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, 1997
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.)
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 incorporation or organization) (I.R.S. Employer Identification No.)
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, 1997, Houston Industries Incorporated had 246,793,504 shares of
common stock outstanding, including 12,969,969 ESOP shares not deemed
outstanding for financial statement purposes and excluding 16,042,027 shares
held as treasury stock. As of April 30, 1997, 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, 1997
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 3
Houston Industries Incorporated and Subsidiaries
Statements of Consolidated Income
Three Months Ended March 31, 1997 and 1996 3
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 4
Statements of Consolidated Cash Flows
Three Months Ended March 31, 1997 and 1996 6
Statements of Consolidated Retained Earnings
Three Months Ended March 31, 1997 and 1996 7
Notes to Consolidated Financial Statements 13
Houston Lighting & Power Company
Statements of Income
Three Months Ended March 31, 1997 and 1996 8
Balance Sheets
March 31, 1997 and December 31, 1996 9
Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 11
Statements of Retained Earnings
Three Months Ended March 31, 1997 and 1996 12
Notes to Financial Statements 13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 17
Part II. Other Information
- ------- -----------------
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote
Of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
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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,
---------------------------
1997 1996
---------- ----------
REVENUES:
Electric utility . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 856,534 $ 811,965
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,567 11,542
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 878,101 823,507
---------- ----------
EXPENSES:
Electric utility:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,330 197,622
Purchased power . . . . . . . . . . . . . . . . . . . . . . . . . 100,992 78,179
Operation and maintenance . . . . . . . . . . . . . . . . . . . . 183,633 193,448
Taxes other than income taxes . . . . . . . . . . . . . . . . . . 62,811 62,565
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 130,990 129,347
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . 24,129 25,207
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 721,885 686,368
---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,216 137,139
---------- ----------
OTHER INCOME (EXPENSE):
Litigation settlements . . . . . . . . . . . . . . . . . . . . . . . . (95,000)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . (727) 1,131
Time Warner dividend income . . . . . . . . . . . . . . . . . . . . . 10,403 10,403
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,035) (1,407)
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,641 (84,873)
---------- ----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt . . . . . . . . . . . . . . . . . . . . . . 62,801 71,395
Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,410 1,574
Distributions on trust securities . . . . . . . . . . . . . . . . . . . 4,519
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,100) (685)
Preferred dividends of subsidiary . . . . . . . . . . . . . . . . . . 2,125 6,632
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,755 78,916
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . 80,102 (26,650)
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,482 (9,910)
---------- ----------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,620 $ (16,740)
========== ==========
EARNINGS (LOSS) PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . $ .26 $ (.07)
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . . . . . . . . $ .375 $ .375
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (000) . . . . . . . . . . . . 233,689 248,466
See Notes to Consolidated Financial Statements.
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HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
March 31, December 31,
1997 1996
------------- -------------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Electric plant in service . . . . . . . . . . . . . . . . . . . . . . $ 12,434,432 $ 12,387,375
Construction work in progress . . . . . . . . . . . . . . . . . . . . 232,737 251,497
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241,397 241,001
Plant held for future use . . . . . . . . . . . . . . . . . . . . . . 48,631 48,631
Other property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,721 86,969
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,064,918 13,015,473
Less accumulated depreciation and amortization . . . . . . . . . . . . . 4,362,539 4,259,050
------------- -------------
Property, plant and equipment - net . . . . . . . . . . . . . . . 8,702,379 8,756,423
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 15,351 8,001
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10
Accounts receivable - net . . . . . . . . . . . . . . . . . . . . . . . . 24,118 36,277
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . 81,647 77,853
Time Warner dividends receivable . . . . . . . . . . . . . . . . . . . . 10,313 10,313
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,209 61,795
Materials and supplies, at average cost . . . . . . . . . . . . . . . . . 127,299 130,380
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,454 19,291
------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 325,407 343,920
------------- -------------
OTHER ASSETS:
Investment in Time Warner securities . . . . . . . . . . . . . . . . . . 1,033,250 1,027,500
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . . 580,906 587,352
Equity investments in and advances to foreign and
non-regulated affiliates - net . . . . . . . . . . . . . . . . . . . . 501,636 501,991
Regulatory tax asset - net . . . . . . . . . . . . . . . . . . . . . . . 359,872 362,310
Deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313,929 306,473
Unamortized debt expense and premium on
reacquired debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,360 153,823
Recoverable project costs - net . . . . . . . . . . . . . . . . . . . . . 153,375 163,630
Fuel-related debits . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,025 84,435
------------- -------------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . 3,192,353 3,187,514
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,220,139 $ 12,287,857
============= =============
See Notes to Consolidated Financial Statements.
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HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
March 31, December 31,
1997 1996
------------- -------------
CAPITALIZATION:
Common stock equity:
Common stock, no par value . . . . . . . . . . . . . . . . . . . . . $ 2,449,778 $ 2,446,754
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . (361,196) (361,196)
Unearned ESOP shares . . . . . . . . . . . . . . . . . . . . . . . . (243,796) (251,350)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 1,969,454 1,997,490
Unrealized loss on investment in Time Warner
common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,737)
------------- -------------
Total common stock equity . . . . . . . . . . . . . . . . 3,814,240 3,827,961
------------- -------------
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 . . . . . . . . . . . . . 9,740 135,179
------------- -------------
HL&P obligated mandatorily redeemable trust securities . . . . . . . . . 340,810
------------- -------------
Long-term debt:
Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . 349,144 349,098
Long-term debt of subsidiaries:
First mortgage bonds . . . . . . . . . . . . . . . . . . . . . 2,552,349 2,670,041
Pollution control revenue bonds . . . . . . . . . . . . . . . 123,000 5,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,087 1,511
------------- -------------
Total long-term debt . . . . . . . . . . . . . . . . . . . 3,026,580 3,025,650
------------- -------------
Total capitalization . . . . . . . . . . . . . . . . 7,191,370 6,988,790
------------- -------------
CURRENT LIABILITIES:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,439,622 1,337,872
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 102,094 157,682
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . 85,703 191,011
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . 69,894 67,707
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . 92,548 92,515
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,112 53,633
Current portion of long-term debt and preferred stock . . . . . . . . . 63,054 254,463
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 70,072 89,238
------------- -------------
Total current liabilities . . . . . . . . . . . . . . . . 1,974,099 2,244,121
------------- -------------
DEFERRED CREDITS:
Accumulated deferred income taxes . . . . . . . . . . . . . . . . . . . 2,273,235 2,265,031
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . 368,870 373,749
Fuel-related credits . . . . . . . . . . . . . . . . . . . . . . . . . 65,913 74,639
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 346,652 341,527
------------- -------------
Total deferred credits . . . . . . . . . . . . . . . . . . 3,054,670 3,054,946
------------- -------------
COMMITMENTS AND CONTINGENCIES
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,220,139 $ 12,287,857
============= =============
See Notes to Consolidated Financial Statements.
