
------------ ------------
COMMITMENTS AND CONTINGENCIES
Total ............................................................. $ 11,526,068 $ 11,453,227
============ ============
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)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1995 1994
--------- ---------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations ................................................. $ 23,849 $ 41,599
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization .................................................. 104,196 99,224
Amortization of nuclear fuel ................................................... 6,557 257
Deferred income taxes .......................................................... 6,347 6,771
Investment tax credit .......................................................... (4,858) (4,840)
Allowance for other funds used during
construction ................................................................. (2,629) (1,316)
Fuel cost (refund) and over/(under) recovery - net ............................. 48,136 16,008
Net cash used in discontinued cable television
operations ................................................................... (3,682) (5,220)
Changes in other assets and liabilities:
Accounts receivable and accrued unbilled revenues ............................ (12,488) (10,444)
Inventory .................................................................... (8,904) 3,180
Other current assets ......................................................... 6,961 11,691
Accounts payable ............................................................. (71,202) (57,746)
Interest and taxes accrued ................................................... (83,195) (97,511)
Other current liabilities .................................................... 2,382 4,241
Other - net .................................................................. 29,827 4,542
--------- ---------
Net cash provided by operating activities ................................ 41,297 10,436
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Electric capital and nuclear expenditures
(including allowance for borrowed funds
used during construction) ...................................................... (55,915) (88,038)
Non-regulated electric power project expenditures ................................. (11,699) (358)
Corporate headquarters expenditures (including
capitalized interest) .......................................................... (25,945) (2,655)
Net cash used in discontinued cable television
operations ..................................................................... (17,406) (15,988)
Other - net ....................................................................... (2,956) (1,860)
--------- ---------
Net cash used in investing activities .................................... (113,921) (108,899)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of matured bonds .......................................................... (19,500)
Payment of common stock dividends ................................................. (92,722) (91,837)
Increase in notes payable - net ................................................... 210,864 221,931
Net cash used in discontinued cable television
operations ..................................................................... (40,798) (10,384)
Other - net ....................................................................... 2,004 2,447
--------- ---------
Net cash provided by financing activities ................................ 79,348 102,657
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................................ 6,724 4,194
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................................... 10,443 14,884
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................................... $ 17,167 $ 19,078
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized) .......................................... $ 84,349 $ 94,051
Income taxes ................................................................... 1,424 23,365
Income tax refund .............................................................. (1,909)
See Notes to Consolidated Financial Statements.
-7-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1995 1994
----------- -----------
Balance at Beginning of Period ............. $ 1,221,221 $ 1,191,230
Net Income for the Period .................. 114,456 25,898
----------- -----------
Total ................................ 1,335,677 1,217,128
Common Stock Dividends ..................... (92,752) (91,875)
----------- -----------
Balance at End of Period ................... $ 1,242,925 $ 1,125,253
=========== ===========
See Notes to Consolidated Financial Statements.
-8-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
MARCH 31,
-----------------------
1995 1994
--------- ---------
OPERATING REVENUES ................................. $ 746,166 $ 821,581
--------- ---------
OPERATING EXPENSES:
Fuel ............................................ 183,602 217,188
Purchased power ................................. 65,588 98,549
Operation ....................................... 141,320 132,967
Maintenance ..................................... 57,209 60,884
Depreciation and amortization ................... 103,913 98,929
Income taxes .................................... 19,018 27,073
Other taxes ..................................... 70,950 63,112
--------- ---------
Total ..................................... 641,600 698,702
--------- ---------
OPERATING INCOME ................................... 104,566 122,879
--------- ---------
OTHER INCOME (EXPENSE):
Allowance for other funds used during
construction ................................. 2,629 1,316
Other - net ..................................... (1,453) (2,986)
--------- ---------
Total ..................................... 1,176 (1,670)
--------- ---------
INCOME BEFORE INTEREST CHARGES ..................... 105,742 121,209
--------- ---------
INTEREST CHARGES:
Interest on long-term debt ...................... 61,518 61,842
Other interest .................................. 3,135 2,896
Allowance for borrowed funds used during
construction ................................. (1,805) (1,688)
--------- ---------
Total ..................................... 62,848 63,050
--------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING ................................... 42,894 58,159
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS (NET OF INCOME
TAXES OF $4,415) ................................ (8,200)
--------- ---------
NET INCOME ......................................... 42,894 49,959
DIVIDENDS ON PREFERRED STOCK ....................... 8,985 8,273
--------- ---------
INCOME AFTER PREFERRED DIVIDENDS ................... $ 33,909 $ 41,686
========= =========
See Notes to Financial Statements.
-9-
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
MARCH 31, DECEMBER 31,
1995 1994
----------- ------------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant in service ................................................. $11,814,919 $11,743,070
Construction work in progress ............................................. 302,251 333,180
Nuclear fuel .............................................................. 212,748 212,795
Plant held for future use ................................................. 201,833 201,741
Electric plant acquisition adjustments .................................... 3,166 3,166
----------- -----------
Total ................................................................. 12,534,917 12,493,952
Less accumulated depreciation and
amortization ............................................................ 3,600,242 3,517,923
----------- -----------
Property, plant and equipment - net ................................... 8,934,675 8,976,029
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents ................................................. 136,384 235,867
Special deposits .......................................................... 15 10
Accounts receivable:
Affiliated companies .................................................... 2,557 4,213
Others .................................................................. 7,975 8,896
Accrued unbilled revenues ................................................. 41,587 38,372
Inventory:
Fuel stock, at lifo cost ................................................ 64,737 56,711
Materials and supplies, at average cost ................................. 148,763 147,922
Prepayments ............................................................... 3,092 9,665
----------- -----------
Total current assets .................................................. 405,110 501,656
----------- -----------
OTHER ASSETS:
Deferred plant costs - net ................................................ 632,471 638,917
Deferred debits ........................................................... 249,920 241,611
Unamortized debt expense and premium on
reacquired debt ......................................................... 156,376 158,351
Regulatory asset - net .................................................... 234,088 235,463
Recoverable project costs - net ........................................... 94,158 98,954
----------- -----------
Total other assets .................................................... 1,367,013 1,373,296
----------- -----------
Total ............................................................... $10,706,798 $10,850,981
=========== ===========
See Notes to Financial Statements.
