--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number 1-15759
September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
CLECO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 72-1445282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2030 DONAHUE FERRY ROAD, PINEVILLE, LOUISIANA 71360-5226
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (318) 484-7400
Indicate by check mark whether the Registrant: (1) has 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
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
As of November 1, 2000, there were 22,495,320 shares outstanding of the
Registrant's Common Stock, par value $2.00 per share.
<PAGE>
TABLE OF CONTENTS
PAGE
AMENDMENT .......................................................... 1
GLOSSARY OF TERMS ....................................................... 2
PART I. FINANCIAL INFORMATION.......................................... 4
Item 1. Financial Statements
Consolidated Interim Statements of Income (Restated).... 5
Consolidated Interim Balance Sheets..................... 7
Consolidated Interim Statements of Cash Flows........... 9
Notes to Consolidated Interim Financial 2000............ 10
SIGNATURE................................................................ 20
<PAGE>
AMENDMENT
This Amendment No. 1 of the Quarterly Report on Form 10-Q/A replaces
Item 1 of the Company's Quarterly Report on Form 10-Q filed on November 14,
2000 for the quarterly period ended September 30, 2000.
1
<PAGE>
GLOSSARY OF TERMS
THE FOLLOWING ABBREVIATIONS OR ACRONYMS USED IN THIS FORM 10-Q ARE DEFINED
BELOW:
ABBREVIATION OR ACRONYM DEFINITION
1935 Act........................... Public Utility Holding Company Act of 1935
1999 Form 10-K..................... The Company's Annual Report on Form 10-K for
the year ended December 31, 1999
Acadia Tolling Agreement........... Capacity Sale and Tolling Agreement between
APP and Aquila Energy
APB................................ Accounting Principals Board
APB No. 18......................... The Equity Method of Accounting for
Investments in Common Stock
APB No. 25......................... Accounting for Stock Issued to Employees
APP................................ Acadia Power Partners LLC
CMT................................ Cleco Marketing & Trading LLC
Company............................ Cleco Corporation
CPS................................ Coughlin Power Station
DHMV............................... Dolet Hills Mining Venture
EITF............................... Emerging Issues Task Force
EITF No. 98-10..................... Accounting for Contracts Involved in Energy
Trading and Risk Management Activities
Energy............................. Cleco Energy, LLC
ESOP............................... The Company's Employee Stock Ownership Plan
Evangeline......................... Cleco Evangeline LLC
Evangeline Tolling Agreement....... Capacity Sale and Tolling Agreement between
Evangeline and Williams
FASB............................... Financial Accounting Standards Board
Federal Court Suit................. Lawsuit filed by Utility Group and SWEPCO on
April 15, 1997 against DHMV and its
partners in the United States District
Court for the Western District of
Louisiana
FERC............................... Federal Energy Regulatory Commission
Four Square Gas.................... Four Square Gas Company, Inc.
Four Square Production............. Four Square Production, L.L.C.
kWh................................ Kilowatt-hour
LDEQ............................... Louisiana Department of Environmental
Quality
LMA................................ Lignite Mining Agreement between Utility
Group, SWEPCO and DHMV
LPSC............................... Louisiana Public Service Commission
Midstream.......................... Cleco Midstream Resources LLC
MW................................. Megawatt
Rights Plan........................ Shareholder Rights Plan
RTO................................ Regional Transmission Organization
SFAS............................... Statement of Financial Accounting Standards
SFAS No. 13 ....................... Accounting for Leases
SFAS No. 29 ....................... Determining Contingent Rentals
SFAS No. 58 ....................... Capitalization of Interest Cost in Financial
Statements That Include Investments
Accounted for by the Equity Method
SFAS No. 128 ...................... Earnings per Share
SFAS No. 131....................... Disclosures about Segments of an Enterprise
and Related Information
SFAS No. 133....................... Accounting for Derivative Instruments and
Hedging Activities
SFAS No. 137....................... Accounting for Derivative Instruments and
Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133
(Continued on next page)
2
<PAGE>
THE FOLLOWING ABBREVIATIONS OR ACRONYMS USED IN THIS FORM 10-Q ARE DEFINED
BELOW:
ABBREVIATION OR ACRONYM DEFINITION
State Court Suit.................... Lawsuit filed by Utility Group and
SWEPCO on August 13, 1997 against the
parent companies of DHMV in the First
Judicial District Court for Caddo
Parish, Louisiana
SWEPCO.............................. Southwestern Electric Power Company
UtiliTech........................... Utility Construction & Technology
Solutions LLC
Utility Group....................... Cleco Utility Group Inc.