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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,
-----------------------------
1997 1996
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,620 $ (16,740)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 130,990 129,347
Amortization of nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . 6,657 7,595
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,191 (8,774)
Investment tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,879) (4,864)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 727 (1,131)
Fuel surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,239
Fuel cost over/(under) recovery - net . . . . . . . . . . . . . . . . . . . . (39,828) (11,112)
Changes in other assets and liabilities:
Accounts receivable - net . . . . . . . . . . . . . . . . . . . . . . . . 8,365 28,797
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,138 1,485
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,831 10,783
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (55,588) 10,078
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . (103,121) (112,616)
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . (21,743) (11,013)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,095 58,103
----------- ----------
Net cash provided by operating activities . . . . . . . . . . . . . . 38,694 79,938
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Electric capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) . . . . . . . . . . . . . . . . . . . . . . . . . . (44,384) (70,141)
Non-regulated electric power project
expenditures and advances (including capitalized
interest) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,913) (8,809)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,880) (7,392)
---------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . . . (65,177) (86,342)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of HL&P obligated mandatorily redeemable
trust securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,810
Payment of matured bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . (190,000) (110,000)
Proceeds from issuance of pollution control
revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,795
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . (127,928)
Payment of common stock dividends . . . . . . . . . . . . . . . . . . . . . . . (87,567) (93,209)
Increase in notes payable - net . . . . . . . . . . . . . . . . . . . . . . . . 101,750 286,428
Extinguishment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (120,360) (85,263)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,333 3,001
---------- ----------
Net cash provided by financing activities . . . . . . . . . . . . . . 33,833 957
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . 7,350 (5,447)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . 8,001 11,779
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 15,351 $ 6,332
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- ------------------------------------------------
Cash Payments:
Interest (net of amounts capitalized) . . . . . . . . . . . . . . . . . . . . $ 80,721 $ 61,385
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,914 18,365
See Notes to Consolidated Financial Statements.
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HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
Three Months Ended
March 31,
-------------------------------
1997 1996
----------- -----------
Balance at Beginning of Period . . . . . . . . . . . . . . . . . . . . $ 1,997,490 $ 1,953,672
Net Income (Loss) for the Period . . . . . . . . . . . . . . . . . . . 59,620 (16,740)
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,057,110 1,936,932
Common Stock Dividends . . . . . . . . . . . . . . . . . . . . . . . . (87,656) (93,209)
----------- -----------
Balance at End of Period . . . . . . . . . . . . . . . . . . . . . . . $ 1,969,454 $ 1,843,723
=========== ===========
See Notes to Consolidated Financial Statements.
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HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
Three Months Ended
March 31,
--------------------------
1997 1996
---------- ----------
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 856,534 811,965
--------- ----------
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,330 197,622
Purchased power . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,992 78,179
Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,383 139,772
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,250 53,676
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 130,251 128,434
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,322 32,063
Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,811 62,565
--------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730,339 692,311
--------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,195 119,654
--------- ----------
OTHER INCOME (EXPENSE):
Litigation settlements (net of tax) . . . . . . . . . . . . . . . . . . (61,750)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . (727) 1,131
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,140) (3,360)
--------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,867) (63,979)
--------- ----------
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . 121,328 55,675
--------- ----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt . . . . . . . . . . . . . . . . . . . . . . 52,533 57,504
Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,212 2,411
Distributions on trust securities . . . . . . . . . . . . . . . . . . . 4,519
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,100) (685)
--------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,164 59,230
--------- ----------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,164 (3,555)
DIVIDENDS ON PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . . 2,125 6,632
--------- ----------
INCOME (LOSS) AFTER PREFERRED DIVIDENDS . . . . . . . . . . . . . . . . . . $ 61,039 $ (10,187)
========= ==========
See Notes to Financial Statements.
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9
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
March 31, December 31,
1997 1996
------------ -------------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant in service . . . . . . . . . . . . . . . . . . . . . . . . $ 12,434,432 $ 12,387,375
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . 232,737 251,497
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241,397 241,001
Plant held for future use . . . . . . . . . . . . . . . . . . . . . . . . 48,631 48,631
------------ -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,957,197 12,928,504
Less accumulated depreciation and amortization . . . . . . . . . . . . . 4,355,935 4,252,745
------------- -------------
Property, plant and equipment - net . . . . . . . . . . . . . . . . 8,601,262 8,675,759
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 634 643
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10
Accounts receivable:
Affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . 2,772 1,493
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,395 16,996
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . 81,647 77,853
Inventory:
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,209 61,795
Materials and supplies, at average cost . . . . . . . . . . . . . . . 127,198 130,281
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,672 10,770
------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 281,543 299,841
------------- -------------
OTHER ASSETS:
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . . 580,906 587,352
Regulatory tax asset - net . . . . . . . . . . . . . . . . . . . . . . . 359,872 362,310
Deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264,701 270,381
Unamortized debt expense and premium on
reacquired debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,131 152,524
Recoverable project costs - net . . . . . . . . . . . . . . . . . . . . . 153,375 163,630
Fuel-related debits . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,025 84,435
------------- -------------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,607,010 1,620,632
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,489,815 $ 10,596,232
============= =============
See Notes to Financial Statements.
