1
EXHIBIT 99.1
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1997
(THOUSANDS OF DOLLARS)
ASSETS
HISTORICAL PRO FORMA
-------------------------- ------------------------------
HI NORAM ADJUSTMENTS COMBINED
----------- ----------- ------------- -----------
Net Property, Plant, and Equipment ................. $ 8,702,379 $ 2,434,677 $ 438,277 (d) $11,575,333
----------- ----------- ----------- -----------
Current Assets:
Cash and cash equivalents ....................... 15,351 34,599 (34,599)(e) 15,351
Accounts and notes receivable - net ............. 105,765 752,849 -- 858,614
Inventories ..................................... 184,508 56,377 -- 240,885
Other ........................................... 19,783 29,108 -- 48,891
----------- ----------- ----------- -----------
Total ..................................... 325,407 872,933 (34,599) 1,163,741
----------- ----------- ----------- -----------
Investments and Other Assets:
Investment in Time Warner securities ............ 1,033,250 -- -- 1,033,250
Deferred plant costs - net ...................... 580,906 -- -- 580,906
Investments in and advances to
unconsolidated affiliates - net ............. 501,636 -- -- 501,636
Goodwill ........................................ 463,392 (463,392) (e) 1,746,425
1,746,425 (e)
Other ........................................... 1,076,561 219,928 19,600 (i) 1,316,089
----------- ----------- ----------- -----------
Total ..................................... 3,192,353 683,320 1,302,633 5,178,306
----------- ----------- ----------- -----------
Total ................................ $12,220,139 $ 3,990,930 $ 1,706,311 $17,917,380
=========== =========== =========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity ............................. $ 3,814,240 $ 864,720 $ 1,228,968 (a) $ 5,043,208
(864,720) (e)
Preferred stock - not subject to mandatory
redemption ................................... 9,740 -- -- 9,740
HL&P obligated mandatorily redeemable
securities of subsidiary trusts holding solely
subordinated debentures of HL&P .............. 340,810 -- -- 340,810
NorAm obligated mandatorily redeemable,
convertible preferred securities of
subsidiary trust ............................. 164,427 (164,427) (e)
Long-term debt, less current maturities ......... 3,026,580 1,047,469 1,261,103 (b) 5,370,321
35,169 (c)
----------- ----------- ----------- -----------
Total ..................................... 7,191,370 2,076,616 1,496,093 10,764,079
----------- ----------- ----------- -----------
Current Liabilities:
Notes payable ................................... 1,439,622 312,000 -- 1,751,622
Accounts payable ................................ 102,094 478,348 -- 580,442
Taxes accrued ................................... 85,703 94,698 -- 180,401
Interest accrued ................................ 69,894 30,772 -- 100,666
Dividends declared .............................. 92,548 -- -- 92,548
Current portion of long-term debt and
preferred stock ............................. 63,054 278,000 -- 341,054
Other ........................................... 121,184 112,265 -- 233,449
----------- ----------- ----------- -----------
Total ..................................... 1,974,099 1,306,083 -- 3,280,182
----------- ----------- ----------- -----------
Other Liabilities and Deferred Credits:
Accumulated deferred income taxes ............... 2,273,235 339,363 114,418 (e) 2,727,016
Unamortized investment tax credit ............... 368,870 -- -- 368,870
Other ........................................... 412,565 268,868 95,800 (i) 777,233
----------- ----------- ----------- -----------
Total ..................................... 3,054,670 608,231 210,218 3,873,119
----------- ----------- ----------- -----------
Total ................................ $12,220,139 $ 3,990,930 $ 1,706,311 $17,917,380
=========== =========== =========== ===========
See Notes to Unaudited Pro Forma Financial Statements.