-10-
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
MARCH 31, DECEMBER 31,
1995 1994
----------- ------------
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 ......................................................... 2,104,768 2,153,109
----------- -----------
Total common stock equity ............................................... 3,780,695 3,829,036
----------- -----------
Cumulative Preferred Stock:
Not subject to mandatory redemption ....................................... 351,345 351,345
Subject to mandatory redemption ........................................... 121,910 121,910
----------- -----------
Total cumulative preferred stock ........................................ 473,255 473,255
----------- -----------
Long-Term Debt:
First mortgage bonds ...................................................... 2,910,539 3,020,400
Pollution control revenue bonds ........................................... 155,254 155,247
Other ..................................................................... 8,860 9,757
----------- -----------
Total long-term debt .................................................... 3,074,653 3,185,404
----------- -----------
Total capitalization .................................................. 7,328,603 7,487,695
----------- -----------
CURRENT LIABILITIES:
Accounts payable ............................................................ 75,786 148,042
Accounts payable to affiliated companies .................................... 2,101 10,936
Taxes accrued ............................................................... 82,377 181,043
Interest accrued ............................................................ 74,380 64,732
Accrued liabilities to municipalities ....................................... 18,426 21,307
Customer deposits ........................................................... 63,940 64,905
Current portion of long-term debt and preferred
stock ..................................................................... 159,457 49,475
Fuel refund, including interest ............................................. 108,940
Other ....................................................................... 63,292 59,912
----------- -----------
Total current liabilities ............................................. 648,699 600,352
----------- -----------
DEFERRED CREDITS:
Accumulated deferred federal income taxes ................................... 1,883,534 1,876,300
Unamortized investment tax credit ........................................... 406,722 411,580
Fuel-related credits ........................................................ 166,534 242,912
Other ....................................................................... 272,706 232,142
----------- -----------
Total deferred credits ................................................ 2,729,496 2,762,934
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total .............................................................. $10,706,798 $10,850,981
=========== ===========
See Notes to Financial Statements.
-11-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1995 1994
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 42,894 $ 49,959
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................................................ 103,913 98,929
Amortization of nuclear fuel ................................................. 6,557 257
Deferred income taxes ........................................................ 7,234 8,922
Investment tax credits ....................................................... (4,858) (4,840)
Allowance for other funds used during
construction ............................................................... (2,629) (1,316)
Fuel cost (refund) and over/(under) recovery
- net ...................................................................... 48,136 16,008
Cumulative effect of change in accounting for
postemployment benefits .................................................... 8,200
Changes in other assets and liabilities:
Accounts receivable - net .................................................. (638) (6,883)
Material and supplies ...................................................... (841) 3,152
Fuel stock ................................................................. (8,026) 54
Accounts payable ........................................................... (81,091) (70,030)
Interest and taxes accrued ................................................. (89,018) (100,117)
Other current liabilities .................................................. (261) 5,180
Other - net ................................................................ 27,180 22,262
--------- ---------
Net cash provided by operating activities .............................. 48,552 29,737
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) .................................................... (55,915) (88,038)
Other - net ..................................................................... (2,525) (2,556)
--------- ---------
Net cash used in investing activities .................................. (58,440) (90,594)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of matured bonds ........................................................ (19,500)
Payment of dividends ............................................................ (91,461) (88,233)
Increase in notes payable ....................................................... 164,730
Other - net ..................................................................... 1,866 41
--------- ---------
Net cash provided by (used in) financing
activities .......................................................... (89,595) 57,038
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS .......................................... (99,483) (3,819)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................................... 235,867 12,413
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................................... $ 136,384 $ 8,594
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized) ........................................ $ 57,915 $ 72,111
Income taxes ................................................................. 1,176 14,821
See Notes to Financial Statements.
-12-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
MARCH 31,
---------------------------
1995 1994
---------- ----------
Balance at Beginning of Period ............... $2,153,109 $2,028,924
Net Income for the Period .................... 42,894 49,959
---------- ----------
Total .................................. 2,196,003 2,078,883
---------- ----------
Deduct - Cash Dividends:
Preferred ................................. 8,985 8,273
Common .................................... 82,250 79,996
---------- ----------
Total .................................. 91,235 88,269
---------- ----------
Balance at End of Period ..................... $2,104,768 $1,990,614
========== ==========
See Notes to Financial Statements.
-13-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AND
HOUSTON LIGHTING & POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL
(a) DISCONTINUED OPERATIONS. In connection with the pending sale of KBLCOM
Incorporated (KBLCOM), Houston Industries Incorporated's (Company) cable
television subsidiary, to Time Warner Inc. (Time Warner) pursuant to an
agreement dated January 26, 1995, the Company has restated its
consolidated financial statements in the Company's and Houston Lighting
& Power Company's (HL&P) Annual Report on Form 10-K for the year ended
December 31, 1994 (File Nos. 1-7629 and 1-3187) to reflect KBLCOM's
operations as discontinued. The Company's restated consolidated
financial statements, selected five-year financial data, and
management's discussion and analysis of financial condition and results
of operations (which includes the description of the pending sale) are
contained in the Company's and HL&P's combined Form 8-K (File Nos.
1-7629 and 1-3187), dated as of May 12, 1995 (the Combined Form 8-K).
HL&P financial information has not been restated.
(b) REGULATORY PROCEEDINGS AND LITIGATION. The information presented in the
following Notes in this Form 10-Q should be read in conjunction with the
Combined Form 8-K, including the Notes to the Company's Consolidated and
HL&P's Financial Statements. Notes 1(f), 2, 3, 4, 5 and 20(a) to the
Company's Consolidated and HL&P's Financial Statements in the Combined
Form 8-K are incorporated herein by reference as they relate to the
Company and HL&P, respectively.
(2) JOINTLY-OWNED NUCLEAR PLANT
(a) HL&P INVESTMENT. HL&P is the project manager (and one of four co-owners)
of the South Texas Project Electric Generating Station (South Texas
Project), which consists of two 1,250 megawatt nuclear generating units.
HL&P has a 30.8 percent interest in the project and bears a
corresponding share of capital and operating costs associated with the
project. As of March 31, 1995, HL&P's investments (net of accumulated
depreciation and amortization) in the South Texas Project and in nuclear
fuel, including allowance for funds used during construction, were $2.1
billion and $92 million, respectively.
(b) UNITED STATES NUCLEAR REGULATORY COMMISSION (NRC) INSPECTIONS AND
OPERATIONS. HL&P removed both generating units at the South Texas
Project from service in February 1993 when a problem was encountered
with certain of the units' auxiliary feedwater pumps. The units were out
of service from February 1993 to February 1994, when Unit No. 1 was
returned to service.
-14-
Unit No. 2 was returned to service in May 1994. In June 1993, the NRC
placed the South Texas Project on its "watch list" of plants with
weaknesses that warrant increased attention after a review of the South
Texas Project operations. In February 1995, the NRC removed the South
Texas Project from its "watch list".
Certain current and former employees or contractors of HL&P have
asserted claims that their employment was terminated or disrupted in
retaliation for their having made safety-related complaints to the NRC.
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. On May 8, 1995, the
NRC announced that it was withdrawing a previously proposed Notice of
Violation and $100,000 civil penalty, as well as possible individual
enforcement action against two HL&P managers in connection with one such
case, involving a contractor employee whose site access was terminated.