-9-
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HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
March 31, December 31,
1997 1996
------------- -------------
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,206,730 2,227,941
------------- -------------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . . . 3,882,657 3,903,868
------------- -------------
Cumulative preferred stock, not subject to
mandatory redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,740 135,179
------------- -------------
HL&P obligated mandatorily redeemable trust securities . . . . . . . . . . . . 340,810
------------- -------------
Long-term debt:
First mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,552,349 2,670,041
Pollution control revenue bonds . . . . . . . . . . . . . . . . . . . . . 123,000 5,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,087 1,511
------------- -------------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 2,677,436 2,676,552
------------- -------------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . 6,910,643 6,715,599
------------- -------------
CURRENT LIABILITIES:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327,722 234,665
Notes payable to affiliated companies . . . . . . . . . . . . . . . . . . . . 19,600
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,978 142,439
Accounts payable to affiliated companies . . . . . . . . . . . . . . . . . . 5,744
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,336 196,444
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,644 60,234
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,112 53,633
Current portion of long-term debt and preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,054 254,463
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,212 85,274
------------- -------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 753,058 1,052,496
------------- -------------
DEFERRED CREDITS:
Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . . . 2,131,747 2,124,567
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . . . . 368,870 373,749
Fuel-related credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,913 74,639
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259,584 255,182
------------- -------------
Total deferred credits . . . . . . . . . . . . . . . . . . . . . . . . 2,826,114 2,828,137
------------- -------------
COMMITMENTS AND CONTINGENCIES
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,489,815 $ 10,596,232
============= =============
See Notes to Financial Statements.
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HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
Three Months Ended
March 31,
-------------------------------
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,164 $ (3,555)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 130,251 128,434
Amortization of nuclear fuel . . . . . . . . . . . . . . . . . . . . . 6,657 7,595
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 7,180 (5,309)
Investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . (4,879) (4,864)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 727 (1,131)
Fuel surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,239
Fuel cost over/(under) recovery - net . . . . . . . . . . . . . . . . . (39,828) (11,112)
Changes in other assets and liabilities:
Accounts receivable - net . . . . . . . . . . . . . . . . . . . . . 2,527 28,738
Material and supplies . . . . . . . . . . . . . . . . . . . . . . . 4,553 2,586
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,586 (806)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . (55,205) 16,460
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . . (100,698) (122,376)
Other current liabilities . . . . . . . . . . . . . . . . . . . . . (23,207) (11,425)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,759 54,011
----------- -----------
Net cash provided by operating activities . . . . . . . . . . . 39,826 77,246
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) . . . . . . . . . . . . . . . . . . . . . . . (44,384) (70,141)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (668) (2,233)
----------- -----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . (45,052) (72,374)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of HL&P obligated mandatorily redeemable
trust securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,810
Payment of matured bonds . . . . . . . . . . . . . . . . . . . . . . . . . (190,000) (110,000)
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . (127,928)
Proceeds from issuance of pollution control
revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,795
Payment of dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . (86,750) (89,175)
Increase in notes payable . . . . . . . . . . . . . . . . . . . . . . . . 93,057 203,648
Extinguishment of long-term debt . . . . . . . . . . . . . . . . . . . . . (120,360) (85,263)
Decrease in notes payable to affiliated company . . . . . . . . . . . . . (19,600)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 2,143
---------- -----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . . . . . . . . . . . 5,217 (78,647)
---------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . (9) (73,775)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . 643 75,851
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . $ 634 $ 2,076
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- ------------------------------------------------
Cash Payments:
Interest (net of amounts capitalized) . . . . . . . . . . . . . . . . . $ 62,336 $ 56,393
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,257 22,892
See Notes to Financial Statements.
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HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
Three Months Ended
March 31,
--------------------------------
1997 1996
----------- -----------
Balance at Beginning of Period . . . . . . . . . . . . . . . . . . . . $ 2,227,941 $ 2,150,086
Net Income (Loss) for the Period . . . . . . . . . . . . . . . . . . . 63,164 (3,555)
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,291,105 2,146,531
----------- -----------
Deduct - Cash Dividends:
Preferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,125 6,632
Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,250 82,250
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,375 88,882
----------- -----------
Balance at End of Period . . . . . . . . . . . . . . . . . . . . . . . $ 2,206,730 $ 2,057,649
=========== ===========
See Notes to Financial Statements.
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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, 1997 (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, 1996 (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.
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 1(n) (Nature of Operations),
Note 1(o) (Use of Estimates), Note 1(p) (Long-Lived Assets),
Note 2 (Jointly-Owned Nuclear Plant), Note 3 (Rate Matters),
Note 11 (Commitments and Contingencies) and Note 16 (NorAm
Merger).
(2) NORAM MERGER
In August 1996, the Company, HL&P and a newly formed Delaware
subsidiary of the Company entered into an Agreement and Plan of
Merger (Merger Agreement) with NorAm Energy Corp. (NorAm) under
which the Company will merge into HL&P, and NorAm will merge
into the newly-formed subsidiary. For information regarding the
mergers (Merger), reference is made to the Form 10-K and the
joint registration statement on Form S-4 filed by the Company
and HL&P with the Securities and Exchange Commission (SEC) (Reg.
No. 333-11329). Unless otherwise stated, the information in
this Form 10-Q relates solely to the Company and HL&P without
giving effect to the Merger.