Page 99.1-1
2
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO FORMA
---------------------------- -------------------------------
HI NORAM ADJUSTMENTS COMBINED
----------- ----------- ------------ -----------
Operating Revenues:
Electric ........................................ $ 4,025,027 -- -- $ 4,025,027
Gas ............................................. -- $ 4,788,462 -- 4,788,462
Other ........................................... 70,250 -- -- 70,250
----------- ----------- ----------- -----------
Total ..................................... 4,095,277 4,788,462 -- 8,883,739
----------- ----------- ----------- -----------
Operating Expenses:
Electric fuel and purchased power ............... 1,347,208 -- -- 1,347,208
Gas purchased ................................... -- 3,667,954 -- 3,667,954
Operation and maintenance ....................... 888,699 524,736 $ (4,482) (i) 1,408,953
Depreciation and amortization ................... 550,038 142,362 29,474 (e) 736,483
14,609 (d)
Taxes other than income taxes ................... 246,288 116,600 -- 362,888
Other ........................................... 72,578 22,344 -- 94,922
----------- ----------- ----------- -----------
Total ..................................... 3,104,811 4,473,996 39,601 7,618,408
----------- ----------- ----------- -----------
Operating Income ................................... 990,466 314,466 (39,601) 1,265,331
----------- ----------- ----------- -----------
Other Income (Expense):
Litigation settlements .......................... (95,000) -- -- (95,000)
Time Warner dividend income ..................... 41,610 -- -- 41,610
Other ........................................... (2,022) (14,577) -- (16,599)
----------- ----------- ----------- -----------
Total ..................................... (55,412) (14,577) -- (69,989)
----------- ----------- ----------- -----------
66,032 (c)
Interest and Other Charges ......................... 307,382 138,399 (5,842) (f) 505,971
----------- ----------- ----------- -----------
From Continuing Operations:
Income before income taxes ...................... 627,672 161,490 (99,791) 689,371
Income taxes .................................... 200,165 66,352 (24,611) (h) 241,906
----------- ----------- ----------- -----------
Income before preferred dividends ............... 427,507 95,138 (75,180) 447,465
Preferred dividends ............................. 22,563 3,597 -- 26,160
----------- ----------- ----------- -----------
Income available for common stock ............... $ 404,944 $ 91,541 $ (75,180) $ 421,305
=========== =========== =========== ===========
Weighted average common shares
outstanding (000) ............................. 244,443 131,648 -- 299,802 (g)
Earnings per common share ....................... $ 1.66 $ 0.70 -- $ 1.41
See Notes to Unaudited Pro Forma Financial Statements.
Page 99.1-2
3
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO FORMA
---------------------------- -------------------------------
HI NORAM ADJUSTMENTS COMBINED
----------- ----------- --------------- -----------
Operating Revenues:
Electric ................................. $ 856,534 -- -- $ 856,534
Gas ...................................... -- $ 1,924,182 -- 1,924,182
Other .................................... 21,567 -- -- 21,567
----------- ----------- ----------- -----------
Total .............................. 878,101 1,924,182 -- 2,802,283
----------- ----------- ----------- -----------
Operating Expenses:
Electric fuel and purchased power ........ 320,322 -- -- 320,322
Gas purchased ............................ -- 1,579,178 -- 1,579,178
Operation and maintenance ................ 183,633 127,640 $ (1,121) (i) 310,152
Depreciation and amortization ............ 130,990 35,988 7,368 (e) 177,998
3,652 (d)
Taxes other than income taxes ............ 62,811 36,155 -- 98,966
Other .................................... 24,129 -- -- 24,129
----------- ----------- ----------- -----------
Total .............................. 721,885 1,778,961 9,899 2,510,745
----------- ----------- ----------- -----------
Operating Income ............................ 156,216 145,221 (9,899) 291,538
----------- ----------- ----------- -----------
Other Income (Expense):
Time Warner dividend income .............. 10,403 -- -- 10,403
Other .................................... (1,762) 6,309 -- 4,547
----------- ----------- ----------- -----------
Total .............................. 8,641 6,309 -- 14,950
----------- ----------- ----------- -----------
16,508 (c)
Interest and Other Charges .................. 82,630 38,177 (2,705) (f) 134,610
----------- ----------- ----------- -----------
From Continuing Operations:
Income before income taxes ............... 82,227 113,353 (23,702) 171,878
Income taxes ............................. 20,482 44,943 (5,717) (h) 59,708
----------- ----------- ----------- -----------
Income before preferred dividends ........ 61,745 68,410 (17,985) 112,170
Preferred dividends ...................... 2,125 -- -- 2,125
----------- ----------- ----------- -----------
Income available for common stock ........ $ 59,620 $ 68,410 $ (17,985) $ 110,045
=========== =========== =========== ===========
Weighted average common shares
outstanding (000) ...................... 233,689 137,956 -- 289,048 (g)
Earnings per common share ................ $ 0.26 $ 0.50 -- $ 0.38
See Notes to Unaudited Pro Forma Financial Statements.
