1
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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
______________________________
Commission file number 1-7629
HOUSTON INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)
Texas 74-1885573
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1111 Louisiana
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 207-3000
(Registrant's telephone number, including area code)
______________________________
Commission file number 1-3187
HOUSTON LIGHTING & POWER COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-0694415
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1111 Louisiana
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 207-1111
(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, 1996, Houston Industries Incorporated had 262,742,947 shares of
common stock outstanding, including 14,042,052 ESOP shares not deemed
outstanding for financial statement purposes. As of April 30, 1996, all 1,100
shares of Houston Lighting & Power Company's common stock were held, directly or
indirectly, by Houston Industries Incorporated.
2
HOUSTON INDUSTRIES INCORPORATED AND HOUSTON LIGHTING
& POWER COMPANY QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
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, 1996 and 1995 3
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 4
Statements of Consolidated Cash Flows
Three Months Ended March 31, 1996 and 1995 6
Statements of Consolidated Retained Earnings
Three Months Ended March 31, 1996 and 1995 7
Notes to Consolidated Financial Statements 13
Houston Lighting & Power Company
Statements of Income
Three Months Ended March 31, 1996 and 1995 8
Balance Sheets
March 31, 1996 and December 31, 1995 9
Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 11
Statements of Retained Earnings
Three Months Ended March 31, 1996 and 1995 12
Notes to Financial Statements 13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 16
Part II. Other Information
- ------- -----------------
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures
-2-
3
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,
---------------------------
1996 1995
---------- ----------
REVENUES:
Electric utility . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 811,965 $ 746,166
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,456 9,072
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 824,421 755,238
---------- ----------
EXPENSES:
Electric utility:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,622 183,602
Purchased power . . . . . . . . . . . . . . . . . . . . . . . . . 78,179 65,588
Operation and maintenance . . . . . . . . . . . . . . . . . . . . 193,448 198,529
Taxes other than income taxes . . . . . . . . . . . . . . . . . . 62,565 70,950
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 129,347 104,196
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . 25,793 17,220
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686,954 640,085
---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,467 115,153
---------- ----------
OTHER INCOME (EXPENSE):
Litigation settlements . . . . . . . . . . . . . . . . . . . . . . . . (95,000)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,131 2,629
Time Warner dividend income . . . . . . . . . . . . . . . . . . . . . 10,403
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . 692 537
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,427) (2,648)
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (85,201) 518
---------- ----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt . . . . . . . . . . . . . . . . . . . . . . 71,395 65,216
Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,574 8,999
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . (685) (1,805)
Preferred dividends of subsidiary . . . . . . . . . . . . . . . . . . 6,632 8,985
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,916 81,395
---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . (26,650) 34,276
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,910) 10,427
---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS . . . . . . . . . . . . . . . . (16,740) 23,849
DISCONTINUED OPERATIONS (NET OF INCOME TAXES)-
Gain on sale of cable television subsidiary . . . . . . . . . . . . . 90,607
---------- ----------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (16,740) $ 114,456
========== ==========
EARNINGS (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . $ (.07) $ .09
DISCONTINUED OPERATIONS-
Gain on sale of cable television subsidiary . . . . . . . . . . . .37
---------- ----------
EARNINGS (LOSS) PER COMMON SHARE . . . . . . . . . . . . . . . . . . . $ (.07) $ .46
========== ==========
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . . . . . . $ .375 $ .375
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (000) . . . . . . . . . . . 248,466 247,197
See Notes to Consolidated Financial Statements.
-3-
4
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
March 31, December 31,
1996 1995
------------- -------------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Plant in service . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,186,407 $ 12,089,490
Construction work in progress . . . . . . . . . . . . . . . . . . . . 279,960 320,040
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,952 217,604
Plant held for future use . . . . . . . . . . . . . . . . . . . . . . 48,631 48,631
Other property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,022 105,624
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,849,972 12,781,389
Less accumulated depreciation and amortization . . . . . . . . . . . . . 4,020,267 3,916,540
------------- -------------
Property, plant and equipment - net . . . . . . . . . . . . . . . 8,829,705 8,864,849
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 6,332 11,779
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443 433
Accounts receivable - net . . . . . . . . . . . . . . . . . . . . . . . . 30,767 39,635
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . 39,088 59,017
Time Warner dividends receivable . . . . . . . . . . . . . . . . . . . . 10,313 10,313
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,505 59,699
Materials and supplies, at average cost . . . . . . . . . . . . . . . . . 136,441 138,007
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,769 18,562
------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 291,658 337,445
------------- -------------
OTHER ASSETS:
Investment in Time Warner securities . . . . . . . . . . . . . . . . . . 1,030,875 1,027,875
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . . 606,689 613,134
Deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,597 317,215
Unamortized debt expense and premium on
reacquired debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,835 161,788
Regulatory tax asset - net . . . . . . . . . . . . . . . . . . . . . . . 225,285 228,587
Recoverable project costs - net . . . . . . . . . . . . . . . . . . . . . 222,520 232,775
Equity investments in and advances to foreign and
non-regulated affiliates - net . . . . . . . . . . . . . . . . . . . . 35,671 35,938
------------- -------------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . 2,592,472 2,617,312
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,713,835 $ 11,819,606
============= =============
See Notes to Consolidated Financial Statements.
