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, 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
incorporation or organization) (I.R.S. Employer Identification No.)
5 Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027
(Address of principal executive offices) (Zip Code)
(713) 629-3000
(Registrant's telephone number, including area code)
------------------------------
Commission file number 1-3187
HOUSTON LIGHTING & POWER COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-0694415
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
611 Walker Avenue
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 228-9211
(Registrant's telephone number, including area code)
------------------------------
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
As of October 31, 1995, Houston Industries Incorporated had 131,336,234 shares
of common stock outstanding, including 7,265,430 ESOP shares not deemed
outstanding for financial statement purposes. As of October 31, 1995, all of
Houston Lighting & Power Company's outstanding common stock was held, directly
or indirectly, by Houston Industries Incorporated.
HOUSTON INDUSTRIES INCORPORATED AND HOUSTON LIGHTING & POWER COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 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 and Nine Months Ended
September 30, 1995 and 1994 3
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994 5
Statements of Consolidated Cash Flows
Nine Months Ended September 30, 1995 and 1994 7
Statements of Consolidated Retained Earnings
Three Months and Nine Months Ended
September 30, 1995 and 1994 9
Notes to Consolidated Financial Statements 15
Houston Lighting & Power Company
Statements of Income
Three Months and Nine Months Ended
September 30, 1995 and 1994 10
Balance Sheets
September 30, 1995 and December 31, 1994 11
Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994 13
Statements of Retained Earnings
Three Months and Nine Months Ended
September 30, 1995 and 1994 14
Notes to Financial Statements 15
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 33
-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,
---------------------------- ----------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
(Restated) (Restated)
REVENUES...................................................... $1,171,789 $1,150,946 $2,896,180 $2,977,433
---------- ---------- ---------- ----------
EXPENSES:
Fuel...................................................... 269,159 211,235 691,226 663,937
Purchased power........................................... 50,160 102,225 166,570 304,680
Operation and maintenance................................. 228,913 212,507 645,092 610,447
Taxes other than income taxes............................. 62,227 65,184 197,793 191,255
Depreciation and amortization............................. 127,148 99,831 343,630 299,022
---------- ---------- ---------- ----------
Total.................................................. 737,607 690,982 2,044,311 2,069,341
---------- ---------- ---------- ----------
OPERATING INCOME.............................................. 434,182 459,964 851,869 908,092
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Allowance for other funds used
during construction.................................... 1,676 1,170 6,319 2,579
Dividend income........................................... 9,730 9,730
Other - net............................................... (8,103) (7,509) (35,756) (20,938)
---------- ---------- ---------- ----------
Total ....................................................... 3,303 (6,339) (19,707) (18,359)
---------- ---------- ---------- ----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt................................ 75,178 66,368 204,436 199,369
Other interest............................................ 2,777 5,475 21,454 18,510
Allowance for borrowed funds used
during construction.................................... (943) (1,616) (3,881) (3,433)
Preferred dividends of subsidiary............................. 6,772 8,305 23,207 24,981
---------- ---------- ---------- ----------
Total ....................................................... 83,784 78,532 245,216 239,427
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING............................ 353,701 375,093 586,946 650,306
INCOME TAXES.................................................. 117,840 132,854 193,976 232,160
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING...................................... 235,861 242,239 392,970 418,146
DISCONTINUED OPERATIONS (NET OF INCOME
TAXES):
Gain on sale of cable television
subsidiary............................................. 618,088 708,695
Loss from discontinued cable
television operations.................................. (6,271) (21,355)
---------- ---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING...................................... 853,949 235,968 1,101,665 396,791
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS (NET OF INCOME TAXES OF
$4,415)................................................... (8,200)
---------- ---------- ---------- ----------
NET INCOME.................................................... $ 853,949 $ 235,968 $1,101,665 $ 388,591
========== ========== ========== ==========
-3-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
EARNINGS PER COMMON SHARE:
CONTINUING OPERATIONS BEFORE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING .......................................... $ 1.90 $ 1.97 $ 3.17 $ 3.41
DISCONTINUED OPERATIONS:
Gain on sale of cable television
subsidiary........................................ 4.99 5.73
Loss from discontinued cable
television operations............................. (0.05) (0.17)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS............................................. (0.07)
--------- --------- --------- ---------
EARNINGS PER COMMON SHARE............................... $ 6.89 $ 1.92 $ 8.90 $ 3.17
========= ========= ========= =========
DIVIDENDS DECLARED PER COMMON
SHARE................................................ $ 0.75 $ 0.75 $ 2.25 $ 2.25
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (000).................................... 123,947 123,060 123,773 122,665
Pro forma per share and weighted average share information reflecting the stock
split effective November 16, 1995.
CONTINUING OPERATIONS BEFORE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING .......................................... $ 0.95 $ 0.98 $ 1.59 $ 1.70
DISCONTINUED OPERATIONS:
Gain on sale of cable television
subsidiary........................................ 2.49 2.86
Loss from discontinued cable
television operations............................. (0.02) (0.09)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS............................................. (0.03)
--------- --------- --------- ---------
EARNINGS PER COMMON SHARE............................... $ 3.44 $ 0.96 $ 4.45 $ 1.58
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (000).................................... 247,894 246,120 247,546 245,331
See Notes to Consolidated Financial Statements.
