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Exhibit 99b
HOUSTON INDUSTRIES REPORTS 34% INCREASE IN 1998 ADJUSTED EARNINGS
(HOUSTON, TX--JANUARY 28, 1999) Houston Industries Incorporated (HI)
today announced a 34% increase in adjusted earnings for 1998. Adjusted earnings
were $622 million, or $2.19 per share, compared to adjusted earnings of $463
million, or $1.83 per share, in 1997. HIs reported loss for 1998 of $142
million, or $.50 per share, reflects a $764 million non-cash, unrealized
accounting loss on Automatic Common Exchange Securities (ACES) as discussed
below. Reported earnings for 1997 included a $79 million loss on ACES,
partially offset by $37 million of interest income related to the settlement of
a federal income tax dispute.
The increase in adjusted earnings for 1998 as compared to the same
period in 1997 was due to strong results from HIs Wholesale Energy Group and
from Houston Industries Energy, Inc. (HI Energy), HI's international
subsidiary. Earnings included an $80 million, or $.28 per share, gain on the
sale of an electric distribution system in Argentina. Also contributing to the
increase were earnings from the businesses acquired in the August 1997 HI/NorAm
Energy Corp. (NorAm) merger.
These effects were partially offset by additional depreciation of regulated
power generation assets in compliance with Houston Lighting & Power Company's
(HL&P) rate of return cap as discussed below and increased interest expense
primarily related to the merger.
"Houston Industries' 1998 financial results demonstrate our improved
earnings power from the successful implementation of strategies to expand our
business operations and the markets in which we are active," said Don D. Jordan
chairman and chief executive officer. I am confident that the blueprint for
success is in place, and we are well on our way to becoming one of the major
players in the evolving energy services industry. Nineteen ninety-nine will be
an important year for our company as we address challenges in our international
operations, embrace new opportunities and help shape both our industry and our
position in the marketplace."
HI's adjusted earnings for the fourth quarter of 1998 were $45
million, or $.16 per share, compared to adjusted earnings of $38 million, or
$.14 per share, for the fourth quarter of 1997. The increase in adjusted
earnings for the quarter is primarily due to lower amortization and
depreciation expense for the accelerated recovery of certain HL&P assets.
HIs earnings reflect results of the operations acquired in the NorAm
merger since August 6, 1997, the effective date of the merger. Results for
periods prior to the acquisition of NorAm are not included in HIs earnings
because the acquisition of these units was accounted for under the purchase
method. Earnings per share for all periods after the merger have been reduced
by the issuance of approximately 48 million shares of common stock in
connection with the merger.
ELECTRIC UTILITY OPERATIONS
HL&Ps operating income for the twelve months ended December 31, 1998
was $1,014 million compared to $995 million for 1997. The increase was due to
higher revenues from the hot weather in 1998 and customer growth, offset by
base rate credits implemented in January 1998 under HL&P's transition to
competition plan. Additional depreciation expense of $194 million further
reduced 1998 operating income in comparison to 1997. HL&P's earnings are capped
at an overall rate of return on a calendar year basis as part of the transition
plan approved by the Texas Public Utility Commission in May 1998. Any earnings
over the maximum allowed rate of return cap of 9.844 percent on invested
capital have been offset by additional depreciation of generation assets.
HL&Ps operating income for the quarter ended December 31, 1998, was
$159 million
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compared to $112 million for same period in 1997. The $47 million increase in
operating income is due primarily to reduced depreciation and amortization
expense as previously discussed. Firm kilowatt-hour sales increased 5 percent
for the three months and 6 percent for the twelve months ended December 1998
compared to the same periods in 1997 as a result of the hotter than normal
weather.
INTERNATIONAL
HI Energy's 1998 operating income was $182 million compared to $20
million for 1997. The increase in operating income for 1998 is due primarily to
the $138 million pre-tax gain on the sale of HI Energy's 63 percent interest in
an Argentine electric distribution system. Also contributing to the increase
were equity earnings from new investments in El Salvador and Colombia.