Allegations of retaliation by that individual remain pending before an
Administrative Law Judge (ALJ) of the Department of Labor. In another
such case, involving two former HL&P employees who were terminated
during a reduction in force, another Department of Labor ALJ in April
1995 issued his recommended decision in favor of the former employees,
ordering reinstatement of one with back-pay and back-pay without
reinstatement to another. The ALJ ruled out ordering HL&P to pay
exemplary damages to the individuals, but indicated his intention to
hold a further hearing to consider whether additional compensatory
damages should be awarded. HL&P considers the ALJ's conclusions to be
erroneous and is asking the Secretary of Labor not to adopt the ALJ's
recommendation. If the recommendation is adopted by the Secretary of
Labor, HL&P could appeal that decision to the United States Court of
Appeals. Civil actions by these employees remain pending. For additional
information, see Note 2(b) of the notes to the financial statements
included in the Combined Form 8-K.
While no prediction can be made at this time as to the ultimate outcome
of these matters, the Company and HL&P do not believe that they will
have a material adverse effect on the Company's or HL&P's financial
condition or results of operations.
(c) LITIGATION WITH CO-OWNERS OF THE SOUTH TEXAS PROJECT. In February 1994,
the City of Austin (Austin), one of the four co-owners of the South
Texas Project, filed suit (Austin II Litigation) against HL&P. That suit
is pending in the 152nd District Court for Harris County, Texas, which
has set a trial date for October 1995. However, in view of the recent
appointment of the judge of that court to the court of appeals, it is
anticipated that the case will be reassigned to another trial court,
which may affect the current schedule. 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. 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
-15-
HL&P and asserted claims similar to those asserted by Austin. Although
San Antonio has not specified the damages sought in its complaint,
expert reports filed in the litigation have indicated that San Antonio's
claims may be in excess of $275 million. HL&P is contesting San
Antonio's intervention and has called for arbitration of San Antonio's
claim under the arbitration provisions of the Participation Agreement.
The trial court denied HL&P's motions to strike San Antonio's
intervention and to compel San Antonio to arbitrate its claims against
HL&P and in April 1995, the Court of Appeals of the First District of
Texas affirmed the trial court's decision. HL&P is seeking further
review of these decisions by the Supreme Court of Texas.
For a discussion of a previous lawsuit relating to the South Texas
Project filed in 1983 by Austin against the Company and HL&P (in which
the Company and HL&P prevailed), of the settlement entered into by the
Company and HL&P regarding related matters and of certain claims by San
Antonio against the Company and HL&P and the related arbitration
thereof, see Note 2(c) of the notes to the financial statements included
in the Combined Form 8-K.
Although HL&P and the Company do not believe there is merit to either
Austin's or San Antonio's claims and have opposed San Antonio's
intervention in the Austin II Litigation, there can be no assurance as
to the ultimate outcome of these matters.
(d) NUCLEAR INSURANCE. HL&P and the other owners of the South Texas Project
maintain nuclear property and nuclear liability insurance coverage as
required by law and periodically review available limits and coverage
for additional protection. There can be no assurance, however, that all
potential losses or liabilities will be insurable, or that the amount of
insurance will be sufficient to cover them. Any substantial losses not
covered by insurance would have a material effect on HL&P's and the
Company's financial condition. For a discussion of the nuclear property
and nuclear liability insurance maintained in connection with the South
Texas Project and potential assessments associated therewith, see Note
2(d) of the notes to the financial statements included in the Combined
Form 8-K.
(e) NUCLEAR DECOMMISSIONING. For a discussion of nuclear decommissioning
costs, the Company's decommissioning funding level and the accounting
for debt and equity securities held by the decommissioning trust, see
Note 2(e) of the notes to the financial statements included in the
Combined Form 8-K.
(f) DEFERRED PLANT COSTS. For a discussion of deferred plant costs, see Note
1(f) of the notes to the financial statements included in the Combined
Form 8-K. The amortization of these deferrals totaled $6.4 million for
both the three months ended March 31, 1995 and 1994, and is included on
the Company's Statements of Consolidated Income and HL&P's Statements of
Income in depreciation and amortization expense.
(3) RATE REVIEW, FUEL RECONCILIATION AND OTHER PROCEEDINGS
In February 1994, the Public Utility Commission of Texas (Utility
Commission) initiated a proceeding (Docket No. 12065) to determine
whether HL&P's existing rates are just and reasonable. Subsequently, the
scope of the docket was expanded to include reconciliation of HL&P's
fuel costs from April 1, 1990 to July 31, 1994. The Utility Commission
also initiated a
-16-
separate proceeding (Docket No. 13126) to review issues regarding the
prudence of operation of the South Texas Project from the date of
commercial operation through the present. That review would encompass
the outage at the South Texas Project during 1993 and 1994.
Hearings began in Docket No. 12065 in January 1995. In February 1995,
all major parties to these proceedings signed an agreement resolving the
issues with respect to HL&P, including the prudence issues related to
operation of the South Texas Project (Proposed Settlement). Approval of
the Proposed Settlement by the Utility Commission will be required.
Hearings on the Proposed Settlement are currently scheduled to begin in
early June 1995. A decision by the Utility Commission on the Proposed
Settlement is not anticipated before late summer.
Under the Proposed Settlement, HL&P's base rates would be reduced by
approximately $62 million per year, effective retroactively to January
1, 1995, and HL&P would be precluded from seeking rate increases for
three years, subject to certain conditions. Under the Proposed
Settlement, HL&P would amortize its remaining investment of $218 million
in the cancelled Malakoff Electric Generating Station (Malakoff) plant
over a period not to exceed seven years. HL&P also would increase its
decommissioning expense for the South Texas Project by $9 million per
year.
The Proposed Settlement also provides HL&P the option to write down up
to $50 million per year of its investment in the South Texas Project
during the five-year period commencing January 1, 1995. The parties to
the Proposed Settlement agreed that any write down would be treated as a
reasonable and necessary expense during routine reviews of HL&P's
earnings and any rate review proceeding initiated against HL&P.
Until the approval of the Proposed Settlement by the Utility Commission,
HL&P's existing rates will continue in effect; however, HL&P's financial
statements for the first quarter of 1995 reflect the estimated effects
of the Proposed Settlement. In the first quarter of 1995, HL&P's pre-tax
earnings were reduced by approximately $17 million in the aggregate as a
result of reflecting the estimated effects of the Proposed Settlement on
revenues and expenses for the quarter. Deferred revenues are included on
the Company's Consolidated and HL&P's Balance Sheets in other deferred
credits subject to refund when the Proposed Settlement is approved.