-4-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -------------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Plant in service............................................................ $ 11,976,652 $ 11,743,070
Construction work in progress............................................... 340,423 333,180
Nuclear fuel................................................................ 216,494 212,795
Plant held for future use................................................... 48,631 201,741
Electric plant acquisition adjustments......................................... 3,166 3,166
Other property................................................................. 91,975 85,529
------------- -------------
Total................................................................. 12,677,341 12,579,481
Less accumulated depreciation and amortization................................. 3,807,327 3,527,598
------------- -------------
Property, plant and equipment - net................................... 8,870,014 9,051,883
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents...................................................... 64,527 10,443
Special deposits............................................................... 3,932 10
Accounts receivable - net...................................................... 81,684 22,149
Accrued unbilled revenues...................................................... 74,928 38,372
Time Warner dividends receivable............................................... 9,640
Fuel stock, at lifo cost....................................................... 49,430 56,711
Materials and supplies, at average cost........................................ 144,040 148,007
Prepayments.................................................................... 18,183 14,398
------------- -------------
Total current assets.................................................. 446,364 290,090
------------- -------------
OTHER ASSETS:
Net assets of discontinued cable television
operations.................................................................. 618,982
Deferred plant costs - net..................................................... 619,580 638,917
Deferred debits................................................................ 343,909 281,204
Regulatory asset - net......................................................... 230,813 235,463
Unamortized debt expense and premium on
reacquired debt............................................................. 161,456 161,885
Recoverable project costs - net................................................ 237,562 98,954
Investment in Time Warner equity securities.................................... 1,033,250
Equity investment in foreign electric utility.................................. 28,280 25,699
------------- -------------
Total other assets.................................................... 2,654,850 2,061,104
------------- -------------
Total.............................................................. $ 11,971,228 $ 11,403,077
============= =============
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,
1995 1994
------------ -----------
CAPITALIZATION:
Common Stock Equity:
Common stock, no par value .................................................. $ 2,439,461 $ 2,437,638
Unearned ESOP shares ........................................................ (272,414) (289,611)
Retained earnings ........................................................... 2,044,245 1,221,221
------------ ------------
Total common stock equity ......................................... 4,211,292 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 .......................................... 51,055 121,910
------------ ------------
Total cumulative preferred stock .................................. 402,400 473,255
------------ ------------
Long-Term Debt:
Debentures .................................................................. 548,867 548,729
Long-term debt of subsidiaries:
First mortgage bonds ..................................................... 2,997,668 3,020,400
Pollution control revenue bonds .......................................... 4,419 155,247
Other .................................................................... 6,908 9,757
------------ ------------
Total long-term debt .............................................. 3,557,862 3,734,133
------------ ------------
Total capitalization ........................................... 8,171,554 7,576,636
------------ ------------
CURRENT LIABILITIES:
Notes payable .................................................................. 423,291
Accounts payable ............................................................... 115,451 159,225
Taxes accrued .................................................................. 231,193 169,690
Interest accrued ............................................................... 87,669 73,527
Dividends accrued .............................................................. 98,502 98,469
Accrued liabilities to municipalities .......................................... 27,531 21,307
Customer deposits .............................................................. 62,897 64,905
Current portion of long-term debt and preferred stock .......................... 179,449 49,475
Other .......................................................................... 70,376 64,026
------------ ------------
Total current liabilities ...................................... 873,068 1,123,915
------------ ------------
DEFERRED CREDITS:
Accumulated deferred federal income taxes ...................................... 2,036,986 1,763,230
Unamortized investment tax credit .............................................. 397,007 411,580
Fuel-related credits ........................................................... 119,087 242,912
Other .......................................................................... 373,526 284,804
------------ ------------
Total deferred credits ......................................... 2,926,606 2,702,526
------------ ------------
COMMITMENTS AND CONTINGENCIES
Total ....................................................... $ 11,971,228 $ 11,403,077
============ ============
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,
----------------------------
1995 1994
--------- ---------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations ....................................................... $ 392,970 $ 418,146
Adjustments to reconcile income from continuing operations to net cash
provided by operating activities:
Depreciation and amortization ........................................................ 343,630 299,022
Amortization of nuclear fuel ......................................................... 21,892 13,352
Deferred income taxes ................................................................ 53,855 69,898
Investment tax credit ................................................................ (14,573) (14,560)
Allowance for other funds used during
construction ...................................................................... (6,319) (2,579)
Fuel refund .......................................................................... (189,389)
Fuel cost over recovery .............................................................. 55,905 152,130
Net cash provided by discontinued cable television
operations ........................................................................ 16,391 12,180
Changes in other assets and liabilities:
Accounts receivable and accrued unbilled revenues ................................. (96,091) (21,422)
Inventory ......................................................................... 11,248 6,896
Other current assets .............................................................. (17,347) 15,464
Accounts payable .................................................................. (43,774) (72,471)
Interest and taxes accrued ........................................................ 75,645 7,978
Other current liabilities ......................................................... 10,569 13,475
Other - net ....................................................................... 31,058 55,114
--------- ---------
Net cash provided by operating activities ..................................... 645,670 952,623
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Electric capital and nuclear fuel expenditures
(including allowance for borrowed funds used
during construction) ................................................................. (206,474) (297,861)
Non-regulated electric power project expenditures ....................................... (12,388) (431)
Corporate headquarters expenditures (including
capitalized interest) ................................................................ (78,828) (22,558)
Settlement of subsidiary debt in connection with sale
of cable television subsidiary ....................................................... 621,954
Net cash used in discontinued cable television
operations ........................................................................... (47,601) (32,601)
Other - net ............................................................................. (9,807) (10,419)
--------- ---------
Net cash provided by(used in)investing
activities ................................................................. 266,856 (363,870)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of first mortgage bonds .............................................. 142,988
Payment of matured bonds ................................................................ (19,500)
Redemption of preferred stock ........................................................... (91,400) (20,000)
Payment of common stock dividends ....................................................... (278,611) (276,202)
Decrease in notes payable - net ......................................................... (423,291) (212,785)
Extinguishment of long-term debt ........................................................ (174,140)
Net cash used in discontinued cable television
operations ........................................................................... (40,798) (72,298)
Other - net ............................................................................. 6,810 5,026
--------- ---------
Net cash used in financing activities ......................................... (858,442) (595,759)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......................................... 54,084 (7,006)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................................. 10,443 14,884
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................................... $ 64,527 $ 7,878
========= =========
-7-
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized) ................................................ $ 261,292 $ 262,570
Income taxes ................................................................................. 61,691 136,933
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,
-------------------------------- --------------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
Balance at Beginning of Period ................. $ 1,283,326 $ 1,160,081 $ 1,221,221 $ 1,191,230
Net Income for the Period ...................... 853,949 235,968 1,101,665 388,591
----------- ----------- ----------- -----------
Total ................................ 2,137,275 1,396,049 2,322,886 1,579,821
Common Stock Dividends ......................... (93,030) (92,910) (278,641) (276,682)
----------- ----------- ----------- -----------
Balance at End of Period ....................... $ 2,044,245 $ 1,303,139 $ 2,044,245 $ 1,303,139
=========== =========== =========== ===========
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,
------------------------------- -------------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
OPERATING REVENUES ................................. $ 1,171,789 $ 1,150,946 $ 2,896,180 $ 2,977,433
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Fuel ............................................ 269,159 211,235 691,226 663,937
Purchased power ................................. 50,160 102,225 166,570 304,680
Operation ....................................... 169,248 156,809 464,174 431,611
Maintenance ..................................... 59,665 55,698 180,918 178,836
Depreciation and amortization ................... 126,849 99,571 342,723 298,175
Income taxes .................................... 126,223 139,365 222,533 248,359
Other taxes ..................................... 62,227 65,184 197,793 191,255
----------- ----------- ----------- -----------
Total ...................................... 863,531 830,087 2,265,937 2,316,853
----------- ----------- ----------- -----------
OPERATING INCOME ................................... 308,258 320,859 630,243 660,580
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Allowance for other funds used
during construction .......................... 1,676 1,170 6,319 2,579
Other - net ..................................... 1,807 (1,494) (8,701) (7,253)
----------- ----------- ----------- -----------
Total ...................................... 3,483 (324) (2,382) (4,674)
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST CHARGES ..................... 311,741 320,535 627,861 655,906
----------- ----------- ----------- -----------
INTEREST CHARGES:
Interest on long-term debt ...................... 62,038 61,565 184,955 184,964
Other interest .................................. 2,715 1,189 6,639 5,938
Allowance for borrowed funds used
during construction .......................... (943) (1,616) (3,881) (3,433)
----------- ----------- ----------- -----------
Total ...................................... 63,810 61,138 187,713 187,469
----------- ----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING ............................ 247,931 259,397 440,148 468,437
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS (NET OF INCOME TAXES OF
$4,415) ......................................... (8,200)
----------- ----------- ----------- -----------
NET INCOME ......................................... 247,931 259,397 440,148 460,237
DIVIDENDS ON PREFERRED STOCK ....................... 6,772 8,305 23,207 24,981
----------- ----------- ----------- -----------
INCOME AFTER PREFERRED DIVIDENDS ................... $ 241,159 $ 251,092 $ 416,941 $ 435,256
=========== =========== =========== ===========
See Notes to Financial Statements.