-4-
5
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
March 31, December 31,
1996 1995
------------- ------------
CAPITALIZATION:
Common Stock Equity:
Common stock, no par value . . . . . . . . . . . . . . . . . . . . . . . . $ 2,444,304 $ 2,441,790
Unearned ESOP shares . . . . . . . . . . . . . . . . . . . . . . . . . . . (264,318) (268,405)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,843,723 1,953,672
Unrealized loss on investment in Time Warner
common securities - net . . . . . . . . . . . . . . . . . . . . . . . . (1,544) (3,494)
----------- -----------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . 4,022,165 4,123,563
----------- -----------
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 51,055
----------- -----------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . . 402,400 402,400
----------- -----------
Long-Term Debt:
Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348,960 348,913
Long-term debt of subsidiaries:
First mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . 2,704,462 2,979,293
Pollution control revenue bonds . . . . . . . . . . . . . . . . . . . . 4,434 4,426
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,796 5,790
----------- -----------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 3,062,652 3,338,422
----------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . 7,487,217 7,864,385
----------- -----------
CURRENT LIABILITIES:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,728 6,300
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,086 136,008
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,255 174,925
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,434 79,380
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,502 98,502
Accrued liabilities to municipalities . . . . . . . . . . . . . . . . . . . . 19,291 20,773
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,381 61,582
Current portion of long-term debt and preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459,454 379,451
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,334 58,664
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . 1,268,465 1,015,585
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 2,059,522 2,067,246
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . . . . 387,289 392,153
Fuel-related credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,061 122,063
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405,281 358,174
----------- -----------
Total deferred credits . . . . . . . . . . . . . . . . . . . . . 2,958,153 2,939,636
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,713,835 $11,819,606
=========== ===========
See Notes to Consolidated Financial Statements.
-5-
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,
-----------------------------
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . $ (16,740) $ 23,849
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 129,347 104,196
Amortization of nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . 7,595 6,557
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,774) 6,347
Investment tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,864) (4,858)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,131) (2,629)
Fuel cost (refund) and over/(under) recovery - net . . . . . . . . . . . . . (11,112) 48,136
Net cash used in discontinued cable television
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,682)
Changes in other assets and liabilities:
Accounts receivable and accrued unbilled revenues . . . . . . . . . . . . 28,797 (12,488)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760 (8,904)
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,783 6,961
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,078 (71,202)
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . (112,616) (83,195)
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . (11,013) 2,382
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,828 29,827
---------- ----------
Net cash provided by operating activities . . . . . . . . . . . . . . 79,938 41,297
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Electric capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) . . . . . . . . . . . . . . . . . . . . . . . . . . (70,141) (55,915)
Non-regulated electric power project
expenditures and advances . . . . . . . . . . . . . . . . . . . . . . . . . . (8,809) (11,699)
Corporate headquarters expenditures (including
capitalized interest) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,598) (25,945)
Net cash used in discontinued cable television
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,406)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,794) (2,956)
---------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . . . (86,342) (113,921)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of matured bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110,000)
Payment of common stock dividends . . . . . . . . . . . . . . . . . . . . . . . (93,209) (92,722)
Increase in notes payable - net . . . . . . . . . . . . . . . . . . . . . . . . 286,428 210,864
Net cash used in discontinued cable television
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,798)
Extinguishment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (85,263)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,001 2,004
---------- ----------
Net cash provided by financing activities . . . . . . . . . . . . . . 957 79,348
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . (5,447) 6,724
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . 11,779 10,443
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 6,332 $ 17,167
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- ------------------------------------------------
Cash Payments:
Interest (net of amounts capitalized) . . . . . . . . . . . . . . . . . . . . $ 61,385 $ 84,349
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,365 1,424
Income tax refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,909)
See Notes to Consolidated Financial Statements.
-6-
7
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
Three Months Ended
March 31,
-------------------------------
1996 1995
----------- -----------
Balance at Beginning of Period . . . . . . . . . . . . . . . . . . . . $ 1,953,672 $ 1,221,221
Net Income (Loss) for the Period . . . . . . . . . . . . . . . . . . . (16,740) 114,456
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,936,932 1,335,677
Common Stock Dividends . . . . . . . . . . . . . . . . . . . . . . . . (93,209) (92,752)
----------- -----------
Balance at End of Period . . . . . . . . . . . . . . . . . . . . . . . $ 1,843,723 $ 1,242,925
=========== ===========
See Notes to Consolidated Financial Statements.