VAR................................. Value-at-risk
Williams............................ Williams Energy Marketing and Trading
Company
3
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated interim financial statements for the Company included
herein are unaudited but reflect, in management's opinion, all adjustments,
consisting only of normal recurring adjustments, that are necessary for a fair
presentation of the Company's financial position and the results of its
operations for the interim periods presented. Because of the seasonal nature of
several of the Company's subsidiaries, the results of operations for the nine
months ended September 30, 2000 are not necessarily indicative of the results
that may be expected for the full fiscal year. The financial statements included
herein should be read in conjunction with the financial statements and notes
thereto included in the Company's 1999 Form 10-K.
Effective July 1, 1999, Utility Group reorganized into a holding
company structure. This reorganization resulted in the creation of the Company
as a new holding company. Pursuant to the reorganization, the Company became the
owner of all of Utility Group's outstanding common stock. Holders of Utility
Group's existing common stock and two series of preferred stock exchanged their
stock in Utility Group for stock in the Company. Shares of preferred stock in
three series that did not approve the reorganization were redeemed for $5.7
million. The reorganization had no impact on the Company's Consolidated
Financial Statements because the reorganization was accounted for similarly to a
pooling of interest.
4
<PAGE>
CLECO CORPORATION
CONSOLIDATED INTERIM STATEMENTS OF INCOME
(RESTATED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except share and
per share amounts)
2000 1999
---- ----
OPERATING REVENUES
<S> <C> <C>
Retail electrical operations $ 203,144 $ 157,939
Energy marketing and tolling operations 66,192 126,231
Other operations 4,340 1,465
----------- -----------
Gross operating revenue 273,676 285,635
Less: retail electric customer credits 8 200
----------- -----------
Total operating revenue 273,668 285,435
----------- -----------
OPERATING EXPENSES
Fuel used for electric generation 53,605 49,462
Power purchased for utility customers 54,381 17,770
Purchases for energy marketing operations 34,542 114,244
Other operation 33,843 24,015
Maintenance 11,390 9,672
Depreciation 15,811 12,785
Taxes other than income taxes 10,291 9,798
----------- -----------
Total operating expenses 213,863 237,746
----------- ------------
157,255
OPERATING INCOME 59,805 47,689
Allowance for other funds used during construction 3 431
Other income and expenses, net 1,992 (525)
----------- -----------
INCOME BEFORE INTEREST CHARGES 61,800 47,595
Interest charges, including amortization of 14,647 7,324
debt expenses, premium and discount
Allowance for borrowed funds used during construction 12 292
----------- -----------
NET INCOME BEFORE INCOME TAXES AND 47,141 39,979
PREFERRED DIVIDENDS
Federal and state income taxes 16,998 14,364
----------- -----------
NET INCOME BEFORE PREFERRED DIVIDENDS 30,143 25,615
Preferred dividend requirements, net 466 463
----------- -----------
NET INCOME APPLICABLE TO COMMON STOCK $ 29,677 $ 25,152
============ ===========
AVERAGE SHARES OF COMMON STOCK OUTSTANDING
Basic 22,488,037 22,505,311
Diluted 23,831,122 23,842,136
EARNINGS PER AVERAGE SHARE
Basic $ 1.32 $ 1.12
Diluted $ 1.26 $ 1.07
CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 0.425 $ 0.415
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED INTERIM
FINANCIAL STATEMENTS.
5
<PAGE>
CLECO CORPORATION
CONSOLIDATED INTERIM STATEMENTS OF INCOME
(RESTATED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except share and
per share amounts)
2000 1999
---- ----
<S> <C> <C>
OPERATING REVENUES
Retail electrical operations $ 462,168 $ 389,278
Energy marketing and tolling operations 131,520 243,989
Other operations 12,080 1,465
----------- -----------
Gross operating revenue 605,768 634,732
Less: retail electric customer credits 1,233 5,100
----------- -----------
Total operating revenue 604,535 629,632
----------- -----------
OPERATING EXPENSES
Fuel used for electric generation 127,654 103,343
Power purchased for utility customers 94,425 52,966
Purchases for energy marketing operations 91,096 230,266
Other operation 77,729 57,546
Maintenance 27,112 23,535
Depreciation 40,762 37,747
Taxes other than income taxes 28,628 27,531
----------- -----------
Total operating expenses 487,406 532,934
----------- -----------
OPERATING INCOME 117,129 96,698
Allowance for other funds used during construction 657 547
Other income and expenses, net 3,229 (1,165)
----------- -----------
INCOME BEFORE INTEREST CHARGES 121,015 96,080
Interest charges, including amortization of
debt expenses, premium and discount 34,005 21,201
Allowance for borrowed funds used during construction (226) 108
----------- -----------
NET INCOME BEFORE INCOME TAXES,
PREFERRED DIVIDENDS AND EXTRAORDINARY ITEM 87,236 74,771
Federal and state income taxes 29,957 26,375
----------- -----------
NET INCOME BEFORE PREFERRED DIVIDENDS AND EXTRAORDINARY ITEM 57,279 48,396
Extraordinary item, net of income taxes 2,508 -
----------- -----------
NET INCOME BEFORE PREFERRED DIVIDENDS 59,787 48,396
Preferred dividend requirements, net 1,400 1,510
----------- -----------
NET INCOME APPLICABLE TO COMMON STOCK $ 58,387 $ 46,886
=========== ===========
AVERAGE SHARES OF COMMON STOCK OUTSTANDING
Basic 22,467,360 22,511,703
Diluted 23,801,939 23,861,981
EARNINGS PER AVERAGE SHARE
Basic
Income before extraordinary item $ 2.49 $ 2.08
Net income applicable to common stock $ 2.60 $ 2.08
Diluted
Income before extraordinary item $ 2.40 $ 2.02
Net income applicable to common stock $ 2.51 $ 2.02
CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 1.265 $ 1.235
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED INTERIM
FINANCIAL STATEMENTS.