-10-
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant in service...................................................... $ 11,976,652 $ 11,743,070
Construction work in progress.................................................. 340,423 333,180
Nuclear fuel................................................................... 216,494 212,795
Plant held for future use...................................................... 48,631 201,741
Electric plant acquisition adjustments......................................... 3,166 3,166
------------ ------------
Total.................................................................... 12,585,366 12,493,952
Less accumulated depreciation and
amortization................................................................ 3,797,095 3,517,923
------------ ------------
Property, plant and equipment - net...................................... 8,788,271 8,976,029
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents...................................................... 268,992 235,867
Special deposits............................................................... 432 10
Accounts receivable:
Affiliated companies........................................................ 3,724 4,213
Others...................................................................... 47,481 8,896
Accrued unbilled revenues...................................................... 74,928 38,372
Inventory:
Fuel stock, at lifo cost.................................................... 49,430 56,711
Materials and supplies, at average cost..................................... 143,624 147,922
Prepayments.................................................................... 13,924 9,665
------------ ------------
Total current assets..................................................... 602,535 501,656
------------ ------------
OTHER ASSETS:
Deferred plant costs - net..................................................... 619,580 638,917
Deferred debits................................................................ 290,195 241,611
Unamortized debt expense and premium on
reacquired debt............................................................. 159,493 158,351
Regulatory asset - net......................................................... 230,813 235,463
Recoverable project costs - net................................................ 237,562 98,954
------------ ------------
Total other assets....................................................... 1,537,643 1,373,296
------------ ------------
Total................................................................ $ 10,928,449 $ 10,850,981
============ ============
See Notes to Financial Statements.
-11-
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
SEPTEMBER 30, 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 ............................................................ 2,323,300 2,153,109
----------- -----------
Total common stock equity ................................................. 3,999,227 3,829,036
----------- -----------
Cumulative Preferred Stock:
Not subject to mandatory redemption ......................................... 351,345 351,345
Subject to mandatory redemption ............................................. 51,055 121,910
----------- -----------
Total cumulative preferred stock .......................................... 402,400 473,255
----------- -----------
Long-Term Debt:
First mortgage bonds ........................................................ 2,997,668 3,020,400
Pollution control revenue bonds ............................................. 4,419 155,247
Other ....................................................................... 6,908 9,757
----------- -----------
Total long-term debt ...................................................... 3,008,995 3,185,404
----------- -----------
Total capitalization ................................................. 7,410,622 7,487,695
----------- -----------
CURRENT LIABILITIES:
Accounts payable ............................................................... 100,892 148,042
Accounts payable to affiliated companies ....................................... 4,845 10,936
Taxes accrued .................................................................. 258,113 181,043
Interest accrued ............................................................... 73,358 64,732
Accrued liabilities to municipalities .......................................... 27,531 21,307
Customer deposits .............................................................. 62,897 64,905
Current portion of long-term debt and preferred stock .......................... 179,449 49,475
Other .......................................................................... 66,576 59,912
----------- -----------
Total current liabilities ............................................ 773,661 600,352
----------- -----------
DEFERRED CREDITS:
Accumulated deferred federal income taxes ...................................... 1,926,487 1,876,300
Unamortized investment tax credit .............................................. 397,007 411,580
Fuel-related credits ........................................................... 119,087 242,912
Other .......................................................................... 301,585 232,142
----------- -----------
Total deferred credits ............................................... 2,744,166 2,762,934
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total ............................................................. $10,928,449 $10,850,981
=========== ===========
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,
------------------------------
1995 1994
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................................. $ 440,148 $ 460,237
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ....................................................... 342,723 298,175
Amortization of nuclear fuel ........................................................ 21,892 13,352
Deferred income taxes ............................................................... 50,187 83,088
Investment tax credits .............................................................. (14,573) (14,560)
Allowance for other funds used during
construction ..................................................................... (6,319) (2,579)
Fuel refund ......................................................................... (189,389)
Fuel cost over recovery ............................................................. 55,905 152,130
Cumulative effect of change in accounting for
postemployment benefits .......................................................... 8,200
Changes in other assets and liabilities:
Accounts receivable - net ........................................................ (74,652) (12,950)
Materials and supplies ........................................................... 4,298 5,320
Fuel stock ....................................................................... 7,281 1,612
Accounts payable ................................................................. (53,241) (58,821)
Interest and taxes accrued ....................................................... 85,696 12,441
Other current liabilities ........................................................ 12,869 14,537
Other - net ...................................................................... 36,884 43,109
--------- -----------
Net cash provided by operating activities ................................... 719,709 1,003,291
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) ........................................................... (291,474) (297,861)
Other - net ............................................................................ (6,906) (9,808)
--------- -----------
Net cash used in investing activities ....................................... (298,380) (307,669)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from first mortgage bonds ..................................................... 142,988
Payment of matured bonds ............................................................... (19,500)
Payment of dividends ................................................................... (271,979) (272,259)
Decrease in notes payable .............................................................. (171,100)
Redemption of preferred stock .......................................................... (91,400) (20,000)
Extinguishment of long-term debt ....................................................... (174,140)
Other - net ............................................................................ 6,327 3,911
--------- -----------
Net cash used in financing activities ....................................... (388,204) (478,948)
--------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................................................. 33,125 216,674
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................................... 235,867 12,413
--------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................................. $ 268,992 $ 229,087
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized) ............................................... $ 184,485 $ 186,778
Income taxes ........................................................................ 67,743 136,889
See Notes to Financial Statements.
-13-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
Balance at Beginning of
Period .................................... $2,164,391 $2,048,593 $2,153,109 $2,028,924
Net Income for the Period ...................... 247,931 259,397 440,148 460,237
---------- ---------- ---------- ----------
Total ..................................... 2,412,322 2,307,990 2,593,257 2,489,161
---------- ---------- ---------- ----------
Deductions - Cash Dividends:
Preferred ................................. 6,772 8,305 23,207 24,981
Common .................................... 82,250 82,251 246,750 246,746
---------- ---------- ---------- ----------
Total ................................. 89,022 90,556 269,957 271,727
---------- ---------- ---------- ----------
Balance at End of Period ....................... $2,323,300 $2,217,434 $2,323,300 $2,217,434
========== ========== ========== ==========
See Notes to Financial Statements.
-14-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AND
HOUSTON LIGHTING & POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL
The interim consolidated financial statements and notes contained in
this Form 10-Q should be read in conjunction with the financial
statements and notes contained in the Combined Form 8-K (File Nos. 1-7629
and 1-3187) dated May 12, 1995 of Houston Industries Incorporated
(Company) and Houston Lighting & Power Company (HL&P) (Combined Form
8-K).