Under the Merger Agreement, each outstanding share of common
stock of NorAm will be converted into the right to receive at the
effective time of The Merger cash and/or common stock of HL&P
(which will be renamed "Houston Industries Incorporated" after
the Merger). Commencing on May 11, 1997, the cash consideration
for each NorAm share ($16.00) will increase by two percent
(simple interest) per quarter until the consummation of the
Merger.
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14
The closing of the Merger is subject to the satisfaction or
waiver of various conditions in the Merger Agreement, including
the obtaining of all required governmental consents. The Company
and NorAm have received approvals from all state regulatory
commissions and municipalities whose prior approval is required
to close the Merger.
In February 1997, the Federal Energy Regulatory Commission
(FERC) issued an order directing NorAm Energy Services (NES), a
subsidiary of NorAm engaged in the power marketing business, to
set forth its views as to whether prior approval of the Merger
by FERC may be required because of NES' jurisdictional status as
a power marketer. In the alternative, FERC invited NES to
submit an application for approval of the Merger under Section
203 of the Federal Power Act of 1935.
On March 7, 1997, NES filed a response asserting that FERC
lacked jurisdiction over the Merger. On March 27, 1997, without
conceding FERC jurisdiction over the Merger, NES filed an
application with FERC for approval of the Merger. In its merger
policy statement, FERC indicated it intends to act on
applications within 60 to 90 days after the closing of the
applicable comment period where the proposed transaction does
not adversely affect competition, rates or regulations. NES'
application requests that FERC grant approval of the Merger
within 60 days of the closing of the comment period (expected to
occur on May 27, 1997) but, in any event, no later than August
1, 1997.
On April 30, 1997, FERC issued an order asserting jurisdiction
over the Merger and over similar transactions involving other
power marketers. The Company and HL&P understand that NES
intends to file a petition for rehearing of FERC's decision on
or prior to May 30, 1997.
In connection with the Merger, the Company and HL&P have filed
with the SEC an application requesting an exemption from
regulation as a registered public utility holding company under
Section 3(a)(2) of the Public Utility Holding Company Act of
1935 (1935 Act). The SEC is considering the application. If
the requested order is not granted, the Merger Agreement
provides that NorAm and the Company would both be merged into
HL&P, with HL&P being the surviving corporation. The primary
difference resulting from this alternative merger structure is
that NorAm would not be a subsidiary and all regulatory utility
assets would be held within the same corporation. Under such
circumstances, no public utility holding company would exist.
(3) DEPRECIATION
The Company and HL&P calculate depreciation using the
straight-line method. The Company's depreciation expense for
the first quarter of 1997 and 1996 was $90 million and $89
million, respectively. HL&P's depreciation expense for the
first quarter of 1997 and 1996 was $90 million and $88 million,
respectively.
(4) RATE CASE PROCEEDINGS
For information regarding the appeal of Docket No. 6668, an
inquiry into the prudence of the planning and construction of
the South Texas Project Electric Generating Station (South Texas
Project), see Note 3(b) to the financial statements contained in
the Form 10-K.
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(5) CAPITAL STOCK
Company. At March 31, 1997, and December 31, 1996, the Company
had 400,000,000 authorized shares of common stock. As of such
dates, 233,823,535 and 233,325,030 shares of common stock were
outstanding, respectively. Outstanding common shares exclude
(i) shares pledged to secure a loan to the Company's Employee
Stock Ownership Plan (12,969,969 and 13,370,939 at March 31,
1997, and December 31, 1996, respectively) and (ii) shares
repurchased by the Company under its common stock repurchase
program and held as treasury shares (16,042,027 at March 31,
1997 and December 31, 1996).
The Company calculates earnings per common share data by
dividing its net income by the weighted average number of its
common shares outstanding during the relevant period.
The Financial Accounting Standards Board (FASB) recently issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share." This new standard requires dual
presentation of basic and diluted earnings per share on the face
of the Statements of Consolidated Income and requires a
reconciliation of the numerators and denominators of basic and
diluted earnings per share calculations. The Company's current
earnings per share calculation conforms to basic earnings per
share. Diluted earnings per share are not expected to be
materially different from basic earnings per share. SFAS No. 128
is effective for financial statements issued for periods ending
after December 15, 1997, earlier adoption is not permitted.
HL&P. The Company owns all issued and outstanding shares of
Class A voting common stock of HL&P. Houston Industries
(Delaware) Incorporated, a wholly-owned subsidiary of the
Company, owns all issued and outstanding shares of Class B
non-voting common stock of HL&P. The financial statements do
not include earnings per share data for HL&P because the common
stock of HL&P is owned by the Company and its affiliates.
On March 31, 1997 and December 31, 1996, HL&P had 10,000,000
authorized shares of preferred stock. As of such dates, 354,397
and 1,604,397 shares of preferred stock were outstanding,
respectively. For information regarding the redemption of
certain series of HL&P's preferred stock in February 1997, see
Note 7 to the Interim Financial Statements.
(6) LONG-TERM DEBT
In January 1997, the Brazos River Authority (BRA) and the
Matagorda County Navigation District Number One (MCND) issued,
on behalf of HL&P, $118 million aggregate principal amount of
pollution control revenue bonds. The BRA and MCND bonds will
mature in 2018 and 2028, respectively. HL&P used the proceeds
from the sale of these securities to redeem all outstanding 7
7/8% BRA Series 1986A pollution control revenue bonds ($50
million) and 7 7/8% MCND Series 1986A pollution control revenue
bonds ($68 million) at a redemption price of 102% of the
aggregate principal amount of each series.