6
<PAGE>
CLECO CORPORATION
CONSOLIDATED INTERIM BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
At At
September 30, 2000 December 31, 1999
------------------ -----------------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 26,110 $ 25,161
Accounts receivable, net 115,540 47,213
Unbilled revenues 29,970 20,816
Fuel inventory, at average cost 7,269 10,461
Materials and supplies inventory, at average cost 15,527 14,768
Assets for sale - 2,466
Accumulated deferred fuel 10,643 -
Other current assets 6,599 4,475
----------- ----------
Total current assets 211,658 125,360
----------- ----------
Equity investment in investee 51,779 -
----------- ----------
Property, plant and equipment
Property, plant and equipment 1,804,461 1,567,155
Accumulated depreciation (592,296) (555,675)
------------ ----------
Net property, plant and equipment 1,212,165 1,011,480
Construction work-in-progress 42,085 187,988
----------- ----------
Total property, plant and equipment, net 1,254,250 1,199,468
----------- ----------
Other assets 2,940 4,225
Prepayments 13,542 6,427
Restricted cash 65,588 77,251
Regulatory assets - deferred taxes 70,890 70,833
Other deferred charges 45,325 38,213
Accumulated deferred federal and state income taxes 50,714 55,705
----------- ----------
TOTAL ASSETS $ 1,766,686 $1,577,482
=========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED INTERIM
FINANCIAL STATEMENTS.
(Continued on next page)
7
<PAGE>
CLECO CORPORATION
CONSOLIDATED INTERIM BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except share amounts)
At At
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 75,193 $ 25,989
Long-term debt due within one year 29,722 27,374
Accounts payable 70,555 74,700
Retainage 8,755 7,733
Accrued Payroll 2,403 -
Customer deposits 20,503 20,326
Taxes accrued 33,492 4,786
Interest accrued 6,280 9,634
Accumulated deferred fuel - 2,638
Other current liabilities 7,523 5,263
---------- ---------
Total current liabilities 254,426 178,443
Deferred credits
Accumulated deferred federal and state income taxes 264,916 252,846
Accumulated deferred investment tax credits 24,688 25,994
Regulatory liabilities - deferred taxes 38,840 38,337
Other deferred credits 39,560 49,722
---------- ---------
Total deferred credits 368,004 366,899
Long-term debt, net 659,845 579,595
---------- ---------
Total liabilities 1,282,275 1,124,937
---------- ---------
Shareholders' equity
Preferred stock
Not subject to mandatory redemption 28,090 28,880
Deferred compensation related to preferred stock held by ESOP (13,123) (14,991)
---------- ---------
Total preferred stock not subject to mandatory redemption 14,967 13,889
Common shareholders' equity
Common stock, $2 par value, authorized 50,000,000 shares,
issued 22,531,870 shares at September 30, 2000
and December 31, 1999 45,064 45,064
Premium on capital stock 112,075 112,733
Long-term debt payable in Company's common stock 519 1,036
Retained earnings 312,927 282,825
Treasury stock, at cost, 37,166 and 90,094 shares at
September 30, 2000 and December 31, 1999, respectively (1,141) (3,002)
---------- ---------
Total common equity 469,444 438,656
---------- ---------
Total shareholders' equity 484,411 452,545
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,766,686 $1,577,482
========== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED INTERIM
FINANCIAL STATEMENTS.