The results of interim periods are not necessarily indicative of results
expected for the year due to, among other things, the seasonal nature of
HL&P's business and the timing of scheduled and unscheduled maintenance.
In the opinion of management, the interim financial information reflects
all adjustments, including accruals of estimated expenses, necessary for
a fair 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.
(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 (MW) 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 September 30, 1995, HL&P's investments (net of $422.9
million plant accumulated depreciation and $135.8 million nuclear fuel
amortization) in the South Texas Project and in nuclear fuel, including
allowance for funds used during construction, were $2.0 billion and $80.7
million, respectively.
(b) UNITED STATES NUCLEAR REGULATORY COMMISSION (NRC) INSPECTIONS AND
OPERATIONS. Between June 1993 and February 1995, the South Texas Project
was listed on the NRC's "watch list" of plants with weaknesses that
warrant increased NRC regulatory attention. For information on these
proceedings, see Note 2(b) of the notes to the financial statements
included in the Combined Form 8-K, which note is incorporated herein by
reference.
In October 1995, the NRC issued a Notice of Violation and Proposed
Imposition of Civil Penalties of $160,000 against HL&P based on
conclusions that HL&P had discriminated against two former members of the
South Texas Project's nuclear security department in retaliation for
their having identified and reported safety concerns to the NRC. Certain
current and former employees of
-15-
HL&P 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. Although no prediction can be made
as to the ultimate outcome of these claims, the Company and HL&P do not
believe they will have a material adverse effect on the Company's or
HL&P's financial condition or results of operations. For information
regarding these claims, see Note 2(b) of the notes to the financial
statements included in the Company's and HL&P's Combined Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995 (Combined First Quarter
Form 10-Q), which note is incorporated herein by reference.
(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. The suit, which
is pending in the 11th District Court of Harris County, Texas, is not
anticipated to be tried before March 1996. 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 on behalf of the
co-owners under the terms of the NRC Operating Licenses and Technical
Specifications relating to the South Texas Project.
Under amended pleadings in the Austin II Litigation, Austin claims HL&P's
failure to perform obligations it owed to Austin under the Participation
Agreement have caused Austin damages of at least $150 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 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's motion to
strike San Antonio's intervention and compel arbitration of San Antonio's
claims under the Participation Agreement has been denied.
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. 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. The amortization of deferred plant costs associated
with the South Texas Project totaled $6.4 million and $19.3 million for
the three and nine months ended September 30,
-16-
1995, respectively, and is included on the Company's Statements of
Consolidated Income and HL&P's Statements of Income in depreciation and
amortization expense.
(3) SETTLEMENT OF RATE PROCEEDING AND OTHER MATTERS
In August 1995, the Public Utility Commission of Texas (Utility
Commission) unanimously approved a settlement agreement (Settlement),
entered into in February 1995, resolving HL&P's pending rate case (Docket
No. 12065) as well as a separate proceeding (Docket No. 13126) regarding
the prudence of operation of the South Texas Project. Subject to certain
changes in existing regulation or legislation, the Settlement precludes
HL&P from seeking rate increases until after December 31, 1997. HL&P
began recording the estimated effects of the Settlement in the first
quarter of 1995.
In the third quarter and first nine months of 1995, HL&P's earnings were
reduced by approximately $42 million and $79 million, respectively, as a
result of the Settlement. The after-tax effects are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
------------------- ------------------
(Millions of Dollars)
Reduction in Base Revenues........................... $25 $47
South Texas Project Write Down....................... 14 19
One-Time Write-Off of Mine-Related
Costs........................................... 6
Other Expenses....................................... 3 7
--- ---
Total Settlement Effect on
Net Income.................................. $42 $79
=== ===
The Settlement gives HL&P the option to write down up to $50 million per
year of its investment in the South Texas Project for a five year period
commencing January 1, 1995. The parties to the Settlement agreed that any
such write down will 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. HL&P recorded in the third quarter a $21 million
pre-tax write down (in addition to a $7 million pre-tax write down
recorded during the second quarter) of this investment, which amounts are
included in the Company's Statements of Consolidated Income and HL&P's
Statements of Income in depreciation and amortization expense. HL&P began
accruing decommissioning expense for its interest in the South Texas
Project at an annual rate of $14.8 million, a $9 million annual increase
over its 1994 expense.
In addition, the Settlement requires that HL&P commence amortizing, no
later than January 1996, its investment in certain lignite reserves
associated with the cancelled Malakoff Electric Generating Station
(Malakoff) project ($153 million as of September 30, 1995) over a period
not to exceed seven years. This additional amortization will equal
approximately $22 million per year. HL&P does not currently anticipate
beginning amortization of this investment until January 1996. As a result
of this additional amortization, all of HL&P's remaining investment in
Malakoff will be fully amortized no later than December 31, 2002.
-17-
During the second quarter of 1995, HL&P recorded a one-time pre-tax
charge of $9 million incurred in connection with certain Malakoff
mine-related costs which were not previously recorded and are not
recoverable under the terms of the Settlement.
Also, the parties to the Settlement agreed to dismiss their respective
appeals of certain Utility Commission orders as discussed below.
(4) APPEALS OF PRIOR UTILITY COMMISSION ORDERS
The following is a summary of the status of judicial review of the
following Utility Commission orders:
(a) 1991 RATE CASE. In accordance with the terms of the Settlement, the
Office of Public Utility Counsel has dismissed with prejudice its appeal
of the Utility Commission's order in Docket No. 9850 (1991 Rate Case). As
a result of this action, the Utility Commission's decision in Docket No.
9850 has become final.
(b) PRUDENCE REVIEW OF THE CONSTRUCTION OF THE SOUTH TEXAS PROJECT (DOCKET
NO. 6668). Parties to the Settlement have either dismissed their
respective appeals from the Utility Commission's 1986 order concerning
the prudence of the construction of the South Texas Project or are
committed to do so in the near future. However, an appeal by a party who
did not join in the Settlement remains pending. For a discussion of
Docket No. 6668, see Note 4(d) of the notes to the financial statements
included in the Combined Form 8-K.
(c) DEFERRED ACCOUNTING. In June 1994, the Texas Supreme Court held that the
Utility Commission had statutory authority to grant deferred accounting
treatment for both carrying costs and maintenance expenses. All remaining
challenges to the Utility Commission's approval of deferred accounting
for HL&P were rejected in August 1995 by the Court of Appeals, following
remand to that court by the Texas Supreme Court. As a result, the Utility
Commission's decisions in Docket Nos. 8230 and 9010 have become final.
(d) 1988 RATE CASE. Two issues concerning HL&P's 1988 rate case (Docket No.