-7-
8
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
Three Months Ended
March 31,
---------------------------
1996 1995
---------- ----------
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 811,965 $ 746,166
---------- ----------
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,622 183,602
Purchased power . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,179 65,588
Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,772 141,320
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,676 57,209
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 128,434 103,913
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,063 19,018
Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,565 70,950
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 692,311 641,600
---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,654 104,566
---------- ----------
OTHER INCOME (EXPENSE):
Litigation settlements (net of income taxes
of $33,250) . . . . . . . . . . . . . . . . . . . . . . . . . . . (61,750)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,131 2,629
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,360) (1,453)
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (63,979) 1,176
---------- ----------
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . 55,675 105,742
---------- ----------
INTEREST CHARGES:
Interest on long-term debt . . . . . . . . . . . . . . . . . . . . . . 57,504 61,518
Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,411 3,135
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . (685) (1,805)
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,230 62,848
---------- ----------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,555) 42,894
DIVIDENDS ON PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . . 6,632 8,985
---------- ----------
INCOME (LOSS) AFTER PREFERRED DIVIDENDS . . . . . . . . . . . . . . . . . . $ (10,187) $ 33,909
========== ==========
See Notes to Financial Statements.
-8-
9
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
March 31, December 31,
1996 1995
------------- -------------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant in service . . . . . . . . . . . . . . . . . . . . . . . . $ 12,186,407 $ 12,089,490
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . 279,960 320,040
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,952 217,604
Plant held for future use . . . . . . . . . . . . . . . . . . . . . . . . 48,631 48,631
------------ -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,738,950 12,675,765
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,013,418 3,906,139
------------- -------------
Property, plant and equipment - net . . . . . . . . . . . . . . . . 8,725,532 8,769,626
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 2,076 75,851
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443 433
Accounts receivable:
Affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . 2,997 2,845
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,897 23,858
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . 39,088 59,017
Inventory:
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,505 59,699
Materials and supplies, at average cost . . . . . . . . . . . . . . . 135,723 137,584
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,003 11,876
------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 258,732 371,163
------------- -------------
OTHER ASSETS:
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . . 606,689 613,134
Deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283,979 290,012
Unamortized debt expense and premium on
reacquired debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,147 159,962
Regulatory tax asset - net . . . . . . . . . . . . . . . . . . . . . . . 225,285 228,587
Recoverable project costs - net . . . . . . . . . . . . . . . . . . . . . 222,520 232,775
------------- -------------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,496,620 1,524,470
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,480,884 $ 10,665,259
============= =============
See Notes to Financial Statements.
-9-
10
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
March 31, December 31,
1996 1995
------------- ------------
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,057,649 2,150,086
------------- ------------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . . . 3,733,576 3,826,013
------------- ------------
Cumulative Preferred Stock:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . . 351,345 351,345
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . . 51,055 51,055
------------- ------------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . . . 402,400 402,400
------------- ------------
Long-Term Debt:
First mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,704,462 2,979,293
Pollution control revenue bonds . . . . . . . . . . . . . . . . . . . . . 4,434 4,426
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,796 5,790
------------- ------------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 2,713,692 2,989,509
------------- ------------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . 6,849,668 7,217,922
------------- ------------
CURRENT LIABILITIES:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,648
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,844 119,032
Accounts payable to affiliated companies . . . . . . . . . . . . . . . . . . 3,630 6,982
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,403 192,673
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,719 70,823
Accrued liabilities to municipalities . . . . . . . . . . . . . . . . . . . . 19,291 20,773
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,381 61,582
Current portion of long-term debt and preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259,454 179,451
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,115 54,149
------------- ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 871,485 705,465
------------- ------------
DEFERRED CREDITS:
Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . . . 1,942,180 1,947,488
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . . . . 387,289 392,153
Fuel-related credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,061 122,063
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,201 280,168
------------- ------------
Total deferred credits . . . . . . . . . . . . . . . . . . . . . . . 2,759,731 2,741,872
------------- ------------
COMMITMENTS AND CONTINGENCIES
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,480,884 $ 10,665,259
============= ============
See Notes to Financial Statements.