8
<PAGE>
CLECO CORPORATION
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income before preferred dividends $ 59,787 $ 48,396
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation and amortization 41,699 38,213
Allowance for funds used during construction (883) (439)
Amortization of investment tax credits (1,306) (1,343)
Deferred income taxes 5,753 (1,616)
Deferred fuel costs (13,281) (5,391)
Extraordinary gain, net of income tax (2,508) -
Gain on disposition of plant, net - (108)
Changes in assets and liabilities
Accounts receivable, net (68,327) (81,405)
Unbilled revenues (9,154) (7,810)
Fuel inventory, materials and supplies 2,433 (8,298)
Accounts payable (720) 55,883
Customer deposits 177 (6)
Other deferred accounts (6,252) 3,338
Taxes accrued 27,238 31,377
Interest accrued (3,354) (5,170)
Other, net (72) 4,917
-------- --------
Net cash provided by operating activities 31,230 70,538
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (91,641) (114,262)
Allowance for funds used during construction 883 439
Proceeds from sale of property, plant and equipment 303 208
Equity investment in investee (50,845) -
Purchase of Investments - (240)
-------- --------
Net cash used in investing activities (141,300) (113,855)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock - 243
Reacquisition of common stock - (1,545)
Cash transferred from restricted account 11,663 -
Increase in short-term debt, net 48,749 61,146
Retirement of long-term obligations (29,780) (10,639)
Issuance of long-term debt 110,216 50,652
Redemption of preferred stock - (6,518)
Dividends paid on common and preferred stock, net (29,829) (29,303)
-------- --------
Net cash provided by financing activities 111,019 64,036
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 949 20,719
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,161 19,457
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,110 $ 40,176
======== ========
Supplementary cash flow information
Interest paid (net of amount capitalized) $ 36,276 $ 28,751
======== ========
Income taxes paid $ 19,250 $ 10,422
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED INTERIM
FINANCIAL STATEMENTS.
9
<PAGE>
CLECO CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A. RECLASSIFICATION
Certain prior-period amounts have been reclassified to conform with the
presentation shown in the current year's consolidated financial statements of
the Company and its subsidiaries. These reclassifications had no effect on net
income applicable to common stock or common shareholders' equity.
NOTE B. SIGNIFICANT ACCOUNTING POLICIES
The Company considers the Evangeline Tolling Agreement to be an
operating lease as defined by SFAS No. 13 and SFAS No. 29 because of William's
ability to control the use of the plant for the next 20 years. The Evangeline
Tolling Agreement contains a monthly shaping factor which provides for a greater
portion of annual revenue to be received by the Company during the summer
months, which is designed to coincide with the physical usage of the plant. SFAS
No. 13 generally requires lessors to recognize revenue using a straight-line
approach unless another rational allocation of the revenue is more
representative of the pattern in which the leased property is employed. The
Company believes that the recognition of revenue pursuant to the monthly shaping
factor is a rational allocation method, which better reflects the expected usage
of the plant. Certain provisions of the Evangeline Tolling Agreement, such as
bonuses, are considered contingent rents as defined by SFAS No. 29. Contingent
rents are recorded as revenue in the period in which the contingency is met.
Revenue is subject to be reduced by certain penalty clauses contained in the
Evangeline Tolling Agreement. At September 30, 2000, Management has determined
that the penalties are remote and revenue was not reduced by penalties.
NOTE C. LEGAL PROCEEDING: FUEL SUPPLY - LIGNITE
Utility Group and SWEPCO, each a 50% owner of Dolet Hills Unit 1, jointly
own lignite reserves in the Dolet Hills area of northwestern Louisiana. In 1982,
Utility Group and SWEPCO entered into the LMA with the DHMV, a partnership for
the mining and delivery of lignite from a portion of these reserves (Dolet Hills
Mine). The LMA expires in 2011. The price of lignite delivered pursuant to the
LMA is a base price per ton, subject to escalation based on certain inflation
indices, plus specified "pass-through" costs.
Currently, Utility Group is receiving annually a minimum delivery of
1,750,000 tons under the LMA. Since the late 1980s, additional spot lignite
deliveries have been obtained through competitive bidding from DHMV and another
lignite supplier. In 1999, Utility Group and SWEPCO received deliveries which
approximated 25% of the annual lignite consumption at the Dolet Hills Unit 1
from the other lignite supplier.
On April 15, 1997, Utility Group and SWEPCO filed the Federal Court Suit
against DHMV and its partners seeking to enforce various obligations of DHMV to
Utility Group and SWEPCO under the LMA, including provisions relating to the
quality of the delivered lignite,
10
<PAGE>
pricing, and mine reclamation practices. On June 15, 1997, DHMV filed an answer
denying the allegations in Utility Group's suit and filed a counterclaim
asserting various contract-related claims against Utility Group and SWEPCO.
Utility Group and SWEPCO have denied the allegations in the counterclaims.
As a result of the counterclaims filed by DHMV in the Federal Court Suit,
on August 13, 1997, Utility Group and SWEPCO filed the State Court Suit against
the parent companies of DHMV, namely Jones Capital Corporation and Philipp
Holzmann USA, Inc. The State Court Suit seeks to enforce a separate 1995
agreement by Jones Capital Corporation and Philipp Holzmann USA, Inc. related to
the LMA. Jones Capital Corporation and Philipp Holzmann USA, Inc. have asked the
state court to stay that proceeding until the Federal Court Suit is resolved.