The new bonds initially will bear interest at a floating daily
rate. Subject to certain conditions, HL&P may change the method
of determining the interest rate on the bonds to a daily,
weekly, commercial paper or long-term interest rate. The bonds
are subject to a mandatory tender for purchase upon certain
events, including changes in the method of determining interest
rates on the bonds. When a daily or weekly rate is in effect
for the bonds, holders of the bonds of such issue have the
option to have their bonds purchased at 100% of principal amount
plus accrued interest to the date of purchase. Bonds tendered
prior to maturity may be remarketed. Although it is anticipated
that all bonds tendered will be purchased with proceeds from the
subsequent offer and sale of the
-15-
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tendered bonds, HL&P has entered into standby purchase
agreements with commercial banks to provide approximately $120
million for the purchase of tendered bonds in the event that
such proceeds are not available. Facility fees are payable in
connection with these facilities.
In January 1997, HL&P repaid upon maturity $40 million aggregate
principal amount of its 5 1/4% first mortgage bonds. In March
1997, HL&P repaid upon maturity $150 million aggregate principal
amount of its 7 5/8% first mortgage bonds.
(7) HL&P OBLIGATED MANDATORILY REDEEMABLE TRUST SECURITIES
In February 1997, two Delaware statutory business trusts
(Trusts) established by HL&P issued (i) $250 million of
preferred securities and (ii) $100 million of capital
securities, respectively. The preferred securities have a
distribution rate of 8.125%, a stated liquidation amount of $25
per preferred security and must be redeemed by March 2046. The
capital securities have a distribution rate of 8.257%, a stated
liquidation amount of $1,000 per capital security and must be
redeemed by February 2037.
The Trusts sold the preferred and capital securities to the
public and used the proceeds to purchase $350 million aggregate
principal amount of subordinated debentures (Debentures) from
HL&P having interest rates corresponding to the distribution
rates of the securities and maturity dates corresponding to the
mandatory redemption dates of the securities. The Trusts are
accounted for as wholly-owned consolidated subsidiaries of HL&P.
The Debentures are the Trusts' principal assets. Proceeds from
the sale of the Debentures were used by HL&P for general
corporate purposes, including the repayment of short-term debt
and the redemption of three series of HL&P's outstanding
cumulative preferred stock at the following redemption prices,
plus accrued dividends:
Number of Redemption Price
Series Shares Per Share
------- ------ ---------
$6.72 250,000 $102.51
$7.52 500,000 $102.35
$8.12 500,000 $102.25
HL&P has fully and unconditionally guaranteed, on a subordinated
basis, distributions and all other payments due on the preferred
and capital securities.
The preferred and capital securities are mandatorily redeemable
upon the repayment of the related Debentures at their stated
maturity or earlier redemption.
Subject to certain limitations, HL&P has the option of deferring
payments of interest on the Debentures held by the Trusts. If
and for as long as payments on the Debentures have been
deferred, or an event of default under the indenture relating
thereto has occurred and is continuing, HL&P may not pay
dividends on its capital stock.
(8) SUBSEQUENT EVENTS
In April 1997, HL&P redeemed all outstanding shares of its
$9.375 cumulative preferred stock in satisfaction of mandatory
sinking fund requirements.
In April 1997, a subsidiary of Houston Industries Energy, Inc.
(HI Energy) borrowed
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$167.5 million under a five-year term loan facility. The
proceeds of the loan, net of a $17.5 million debt reserve
account established for the benefit of the lenders, were used to
refinance a portion of the acquisition costs of Light-Servicos
de Eletricidade S.A. (Light). The loan, which is non-recourse
to the Company and HL&P, restricts payments of dividends if
Light fails to meet certain financial covenants. The loan is
secured by, among other things, a pledge of the shares of Light.
HI Energy acquired an 11.35 percent interest in Light in May
1996 for $392 million.
In February 1996, three Texas cities filed a lawsuit against
HL&P and Houston Industries Finance, Inc., formerly a
wholly-owned subsidiary of the Company, seeking recovery of
unspecified damages relating to the alleged underpayment of
municipal franchise fees. In April 1997, the plaintiffs amended
their pleadings to assert damages alleged to exceed $250
million. The Company and HL&P believe that the lawsuit is
without merit. The Company and HL&P cannot estimate a range of
possible losses, if any, from this lawsuit, nor can any
assurance be given as to its ultimate outcome. For additional
information regarding this lawsuit, reference is made to Note
11(c) to the financial statements included in the Form 10-K,
which Note is incorporated herein by reference.
In May 1997, the Company sold in open market transactions 550,000
shares of Time Warner Inc. (Time Warner) common stock for
approximately $25 million, representing an average sales price of
$45.49 per share, net of fees and other commissions . For
information regarding the Company's investment in Time Warner
securities, see Notes 1(j) and 13 to the financial statements
included in the Form 10-K.
(9) 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 1997
presentation of financial statements. Such reclassifications do
not affect earnings.
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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.
Statements contained in this Form 10-Q that are not historical facts
are forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. Such statements are expectations as to future economic
performance and are not statements of fact. Actual results may differ
materially from those projected in these statements. Important factors that
could cause future results to differ include the effects of competition,
legislative and regulatory changes, fluctuations in the weather and changes in
the economy as well as other factors discussed in this and other filings by the
Company and HL&P with the SEC. When used in the Company's and HL&P's documents
or oral presentations, the words "anticipate," "estimate," "expect,"
"objective," "projection," "forecast," "goal" or similar words are intended to
identify forward-looking statements. The sections of Management's Discussion
and Analysis of Financial Condition and Results of Operations captioned "The
Merger," "Recent Developments" and "New Accounting Issues" contain or
incorporate forward-looking statements.
THE MERGER
On December 17, 1996, the shareholders of the Company and NorAm
approved a Merger Agreement providing for the merger of the Company into HL&P
and the merger of NorAm into a subsidiary of the Company (Merger Sub). Upon
consummation of the Merger, HL&P, the surviving corporation of the Company/HL&P
merger, will be renamed "Houston Industries Incorporated" (Houston) and Merger
Sub, the surviving corporation of the NorAm/Merger Sub merger, will be renamed
"NorAm Energy Corp." and will become a wholly-owned subsidiary of Houston.