Under the Proposed Settlement, approximately $70 million of fuel
expenditures and related interest incurred by HL&P during the fuel
reconciliation period would not be recoverable from ratepayers. This $70
million was recorded in the fourth quarter of 1994 as a one-time,
pre-tax charge to reconcilable fuel revenues to reflect the anticipation
of approval of the Proposed Settlement. Under the Proposed Settlement,
HL&P would also establish a new fuel factor approximately 17 percent
below that currently in effect and would refund to customers the balance
in its fuel over-recovery account, estimated to be approximately $180
million after giving effect to the amounts not recoverable from
ratepayers. As contemplated by the Proposed Settlement and approved by
an ALJ, HL&P implemented a new fuel factor 17 percent lower than its
previous factor and refunded to customers approximately $110 million of
the approximately $180 million in fuel cost overrecoveries in April
1995. The remaining $70 million will be refunded if the Proposed
Settlement is approved by the Utility Commission.
-17-
In the event the Proposed Settlement is not approved by the Utility
Commission, Docket No. 12065 would be remanded to an ALJ to resume
detailed hearings in this docket and with respect to issues related to
the South Texas Project. Prior to reaching agreement on the terms of the
Proposed Settlement, HL&P argued that its existing rates were just and
reasonable and should not be reduced. Other parties argued that rate
decreases in annual amounts ranging from $26 million to $173 million
were required and that additional decreases might be justified following
an examination of the prudence of the management of the South Texas
Project and the costs incurred in connection with the outages at the
South Texas Project. Testimony filed by the Utility Commission staff
included a recommendation to remove from rate base $515 million of
HL&P's investment in the South Texas Project to reflect the staff's view
that such investment was not fully "used and useful" in providing
service, a position HL&P vigorously disputes.
In the event the Proposed Settlement is not approved by the Utility
Commission, the fuel reconciliation issues in Docket Nos. 12065 and
13126 would be remanded to an ALJ for additional proceedings. A major
issue in Docket No. 13126 would be whether the incremental fuel costs
incurred as a result of outages at the South Texas Project represent
reasonable costs. The Utility Commission has retained a consultant to
review the South Texas Project for the purpose of providing testimony in
Docket No. 13126 regarding the prudence of HL&P's management of
operation of the South Texas Project. HL&P filed testimony in Docket No.
13126, which testimony concluded that the outages at the South Texas
Project did not result from imprudent management. HL&P also filed
testimony analyzing the extent to which regulatory issues extended the
outages. In that testimony an outside consultant retained by HL&P
concluded 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 would
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. Any fuel costs determined to have been
unreasonably incurred would not be recoverable from customers and would
be charged against the Company's earnings.
Although the Company and HL&P believe that the Proposed Settlement is in
the best interest of HL&P, its ratepayers, the Company and its
shareholders, no assurance can be given that (i) the Utility Commission
ultimately will approve the terms of the Proposed Settlement or (ii) in
the event the Proposed Settlement is not approved and proceedings
against HL&P are resumed, that the outcome of such proceedings would be
favorable to HL&P.
(4) APPEALS OF PRIOR UTILITY COMMISSION RATE ORDERS
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
-18-
those applications has been completed, judicial review of a number of
the Utility Commission orders is pending. In Texas, Utility Commission
orders may be appealed to a District Court in Travis County, and from
that Court's decision an appeal may be taken to the Court of Appeals for
the 3rd District at Austin (Austin Court of Appeals). Discretionary
review by the Supreme Court of Texas may be sought from decisions of the
Austin Court of Appeals. The pending appeals from the Utility Commission
orders are in various stages. In the event the courts ultimately reverse
actions of the Utility Commission in any of these proceedings, such
matters would be remanded to the Utility Commission for action in light
of the courts' orders. Because of the number of variables which can
affect the ultimate resolution of such matters on remand, the Company
and HL&P generally are not in a position at this time to predict the
outcome of the matters on appeal or the ultimate effect that adverse
action by the courts could have on the Company and HL&P. On remand, the
Utility Commission's action could range from granting rate relief
substantially equal to the rates previously approved to a reduction in
the revenues to which HL&P was entitled during the time the applicable
rates were in effect, which could require a refund to customers of
amounts collected pursuant to such rates. Judicial review has been
concluded or currently is pending on the final orders of the Utility
Commission described below.
(a) 1991 RATE CASE. In HL&P's 1991 rate case (Docket No. 9850), the Utility
Commission approved a non-unanimous settlement agreement providing for a
$313 million increase in HL&P's base rates, termination of deferrals
granted with respect to Unit No. 2 of the South Texas Project and of the
qualified phase-in plan deferrals granted with respect to Unit No. 1 of
the South Texas Project, and recovery of deferred plant costs. The
settlement authorized a 12.55 percent return on common equity for HL&P.
Rates contemplated by the settlement agreement were implemented in May
1991 and remain in effect (subject to the outcome of the current rate
proceeding described in Note 3 to these financial statements).
The Utility Commission's order in Docket No. 9850 was affirmed on review
by a District Court, and the Austin Court of Appeals affirmed that
decision on procedural grounds due to the failure of the appellant to
file the record with the court in a timely manner. On review, the Texas
Supreme Court has remanded the case to the Austin Court of Appeals for
consideration of any asserted errors of law that may be evident from the
face of the Utility Commission's order. The Appellant has raised issues
regarding deferred accounting, the treatment of federal income tax
expense and certain other matters. As to federal tax issues, in an
appeal involving GTE-SW (and to which HL&P was not a party), the Texas
Supreme Court held in April 1995 that the Utility Commission is not
required by the Texas Public Utility Regulatory Act of 1975, as amended,
to take into account the tax effects of expenses disallowed for rate
making purposes in determining a utility's federal income tax expense
for rate making purposes, that the Utility Commission has discretion in
determining the utility's "fair share" of tax savings when a utility
pays federal income taxes as part of a consolidated group, and is not
required to reduce utility tax expense by savings resulting from
unregulated activities. The GTE-SW opinion clarified a 1987 Texas
Supreme Court decision in an HL&P case and rejected arguments that the
HL&P decision required utility tax expense to be calculated on the basis
of "actual taxes paid". Under the GTE-SW decision, the treatment of
federal income tax issues in Docket No. 9850 appears to have been
determined in favor of the Utility Commission's actions, provided the
principles and rationale of the GTE-SW opinion are applied.
-19-
For a discussion of another recent Texas Supreme Court decision
upholding deferred accounting treatment, see Note 4(c) of the notes to
the financial statements included in the Combined Form 8-K.
Because the Utility Commission's order in Docket No. 9850 found that
HL&P would have been entitled to rate relief greater than the $313
million agreed to in the settlement, HL&P believes that any disallowance
that might be required if the Austin Court of Appeals concludes that the
Utility Commission's inclusion of deferred accounting costs in the
settlement was improper would be offset by that greater amount.
The parties to the Proposed Settlement have agreed to withdraw their
appeals of the Utility Commission's orders in such docket, subject to
HL&P's dismissing its appeal in Docket No.
6668 (see Note 4(d) to these financial statements.)