On March 1, 2000, the court in the Federal Court Suit ruled that DHMV was
not in breach of certain financial covenants under the LMA and denied Utility
Group's and SWEPCO's claim to terminate the LMA on that basis. The ruling has no
material adverse effect on the operations of Utility Group and does not affect
the other claims scheduled for trial. Utility Group and SWEPCO have appealed the
federal court's ruling to the United States Court of Appeals for the Fifth
Circuit.
The civil, nonjury trial in the Federal Court Suit was to have commenced
on May 22, 2000. However, on April 20, 2000, all parties jointly requested that
the court postpone the trial date and grant a 120-day stay of all matters before
the trial court to give the parties an opportunity to attempt to reach an
amicable resolution of the litigation. A preliminary memorandum of understanding
to settle the litigation has been executed among Utility Group, SWEPCO, and
DHMV. The memorandum of understanding, however, is subject to several conditions
precedent that are not yet fulfilled, including prior authorization by the LPSC
of favorable rate recovery of the settlement by Utility Group and SWEPCO. The
federal court granted the motion, stayed the action at the trial court and
postponed the trial commencement date to October 23, 2000. At a status
conference held on July 12, 2000, the court extended the stay of the proceedings
and again postponed the trial date to January 16, 2001. Settlement negotiations
are on-going during the pendency of the stay.
Should settlement discussions be unsuccessful, Utility Group and SWEPCO
will continue aggressively to prosecute the claims against DHMV and defend
against the counterclaims that DHMV has asserted. Utility Group and SWEPCO
continue to pay DHMV for lignite delivered pursuant to the LMA. Normal
day-to-day operations continue at the Dolet Hills Mine and Dolet Hills Unit 1.
Although the ultimate outcome of this litigation or the settlement negotiations
cannot be predicted at this time, based on information currently available to
the Company, management does not believe that the outcome of the Federal Court
Suit or any settlement in the Federal Court Suit will have a material adverse
effect on the Company's financial position or results of operations.
NOTE D. EXTRAORDINARY GAIN
In March 2000, Four Square Gas, a wholly owned subsidiary of Energy,
which is 98% owned by Midstream, paid a third party $2.1 million for a note with
a face value of
11
<PAGE>
approximately $6.0 million issued by Four Square Production, another wholly
owned subsidiary of Energy. The note relates to the production assets held by
Four Square Production which were classified as assets available for sale,
described in "Note E. Assets Held for Sale," below. As part of the transaction,
the third-party debtholder sold the note, associated mortgage, deed of trust and
pledge agreement and assigned a 5% overriding royalty interest in the production
assets to Four Square Gas. Four Square Gas paid, in addition to the $2.1
million, a total of 4.5% in overriding royalty interest in the production
assets. Four Square Gas borrowed the $2.1 million from the Company. The gain of
approximately $3.9 million was offset against the income tax related to the gain
of approximately $1.4 million to arrive at the extraordinary gain, net of income
tax, of approximately $2.5 million. For the nine months ended September 30,
2000, the extraordinary gain, net of income tax, had a basic and diluted
earnings per share impact of $0.11.
NOTE E. ASSETS HELD FOR SALE
Certain oil and gas properties held by Energy were previously
identified as "Assets Held for Sale" and were accounted for in accordance with
the provisions of EITF Consensus No. 87-11, "Allocation of Purchase Price to
Assets to Be Sold." As of September 30, 2000, the Company has discontinued
actively searching for a buyer for these assets, resulting in the
reclassification of the book value of the assets to property, plant and
equipment. Long-term debt of approximately $6.0 million relating to the
acquisition of the oil and gas properties was purchased by an affiliate as
described in "Note D. Extraordinary Gain," above.
NOTE F. DISCLOSURES ABOUT SEGMENTS
The Company has determined that its reportable segments are based on the
Company's method of internal reporting, which disaggregates its business units
by first-tier subsidiary. Reportable segments were determined by applying SFAS
No. 131. The Company's reportable segments are Utility Group and Midstream. The
Other segment consists of costs within the parent company, costs within a shared
services subsidiary, start-up costs associated with a retail services
subsidiary, activities of UtiliTech and revenue and expenses associated with an
investment subsidiary. These subsidiaries operate within Louisiana, Delaware and
several states bordering Louisiana. In previous reporting periods, UtiliTech was
a separate reportable segment. However, management has determined that UtiliTech
does not meet the quantitative thresholds of a reportable segment as defined by
SFAS No. 131. UtiliTech is included in the Other segment. All previous reporting
periods presented have been adjusted to reflect the change in reportable
segments.
Each reportable segment engages in business activities from which it
earns revenues and incurs expenses. Segment managers report at least monthly to
the Company's CEO (the chief decision maker) with discrete financial information
and present quarterly discrete financial information to the Company's Board of
Directors. Budgets were prepared by each reportable segment for 2000, which were
presented to, and approved by, the Company's Board of Directors. The reportable
segments exceeded the quantitative thresholds as defined in SFAS No. 131.