-10-
11
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
Three Months Ended
March 31,
-------------------------------
1996 1995
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,555) $ 42,894
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 128,434 103,913
Amortization of nuclear fuel . . . . . . . . . . . . . . . . . . . . . 7,595 6,557
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (5,309) 7,234
Investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . (4,864) (4,858)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,131) (2,629)
Fuel cost (refund) and over/(under) recovery
- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,112) 48,136
Changes in other assets and liabilities:
Accounts receivable - net . . . . . . . . . . . . . . . . . . . . . 28,738 (638)
Material and supplies . . . . . . . . . . . . . . . . . . . . . . . 1,861 (841)
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (806) (8,026)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 16,460 (81,091)
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . . (122,376) (89,018)
Other current liabilities . . . . . . . . . . . . . . . . . . . . . (11,425) (261)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,736 27,180
---------- ----------
Net cash provided by operating activities . . . . . . . . . . . 77,246 48,552
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) . . . . . . . . . . . . . . . . . . . . . . . (70,141) (55,915)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,233) (2,525)
---------- ----------
Net cash used in investing activities . . . . . . . . . . . . . (72,374) (58,440)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of matured bonds . . . . . . . . . . . . . . . . . . . . . . . . . (110,000)
Payment of dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . (89,175) (91,461)
Increase in notes payable . . . . . . . . . . . . . . . . . . . . . . . . 203,648
Extinguishment of long-term debt . . . . . . . . . . . . . . . . . . . . . (85,263)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,143 1,866
---------- ----------
Net cash used in financing activities . . . . . . . . . . . . . (78,647) (89,595)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . (73,775) (99,483)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . 75,851 235,867
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . $ 2,076 $ 136,384
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- ------------------------------------------------
Cash Payments:
Interest (net of amounts capitalized) . . . . . . . . . . . . . . . . . $ 56,393 $ 57,915
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,892 1,176
See Notes to Financial Statements.
-11-
12
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
Three Months Ended
March 31,
--------------------------------
1996 1995
----------- -----------
Balance at Beginning of Period . . . . . . . . . . . . . . . . . . . . $ 2,150,086 $ 2,153,109
Net Income (Loss) for the Period . . . . . . . . . . . . . . . . . . . (3,555) 42,894
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,146,531 2,196,003
----------- -----------
Deduct - Cash Dividends:
Preferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,632 8,985
Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,250 82,250
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,882 91,235
----------- -----------
Balance at End of Period . . . . . . . . . . . . . . . . . . . . . . . $ 2,057,649 $ 2,104,768
=========== ===========
See Notes to Financial Statements.
-12-
13
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AND
HOUSTON LIGHTING & POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL
The interim financial statements and notes (Interim Financial
Statements) contained in this Form 10-Q for the period ended
March 31, 1996 (Form 10-Q) are unaudited and condensed. Certain
notes and other information contained in the Combined Annual
Report on Form 10-K (File Nos. 1-7629 and 1-3187) for the year
ended December 31, 1995 (Form 10-K), of Houston Industries
Incorporated (Company) and Houston Lighting & Power Company
(HL&P) have been omitted in accordance with Rule 10-01 of
Regulation S-X under the Securities Exchange Act of 1934. The
information presented in the Interim Financial Statements should
be read in combination with the information presented in the
Form 10-K, including the financial statements and notes
contained therein. For information regarding the Company's
discontinued cable television operations, see Note 13 to the
financial statements contained in the Form 10-K.
(2) CERTAIN CONTINGENCIES
The following notes to the financial statements of the Form 10-K
(as updated by the notes contained in this Form 10-Q) are
incorporated herein by reference: Note 1(b) (System of Accounts
and Effects of Regulation), Note 2 (Jointly-Owned Nuclear
Plant), Note 3 (Rate Matters), Note 4 (Investments in Foreign
and Non-Regulated Entities) and Note 11 (Commitments and
Contingencies).
(3) JOINTLY-OWNED NUCLEAR PLANT
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.
On April 30, 1996, HL&P and the City of Austin (Austin), one of
the four co-owners of the South Texas Project, agreed to settle
a lawsuit in which Austin had alleged that outages occurring at
the South Texas Project between early 1993 and early 1994 were
due to HL&P's failure to perform certain obligations it owed
Austin under a Participation Agreement relating to the project.
For information regarding this settlement and a $13 million
(after-tax) charge to first quarter earnings resulting from the
settlement, see Note 7(a) to the Interim Financial Statements.
For information concerning a similar lawsuit filed against HL&P
by the City of San Antonio (San Antonio), another co-owner of
the South Texas Project, and San Antonio's pending arbitration
claims against HL&P with respect to the construction of the
South Texas Project, see Note 2(b) to the financial statements
contained in the Form 10-K. HL&P and San Antonio (acting
through the City Public Service Board of San Antonio (CPS)) have
agreed on the principles under which they would settle all
claims with respect to the South Texas Project. For information
regarding the proposed settlement and a $49 million (after-tax)
charge to first quarter earnings relating thereto, see Note 7(a)
to the Interim Financial Statements.