(b) 1988 RATE CASE. In HL&P's 1988 rate case (Docket No. 8425), the Utility
Commission granted HL&P a $227 million increase in base revenues,
allowed a 12.92 percent return on common equity, authorized a qualified
phase-in for Unit No. 1 of the South Texas Project (including
approximately 72 percent of HL&P's investment in Unit No. 1 of the South
Texas Project in rate base) and authorized HL&P to use deferred
accounting for Unit No. 2 of the South Texas Project. Rates
substantially corresponding to the increase granted were implemented by
HL&P in June 1989 and remained in effect until May 1991.
In August 1994, the Austin Court of Appeals affirmed the Utility
Commission's order in Docket No. 8425 on all matters other than the
Utility Commission's treatment of tax savings associated with deductions
taken for expenses disallowed from cost of service. The court held that
the Utility Commission had failed to require that such tax savings be
passed on to ratepayers. Both HL&P and other parties sought review by
the Texas Supreme Court, which granted discretionary review as to the
issue of certain Malakoff plant expenditures treated as "Plant Held for
Future Use", and brought the entire case before it for consideration,
including the tax issue raised by HL&P. The case has not yet been set
for argument and no further action has been taken by the Texas Supreme
Court.
In April 1995, the Texas Supreme Court decided an appeal involving
GTE-SW (to which HL&P was not a party) and held that the Utility
Commission was not required to include income tax deductions for
disallowed expenses in determining a utility's federal income tax
liability for rate making purposes. Under the GTE-SW decision, the
treatment of the tax issue in Docket No. 8425 appears to have been
determined in favor of the Utility Commission's actions, provided the
same principles and rationale are applied. This was the only issue on
which the Austin Court of Appeals reversed the Utility Commission's
order.
(c) DEFERRED ACCOUNTING. For information regarding deferred accounting
treatment granted for certain costs associated with the South Texas
Project, see Note 4(c) of the notes to the financial statements included
in the Combined Form 8-K and Note 2(f) to these financial statements.
-20-
The Office of the Public Utility Counsel (OPUC) has agreed, pursuant to
the Proposed Settlement, to withdraw and dismiss its appeal of the
Utility Commission's order granting deferred accounting if the Proposed
Settlement becomes effective and on the condition that HL&P dismisses
its appeal in Docket No. 6668. However, the appeal of the State of Texas
remains pending.
(d) PRUDENCE REVIEW OF THE CONSTRUCTION OF THE SOUTH TEXAS PROJECT. For a
discussion of the Utility Commission's inquiry into the prudence of the
planning, management and construction of the South Texas Project (Docket
No. 6668), see Note 4(d) of the notes to the financial statements
included in the Combined Form 8-K.
Under the Proposed Settlement, OPUC, HL&P and the City of Houston each
has agreed to dismiss its respective appeals of Docket No. 6668. A
separate party to this appeal, however, has not agreed to dismiss its
appeal. If this party does not elect to dismiss its appeal, HL&P may
elect to maintain its appeal, whereupon OPUC and City of Houston shall
also be entitled to maintain their appeals.
(5) MALAKOFF
For a discussion of the current and Proposed Settlement rate treatment
of HL&P's investment in Malakoff and related matters (including (i)
HL&P's proposal to amortize $218 million of its investment in Malakoff
over a period not to exceed seven years and (ii) the possible write-off
of unrecoverable portions of the Malakoff investment if appropriate rate
treatment is not ultimately received), see Notes 3 and 5 of the notes to
the financial statements included in the Combined Form 8-K.
(6) COMMON STOCK
COMPANY. At March 31, 1995 and December 31, 1994, the Company had
authorized 400,000,000 shares of common stock, of which 123,716,504 and
123,526,350 shares, respectively, were outstanding. Outstanding shares
exclude the unallocated Employee Stock Ownership Plan shares which as of
March 31, 1995 and December 31, 1994 were 7,619,730 and 7,770,313,
respectively.
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 (HI Delaware), a wholly-owned subsidiary of the Company.
(7) HL&P PREFERRED STOCK
At March 31, 1995, and December 31, 1994, HL&P had 10,000,000 shares of
preferred stock authorized of which 5,232,397 shares were outstanding.
-21-
(8) 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.
HL&P. Earnings per share data for HL&P is not computed since all of its
common stock is held by the Company and HI Delaware.
(9) CHANGE IN ACCOUNTING FOR THE COMPANY AND HL&P
The Company and HL&P adopted Statement of Financial Accounting Standards
(SFAS) No. 112, "Employer's Accounting for Postemployment Benefits",
effective January 1, 1994. SFAS No. 112 requires companies to recognize
the liability for benefits provided to former or inactive employees,
their beneficiaries and covered dependents after employment but before
retirement. Those benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance benefits,
disability-related benefits (including worker's compensation), job
training and counseling, and continuation of benefits such as health
care and life insurance. SFAS No. 112 requires the transition obligation
(liability from prior years) to be expensed upon adoption. As a result,
the Company and HL&P recorded in the first quarter of 1994 a one-time,
after-tax charge to income of $8.2 million.
(10) DISCONTINUED CABLE TELEVISION OPERATIONS
In January 1995, Time Warner and the Company reached an agreement in
which Time Warner would acquire KBLCOM in a tax-deferred,
stock-for-stock merger with a subsidiary of Time Warner for a sales
price of approximately $2.2 billion, subject to closing adjustments.
Closing of this transaction, which is subject to, among other things,
(i) the parties obtaining necessary consents of certain franchise
authorities and other governmental entities, (ii) the absence of any
change that might have a material adverse effect on KBLCOM or Time
Warner, and (iii) the absence of any material litigation, is expected to
take place in mid-1995. For a discussion of the terms of the pending
sale of KBLCOM, see Note 20(a) of the notes to the financial statements
included in the Combined Form 8-K.
In connection with this agreement, effective January 1, 1995, the
operations of KBLCOM have been accounted for as discontinued and prior
periods have been restated for consistency in reflecting KBLCOM as a
discontinued operation. The Company recorded a $90.6 million tax benefit
in the first quarter of 1995 in recognition of the deferred tax asset
arising from the Company's excess tax basis in KBLCOM stock.
-22-
Operating results from discontinued operations for the three months
ended March 31, 1995 and 1994 were as follows:
THREE MONTHS ENDED MARCH 31,
---------------------------
1995 1994
----------- -----------
(Thousands of Dollars)
Revenues .......................................... $ 67,105 $ 60,520
Operating expenses (1) ............................ 42,455 39,227
-------- --------
Gross operating margin (1) ........................ 24,650 21,293
Depreciation, amortization, interest and other .... 36,635 30,990
Income tax benefits ............................... (3,449) (2,196)
Deferred loss ..................................... (8,536)
-------- --------
Loss from discontinued operations ................. $ 0 ($ 7,501)
======== ========
- ------------
(1) Exclusive of depreciation and amortization.
The net loss from discontinued operations of KBLCOM for the first quarter of
1995 has been deferred by the Company until the gain on sale is recognized at
closing. The deferred loss is included on the Company's Consolidated Balance
Sheets in net assets of discontinued cable television operations.