8425) are currently pending decision by the Texas Supreme Court: (i) the
treatment by HL&P of certain costs associated with the Malakoff
generating station as "plant held for future use" and (ii) the treatment
by HL&P of certain tax savings associated with federal income tax
deductions for expenses not included in cost of service for ratemaking
purposes. For additional information regarding these issues, see Note
4(b) of the notes to the financial statements included in the Company's
and HL&P's Combined Quarterly Form 10-Q for the quarter ended June 30,
1995, which note is incorporated herein by reference, and Note 4(b) of
the notes to the financial statements included in the Combined Form 8-K.
(5) CAPITAL STOCK
(a) COMPANY COMMON STOCK. At September 30, 1995 and December 31, 1994 the
Company had authorized 400,000,000 shares of common stock, of which
124,040,835 and 123,526,350 shares, respectively, were outstanding.
Outstanding shares exclude the unallocated Employee Stock
-18-
Ownership Plan shares which as of September 30, 1995 and December 31,
1994 were 7,295,399 and 7,770,313, respectively. For information about
the common stock split recently declared by the Company, see Note 9.
(b) HL&P COMMON STOCK. 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, a wholly-owned subsidiary of the Company.
(c) HL&P PREFERRED STOCK. At September 30, 1995 and December 31, 1994, HL&P
had 10,000,000 shares of preferred stock authorized, of which 4,318,397
and 5,232,397 shares, respectively, were outstanding.
In April 1995, HL&P redeemed, at $100 per share, 514,000 shares of its
$9.375 cumulative preferred stock. The redemption included 257,000 shares
in satisfaction of mandatory sinking fund requirements, and an additional
257,000 shares as an optional redemption.
In June 1995, HL&P redeemed, at $100 per share, all 400,000 shares of its
$8.50 cumulative preferred stock. The redemption included 200,000 shares
in satisfaction of mandatory sinking fund requirements, and the remaining
200,000 shares as an optional redemption.
(6) HL&P LONG-TERM DEBT
In June 1995, HL&P purchased from a third party $19.0 million aggregate
principal amount of its 8 3/4% first mortgage bonds due 2022 for a total
purchase price of $20.7 million.
In July 1995, $150.9 million aggregate principal amount of revenue
refunding bonds collateralized by HL&P's first mortgage bonds were issued
on behalf of HL&P. The new bonds bear an initial interest rate of 5.8%,
variable at HL&P's option after a five-year no-call period, and mature in
2015. Proceeds from these issuances were used in 1995 to redeem, at 102%
of their aggregate principal amount, pollution control revenue bonds
aggregating $150.9 million (bearing a weighted average interest rate of
9.9%).
(7) DISCONTINUED CABLE TELEVISION OPERATIONS
In July 1995, the Company completed the sale of KBLCOM Incorporated
(KBLCOM), its cable television subsidiary, to Time Warner Inc. (Time
Warner). The Company's 1995 earnings include a gain on the sale of $709
million, subject to post closing adjustments, $91 million of which was
recorded during the first quarter and the balance during the third
quarter. Effective January 1, 1995, the operations of KBLCOM were
accounted for as discontinued and prior periods were restated for
consistency in reflecting KBLCOM as a discontinued operation. For a
presentation of the Company's consolidated financial statements for the
years 1992 through 1994 which reflects KBLCOM on a discontinued
operations basis, see the Combined Form 8-K.
In exchange for KBLCOM's common stock, the Company received 1 million
shares of Time Warner common stock and 11 million shares of non-publicly
traded convertible preferred stock. Time Warner also purchased from the
Company for cash approximately $622 million of
-19-
KBLCOM's intercompany indebtedness and assumed approximately $650 million
of KBLCOM's external debt and other liabilities. The convertible
preferred stock has an aggregate liquidation preference (redeemable after
July 6, 2000) of $100 per share (plus accrued and unpaid dividends), is
entitled to cumulative annual dividends of $3.75 per share until July 6,
1999, is currently convertible by the Company and after four years is
exchangeable by Time Warner into approximately 22.9 million shares of
Time Warner common stock. Under the terms of the sale, the Company may
make up to four demands for registration of its shares of Time Warner
common stock. Subject to certain exceptions, the terms of the sale
prohibit the Company from acquiring additional shares of Time Warner
securities or selling shares of Time Warner securities to any holder of
more than 5 percent of any class of Time Warner voting securities.
The Time Warner securities were recorded at a combined fair value of
approximately $1 billion on the closing date of the sale (previously
estimated to be approximately $1.1 billion) and are reflected on the
Company's Consolidated Balance Sheets as investment in Time Warner equity
securities. Investment in the Time Warner common stock is considered an
"available for sale" equity security under Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," and, therefore, unrealized net changes in
the fair value of the securities (exclusive of dividends and write downs)
will be excluded from earnings and reported as a net amount in a separate
component of shareholders' equity until realized. Investment in the Time
Warner convertible preferred stock is not subject to the requirements of
SFAS No. 115 since it is a non-publicly traded equity security and,
therefore, is accounted for under the cost method. Dividends on the
securities will be recognized as income as earned. Based on current
rates, after-tax dividends of approximately $37 million are expected to
be received annually through July 1999. The Company recorded pre-tax
dividend income of $9.7 million in the third quarter of 1995.
Operating results from discontinued operations for the nine months ended
September 30, 1995 and 1994 were as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1995 1994
--------- --------
(Thousands of Dollars)
Revenues ..................................................... $ 143,925 $187,308
Operating expenses (1)......................................... 86,938 118,092
--------- --------
Gross operating margin (1)..................................... 56,987 69,216
Depreciation, amortization, interest and other................. 81,570 96,245
Income tax benefit............................................. (4,997) (5,674)
Deferred loss (2).............................................. (19,586)
--------- --------
Loss from discontinued operations (3).......................... $ 0 ($21,355)
========= ========
---------------
(1) Exclusive of depreciation and amortization.
(2) The net loss from discontinued operations of KBLCOM through the
date of sale (July 6, 1995) was deferred by the Company. Upon
closing of the sale the deferred loss was
-20-
included as an adjustment to the gain on sale of cable television
subsidiary on the Company's Statements of Consolidated Income.
(3) 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
purchased from the Company.
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.
(8) EARLY RETIREMENT PLAN
The Company offered eligible employees (excluding officers) of the
Company, HL&P and Houston Industries Energy, Inc. (HI Energy), who were
55 years of age or older and had at least 10 years of service as of July
31, 1995 an incentive program to retire early. For employees electing
early retirement, the program would add five years of service credit and
five years in age up to 35 years of service and age 65, respectively, in
determining an employee's pension. Each participating employee (under age
62) would also receive a supplemental benefit to age 62. During July
1995, the early retirement incentive was accepted by approximately 300
employees.
Pension benefits and supplemental benefits (if applicable) are being paid
out from the Houston Industries Incorporated Retirement Trust. Based on
the projected costs associated with the program, HL&P increased its
retirement plan and supplemental benefits by approximately $28 million
and $5 million, respectively. Pursuant to SFAS No. 71, "Accounting for
the Effects of Certain Types of Regulation", HL&P deferred the costs
associated with the increases in these benefit obligations and is
amortizing the costs over the period ending December 31, 1997.