-13-
14
(4) RATE CASE PROCEEDINGS
For information concerning the settlement of HL&P's most recent
rate case (Docket No. 12065) and the continuing impact of that
settlement on HL&P's results of operations, see Note 3(a) to the
financial statements contained in the Form 10-K. The two Public
Utility Commission of Texas (Utility Commission) orders
concerning HL&P that are still subject to appellate review are:
Docket No. 8425 (HL&P's 1988 rate case) and Docket No. 6668 (an
inquiry into the prudence of the planning and construction of
the South Texas Project). For information regarding these
appeals, see Note 3(b) to the financial statements contained in
the Form 10-K.
(5) CAPITAL STOCK
Company. At March 31, 1996 and December 31, 1995, the Company
had 400,000,000 authorized shares of common stock, of which
248,556,370 and 248,316,710 shares, respectively, were
outstanding as of such dates. Outstanding shares exclude the
unallocated shares of the Company's Employee Stock Ownership
Plan, which as of March 31, 1996 and December 31, 1995 totaled
14,186,577 and 14,355,758, respectively. Earnings per common
share for the Company are computed by dividing net income by the
weighted average number of shares outstanding during the
respective period.
HL&P. All issued and outstanding shares of Class A voting
common stock of HL&P are held by the Company, and all issued and
outstanding shares of Class B non-voting common stock of HL&P
are held by Houston Industries (Delaware) Incorporated (HI
Delaware), a wholly owned subsidiary of the Company. Earnings
per share data for HL&P are not computed because all of its
common stock is held by the Company and HI Delaware.
On March 31, 1996 and December 31, 1995, HL&P had 10,000,000
authorized shares of preferred stock, of which 4,318,397 shares
were outstanding.
(6) LONG-TERM DEBT
HL&P. In January 1996, HL&P repaid upon maturity $100 million
principal amount of its Collateralized Medium-Term Notes Series
B and $10 million principal amount of its Collateralized
Medium-Term Notes Series A plus accrued interest on the two
issues.
In March 1996, HL&P deposited approximately $86 million in a
trust and irrevocably directed the trustee to redeem on May 8,
1996 all issued and outstanding principal amounts of HL&P's
7 1/4% first mortgage bonds due February 1, 2001 (at a redemption
price of 100.42% plus accrued interest) and 6 3/4% first
mortgage bonds due April 1, 1998 (at a redemption price of
100.15% plus accrued interest).
(7) SUBSEQUENT EVENTS
(a) South Texas Project Litigation. On April 30, 1996,
Houston Lighting & Power Company entered into a settlement
with Austin regarding City of Austin v. Houston Lighting &
Power Company, Cause No. 94-07946, in the 11th Judicial
District Court, Harris County, Texas. In that suit, filed
by Austin in May 1994, Austin asserted that HL&P had
mismanaged its responsibilities as Project Manager of the
South Texas Project. Austin contended that, because of
HL&P's mismanagement and negligence, the outage at the
South Texas Project during 1993-94 had caused Austin
damages of approximately $120 million.
Trial of Austin's suit began in March 1996, and the
settlement was reached in April 1996. Under the
settlement, HL&P agreed to pay Austin $20 million in cash
to resolve all pending disputes between HL&P and Austin,
and Austin agreed to
-14-
15
support the formation of a new operating company to
assume HL&P's role as project manager for the South Texas
Project. The Company and HL&P have recorded the $20
million ($13 million net of tax) payment to Austin on the
Company's Statements of Consolidated Income and HL&P's
Statements of Income as litigation settlements expense.
HL&P and CPS have agreed on the principles under which they
would settle all claims with respect to the South Texas
Project. Under the proposed settlement, HL&P and CPS would
enter into definitive agreements providing, among other
things, for (i) a cash payment by HL&P to CPS of $75
million ($25 million of which has already been paid), (ii)
an agreement to support formation of a new operating
company to replace HL&P as project manager of the South
Texas Project and (iii) the execution of a 10-year joint
operations agreement under which HL&P and CPS will share
savings resulting from the joint dispatching of their
respective generating assets in order to take advantage of
each system's lower cost resources. Under the terms of the
joint operations agreement, CPS will be guaranteed minimum
annual savings of $10 million with a minimum cumulative
savings of $150 million over the ten year term of the
agreement. Based on current forecasts and other assumptions
regarding the combined operation of the two generating
systems, HL&P anticipates that the savings resulting from
joint operations will equal or exceed the minimum savings
guaranteed under the joint operations agreement.
Although no assurance can be given as to the ultimate
resolution of negotiations, the proposed settlement will
resolve all claims, litigation and matters in arbitration
between the two parties with respect to the South Texas
Project. The proposed settlement has been reviewed by San
Antonio's city council but is still subject to approval by
CPS. In anticipation of the settlement, the Company and
HL&P have recorded a $49 million expense (net of tax) on
the Company's Statement of Consolidated Income and HL&P's
Statements of Income (reflected as litigation settlement
expense). The unpaid portion of the cash payment
contemplated by the settlement is shown in other deferred
credits on the Company's Consolidated and HL&P's Balance
Sheets.