The financial results of the Company's segments are presented on an
accrual basis. Significant differences among the accounting policies of the
segments as compared to the Company's consolidated financial statements
principally involve the classification of revenue
12
<PAGE>
and expense between operating and other. Management evaluates the performance of
its segments and allocates resources to them based on segment profit (loss)
before income taxes and preferred stock dividends. In the first six months of
1999, Midstream and the Other segment reported profit (loss) as other income
(expense) within Utility Group. For purposes of this footnote, gross amounts of
revenue and expenses are reported on the appropriate line. The Unallocated
Items, Reclassifications & Eliminations column reclassifies the items of revenue
and expense recorded under the equity method to other income (expense). Material
intersegment transactions occur on a regular basis.
The tables below present information about the reported operating
results and net assets of the Company's reportable segments.
13
<PAGE>
SEGMENT INFORMATION
FOR THE QUARTER ENDING SEPTEMBER 30
(IN THOUSANDS)
<TABLE>
<CAPTION>
============================================================================================================
Unallocated
Items,
Reclassifications
2000 Utility &
Group Midstream Others Eliminations Consolidated
----- --------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues
Retail electric operations $ 203,144 - - - $ 203,144
Energy marketing operations 2,592 $ 63,600 - - 66,192
Other operations - (229) $ 4,569 - 4,340
Customer credits (8) - - - (8)
---------- --------- --------- ---------- ----------
Total operating revenue $ 205,728 $ 63,371 $ 4,569 - $ 273,668
========== ========= ========= =========== ==========
Intersegment revenue $ 605 $ 9,703 $ 27,479 $ (37,787) -
------------------------------- $ 31,023 $ 18,861 $ (2,743) - $ 47,141
Segment profit (loss) (1)
Segment assets at 9/30/00 $1,309,825 $ 408,085 $ 384,809 (336,033) $1,766,686
Segment profit $47,141
(1) Reconciliation of segment profit to consolidated profit Unallocated items
Income taxes 16,998
Preferred dividends 466
-------
$29,677
<CAPTION>
=============================================================================================================
1999
<S> <C> <C> <C> <C> <C>
Revenues
Retail electric operations $ 157,939 - - - $ 157,939
Energy marketing operations 113,474 $ 13,904 - $ (1,147) 126,231
Other operations - - $ 1,465 - 1,465
Customer credits (200) - - - (200)
----------- --------- --------- ---------- ----------
Total operating revenue $ 271,213 $ 13,904 $ 1,465 $ (1,147) $ 285,435
========== ========= ========= ========== ==========
Intersegment revenue $ 4,259 $ 4,365 $ 14,896 $ (23,365) -
Segment profit (loss) (1) $ 36,321 $ 3,508 $ 150 - $ 39,979
Segment assets at 12/31/1999 $1,525,570 $ 153,321 $ 356,810 $ (346,821) $1,688,880
------------------------------------------
Segment profit $ 39,979
(1) Reconciliation of segment profit to consolidated profit Unallocated items
Income taxes 14,364
Preferred dividends 463
---------
$ 25,152
</TABLE>
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<PAGE>
SEGMENT INFORMATION
FOR THE NINE MONTHS ENDING SEPTEMBER 30
(IN THOUSANDS)
<TABLE>
<CAPTION>
=============================================================================================================
Unallocated Items,
2000 Reclassifications
Utility &
Group Midstream Others Eliminations Consolidated
----- --------- ------ ----------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Retail electric operations $ 462,168 - - - $ 462,168
Energy marketing operations 13,000 $ 118,520 - - 131,520
Other operations - 336 $ 11,744 - 12,080
Customer credits (1,233) - - - (1,233)
----------- --------- -------- ---------- ----------
Total operating revenue $ 473,936 $ 118,856 $ 11,744 - $ 604,535
========== ========= ======== ========== ==========
Intersegment revenue $ 7,781 $ 29,585 $ 76,980 $ (114,346) -
Segment profit (loss) before
Extraordinary item (1) $ 75,264 $ 18,649 $ (6,677) - $ 87,236
Segment profit (loss) (2) $ 75,264 $ 21,157 $ (6,677) - $ 89,744
Segment profit $ 89,744
(1) Reconciliation of segment profit to consolidated profit Unallocated items
Income taxes 29,957
Preferred dividends 1,400
-----
$ 58,387
==========
(2) Includes extraordinary gain, net of income tax
<CAPTION>
=============================================================================================================
1999
<S> <C> <C> <C> <C> <C>
Revenues
Retail electric operations $ 389,278 - - - $ 389,278
Energy marketing operations $ 230,418 $ 14,846 - $ (1,275) $ 243,989
Other operations - - $ 3,559 $ (2,094) $ 1,465
Customer credits $ (5,100) - - - $ (5,100)
---------- -------- -------- -------- ----------
Total operating revenue $ 614,596 $ 14,846 $ 3,559 $ (3,369) $ 629,632
========== ======== ======== ======== ==========
Intersegment revenue $ 4,259 $ 5,954 $ 16,302 $(26,515) -
Segment profit (loss) before
extraordinary item (1) $ 71,112 $ 2,567 $ 928 $ 164 $ 74,771
Segment profit (loss) $ 71,112 $ 2,567 $ 928 $ 164 $ 74,711
Segment profit $ 74,771
(1) Reconciliation of segment profit to consolidated profit Unallocated items
Income taxes 26,375
Preferred dividends 1,510
---------
$ 46,886
=========
</TABLE>
NOTE G. EVANGELINE PROJECT CONSTRUCTION
On July 8, 2000, Unit #7 of the Evangeline power plant was declared in
commercial operation. The other unit at the plant, Unit #6, was declared in
commercial operation during June 2000. Revenues and operating expenses
associated with Unit #7 prior to July 8 are reflected in construction work in
progress on the Company's consolidated interim balance sheet.