Loss from discontinued operations of KBLCOM excludes the effects of corporate
overhead charges and includes interest expense relating to the amount of
intercompany debt that Time Warner is purchasing from the Company.
Net assets of discontinued operations were as follows:
MARCH 31, 1995 DECEMBER 31, 1994
-------------- -----------------
(Thousands of Dollars)
Assets:
Cable television property, net of accumulated
depreciation of $168,252 and $161,402 for
1995 and 1994, respectively .............................................. $ 280,247 $ 276,624
Equity in cable television partnerships .................................... 176,391 160,363
Intangible assets .......................................................... 1,018,388 1,029,440
Other assets ............................................................... 50,156 43,625
----------- -----------
Total assets ............................................................. 1,525,182 1,510,052
Less:
Cable television debt ...................................................... (441,595) (488,783)
Accumulated deferred income taxes .......................................... (302,602) (308,627)
Other liabilities .......................................................... (49,967) (43,510)
----------- -----------
Net assets ............................................................... $ 731,018 $ 669,132
=========== ===========
-23-
In March 1995, KBL Cable, Inc. (KBL Cable), a subsidiary of KBLCOM, made
a scheduled repayment of $15.8 million principal amount of its senior
notes and senior subordinated notes. In the first quarter of 1995, KBL
Cable repaid borrowings under its senior bank credit facility in the
amount of $25.0 million.
(11) 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
1995 presentation of financial statements. Such reclassifications do not
affect earnings.
-24-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CURRENT ISSUES
HOUSTON LIGHTING & POWER COMPANY (HL&P)
RATE REVIEW, FUEL RECONCILIATION AND OTHER PROCEEDINGS. In February 1994, the
Public Utility Commission of Texas (Utility Commission) initiated a proceeding
(Docket No. 12065) to determine whether HL&P's existing rates are just and
reasonable. Subsequently, the scope of the docket was expanded to include a
reconciliation of HL&P's fuel costs from April 1, 1990 to July 31, 1994. The
Utility Commission also initiated a separate proceeding (Docket No. 13126) to
review issues regarding the prudence of operation of the South Texas Project
Electric Generating Station (South Texas Project) from the date of commercial
operation through the present. That review would encompass the outage at the
South Texas Project during 1993 and 1994.
In February 1995, all major parties to these proceedings signed a settlement
agreement resolving the issues with respect to HL&P, including the prudence
issues related to operation of the South Texas Project (Proposed Settlement).
Approval of that settlement by the Utility Commission will be required. To that
end, the parties have established procedural dates for a hearing on issues
raised by the parties who are opposed to the Proposed Settlement. Hearings on
the Proposed Settlement are currently scheduled to begin in early June 1995. A
decision by the Utility Commission on the Proposed Settlement is not anticipated
before late summer.
Under the Proposed Settlement, HL&P's base rates would be reduced by
approximately $62 million per year, effective retroactively to January 1, 1995,
and HL&P would be precluded from seeking rate increases for three years, subject
to certain conditions. Under the Proposed Settlement, HL&P would amortize its
remaining investment of $218 million in the cancelled Malakoff Electric
Generating Station plant, over a period not to exceed seven years. HL&P also
would increase its decommissioning expense for the South Texas Project by $9
million per year.
The Proposed Settlement also provides HL&P the option to write down up to $50
million per year of its investment in the South Texas Project during the
five-year period commencing January 1, 1995. The parties to the Proposed
Settlement agreed that any write down would be treated as a reasonable and
necessary expense during routine reviews of HL&P's earnings and any rate review
proceeding initiated against HL&P.
Until the approval of the Proposed Settlement by the Utility Commission, HL&P's
existing rates will continue in effect; however, HL&P's financial statements for
the first quarter of 1995 reflect the estimated effects of the Proposed
Settlement. In the first quarter of 1995, HL&P's pre-tax earnings were reduced
by approximately $17 million in the aggregate as a result of reflecting the
estimated effects of the Proposed Settlement on revenues and expenses for the
quarter. Deferred revenues are included on Houston Industries Incorporated's
(Company) Consolidated and HL&P's Balance Sheets in other deferred credits
subject to refund when the Proposed Settlement is approved.
-25-
Under the Proposed Settlement, approximately $70 million of fuel expenditures
and related interest incurred by HL&P during the fuel reconciliation period
would not be recoverable from ratepayers. This $70 million was recorded in the
fourth quarter of 1994 as a one-time, pre-tax charge to reconcilable fuel
revenues to reflect the anticipation of approval of the Proposed Settlement.
Under the Proposed Settlement, HL&P would also establish a new fuel factor
approximately 17 percent below that currently in effect and would refund to
customers the balance in its fuel over-recovery account, estimated to be
approximately $180 million after giving effect to the amounts not recoverable
from ratepayers. As contemplated by the Proposed Settlement and approved by an
Administrative Law Judge, HL&P implemented a new fuel factor 17 percent lower
than its previous factor and refunded to customers approximately $110 million of
the approximately $180 million in fuel cost overrecoveries in April 1995. The
remaining $70 million will be refunded if the Proposed Settlement is approved by
the Utility Commission.
For additional information regarding HL&P's rate proceeding, see Note 3 to
Company's Consolidated and HL&P's Financial Statements (Financial Statements) in
Item 1 of this Report.
DISCONTINUED CABLE TELEVISION OPERATIONS
In January 1995, Time Warner Inc. (Time Warner) and the Company reached an
agreement in which Time Warner would acquire KBLCOM Incorporated (KBLCOM) in a
tax-deferred, stock-forstock merger with a subsidiary of Time Warner for a sales
price of approximately $2.2 billion, subject to closing adjustments. Closing of
the transaction, which is subject to certain conditions, is expected to take
place in mid-1995. In connection with this agreement, effective January 1, 1995,
the operations of KBLCOM have been accounted for as discontinued and prior
periods have been restated for consistency in reflecting KBLCOM as a
discontinued operation. The Company recorded a $90.6 million tax benefit in the
first quarter of 1995 in recognition of the deferred tax asset arising from the
Company's excess tax basis in KBLCOM stock. For additional information regarding
the pending sale of KBLCOM, see Note 10 to the Financial Statements in Item 1 of
this Report.
For a presentation of the Company's financial statements for the years 1992
through 1994 which reflects KBLCOM on a discontinued operations basis, reference
is made to the Company's Consolidated Financial Statements contained in the
Company's and HL&P's combined Form 8-K (File Nos. 1-7629 and 1-3187), dated as
of May 12, 1995.