For additional information regarding the Merger, reference is made to
"Liquidity and Capital Resources--Company--Sources of Capital Resources and
Liquidity" below, Note 2 to the Interim Financial Statements, "Management's
Discussion and Analysis of Financial Condition and Results of Operations--The
Merger" in the Form 10-K and Note 16 to the Financial Statements contained in
the Form 10-K.
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
1997 1996 Change
----------- ---------- ---------
(Thousands of Dollars)
Revenues . . . . . . . . . . . . . . . . . . $ 878,101 $ 823,507 7
Operating Expenses . . . . . . . . . . . . . 721,885 686,368 5
Operating Income . . . . . . . . . . . . . . 156,216 137,139 14
Other Income (Expense) . . . . . . . . . . . 8,641 (84,873) --
Interest and Other Charges . . . . . . . . . 84,755 78,916 7
Income Taxes . . . . . . . . . . . . . . . . 20,482 (9,910) --
Net Income (Loss) . . . . . . . . . . . . . 59,620 (16,740) --
- 18 -
19
The Company's consolidated earnings for the first quarter of 1997 were
$60 million or $.26 per share compared to a first quarter 1996 consolidated
loss of $17 million or a loss of $.07 per share.
First quarter 1996 earnings included non-recurring charges of $62
million (after-tax) taken in connection with the settlement of litigation
claims relating to the South Texas Project and $5 million associated with an
investment in two tire-to-energy plants in Illinois. Excluding these
non-recurring charges, the Company's 1996 first quarter earnings would have
been $50 million or $.20 per share.
The improvement in first quarter 1997 results of operations reflects a
decrease in HL&P operation and maintenance expenses and improved results of
operations at HI Energy. The Company's 1997 first quarter results of operation
include $10 million in equity earnings from HI Energy's investments in foreign
electric utility systems in Brazil (acquired in May 1996) and Argentina. For
additional information regarding HI Energy's foreign investments, see Note 4 to
the financial statements in the Form 10-K.
HL&P
A summary of selected financial data for HL&P is set forth below:
Three Months Ended
March 31,
------------------------------- Percent
1997 1996 Change
------------- ------------- ------
(Thousands of Dollars)
Base Revenues (1) . . . . . . . . . . . . . $ 552,547 $ 552,335 --
Reconcilable Fuel Revenues (2) . . . . . . . 303,987 259,630 17
Operating Expenses (3) . . . . . . . . . . . 730,339 692,311 5
Operating Income (3) . . . . . . . . . . . . 126,195 119,654 5
Other Income (Expense) (3) . . . . . . . . . (4,867) (63,979) --
Interest Charges . . . . . . . . . . . . . . 58,164 59,230 (2)
Income (Loss) After
Preferred Dividends . . . . . . . . . . . 61,039 (10,187) --
-----------------
(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.
HL&P's first quarter 1997 net income after preferred dividends was $61
million compared to a loss of $10 million in the first quarter of 1996.
Excluding the effects of the $62 million after-tax charge described above,
HL&P's first quarter 1996 net income after preferred dividends would have been
$52 million. The improved results of operations at HL&P reflect a $10 million
decrease in operation and maintenance expenses and a $5 million decrease in
preferred dividends.
OPERATING REVENUES AND SALES
Notwithstanding mild weather in the first quarter of 1997, HL&P's base
revenues between the quarterly periods were relatively unchanged. The adverse
effects of weather-related factors were offset by increases in the number of
customers in the first quarter of 1997.
- 19 -
20
Reconcilable fuel revenue increased 17 percent in the first quarter of
1997 primarily as a result of an increase in natural gas prices. The Public
Utility Commission of Texas (Utility Commission) permits recovery of certain
fuel and purchased power costs through a fixed fuel factor included in electric
rates. The fixed fuel factor is established during either a utility's general
rate proceeding or its fuel factor proceeding and is generally effective for a
minimum of six months. Since reconcilable fuel revenues are adjusted monthly
to equal expenses, these items have no effect on earnings unless fuel costs are
subsequently determined by the Utility Commission not to be recoverable. The
adjusted over/under recovery of fuel costs is recorded on HL&P's Balance Sheets
as fuel-related credits or fuel- related debits. 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.
At March 31, 1997, HL&P's cumulative under-recovery of fuel costs was
$93 million. In January 1997, HL&P implemented a $70 million temporary fuel
surcharge, inclusive of interest through June 30, 1997. The fuel surcharge was
intended to recover HL&P's cumulative fuel under-recovery balance as of August
31, 1996. In April 1997, HL&P filed with the Utility Commission a request to
implement a $62 million temporary fuel surcharge, inclusive of interest, during
the six-month period beginning July 1, 1997. HL&P requested the surcharge in
order to recover its under-recovery of fuel expenses for the period between
September 1996 and February 1997.
FUEL AND PURCHASED POWER EXPENSES
HL&P's 1997 first quarter fuel expenses increased $22 million compared
to the first quarter of 1996. The increase was due to an increase in the unit
cost of natural gas. The average cost of fuel for the first quarter of 1997
was $1.88 per million British Thermal Units (MMBtu) compared to $1.70 per MMBtu
for the same period in 1996, including an average gas cost of $3.09 per MMBtu
and $2.13 per MMBtu, respectively. Purchased power expense increased $23
million for the first quarter of 1997 primarily as a result of increased energy
purchases and higher unit costs.
OTHER OPERATING EXPENSES
HL&P's 1997 first quarter operation and maintenance expenses decreased
$10 million in comparison to the first quarter of 1996. The largest component
of the decrease related to pension benefit costs, which declined during the
first quarter of 1997 as a result of an increase in the estimated return on
assets held in the Company's pension benefit plans. Other factors relating to
the decline in operation and maintenance expenses included a reduction in
severance cost expenses between the two periods. Other operating expenses were
relatively constant between the two periods.