WHOLESALE ENERGY GROUP
HIs Wholesale Energy Group is engaged in the acquisition,
development and operation of domestic power generation facilities as well as
the wholesale energy trading and marketing, natural gas gathering and
interstate pipeline businesses. The group reports earnings under two business
segments, interstate pipelines and wholesale energy (which includes all of the
group's other businesses).
In 1998, HIs interstate pipeline segment generated operating income
of $128 million compared to $32 million for 1997, which included only five
months of operations subsequent to the NorAm acquisition.
HIs wholesale energy segment had operating income of $59 million for
1998 compared to operating income for 1997 of approximately $1 million. This
increase is primarily due to strong operating results from investment in
generating assets and related trading and marketing activities.
NATURAL GAS DISTRIBUTION
In 1998, HIs natural gas distribution segment generated operating
income of $138 million compared to $55 million for 1997, which included only
five months of operations subsequent to the NorAm acquisition. The operating
income for 1998 was negatively impacted by milder weather partially offset by
decreased operating expenses.
ACES
In July 1997, HI sold $1.05 billion of Automatic Common Exchange
Securities (ACES) to monetize its investment in non-publicly traded preferred
stock of Time Warner Inc. (TW) that is convertible into 45.8 million shares of
TW common stock. The ACES are 7% debt securities which, at maturity (July 1,
2000), are exchangeable by HI into either TW common stock or cash.
The issuance of the ACES allowed HI to remove its exposure to
declines in the price of TW common stock but retain a portion of the benefits
of price appreciation. The ACES are structured so that the Company receives the
first 21% of price appreciation of TW common stock above the $22.97 face amount
(to $27.79, the sharing threshold,) and 17% of any appreciation thereafter .
The closing price of TW common stock was $62.062 per share on December 31, 1998
(for consistency, the preceding TW common shares and the related per share
prices retroactively reflect a 2 for 1 stock split effective December, 1998).
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Increases in the market value of TW common stock above the sharing
threshold result in an increase in HIs liability to the ACES holders to reflect
the portion of price appreciation which the ACES holders would receive at
maturity. This increased liability is reflected on HIs income statement as an
unrealized accounting loss.
This unrealized loss is more than offset by the approximately $1.8
billion pre-tax unrecorded, unrealized gain in TW common stock underlying HIs
investment in TW Convertible Preferred Stock. The gain is not recognized
because HI is required to account for its investment in the underlying TW
preferred stock under the cost method.
* * *
HI, headquartered in Houston, Texas, is a diversified international
energy services company with 3.9 million electric and natural gas customers in
the U.S. and ownership interests in international utilities serving 9.5 million
customers. HI also provides retail energy services, invests in the development
of power generation projects, and is a major energy services company providing
wholesale natural gas and electricity marketing services, gas transportation,
supply, gathering, and storage.
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HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(Thousands of Dollars, except per share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
---------------------- ------------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
Revenues:
Electric Operations $906,581 $964,427 $4,350,275 $4,251,243
Natural Gas Distribution 531,787 712,281 1,812,676 892,569
Interstate Pipeline 64,605 69,298 282,496 108,333
Wholesale Energy 1,040,111 896,853 4,456,158 1,364,658
International 30,451 30,642 258,945 92,028
Other 199,655 224,922 748,922 339,731
Eliminations (118,161) (120,801) (421,008) (170,337)
--------- --------- ---------- ----------
Total 2,655,029 2,777,622 11,488,464 6,878,225
--------- --------- ---------- ----------
Expenses:
Fuel and cost of gas sold 1,331,591 1,532,707 4,784,704 2,852,375