(9) SUBSEQUENT EVENT
In November 1995, the Board of Directors of the Company approved a
two-for-one common stock split in the form of a 100 percent stock
dividend. This stock dividend will be effective for shareholders of
record at the close of business on November 16, 1995 and distributed on
December 9, 1995.
The pro forma effect of the stock split on shareholders' equity would
have been to double the number of common stock shares issued and
outstanding to 248,081,670 and 247,052,700 at September 30, 1995 and
December 31, 1994, respectively.
The quarterly common stock dividend of $0.75 per share declared on
September 6, 1995 and payable on December 9, 1995 will be paid on the
basis of pre-stock split shares of common stock. The Board of Directors
has no current plans to change the Company's total dividend payout
following the stock split.
-21-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CURRENT ISSUES
HL&P
In August 1995, the Utility Commission unanimously approved a settlement
agreement relating to HL&P's most recent rate case (including separate
proceedings regarding the prudence of operation of the South Texas Project).
Subject to certain changes in existing regulation or legislation, the Settlement
precludes HL&P from seeking rate increases through December 31, 1997. HL&P began
recording the estimated effects of the Settlement in the first quarter of 1995.
Effective retroactive to January 1, 1995, the Settlement reduced HL&P's base
revenues $73 million for the first nine months of 1995. The Settlement also
provides HL&P the option to write down up to $50 million per year of its
investment in the South Texas Project, which amount will 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. HL&P is also accruing
decommissioning expenses for its interest in the South Texas Project at an
annual rate of $14.8 million, a $9 million annual increase over its 1994
expense. The Settlement requires that HL&P commence amortizing, no later than
January 1996, its investment in certain lignite reserves associated with the
cancelled Malakoff project ($153 million as of September 30, 1995) over a period
not to exceed seven years. This additional amortization will equal approximately
$22 million per year. HL&P does not currently anticipate beginning amortization
of this investment until January 1996. As a result of this additional
amortization, all of HL&P's remaining investment in Malakoff will be fully
amortized no later than December 31, 2002.
As a result of the Settlement, in the third quarter and first nine months of
1995, HL&P's earnings were reduced by approximately $42 million and $79 million,
respectively. These reductions include HL&P's decision to write down $21 million
($14 million after-tax) and $28 million ($19 million after-tax) of its
investment in the South Texas Project in the third quarter and first nine months
of 1995, respectively. For additional information , see Note 3 to the Company's
Consolidated and HL&P's Financial Statements (Financial Statements) in Item 1 of
this Report.
-22-
RESULTS OF OPERATIONS
COMPANY
Summary of selected financial data for the Company and its subsidiaries is set
forth below:
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------------- PERCENT
1995 1994 CHANGE
---------- ---------- --------
(Restated)
(Thousands of Dollars)
Revenues......................................... $1,171,789 $1,150,946 2
Operating Expenses............................... 737,607 690,982 7
Operating Income................................. 434,182 459,964 (6)
Interest and Other Charges....................... 83,784 78,532 7
Income Taxes..................................... 117,840 132,854 (11)
Income from Continuing Operations................ 235,861 242,239 (3)
Net Income....................................... 853,949 235,968 262
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------- PERCENT
1995 1994 CHANGE
---------- ---------- --------
(Restated)
(Thousands of Dollars)
Revenues......................................... $2,896,180 $2,977,433 (3)
Operating Expenses............................... 2,044,311 2,069,341 (1)
Operating Income................................. 851,869 908,092 (6)
Interest and Other Charges....................... 245,216 239,427 2
Income Taxes..................................... 193,976 232,160 (16)
Income from Continuing Operations................ 392,970 409,946 (4)
Net Income....................................... 1,101,665 388,591 184
The references to per share amounts below contemplate the effects of the
two-for-one stock split which will be effective November 16, 1995. See Note 9 of
the notes to the Financial Statements in Item 1 of this Report.
The Company had consolidated earnings per share of $3.44 ($6.89 pre-split) for
the third quarter of 1995, including a one-time gain of $618 million on the sale
of KBLCOM. Excluding the gain from the KBLCOM sale, consolidated earnings per
share from continuing operations for the third quarter of 1995 were $0.95 ($1.90
pre-split) compared to $0.98 ($1.97 pre-split) for the third quarter of 1994.
Consolidated earnings per share for the nine months ended September 30, 1995
were $4.45 ($8.90 pre-split) per share, including the gain on the KBLCOM sale of
$709 million. Excluding the gain from the KBLCOM sale, consolidated earnings per
share from continuing operations for the nine months ended September 30, 1995
were $1.59 ($3.17 pre-split) compared to $1.67 ($3.34 pre-split) per share for
the same period in 1994. The decline in earnings from continuing operations is
primarily
-23-
attributable to (i) a decrease in HL&P's earnings as discussed below
and (ii) increased expenses associated with HI Energy's project development
activities, partially offset by dividends from Time Warner securities.
HL&P
Summary of selected financial data for HL&P is set forth below:
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------------- PERCENT
1995 1994 CHANGE
---------- ---------- --------
(Thousands of Dollars)
Base Revenues (1)................................ $ 869,950 $ 888,015 (2)
Reconcilable Fuel Revenues....................... 301,839 262,931 15
Operating Expenses (2)........................... 863,531 830,087 4
Operating Income (2)............................. 308,258 320,859 (4)
Interest Charges................................. 63,810 61,138 4
Income After Preferred Dividends................. 241,159 251,092 (4)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------- PERCENT
1995 1994 CHANGE
---------- ---------- --------
(Thousands of Dollars)
Base Revenues (1)................................ $2,099,964 $2,155,702 (3)
Reconcilable Fuel Revenues....................... 796,216 821,731 (3)
Operating Expenses (2)........................... 2,265,937 2,316,853 (2)
Operating Income (2)............................. 630,243 660,580 (5)
Interest Charges................................. 187,713 187,469 -
Income After Preferred Dividends................. 416,941 435,256 (4)
-----------------
(1) Includes miscellaneous revenues, certain non-reconcilable
fuel revenues and certain purchased power related revenues.
(2) Inclusive of income taxes.
The decrease in HL&P's earnings for the third quarter and first nine months of
1995 compared to the same periods in 1994 resulted primarily from the impact of
the Settlement. For information regarding the terms of the Settlement and its
effect on HL&P's financial position and results of operation, see Note 3 to the
Financial Statements in Item 1 of this Report. The negative effects of the
Settlement were partially offset by an increase in residential and commercial
kilowatt-hour (KWH) sales for the third quarter and first nine months of 1995,
as discussed below.
-24-
OPERATING REVENUES AND SALES
The decreases in base revenues of $18.1 million and $55.7 million for the third
quarter and first nine months of 1995, respectively, compared to the same
periods in 1994, were due to the impact of the Settlement and a reduction in
revenues associated with recovery of certain purchased power costs, partially
offset by increases in residential and commercial KWH sales. The base revenues
associated with certain purchased power costs were substantially reduced in 1995
upon expiration of a purchased power contract. The related expenses are equally
reduced, resulting in no impact on earnings.