(b) HI Energy. In May 1996, a subsidiary of Houston
Industries Energy, Inc. (HI Energy) purchased for
approximately $55 million an additional 39 percent of the
capital stock of Empresa Distribuidora la Plata (EDELAP),
an electric utility company operating in La Plata,
Argentina and surrounding regions. HI Energy also
indirectly owns 16.6 percent of the capital stock of
EDELAP, which shares were acquired in December 1992 for
$37 million. For additional information regarding HI
Energy's investments in foreign and non-regulated
entities, see Note 4 to the financial statements contained
in the Form 10-K. Beginning in the second quarter of
1996, EDELAP will be reflected in the Company's financial
statements on a consolidated basis.
(c) Redemption of HL&P Preferred Stock. In March 1996, HL&P
provided notice to the holders of its $9.375 preferred
stock that it would redeem 514,000 shares of such stock at
a cost of approximately $53 million ($102.34375 per share
including accrued dividends). On April 1, 1996, HL&P
redeemed 257,000 of such shares pursuant to a sinking fund
requirement and 257,000 shares pursuant to optional
redemption provisions. HL&P will record the redemptions
in the second quarter of 1996.
(8) 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 1996
presentation of financial statements. Such reclassifications do
not affect earnings.
-15-
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in combination with
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 of the Form 10-K, the financial statements and notes
contained in Item 8 of the Form 10-K and the Interim Financial Statements.
RESULTS OF OPERATIONS
COMPANY
A summary of selected financial data for the Company and its
subsidiaries is set forth below:
Three Months Ended
March 31,
------------------------------ Percent
1996 1995 Change
---------- -------- -------
(Thousands of Dollars)
Revenues . . . . . . . . . . . . . . . . . . $824,421 $755,238 9
Operating Expenses . . . . . . . . . . . . . 686,954 640,085 7
Operating Income . . . . . . . . . . . . . . 137,467 115,153 19
Other Income (Expense) . . . . . . . . . . . (85,201) 518 -
Interest and Other Charges . . . . . . . . . 78,916 81,395 (3)
Income Taxes . . . . . . . . . . . . . . . . (9,910) 10,427 -
Income (Loss) from Continuing Operations . . (16,740) 23,849 -
Gain from Discontinued Operations . . . . . 90,607 -
Net Income (Loss) . . . . . . . . . . . . . (16,740) 114,456 -
The Company had a consolidated loss per share of $.07 for the first
quarter of 1996 compared to consolidated earnings per share of $.46 for the
first quarter of 1995. The decline in 1996 first quarter earnings was the
result of a $62 million (after-tax) charge incurred in connection with the
settlement of the Austin litigation and the proposed settlement of San Antonio's
claims relating to the South Texas Project. For information regarding these
matters and their accounting impact on the Company and HL&P, see Note 7(a) to
the Interim Financial Statements. First quarter 1995 earnings included a
one-time after-tax gain of $.37 per share recorded in connection with the sale
of the Company's cable television subsidiary.
Excluding the $62 million (after-tax) charge to earnings, the
Company's consolidated earnings from continuing operations would have been $.18
per share in the first quarter of 1996 compared to $.09 per share in the first
quarter of 1995. The increase in consolidated earnings from continuing
operations for the first quarter of 1996 is primarily the result of improved
earnings by the Company's principal subsidiary, HL&P. In addition, first
quarter earnings benefited from after-tax dividend income of approximately $9
million from the Company's investment in Time Warner Inc. securities (acquired
in connection with the Company's sale of its cable television subsidiary).
- 16 -
17
HL&P
A summary of selected financial data for HL&P is set forth below:
Three Months Ended
March 31,
----------------------------- Percent
1996 1995 Change
-------- -------- -------
(Thousands of Dollars)
Base Revenues (1) . . . . . . . . . . . . . $552,335 $524,015 5
Reconcilable Fuel Revenues (2) . . . . . . . 259,630 222,151 17
Operating Expenses (3) . . . . . . . . . . . 692,311 641,600 8
Operating Income (3) . . . . . . . . . . . . 119,654 104,566 14
Other Income (Expense) (3) . . . . . . . . . (63,979) 1,176 -
Interest Charges . . . . . . . . . . . . . . 59,230 62,848 (6)
Income (Loss) After Preferred Dividends. . . (10,187) 33,909 -
-----------------
(1) Includes miscellaneous revenues, certain non-reconcilable fuel
revenues and certain purchased power related revenues.
(2) Includes revenues collected through a fixed fuel factor net of
adjustment for over/under recovery. See "Operating Revenues and
Sales" below.
(3) Includes income taxes.