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<PAGE>
Revenues and operating expenses relating to both units are reflected on the
Company's consolidated interim statement of income after they were declared in
commercial operation.
NOTE H. OPTIONS ON COMMON STOCK
In July 2000, the Company granted basic and premium non-qualified stock
options under its 2000 Long-Term Incentive Compensation Plan to directors and
key employees. Basic options have an exercise price approximately equal to the
fair market value of the stock at grant date. Premium options have three
exercise prices that are above the fair market value of the stock at grant date.
Both types of options granted in July 2000 vest one-third each year beginning on
the third anniversary of the grant date and expire after ten years. In
accordance with APB No. 25, the Company has not recognized any compensation
expense for the stock options granted.
NOTE I. EARNINGS PER SHARE
During 1999 and 2000, the Company granted basic and premium
non-qualified stock options under its incentive compensation plans. The 54,000
premium options granted in 2000 were considered antidilutive during the
three-month and nine-month periods ended September 30, 2000, as defined by SFAS
No. 128, and were excluded from the calculation of diluted earnings per share.
NOTE J. RESTRICTED CASH
Restricted cash represents cash to be used for specific purposes.
Approximately $15 million in restricted cash represents deposits into an escrow
account for credit support as required by a provision of the Evangeline Tolling
Agreement between Evangeline and Williams. The credit support is to be
maintained as security for the performance of certain obligations by Evangeline
in regard to the Evangeline Tolling Agreement. Upon the fulfillment of certain
conditions specified in the agreement, the credit support can be reduced to $13
million. The remaining $50.6 million of restricted cash consists of the
remaining proceeds from the sale of Evangeline senior secured bonds, a $38.6
million equity infusion from Midstream and cash received from Williams pursuant
to the Evangeline Tolling Agreement. The construction of the project is
substantially complete and the plant has begun commercial operation. However,
the $50.6 million of restricted cash remains restricted under the bond indenture
until certain of its provisions are met.
NOTE K. EQUITY INVESTMENT IN INVESTEE
Equity investment in investee represents Midstream's approximately $51.8
million investment in APP. APP is a joint venture 50% owned by Midstream and 50%
owned by Calpine Corporation. APP was formed in order to construct, own and
operate a 1,000 MW, natural gas-fired electric plant to be located near Eunice,
Louisiana. The Company reports its investment in APP on the equity method of
accounting as defined in APB No. 18.
Midstream's member's equity as reported in the unaudited interim balance
sheet of APP at September 30, 2000 was $50.8 million. The majority of the
difference of $1.0 million between
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<PAGE>
the equity investment in investee and the member's equity was the interest
capitalized on funds used to contribute to APP as required by SFAS No. 58.
NOTE L. PROCEEDINGS BEFORE THE LPSC
Several Louisiana-based contractors providing utility line construction
services instituted a proceeding via petition with the LPSC on April 9, 1999
alleging subsidization by Utility Group to a non-regulated affiliate, Cleco
Services LLC, now operating as UtiliTech. The LPSC has assigned Docket No
U-24064 to the complaint. The complainants, LPSC staff and Utility Group have
conducted discovery, pre-filed testimony has been prepared and depositions
taken. On September 6, 2000, Utility Group and the complainants signed an
agreement to settle the dispute. The terms of the settlement did not result in a
material impact to the Company's results of operations or financial condition.
In connection with this proceeding, LPSC staff has engaged the services
of an outside consultant. The outside consultant has filed testimony on behalf
of the LPSC staff identifying several possible ratemaking adjustments to the
Company's previous and future Rate Stabilization Plan filings that could affect
Utility Group's customer credits. On October 3, 2000, Utility Group and the
staff of the LPSC signed an agreement resolving all outstanding issues, which
the LPSC approved on November 2, 2000. The settlement resulted in an increase to
Utility Group's customer credits of approximately $500,000, which will be paid
to Utility Group's customers in September 2001.