-26-
RESULTS OF OPERATIONS
COMPANY
Summary of selected financial data for the Company and its subsidiaries is set
forth below:
THREE MONTHS ENDED,
----------------------- PERCENT
1995 1994 CHANGE
--------- --------- -------
(Restated)
(Thousands of Dollars)
Revenues ........................... $ 746,166 $ 821,581 (9)
Operating Expenses ................. 622,865 671,924 (7)
Operating Income ................... 123,301 149,657 (18)
Interest and Other Charges ......... 81,395 79,642 2
Income Taxes ....................... 10,427 22,652 (54)
Discontinued Operations ............ 90,607 (7,501) --
Net Income ......................... 114,456 25,898 342
The Company had consolidated earnings per share of $.93 for the first quarter of
1995, compared to consolidated earnings per share of $.21 for the first quarter
of 1994. The increase in earnings for the first quarter of 1995 is due to the
recognition of a $90.6 million tax benefit in recognition of the deferred tax
asset arising from the Company's excess tax basis in KBLCOM stock, partially
offset by the effects of HL&P's Proposed Settlement, which reduced operating
income.
HL&P
Summary of selected financial data for HL&P is set forth below:
THREE MONTHS ENDED,
----------------------- PERCENT
1995 1994 CHANGE
--------- --------- -------
(Thousands of Dollars)
Revenues ............................... $746,166 $821,581 (9)
Operating Expenses (1) ................. 641,600 698,702 (8)
Operating Income (1) ................... 104,566 122,879 (15)
Interest Charges ....................... 62,848 63,050 --
Income After Preferred Dividends ....... 33,909 41,686 (19)
- ------------
(1) Inclusive of income taxes.
In the first quarter of 1995, HL&P's pre-tax earnings were reduced by
approximately $17 million which represents the estimated effects of the Proposed
Settlement on revenues and expenses for the quarter. For information regarding
HL&P's current regulatory proceedings and the Proposed Settlement, see "CURRENT
ISSUES - HL&P - Rate Review, Fuel Reconciliation and Other Proceedings" above
and Note 3 to the Financial Statements in Item 1 of this Report.
-27-
OPERATING REVENUES AND SALES
Operating revenues decreased $75.4 million for the first quarter of 1995
compared to the same period in 1994. The decrease was primarily due to a
decrease in reconcilable fuel revenues ($65 million), and the effects of the
settlement-related reduction ($14 million), partially offset by a base revenue
increase ($3.5 million) resulting from a 6 percent increase in commercial
kilowatt-hour sales. Residential sales decreased 1 percent due to milder weather
and firm industrial sales remained relatively flat. Firm industrial sales
exclude electricity sold at a reduced rate under agreements which allow HL&P to
interrupt service under some circumstances.
FUEL AND PURCHASED POWER EXPENSES
Fuel expenses decreased $33.6 million for the first quarter of 1995 compared to
the same period of 1994. The decrease was primarily due to a decrease in the
unit cost of gas and an increase in nuclear generation which has fuel cost that
is substantially lower than HL&P's other fuel sources. The average cost of fuel
for the first quarter of 1995 was $1.62 per million British Thermal Units
(MMBtu) compared to $1.81 per MMBtu for the same period in 1994. Purchased power
expense decreased $33.0 million for the first quarter of 1995 when compared to
the same period in 1994 primarily due to the expiration of a purchased power
contract.
OPERATION AND MAINTENANCE, DEPRECIATION AND AMORTIZATION, AND OTHER TAXES
Operation and maintenance expense increased $4.7 million, or 2 percent, for the
first quarter of 1995 compared to the first quarter of 1994. Depreciation and
amortization expense for the first quarter of 1995 increased $5.0 million
compared to 1994, primarily due to an increase in depreciable property and an
increase in decommissioning expense as a result of the Proposed Settlement.
Other taxes increased $7.8 million in the first quarter of 1995 compared to the
same period in 1994, primarily due to increased franchise and property taxes.
LIQUIDITY AND CAPITAL RESOURCES
COMPANY
GENERAL
The Company's cash requirements stem primarily from operating expenses, capital
expenditures, payment of common stock dividends, payment of preferred stock
dividends and interest and principal payments on debt. Net cash provided by
operating activities totaled $41.3 million for the three months ended March 31,
1995.
Net cash used in investing activities for the three months ended March 31, 1995,
totaled $113.9 million, primarily due to electric capital expenditures of $55.9
million (including allowance for borrowed funds used during construction) and
corporate headquarters expenditures (including capitalized interest) of $25.9
million.
Financing activities for the first three months of 1995 resulted in a net cash
inflow of $79.3 million. The Company's primary financing activities were the
increase in short-term borrowings offset by
-28-
the payment of dividends and the repayment of long-term debt. For information
with respect to the repayment of debt, reference is made to Note 10 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.
The Company also has registered with the SEC five million shares of its common
stock. Proceeds from the sale of these securities will be used for general
corporate purposes, including, but not limited to, the redemption, repayment or
retirement of outstanding indebtedness of the Company or the advance or
contribution of funds to one or more of the Company's subsidiaries to be used
for their general corporate purposes, including, without limitation, the
redemption, repayment or retirement of indebtedness or preferred stock.
Effective December 1994, the Company registered with the SEC four million shares
of its common stock for purchase through the new Investor's Choice Plan, which
restated and amended the Company's existing dividend reinvestment plan.
The Company's outstanding commercial paper at March 31, 1995 was approximately
$634.2 million, which is supported by an $800 million bank credit facility.
On January 26, 1995, the Company entered into an agreement with Time Warner to
sell all of its cable television operations. In exchange for KBLCOM's common
stock, Time Warner will issue to the Company one million shares of its common
stock and 11 million shares of a newly-issued series of its convertible
preferred stock (with a liquidation value of $100 per share). The preferred
stock will be convertible into approximately 22.9 million shares of Time Warner
common stock. After four years, Time Warner will have the right to exchange the
preferred stock for common stock at the stated conversion rate, unless the
Company elects to convert the shares before such time. In addition, Time Warner
will purchase KBLCOM's intercompany debt for an estimated $600 million in cash.
Approximately $685 million of KBLCOM's third party debt and other liabilities
will be assumed by Time Warner upon the closing of the sale. Closing of the
transaction, which is expected to occur in mid-1995, is subject to certain
conditions (see Note 10 to the Financial Statements in Item 1 of this Report).
Based on a Time Warner common stock price of $35.50 and assuming the closing
occurs on July 1, 1995, the Company estimates that it will recognize an
after-tax gain of approximately $650 million. The Company recorded $90.6 million
of this gain in the first quarter of 1995 in recognition of the deferred tax
asset arising from the Company's excess tax basis in KBLCOM stock. The remainder
of the gain will be recognized at closing. The Company believes that the
transaction will improve its liquidity by exchanging the Company's investment in
KBLCOM for cash and marketable securities. In addition, the terms of the
preferred stock to be issued by Time Warner provide for the payment of an annual
cash dividend of $3.75 per share for four years. Assuming Time Warner common
stock were to continue to pay its current dividend of $.36 per share, the
-29-
Company would expect to receive after-tax dividend payments on the Time Warner
common and preferred stock of approximately $37 million per year.