In the first quarter of 1996, HL&P's income after preferred dividends
declined $44 million compared to 1995 first quarter income. The decline in
HL&P's income after preferred dividends was the result of a $62 million
(after-tax) charge to earnings relating to the South Texas Project litigation,
as described above. For information regarding these matters and their
accounting impact on the Company and HL&P, see Note 7(a) to the Interim
Financial Statements. Excluding the $62 million charge to earnings, HL&P's
first quarter 1996 income after preferred dividends would have been $52 million
($18 million higher than 1995 first quarter income). This increase resulted
primarily from increased electric sales partially offset by increased
depreciation and amortization expenses related to HL&P's investments in the
South Texas Project and certain lignite reserves.
OPERATING REVENUES AND SALES
HL&P's first quarter 1996 base revenues benefited from a 16 percent
increase in residential kilowatt-hour (KWH) sales and a 7 percent increase in
commercial KWH sales compared to the first quarter of 1995. Weather was a
major contributor to the increase in KWH sales. Other factors contributing to
increased sales were continued customer growth and increased electricity usage
per customer.
Reconcilable fuel revenues are revenues that are collected through a
fixed fuel factor. These revenues are adjusted monthly to equal related
expenses; therefore, such revenues and expenses have no effect on earnings
unless such fuel costs are determined not to be recoverable. For information
regarding the recovery of fuel costs, see "Business of HL&P -- Fuel -- Recovery
of Fuel Costs" in Item 1 of the Form 10-K.
FUEL AND PURCHASED POWER EXPENSES
HL&P's first quarter fuel expenses increased $14 million compared to
the first quarter of 1995. The increase was due to an increase in the unit cost
of gas. The average cost of fuel for the first quarter of 1996 was $1.70 per
million British Thermal Units (MMBtu) compared to $1.62 per MMBtu for the same
period in 1995, including an average gas cost of $2.13 per MMBtu and $1.71 per
MMBtu, respectively. Purchased power expense increased $13 million for the
first quarter of 1996 primarily as a result of increased energy purchases
partially offset by decreased firm capacity costs (reflecting the expiration of
a purchased power contract in 1995).
- 17 -
18
OPERATION AND MAINTENANCE, DEPRECIATION AND AMORTIZATION, AND OTHER TAXES
First quarter operation and maintenance expense decreased $5 million
in comparison to the first quarter of 1995 primarily due to the absence of
refueling activities at the South Texas Project combined with a modest decline
in HL&P's administrative and general operations expense.
Depreciation and amortization expense increased $25 million during the
first quarter of 1996 compared to the first quarter of 1995. This increase
included HL&P's decision to write down $13 million of its investment in the
South Texas Project as permitted under the settlement of HL&P's most recent
rate case (Docket No. 12065). Under this settlement, HL&P has the option to
write down up to $50 million ($33 million after-tax) per year of its investment
in the South Texas Project through December 31, 1999. Additionally, pursuant
to the settlement, HL&P began amortization of its investment in certain lignite
reserves (associated with the now cancelled Malakoff generation project) at a
rate of approximately $22 million per year. This amortization resulted in a $6
million increase in amortization expense during the first quarter of 1996. For
additional information regarding the settlement and its ongoing effects on
HL&P's results of operations, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Certain Factors Affecting
Future Earnings of the Company and HL&P - Rate Matters and Other Contingencies"
in Item 7 of the Form 10-K and Note 3(a) to the financial statements contained
in the Form 10-K. The increase in depreciation and amortization expense also
included $3 million for amortization of HL&P's 1995 early retirement program
and $2 million of increased plant depreciation expense.
Other taxes decreased $8 million in the first quarter of 1996
primarily because of a decrease in estimated property taxes.
LIQUIDITY AND CAPITAL RESOURCES
COMPANY
GENERAL
The Company's net cash provided by operating activities for the first
quarter of 1996 totaled $80 million. Net cash used in the Company's investing
activities for the first quarter of 1996 totaled $86 million, primarily due to
electric capital and nuclear expenditures. The Company's financing activities
for the first quarter of 1996 resulted in a net cash inflow of $1 million. The
Company's primary financing activities were payment of matured bonds, payment
of dividends on its common stock and extinguishment of long-term debt funded by
an increase in notes payable in the form of commercial paper.
SOURCES OF CAPITAL RESOURCES AND LIQUIDITY
In the first quarter of 1996, the Company reduced its borrowing
capacity under its bank credit facilities from $1.1 billion to $750 million
(exclusive of bank credit facilities of subsidiaries). Borrowings under these
facilities are used to support the Company's commercial paper program. As of
March 31, 1996, the Company had approximately $87 million of commercial paper
outstanding.
In May 1996, a subsidiary of HI Energy purchased for approximately $55
million an additional 39 percent equity interest in EDELAP, an Argentine
electric utility company in which HI Energy already indirectly owned a 16.6
percent equity interest. HI Energy purchased the interest with proceeds from
intercompany borrowings from the Company. For additional information regarding
this acquisition, see Note 7(b) to the Interim Financial Statements.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges for the three and
twelve months ended March 31, 1996 were 0.68 and 2.56, 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 and the recording of a $62 million after-tax charge to 1996
first quarter earnings.