Purchased power 342,492 292,247 2,215,049 698,823
Operation and maintenance 464,936 438,400 1,660,531 1,216,126
Taxes other than income taxes 111,499 110,848 494,175 394,526
Depreciation and amortization 178,779 204,985 856,617 651,875
--------- --------- ---------- ----------
Total 2,429,297 2,579,187 10,011,076 5,813,725
--------- --------- ---------- ----------
Operating Income 225,732 198,435 1,477,388 1,064,500
--------- --------- ---------- ----------
Other Income (Expense):
Unrealized loss on ACES (692,202) (121,402) (1,176,211) (121,402)
Time Warner dividend income 10,313 10,312 41,250 41,340
Interest income - IRS Refund 56,269 981 56,269
Other - net 8,650 (3,283) 23,870 10,347
--------- --------- ---------- ----------
Total (673,239) (58,104) (1,110,110) (13,446)
--------- --------- ---------- ----------
Interest and Other Charges:
Interest on long-term debt 105,554 103,331 416,138 320,845
Other interest 30,147 25,289 97,767 77,112
Distribution on trust securities 7,241 7,502 29,201 26,230
Allowance for borrowed funds used
during construction (1,337) (980) (4,304) (2,872)
Preferred dividends of subsidiary 2,255
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Total 141,605 135,142 538,802 423,570
--------- --------- ---------- ----------
Income/(Loss) Before Income Taxes (589,112) 5,189 (171,524) 627,484
Income Taxes (184,650) 9,125 (30,432) 206,374
--------- --------- ---------- ----------
Net Income/(Loss) (404,462) (3,936) (141,092) 421,110
Preferred Dividends 98 97 390 162
--------- --------- ---------- ----------
Net Income/(Loss) Available for Common Stock ($404,560) ($4,033) ($141,482) $420,948
--------- --------- ---------- ----------
Basic and Diluted Earnings/(Loss)
Per Common Share ($1.42) ($0.01) ($0.50) $1.66
Dividends Declared Per Common Share $0.375 $0.375 $1.500 $1.500
Weighted Average Common Shares
Outstanding (000): 284,480 282,767 284,095 253,599
Reference is made to the Notes to the Consolidated Financial Statements
contained in the Annual Report of Houston Industries Incorporated. The
information furnished is given in response to your request for information
concerning the Company and not in connection with any sale or offer for sale
of, or solicitation of an offer to buy, any securities.
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Selected operating results are summarized below:
HOUSTON INDUSTRIES INCORPORATED
SELECTED DATA FROM STATEMENTS OF CONSOLIDATED INCOME (Thousands of Dollars,
except per share amounts) (Unaudited)
Quarter Ended Twelve Months Ended
December 31, December 31,
------------------------ --------------------------
1998 1997 1998 1997
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As Reported:
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Revenues $2,655,029 $2,777,622 $11,488,464 $6,878,225
Operating Income $225,732 $198,435 $1,477,388 $1,064,500
Net Income/(Loss) Available for Common Stock ($404,560) ($4,033) ($141,482) $420,948
Basic and Diluted Earnings/(Loss) Per Common Share ($1.42) ($0.01) ($0.50) $1.66
Weighted Average Common Shares Outstanding (000) 284,480 282,767 284,095 253,599
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As Adjusted for Non-recurring and Other Items:
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Net Income/(Loss) Available for Common Stock ($404,560) ($4,033) ($141,482) $420,948
Non-recurring and other charges, after tax :
Unrealized loss on ACES 449,931 78,911 764,537 78,911
Interest income - IRS refund (36,575) (638) (36,575)
---------- ---------- ----------- ----------
Adjusted Earnings $45,371 $38,303 $622,417 $463,284
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Adjusted Basic and Diluted Earnings Per Share $0.16 $0.14 $2.19 $1.83
Other Items:
EDELAP Gain: ($000's) $80,000
Per Share $0.28
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Operating Income by Segment (in millions)
- -----------------------------------------
Electric Operations $159 $112 $1,014 $995
Natural Gas Distribution 63 61 138 55
Interstate Pipeline 36 21 128 32
Wholesale Energy (9) 1 59 1
International 5 5 182 20
Corporate (28) (2) (44) (38)
---------- ---------- ----------- ----------
Total $226 $198 $1,477 $1,065
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FOR ADDITIONAL INFORMATION PLEASE CONTACT:
Randy Burkhalter
(713) 207-3115
Dennis Barber
(713) 207-3042