In each of the first quarter of 1997 and 1996, depreciation and
amortization expense included (i) a $13 million write down of HL&P's investment
in the South Texas Project and (ii) a $5 million write down of HL&P's
investment in lignite reserves associated with a canceled generation project.
The settlement of HL&P's most recent rate case (Docket No. 12065) permits HL&P
to write down up to $50 million per year of its investment in the South Texas
Project through December 31, 1999. HL&P must amortize the remaining $98
million of its investment in the lignite reserves no later than 2002. For
additional information regarding these expenses, see Note 3(a) to the Financial
Statements included in the Form 10-K.
RECENT DEVELOPMENTS
In connection with the current session of the Texas legislature,
various proposals have been discussed that would permit Texas retail electric
customers to choose their own electric suppliers beginning in December 2001. The
proposals include provisions relating to full stranded cost recovery, rate
reductions, rate freezes, the unbundling of generation operations, transmission
and distribution operations and customer service operations, and the
securitization of regulatory assets. The Company and HL&P are reviewing the
proposals.
- 20 -
21
However, at this time, the Company and HL&P cannot predict what, if any, action
the Texas legislature may take on the proposals or the ultimate form in which
such proposals may be adopted, if at all. The 1997 session of the Texas
legislature is scheduled to end on June 2, 1997.
A number of bills have been introduced in the United States Congress
calling for the repeal of the 1935 Act and/or requiring that retail electric
customers be permitted to choose their own electric supplier. Although the
Company and HL&P cannot predict what action Congress may take with respect to
these bills, enactment of any of these bills would likely have a profound
effect on the electric utility industry.
In March 1997, the Utility Commission issued a final order in a rate
proceeding involving a Texas utility that owns a 25.2 percent interest in the
South Texas Project. HL&P owns a 30.8 percent interest in the South Texas
Project. A major provision of the Utility Commission's final order was the
categorization of approximately $859 million of the utility's investment in the
South Texas Project as Excess Cost Over Market (ECOM). The term ECOM refers to
the amount of cost that potentially would become "stranded" if retail
competition were mandated and prices were set by the market rather than being
determined by current regulatory standards of reasonable and necessary cost of
providing service. The final order reduced the utility's return on common
equity for the ECOM portion of its investment in the South Texas Project to 7.96
percent, as compared with the 10.9 percent return on common equity approved for
all other invested capital. At the same time, the final order accelerated the
recovery of the $859 million designated as ECOM to 20 years from the remaining
32-year life of the South Texas Project. The Company and HL&P are unable to
predict at this time whether the policies reflected in this rate order will be
applied to other Texas utilities.
As discussed in Note 1(b) (System of Accounts and Effects of
Regulation) to the financial statements contained in the Form 10-K, HL&P follows
the accounting policies set forth in SFAS No. 71. The accounting staff of the
SEC has raised issues with respect to the continued use of SFAS No. 71 by other
utilities in the context of the enactment of regulations providing for increased
competition and market-based pricing. These issues have been referred to the
Emerging Issues Task Force (EITF) of the FASB for consideration at its May 1997
meeting. The Company and HL&P cannot predict what position the EITF may adopt
regarding these issues or how the EITF's position may be applied in the context
of future legislation affecting HL&P.
For information on other developments, factors, and trends that may
have an impact on the Company's and HL&P's future earnings, reference is made
to Item 7 of the Form 10-K, "Management's Discussion and Analysis of
Financial Condition and Results of Operations --The Merger " and "--Certain
Factors Affecting Future Earnings of the Company and HL&P."
LIQUIDITY AND CAPITAL RESOURCES
COMPANY
GENERAL
During the first quarter of 1997, the Company' s net cash from
operating activities and financing activities was $39 million and $34 million,
respectively. The Company's first quarter investment activities resulted in
expenditures of $65 million, of which $44 million represented HL&P capital
expenditures. The Company's primary financing activities during the first
quarter of 1997 were the payment of dividends on its common stock, the
redemption of preferred stock, the redemption or repayment of long-term debt
and the sale of pollution control revenue bonds and HL&P trust securities.
- 21 -
22
SOURCES OF CAPITAL RESOURCES AND LIQUIDITY
As of March 31, 1997, the Company had approximately $1.1 billion of
commercial paper outstanding, supported by two bank credit facilities
aggregating $1.5 billion. As of this date, HL&P had approximately $328 million
of commercial paper outstanding, supported by a bank credit facility of $400
million. Rates paid by the Company and HL&P on their short-term borrowings
are generally lower than the prime rate.
The cash portion of the Merger consideration (estimated to be
approximately $1.25 billion) is expected to be funded through bank borrowings
under new bank credit facilities (Bank Facilities) to be arranged by a
newly-formed subsidiary of Houston with a group of commercial banks. For
information regarding the proposed credit facility, reference is made to
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources--Company--Sources of Capital
Resources and Liquidity--The Merger" in the Form 10-K. In April 1997, the
Company negotiated an extension of the term of the bank commitments for the
Bank Facilities to October 31, 1997. The Company has paid fees relating to the
commitments of approximately $1.6 million.
In April 1997, a subsidiary of HI Energy borrowed $167.5 million under
a five-year term loan facility. The proceeds of the loan, net of a $17.5
million deposited in a debt reserve account for the benefit of the lenders,
were used to refinance a portion of the acquisition costs of Light. For
additional information, see Note 8 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, 1997, were 1.92 and 3.04, respectively. The
Company believes that the ratio for the three-month period is not necessarily
indicative of the ratio for a twelve-month period due to the seasonal nature of
HL&P's business.
HL&P
GENERAL
During the first quarter of 1997, HL&P's net cash from operating
activities and financing activities was $40 million and $5 million,
respectively. HL&P's first quarter investment activities resulted in
expenditures of $45 million, of which $44 million represented capital
expenditures. The 1997 annual budget for capital and nuclear expenditures is
$239 million. HL&P's primary financing activities during the first quarter of
1997 were the payment of dividends, the redemption of preferred stock, the
redemption or repayment of long-term debt and the sale of pollution control
revenue bonds and HL&P trust securities, as described in greater detail below.