NOTE M. LDEQ LITIGATION
In August 2000, two lawsuits were filed in the 19th Judicial District
Court in Baton Rouge, Louisiana against LDEQ, seeking the modifications or
reversal of the air and water permits issued by LDEQ on APP's Acadia project.
The plaintiffs in both suits allege that LDEQ did not follow proper procedure in
granting the air and water permits. APP, the project entity of which the Company
has a 50% interest, has intervened in both matters to protect its interests.
The two lawsuits have been consolidated for hearing. The proceeding is
in its preliminary stages, and no hearing date has been set. Although management
is unable to predict the outcome of this proceeding, management believes that
ultimately LDEQ will be found to have acted properly in issuing the permits and
that the proceeding will not have a material adverse effect on the Company's
financial position or results of operations.
NOTE N. NEW ACCOUNTING STANDARD
Periodically the FASB issues Statements of Financial Accounting
Standards. These statements reflect accounting, reporting and disclosure
requirements the Company should follow in the accumulation of financial data and
in the presentation of financial statements. The FASB, a nongovernmental
organization, is the primary source of generally accepted accounting principles
within the United States.
17
<PAGE>
In 1998, the FASB issued SFAS No. 133, which established accounting and
reporting standards requiring that every derivative instrument (including
certain derivatives embedded in other contracts) be recorded on the balance
sheet as either an asset or liability measured at its fair value. This statement
requires that changes in the derivative's fair value be recognized in current
earnings, unless effective accounting criteria are met, where changes in the
fair value of the derivative would be recorded in other comprehensive income in
the equity section of the balance sheet. In June 1999, the FASB issued SFAS No.
137, which deferred the effective start date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, which
amended SFAS No. 133.
The Company will implement the requirements of these accounting
standards effective January 1, 2001. In early 2000, the Company organized a
cross-functional project team for the implementation of SFAS No. 133, as
amended. The team has completed an inventory of the majority of the Company's
financial instruments, commodity contracts and other commitments and has
assessed the Company's derivative-related transactions identified in this
inventory. This assessment led to the determination that Utility Group and
Midstream are both expected to be impacted by this standard.
Utility Group
Utility Group has entered into certain forward and option contracts for
the future purchase or sale of electricity and natural gas that meet the
derivative criteria of SFAS No. 133, as amended. Utility Group currently records
changes in the fair value (mark-to-market), due to changes in the underlying
commodity prices, for certain of these contracts in current earnings. These
changes are influenced by various market factors, including weather and the
availability of regional electric generation and transmission capacity. The team
expects that application of SFAS No. 133, as amended, will cause Utility Group
to reflect certain transactions in other comprensive income based on the
effectiveness of hedges. The team has not yet determined the amount of other
comprehensive income to be reflected on the statements of income and other
comprehensive income.
Midstream
CMT, a subsidiary of Midstream, engages in activities that are
considered "trading" as defined by EITF 98-10. All of CMT's positions are
currently being marked-to-market under the rules of EITF 98-10. As such,
implementation of SFAS No. 133, as amended, will not have an impact on the
current accounting procedures or results of CMT.
The implementation team is currently completing the assessment of the
impact of SFAS No. 133, as amended, on the operating results of Energy and
Evangeline, both of which are also subsidiaries of Midstream. Energy engages in
the wholesale marketing of natural gas and the production, gathering and
transmission of natural gas. Certain contracts between Energy and outside
parties involve forward purchases and sales that may be considered derivatives.
The proper accounting for these transactions under SFAS No. 133, as amended, is
currently under review, but is not expected to have a material effect on
reported results. Evangeline owns and operates a 750 MW wholesale electric
generating facility and "tolls" the output under the provisions of the
Evangeline Tolling Agreement. Provisions of the Evangeline Tolling
18
<PAGE>
Agreement that contain derivative-type clauses are being assessed at this time.
The effect of accounting changes required by this standard for Evangeline will
be reflected in other comprehensive income.
NOTE P. SUBSEQUENT EVENT
On October 20, 2000, APP executed the Acadia Tolling Agreement with
Aquila Energy. Under the terms of the agreement, for 20 years Aquila will
provide the natural gas needed for 580 MW of the 1,000 MW capacity at the Acadia
facility and will have the right to own and market the electricity produced. APP
will collect a fee from Aquila for operating and maintaining the Acadia
facility.
19
<PAGE>
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.
CLECO CORPORATION
(Registrant)
By: /s/ R. Russell Davis
-----------------------------------
R. Russell Davis
Vice President and
Corporate Controller
(Principal Accounting Officer)
Date: December 18, 2000
20