For the third quarter and first nine months of 1995, residential KWH sales
increased 7% and 5%, respectively, and commercial KWH sales were up 4% and 5%,
respectively, from the same periods in 1994. The increases in residential and
commercial sales reflect hotter weather in 1995 and modest growth in both the
number of customers and usage per customer. Firm industrial KWH sales decreased
5% and 4% for the third quarter and first nine months of 1995, respectively,
compared to the same periods in 1994. Contributing to these decreases were a
decline in sales to the chemicals and refining industries, primarily due to the
loss of a large industrial customer to self generation, and the expiration of an
economic development rate which caused some customers to make greater use of
interruptible service or switch to alternative rates. Firm industrial sales
exclude electricity sold at a reduced rate under agreements which allow HL&P to
interrupt service under some circumstances.
Reconcilable fuel revenues are revenues that are collected through an energy
component of electric rates. These revenues, which have no effect on earnings,
are required to be periodically reconciled to fuel expenses. For information
regarding the recovery of HL&P's fuel costs, see the Recovery of Fuel Costs
section in Part 1 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).
FUEL AND PURCHASED POWER EXPENSES
Fuel expenses increased $57.9 million for the third quarter of 1995 and $27.3
million for the first nine months of 1995 compared to the same periods of 1994.
These increases were primarily due to a $66.1 million reduction to reconcilable
fuel expense recorded in July 1994 resulting from payments HL&P received upon
the transfer of its rights to receive certain railroad settlement payments. The
increase was partially offset by a decline in the unit cost of gas and increased
nuclear generation which has a per unit fuel cost that is substantially lower
than HL&P's other fuel sources. For information regarding the railroad
settlement payments, see Note 18 of the notes to the financial statements
included in the Combined Form 8-K. The average cost of fuel for the third
quarter and first nine months of 1995 was $1.52 per million British Thermal
Units (MMBtu) and $1.59 per MMBtu, respectively. This compares to $1.23 per
MMBtu and $1.52 per MMBtu for the same periods in 1994, inclusive of the effects
of the railroad settlement payments discussed above. Purchased power expense
decreased $52.1 million and $138.1 million for the third quarter and first nine
months of 1995, respectively, when compared to the same periods in 1994
primarily due to the expiration of firm purchased power contracts.
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OPERATION AND MAINTENANCE, DEPRECIATION AND AMORTIZATION, AND OTHER
Operation and maintenance expense for the third quarter and first nine months of
1995 increased $16.4 million and $34.6 million, respectively, compared to the
same periods in 1994. Substantially all of the increase in operation and
maintenance expense resulted from (i) increased litigation and rate case
expenses, (ii) lump sum wage payments primarily associated with the renewal of
labor union contracts, and (iii) employee severance expenses. HL&P continues to
review its staffing levels in light of the changing operating environment and
may incur additional severance costs in the future. However, specific additional
expenses cannot be determined at this time. Depreciation and amortization
expense for the third quarter and first nine months of 1995 increased $27.3
million and $44.5 million, respectively, compared to 1994, primarily due to
amortizations recorded as a result of the Settlement (see Note 3 to the
Financial Statements in Item 1 of this Report). Other taxes increased $6.5
million in the first nine months of 1995 compared to the same period in 1994,
primarily due to increased state franchise tax obligations.
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 interest and
principal payments on debt. Net cash provided by operating activities totaled
$645.7 million for the nine months ended September 30, 1995.
Net cash provided by investing activities for the nine months ended September
30, 1995 totaled $266.9 million reflecting $622 million received in connection
with the Company's sale of KBLCOM less electric capital expenditures of $206.5
million (including allowance for borrowed funds used during construction),
corporate headquarters expenditures (including capitalized interest) of $78.8
million, discontinued cable television operations expenditures of $47.6 million
and other expenditures.
Financing activities for the first nine months of 1995 resulted in a net cash
outflow of $858.4 million. The Company's primary financing activities were the
decrease in short-term borrowings, the payment of dividends, the redemption of
subsidiary preferred stock and the extinguishment and repayment of long-term
debt, partially offset by the issuance of HL&P long-term debt. For information
with respect to these matters, reference is made to Notes 5 and 6 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 (10 million shares of common stock after giving effect to the stock
split). Proceeds from the sale of these
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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.
At September 30, 1995, the Company had approximately $54 million in cash and
cash equivalents invested in short-term investments. In addition, the Company
has a commercial paper program supported by three bank credit facilities, the
borrowing capacity under which was increased in the third quarter from $800
million to $1.1 billion. The Company had no commercial paper outstanding at
September 30, 1995, reflecting the application of $622 million of cash proceeds
received in connection with the KBLCOM sale.
During the nine months ended September 30, 1995, HI Energy expended
approximately $12.4 million (compared to $431,000 during the comparable period
in 1994) on non-regulated electric power projects.
In June 1995, a subsidiary of HI Energy, the Company's non-regulated electric
power subsidiary, entered into an agreement to construct, own and operate a 160
MW cogeneration facility to be built adjacent to a steel plant in San Nicolas,
Argentina. In September 1995, various governmental approvals were obtained which
allowed work to proceed. The project is expected to be completed in the fourth
quarter of 1997. The plant is to be constructed by a consortium composed of GE
Power Systems, Inc. and an Argentine construction company. The construction
contract provides, subject to certain adjustments, for a contract price of
approximately $65 million to be paid in installments during the construction of
the project. Upon completion, the project will sell steam to the steel plant and
sell electricity on the wholesale Argentina electricity market.
On October 3, 1995, Texas Energy Partners plc (Texas Energy Partners), an
English public limited company, jointly owned in equal shares by the Company and
Central and South West Corporation, made an offer for all of the issued share
capital of NORWEB plc (NORWEB), an English regional electricity company serving
the northwest of England, including Manchester, for a total price equivalent to
approximately $2.7 billion. Texas Energy Partners withdrew the offer on October
12, 1995 after North West Water plc made a higher competing offer for all NORWEB
shares. The Company expects that it may from time to time consider and evaluate
other investment opportunities in foreign electric utility businesses.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges for the nine and twelve months
ended September 30, 1995 were 3.23 and 2.69, 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.
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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
1995 totaled $719.7 million.
Net cash used in HL&P's investing activities for the first nine months of 1995
totaled $298.4 million. HL&P's capital and nuclear fuel expenditures (excluding
allowance for funds used during construction) for the first nine months of 1995
totaled $287.6 million out of the $449 million revised 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 nine months of 1995 resulted in a net
cash outflow of approximately $388.2 million. Included in these activities were
the payment of dividends, the redemption of preferred stock, and the
extinguishment of long-term debt, partially offset by the issuance of long-term
debt. For information with respect to these matters, reference is made to Notes
5 and 6 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 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 September 30, 1995, HL&P had approximately $269 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 September 30, 1995.