SOURCES OF CAPITAL RESOURCES AND LIQUIDITY
As of March 31, 1997, HL&P had approximately $328 million of
commercial paper outstanding. HL&P's commercial paper borrowings are supported
by a bank line of credit of $400 million. A temporary $346 million increase in
the amount of the facility was in effect during a portion of the first quarter
of 1997.
In January 1997, the BRA and MCND issued on behalf of HL&P $118
million aggregate principal amount of pollution control revenue bonds. As of
March 31, 1997, the new bonds bore a floating daily interest rate and mature in
2018 and 2028, respectively. HL&P used the proceeds from the sale of these
securities to redeem, at 102% of their aggregate principal amount, pollution
control revenue bonds aggregating $118 million. For additional information
regarding the bonds, see Note 6 to the Interim Financial Statements.
- 22 -
23
In February 1997, two Delaware business trusts established by HL&P
issued capital securities and preferred securities aggregating $350 million.
The Trusts sold securities to the public ($100 million of 8.257% capital
securities and $250 million of 8.125% preferred securities) and used the
proceeds to purchase subordinated debentures from HL&P. HL&P used the proceeds
from the sale of the subordinated debentures for general corporate purposes,
including the repayment of short-term debt and the redemption of three series
of cumulative preferred stock having an aggregate liquidation value of $125
million. For additional information regarding these securities, see Note 7 to
the Interim Financial Statements.
In the first quarter of 1997, HL&P repaid at maturity $40 million
aggregate principal amount of its 5 1/4% series first mortgage bonds and $150
million aggregate principal amount of its 7 5/8% series first mortgage bonds.
HL&P redeemed the remaining $25.7 million of its $9.375 series preferred stock
in April 1997.
RATIOS OF EARNINGS TO FIXED CHARGES
HL&P's ratios of earnings to fixed charges for the three and twelve
months ended March 31, 1997 were 2.56 and 4.13, respectively. HL&P's ratios of
earnings to fixed charges and preferred dividends for the three and twelve
months ended March 31, 1997 were 2.43 and 3.71, 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.
NEW ACCOUNTING ISSUES
For information regarding SFAS No. 128, "Earnings Per Share," which
will be effective for the Company's 1997 fiscal year, see Note 5 to the Interim
Financial Statements.
- 23 -
24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For a description of legal proceedings affecting the Company
and its subsidiaries, reference is made to Note 8 of the
Interim Financial Statements, Item 3 of the Form 10-K and
Notes 2(b), 3, 10 and 11(c) to the Financial Statements in the
Form 10-K, which information is incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Company
At the annual meeting of the Company's shareholders held on
May 9, 1997, the matters voted upon and the number of votes
cast for, against or withheld, as well as the number of
abstentions and broker non- votes as to such matters
(including a separate tabulation with respect to each nominee
for office) were as stated below:
For Item 1, the election of four nominees for Class I
directors to serve three-year terms expiring in 2000:
For Against or Withheld Broker Non-Vote
----- ------------------- ---------------
Robert J. Cruikshank 207,334,178 6,513,323 0
Linnet F. Deily 207,634,170 6,213,331 0
Lee W. Hogan 207,578,134 6,269,367 0
Alexander F. Schilt 207,436,204 6,411,297 0
For Item 2, the adoption of an Amendment to the 1994 Houston
Industries Incorporated Long-Term Incentive Compensation Plan:
For Against Abstain Broker Non-Vote
--------- ---------- ---------- ----------------
193,894,695 15,772,203 4,180,599 4
For Item 3, the ratification of the appointment of Deloitte &
Touche LLP as independent accountants and auditors for the
Company for 1997:
For Against Abstain Broker Non-Vote
--------- ---------- ---------- ----------------
210,392,841 1,950,691 1,503,968 1
HL&P
The annual shareholder meeting of HL&P was held on May 9,
1997. The Company, the owner and holder of all of the
outstanding Class A voting common stock of HL&P,
- 24 -
25
by the duly authorized vote of its Chairman and Chief
Executive Officer, Don D. Jordan, elected the following Board
of Directors for the ensuing year or until their successors
shall have qualified:
Charles R. Crisp Hugh Rice Kelly
William T. Cottle R. Steve Letbetter
Jack D. Greenwade David M. McClanahan
Lee W. Hogan Stephen W. Naeve
Don D. Jordan Stephen C. Schaeffer
Robert L. Waldrop
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Houston Industries Incorporated:
Exhibit 3 - Amended and Restated Bylaws of the Company
(effective December 4, 1996).
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), 1(n), 1(o), 1(p), 2, 3, 11 and 16
to the Financial Statements included on pages
60 through 65, pages 76 through 77, and pages
80 through 81 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), 1(n), 1(o), 1(p), 2, 3, 11 and 16
to the Financial Statements included on pages
60 through 65, pages 76 through 77, and pages
80 through 81 of the Form 10-K.
(b) Reports on Form 8-K.
Form 8-K of HL&P dated February 4, 1997. (Item 5)
Form 8-K of the Company and HL&P dated February 5, 1997. (Item 5)
- 25 -
26
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 14,1997
- 26 -
27
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 14, 1997
- 27 -
28
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
Houston Industries Incorporated:
Exhibit 3 - Amended and Restated Bylaws of the Company
(effective December 4, 1996).
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), 1(n), 1(o), 1(p), 2, 3, 11 and 16
to the Financial Statements included on pages
60 through 65, pages 76 through 77, and pages
80 through 81 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), 1(n), 1(o), 1(p), 2, 3, 11 and 16
to the Financial Statements included on pages
60 through 65, pages 76 through 77, and pages
80 through 81 of the Form 10-K.