- 18 -
19
HL&P
GENERAL
HL&P's net cash provided by operating activities for the first quarter
of 1996 totaled $77 million. Net cash used in HL&P's investing activities for
the first quarter of 1996 totaled $72 million. HL&P's capital and nuclear fuel
expenditures (excluding allowance for funds used during construction) for the
first three months of 1996 totaled $69 million out of the $387 million annual
budget. HL&P's financing activities for the first quarter of 1996 resulted in
a net cash outflow of approximately $79 million primarily from payment of
dividends; the extinguishment of long-term debt; and the repayment of matured
long-term debt (all of which exceeded the increase in short-term borrowings).
SOURCES OF CAPITAL RESOURCES AND LIQUIDITY
As of March 31, 1996, HL&P had approximately $204 million of
commercial paper outstanding. HL&P's commercial paper borrowings are supported
by a bank line of credit of $400 million.
In January 1996, HL&P repaid at maturity $110 million principal amount
(plus accrued interest) of its collateralized medium-term notes. In March
1996, HL&P deposited approximately $86 million in a trust and irrevocably
instructed the trustee to redeem on May 8, 1996 certain of HL&P's first
mortgage bonds. For information regarding these repayments and redemptions,
see Note 6 to the Interim Financial Statements. For information regarding the
redemption in April 1996 of certain shares of HL&P's preferred stock, see Note
7(c) to the Interim Financial Statements.
RATIOS OF EARNINGS TO FIXED CHARGES
HL&P's ratios of earnings to fixed charges for the three and twelve
months ended March 31, 1996 were 0.92 and 3.54, respectively. HL&P's ratios of
earnings to fixed charges and preferred dividends for the three and twelve
months ended March 31, 1996, were 0.80 and 3.05, 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 and the recording of a $62 million after-tax charge to 1996 first
quarter earnings.
NEW ACCOUNTING ISSUES
In January 1996, the Company and HL&P adopted SFAS No. 121,
("Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of"). The adoption of SFAS No. 121 had no material effect on
the Company's or HL&P's financial condition or results of operations for the
three months ended March 31, 1996.
Effective January 1, 1996, the Company and HL&P adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." In accordance with SFAS No. 123,
the Company will continue to apply the existing accounting rules contained in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and will disclose in future annual reports on Form 10-K the
required pro forma effect on net income and earnings per share of the fair
value based method of accounting for stock compensation. The adoption of SFAS
No. 123 had no material effect on the Company's or HL&P's financial condition
or results of operations for the three months March 31, 1996.
For information regarding SFAS Nos. 121 and 123, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations - New
Accounting Issues" in Item 7 of the Form 10-K.
- 19 -
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For a description of legal proceedings affecting the Company
and its subsidiaries, including HL&P and HI Energy, reference
is made to the information set forth in Item 3 of the Form
10-K and Notes 2(b), 3 and 4(c) to the Financial Statements in
the Form 10-K, which information, as qualified and updated by
the description of developments in regulatory and litigation
matters contained in Notes 3, 4 and 7(a) of the Notes to the
Interim Financial Statements included in Part I of this
Report, is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Houston Industries Incorporated:
Exhibit 11 - Computation of Earnings per Common Share and
Common Equivalent Share.
Exhibit 12 - Computation of Ratios of Earnings to Fixed
Charges.
Exhibit 27 - Financial Data Schedule.
Exhibit 99(a) - Notes 1(b), 2, 3, 4, and 11 to the Financial
Statements included on pages 57, 59 through
64 and 73 through 74 of the 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 1(b), 2, 3, 4 and 11 to the Financial
Statements included on pages 57, 59 through
64 and 73 through 74 of the Form 10-K.
(b) Reports on Form 8-K.
None.
- 20 -
21
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
Vice President and Comptroller
(Principal Accounting Officer)
Date: May 13, 1996
- 21 -
22
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/ Mary P. Ricciardello
------------------------------
Mary P. Ricciardello
Vice President and Comptroller
(Principal Accounting Officer)
Date: May 13, 1996
- 22 -
23
EXHIBIT INDEX
Houston Industries Incorporated:
Exhibit 11 - Computation of Earnings per Common Share and
Common Equivalent Share.
Exhibit 12 - Computation of Ratios of Earnings to Fixed
Charges.
Exhibit 27 - Financial Data Schedule.
Exhibit 99(a) - Notes 1(b), 2, 3, 4, and 11 to the Financial
Statements included on pages 57, 59 through
64 and 73 through 74 of the 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 1(b), 2, 3, 4 and 11 to the Financial
Statements included on pages 57, 59 through
64 and 73 through 74 of the Form 10-K.