RATIOS OF EARNINGS TO FIXED CHARGES
HL&P's ratios of earnings to fixed charges for the nine and twelve months ended
September 30, 1995, were 4.30 and 3.59, respectively. HL&P's ratios of earnings
to fixed charges and preferred dividends requirements for the nine and twelve
months ended September 30, 1995, were 3.66 and 3.05, 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.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This accounting standard, effective for fiscal years beginning
after December 15, 1995, requires companies to review certain assets for
impairment whenever events or changes in circumstances indicate that the
carrying
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amount of an asset may not be recoverable (such determination generally being
made on the basis of whether net cash flows expected to result from such assets
will recover the carrying amount of the assets). If an impairment is found to
exist, the impairment loss to be recognized is the amount by which the carrying
amount exceeds the fair value. The Company and HL&P are currently reviewing the
provisions of SFAS No. 121, but, based on current estimates, the Company and
HL&P do not expect the adoption of SFAS No. 121 to have a material impact on the
Company's or HL&P's financial condition or results of operations.
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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 1994
Combined Form 10-K, Item 1 of Part II of the Combined Forms
10-Q for each of the quarters ended March 31, 1995 and June
30, 1995, Notes 2, 3 and 4 to the Company's Consolidated and
HL&P's Financial Statements in the Combined Form 8-K and Notes
2(b) and 3 to the Company's Consolidated and HL&P's Financial
Statements in the Combined Forms 10-Q for each of the quarters
ended March 31, 1995 and June 30, 1995, 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 Financial Statements included in Part I
of this Report, is incorporated herein by reference.
BICKI, ET AL V. HOUSTON INDUSTRIES INCORPORATED,
formerly pending in the 129th District Court of Harris County,
Texas, was dismissed without prejudice by the plaintiffs in
September 1995. This lawsuit, previously reported in Part I of
the Combined Form 10-K under BUSINESS OF HL&P - Environmental
Quality, involved allegations concerning injuries suffered as
a result of exposure to electric and magnetic fields.
ITEM 5. OTHER INFORMATION
ADDITIONAL SHARES REGISTERED AS A RESULT OF STOCK SPLIT
Pursuant to Rule 416(b) under the Securities Act of
1933 (Securities Act), the number of shares of the Company's
common stock registered for sale under the Securities Act by
the following Registration Statements on Forms S-3 and S-8
will be deemed to be increased by the Company's two for one
stock split (effected in the form of a 100% stock dividend) on
December 9, 1995 to cover the additional shares resulting from
the application of the stock split to the registered shares of
the Company's common stock remaining unsold under the
following Registration Statements as of the November 16, 1995
record date for the stock split:
REGISTRATION PRE-SPLIT
STATEMENT SHARES
NUMBER TYPE OF REGISTRATION REGISTERED
------------ -------------------- ----------
33-60756 Shelf Registration, Form S-3 5,000,000
33-55445 Shelf Registration, Form S-3 587,646
33-52207 Houston Industries Incorporated 4,000,000
Investor's Choice Plan, Form S-3
33-55391 Houston Industries Incorporated 5,000,000
Savings Plan, Form S-8
33-50629 Houston Industries Incorporated 100,000
Stock Benefit Plan, Form S-8
33-37493 Houston Industries Incorporated Long-Term 500,000
Incentive Compensation Plan (1989), Form S-8
33-52279 Houston Industries Incorporated Long-Term 2,000,000
Incentive Compensation Plan (1994), Form S-8
33-56855 Houston Industries Energy, Inc. Long-Term 250,000
Project Incentive Compensation Plan, Form S-8
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The foregoing Registration Statements, which
incorporate by reference this Report on Form 10-Q, are hereby
amended pursuant to Rule 416(b) under the Securities Act to
increase the amount of shares of the Company's common stock
registered thereunder to reflect the 100% stock dividend.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
HOUSTON INDUSTRIES INCORPORATED:
Exhibit 10(a) - Termination of Houston Industries Incorporated Savings Plan
and Trust Agreement as to KBLCOM Incorporated Effective as of
June 30, 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 2, 3, 4 and 18 to the Company's Consolidated Financial
Statements included on pages 41 through 48 and 64 of the
Combined Form 8-K.
Exhibit 99(b) - Notes 2(b) and 3 to the Company's Consolidated and HL&P's
Financial Statements included on pages 14 through 18 of the
Combined Form 10-Q for the quarter ended March 31, 1995.
Exhibit 99(c) - Notes 2(b), 3 and 4(b) to the Company's Consolidated and
HL&P's Financial Statements included on pages 14 through 19 of
the Combined Form 10-Q for the quarter ended June 30, 1995.
Exhibit 99(d) - Part I, Item 3 - Legal Proceedings included on pages 31
through 32 of the 1994 Combined Form 10-K.
Exhibit 99(e) - Part II, Item 1 - Legal Proceedings included on page 32 of the
Combined Form 10-Q for the quarter ended March 31, 1995.
Exhibit 99(f) - Part II, Item 1 - Legal Proceedings included on page 33 of the
Combined Form 10-Q for the quarter ended June 30, 1995.
Exhibit 99(g) - Part I, Item 1 - BUSINESS OF HL&P - Recovery of Fuel Costs and
Environmental Quality included on pages 11 through 13 of the
1994 Combined Form 10-K.
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 2, 3, 4 and 18 to the Company's Consolidated Financial
Statements included on pages 41 through 48 and 64 of the
Combined Form 8-K.
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Exhibit 99(b) - Notes 2(b) and 3 to the Company's Consolidated and HL&P's
Financial Statements included on pages 14 through 18 of the
Combined Form 10-Q for the quarter ended March 31, 1995.
Exhibit 99(c) - Notes 2(b), 3 and 4 to the Company's Consolidated and HL&P's
Financial Statements included on pages 14 through 19 of the
Combined Form 10-Q for the quarter ended June 30, 1995.
Exhibit 99(d) - Part I, Item 3 - Legal Proceedings included on pages 31
through 32 of the 1994 Combined Form 10-K.
Exhibit 99(e) - Part II, Item 1 - Legal Proceedings included on page 32 of the
Combined Form 10-Q for the quarter ended March 31, 1995.
Exhibit 99(f) - Part II, Item 1 - Legal Proceedings included on page 33 of the
Combined Form 10-Q for the quarter ended June 30, 1995.
Exhibit 99(g) - Part I, Item 1 - BUSINESS OF HL&P - Recovery of Fuel Costs and
Environmental Quality included on pages 11 through 13 of the
1994 Combined Form 10-K.
(b) Reports on Form 8-K.
HOUSTON INDUSTRIES INCORPORATED:
Current Report on Form 8-K dated July 6, 1995 (Item 2.
Acquisition or Disposition of Assets).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOUSTON INDUSTRIES INCORPORATED
(Registrant)
/s/ MARY P. RICCIARDELLO
---------------------------------------------
Mary P. Ricciardello
Comptroller and
Principal Accounting Officer
Date: November 14, 1995
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOUSTON LIGHTING & POWER COMPANY
(Registrant)
/s/ KEN W. NABORS
---------------------------------------------
Ken W. Nabors
Vice President and Comptroller
and Principal Accounting Officer
Date: November 14, 1995
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