Page 99.1-3
4
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) NorAm Common Stock to be exchanged:
(THOUSANDS EXCEPT
PRICE PER SHARE)
----------------
NorAm common shares outstanding at March 31, 1997.................................. 138,229
Common stock equivalents and other dilutive securities assumed to be converted or
exercised prior to closing:
NorAm obligated mandatorily redeemable, convertible preferred securities of
subsidiary trust ("Convertible Preferred Securities") - 3.289 million
shares outstanding at March 31, 1997, to be converted at a rate of
4.1237 shares of common stock per share of preferred stock, $50 par
value ......................................................................... 13,563
NorAm stock options and restricted stock at March 31, 1997....................... 1,829
----------
Pro forma NorAm common stock and stock equivalents outstanding at
March 31, 1997................................................................... 153,621
Purchase price per share........................................................... $ 16
----------
Total consideration................................................................ $2,457,936
==========
Value of HI common stock consideration......................................... $1,228,968
==========
Cash consideration............................................................. $1,228,968
==========
Total consideration is calculated assuming a purchase price of $16 per
share of NorAm Common Stock, an average HI Common Stock price per share of
$22.20 (the average of the closing prices of HI Common Stock during a
20-trading-day period commencing 25 trading days prior to March 31, 1997),
conversion of all NorAm Convertible Preferred Securities, exercise of all
outstanding NorAm stock options with exercise prices less than or equal to
$16 per share and that the number of shares of NorAm Common Stock
outstanding at the effective date of the acquisition is equal to that
outstanding on March 31, 1997.
Total consideration is dependent upon the number of shares of NorAm Common
Stock outstanding as of the effective date of the acquisition and the
price per share of HI Common Stock. The actual number of equivalent HI
common shares exchanged will depend upon the average daily closing price
of HI Common Stock on the NYSE during a 20-trading-day period commencing
25 trading days prior to the effective date of the acquisition ("Average
Price"). The Stock Consideration will have a value (based upon the average
closing price) of $16.00 per share of NorAm Common Stock if the Average
Price of HI Common Stock is greater than or equal to $21.25 and less than
or equal to $26.00. The Stock Consideration will have a value (based on
the average closing price) greater than $16.00 per share of NorAm Common
Stock if the Average Price of HI Common Stock is greater than $26.00, and
a value (based on average closing price) less than $16 per share of NorAm
Common Stock if the Average Price of HI Common Stock is less than $21.25.
(b) Acquisition debt is calculated based on the following assumptions:
(THOUSANDS)
-----------
Cash consideration - see note (a).............................................. $1,228,968
Transaction costs.............................................................. 32,000
Severance costs................................................................ 44,000
Less:
NorAm cash balance as of March 31, 1997.................................... (34,599)
Proceeds from exercise of NorAm stock options.............................. (9,266)
----------
Total acquisition debt..................................................... $1,261,103
==========
Page 99.1-4
5
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS - (CONTINUED)
(c) Interest expense and fair value adjustments for long-term debt are as
follows:
(THOUSANDS)
-----------
Acquisition debt - see note (b).................................................. $1,261,103
Assumed interest rate on acquisition debt........................................ 6.07% (1)
----------
Adjustment to 1996 interest expense for acquisition debt....................... 76,549
----------
Adjustment to interest expense for acquisition debt for the first
three months of 1997....................................................... 19,137
----------
NorAm long-term debt assumed at March 31, 1997:
Principal amount...................................................... $ 1,325,469
Fair value............................................................ 1,360,638
-----------
Revaluation adjustment of debt assumed to fair value.................. $ 35,169
===========
Adjustment to 1996 interest expense for revaluation of long-term debt
assumed (using the effective interest method).................................. (10,517)
----------
Adjustment to interest expense for revaluation of long-term debt assumed
for the first three months of 1997............................................. (2,629)
-----------
Total interest expense adjustment for 1996......................................... $ 66,032
===========
Total interest expense adjustment for the first three months of 1997............... $ 16,508
===========
(1) For purposes of the unaudited pro forma condensed statements of
income, the annual interest rate on the acquisition debt is assumed
to be 6.07%. A 1% change in the interest rate on the acquisition
debt would change 1996 interest expense by $12.6 million and
interest expense for the first three months of 1997 by $3.15
million. The cash portion of the consideration is expected to be
obtained through a bank loan under a revolving credit and letter of
credit facility which has been negotiated with a syndicate of banks
and financial institutions. The annual interest rate will be based
upon either the London interbank offered rate ("LIBOR") plus .25%
or the greater of the federal funds rate plus .5% or prime rate,
plus a .125% facility fee. LIBOR was 5.69% at March 31, 1997.