It is anticipated that the $600 million proceeds to be received in connection
with the sale of KBLCOM's intercompany debt would be used for general corporate
purposes, including but not limited to the redemption of or retirement of
indebtedness of the Company, the advance or contribution of funds to one or more
subsidiaries to be used for their general corporate purposes or (depending on
market and other conditions) the possible repurchase of outstanding shares of
the Company's common stock.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges for the three and twelve
months ended March 31, 1995 were 1.39 and 2.79, respectively. The Company
believes that the ratio for the three-month period is not necessarily indicative
of the ratio for a twelve-month period due to the seasonal nature of HL&P's
business.
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 three months of
1995 totaled $48.6 million.
Net cash used in HL&P's investing activities for the first three months of 1995
totaled $58.4 million. HL&P's capital and nuclear fuel expenditures (excluding
allowance for funds used during construction) for the first three months of 1995
totaled $54.1 million out of the $364 million annual budget. HL&P expects to
finance substantially all of its 1995 capital expenditures through funds
generated internally from operations.
HL&P's financing activities for the first three months of 1995 resulted in a net
cash outflow of approximately $89.6 million consisting primarily of dividend
payments.
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 sale of these
securities are expected to be used for general corporate purposes including the
purchase, redemption (to the extent permitted by the terms of the outstanding
securities), repayment or retirement of outstanding indebtedness or preferred
stock of HL&P.
At March 31, 1995, HL&P had approximately $136 million in cash and cash
equivalents invested in short-term investments. In addition, HL&P has a
commercial paper program supported by a bank credit facility of $400 million.
HL&P had no commercial paper outstanding at March 31, 1995.
-30-
RATIOS OF EARNINGS TO FIXED CHARGES
HL&P's ratios of earnings to fixed charges for the three and twelve months ended
March 31, 1995 were 1.91 and 3.72, respectively. HL&P's ratios of earnings to
fixed charges and preferred dividends for the three and twelve months ended
March 31, 1995, were 1.60 and 3.11, respectively. HL&P believes that the ratios
for the three-month period are not necessarily indicative of the ratios for a
twelve-month period due to the seasonal nature of HL&P's business.
-31-
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 3 of the Company's and HL&P's Annual Report on Form 10-K
for the year ended December 31, 1994 (1994 Combined Form 10-K) and
Notes 2, 3 and 4 to the Company's Consolidated and HL&P's Financial
Statements in the Combined Form 8-K, which information, as qualified
and updated by the description of developments in regulatory and
litigation matters contained in Notes 2, 3 and 4 of the Notes to the
Company's Consolidated and HL&P's Financial Statements included in
Part I of this Report, is incorporated herein by reference.
In April 1995, the government filed a notice of appeal with respect
to the judgment entered in favor of the Company in its refund suit
pending in the U.S. Court of Federal Claims. For additional information
regarding the Company's tax case, see Item 3 to the 1994 Combined
Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
THE COMPANY
At the annual meeting of shareholders of the Company held on May 3,
1995, the matters voted upon and the number of votes cast for, against
or withheld, as well as the number of abstentions and broker non-votes
as to such matter (including a separate tabulation with respect to each
nominee for office) were as follows:
Item 1. To elect five directors to hold office in accordance with the
Amended and Restated Bylaws of the Company.
CLASS II DIRECTORS - TERM EXPIRING 1998:
FOR AGAINST OR WITHHELD BROKER NON-VOTE
Milton Carroll 113,723,039 1,310,326 0
John T. Cater 113,668,086 1,365,279 0
R. Steve Letbetter 113,583,808 1,449,557 0
Bertram Wolfe 113,574,906 1,458,459 0
CLASS I DIRECTOR - TERM EXPIRING 1997:
FOR AGAINST OR WITHHELD BROKER NON-VOTE
Lee W. Hogan 113,822,167 1,211,198 0
-32-
Item 2. To ratify the appointment of Deloitte & Touche LLP as
independent accountants and auditors for the Company for 1995.
FOR AGAINST ABSTAIN BROKER NON-VOTE
113,391,999 894,434 746,931 0
HL&P
The annual shareholder meeting of HL&P was held on May 3, 1995.
Houston Industries Incorporated, the owner and holder of all of
the outstanding Class A voting common stock of HL&P, by the duly
authorized vote of its Chairman and Chief Executive Officer
Don D. Jordan, elected the following Board of Directors for the ensuing
year or until their successors shall have qualified:
Milton Carroll, John T. Cater, Robert J. Cruikshank, Linnet F. Deily,
Joseph M. Hendrie, Lee W. Hogan, Howard W. Horne, Don D. Jordan,
R. Steve Letbetter, Alexander F. Schilt, Kenneth L. Schnitzer, Sr.,
Jack T. Trotter and Bertram Wolfe.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
HOUSTON INDUSTRIES INCORPORATED:
Exhibit 2 - Agreement and Plan of Merger dated as of January 26, 1995
among KBLCOM Incorporated, Houston Industries
Incorporated, Time Warner Inc. and TW KBLCOM Acquisition
Corp. including all exhibits and a list of schedules
thereto, incorporated by reference in Exhibit 2(a) to the
Company's Current Report on Form 8-K dated January 26,
1995.
Exhibit 10(a) - First Amendment to Houston Industries Incorporated Master
Savings Trust Effective May 1, 1995.
Exhibit 10(b) - First Amendment to Savings Plan of Houston Industries
Incorporated ESOP Trust Agreement Effective May 1, 1995.
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 1(f), 2, 3, 4, 5 and 20(a) to the Company's
Consolidated Financial Statements included on pages 39
through 67 of the Company's and HL&P's combined Form 8-K
for the year ended December 31, 1994 (File No. 1-7629 and
1-3187), dated as of May 12, 1995 (Combined Form 8-K).
-33-
Exhibit 99(b) - Notes 2, 3, and 4 to the Company's Consolidated and HL&P's
Financial Statements included on pages 71 through 81 of
the 1994 Combined Form 10-K.
Exhibit 99(c) - Houston Industries Incorporated Savings Plan (As Amended
and Restated Effective July 1, 1995).
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 1(f), 2, 3, 4 and 5 to the Company's Consolidated
Financial Statements included on pages 39 through 50 of
the Combined Form 8-K.
Exhibit 99(b) - Notes 2, 3 and 4 to the Company's Consolidated and HL&P's
Financial Statements included on pages 71 through 81 of
the 1994 Combined Form 10-K.
(b) Reports on Form 8-K.
HOUSTON INDUSTRIES INCORPORATED AND HOUSTON LIGHTING & POWER COMPANY:
Current Report on Form 8-K dated May 12, 1995 (Item 5. Other Events).
Current Report on Form 8-K dated January 26, 1995 (Item 5. Other Events).
-34-
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: May 15, 1995
-35-
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: May 15, 1995
-36-