At the date of the Merger, August 6, 1997, LIBOR was 5.63%.
(d) Based on preliminary analyses, the following adjustments have been made to
reflect the fair value of property, plant and equipment:
(THOUSANDS)
-----------
Revaluation of property, plant and equipment to fair value......................... $ 438,277
==========
Adjustment to 1996 depreciation expense (assumes 30 year average depreciable life). $ 14,609
==========
Adjustment to depreciation expense for the first three months of 1997.............. $ 3,652
==========
Page 99.1-5
6
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS - (CONTINUED)
(e) The excess of the total purchase price over the allocation of fair value to
the net assets will be recorded as goodwill. HI's calculation of goodwill
is based on the following assumptions and calculations:
(THOUSANDS)
-----------
Value of HI Common Stock consideration - see note (a) ............................... $ 1,228,968
Acquisition debt - see note (b) ..................................................... 1,261,103
Net asset value of NorAm at March 31, 1997:
Total stockholders' equity ........................................................ (864,720)
Conversion of NorAm Convertible Preferred Securities .............................. (164,427)
NorAm cash (used to offset acquisition debt) ...................................... 34,599
-----------
Initial purchase price in excess of historical net asset value ...................... 1,495,523
Increase (decrease) from fair value allocations:
Property, plant and equipment - see note (d) ...................................... (438,277)
Elimination of NorAm historical goodwill .......................................... 463,392
Unrecognized pension liability (asset) - see note (i) ............................. (19,600)
Unrecognized postretirement benefits liability - see note (i) ..................... 95,800
Debt assumed - see note (c) ....................................................... 35,169
Deferred income tax on fair value allocation adjustments .......................... 114,418
-----------
Total goodwill ................................................................ $ 1,746,425
===========
Increase in goodwill amortization expense (assumes 40 year life) .................... $ 43,661
Less NorAm historical goodwill amortization ......................................... (14,187)
-----------
Adjustment to 1996 amortization expense ..................................... $ 29,474
===========
Adjustment to amortization expense for the first three months of 1997 ....... $ 7,368
===========
(f) Assumes full conversion of NorAm Convertible Preferred Securities into
shares of NorAm Common Stock and cash at the effective date of the
acquisition (see note (a)). Because of the assumed conversion, $5,842,000
and $2,705,000 of preferred dividends of subsidiary trust have been
eliminated for 1996 and the first three months of 1997, respectively.
(g) Pro forma number of common shares outstanding represents the historical
weighted average shares outstanding of HI Common Stock in addition to the
pro forma number of shares of HI Common Stock assumed to be issued in
exchange for the NorAm Common Stock and stock equivalents. The pro forma
number of shares assumed to be issued is 55,359,000.
(h) Represents the tax effect at the statutory rate of all pre-tax pro forma
adjustments after excluding nondeductible goodwill amortization.
(i) Pension and postretirement benefits liabilities:
(THOUSANDS)
-----------
Unrecognized pension liability (asset) - see note (e) ............................... $(19,600)
========
Unrecognized postretirement benefits liability - see note (e) ....................... $ 95,800
========
Adjustment to 1996 operation and maintenance expense (assumes 17-year
amortization period) ................................................................ $ (4,482)
========
Adjustment to operation and maintenance expense for the first three months of
1997 ................................................................................ $ (1,121)
========
Page 99.1-6