<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number 1-5663
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 72-0244480
(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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b)OF THE ACT:
<TABLE>
<S> <C> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $2.00 Par Value New York Stock Exchange
Pacific Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g)OF THE ACT:
TITLE OF EACH CLASS
-------------------
Cumulative Preferred Stock, $100 Par Value
4.50%
4.50%, Series of 1955
4.65%, Series of 1964
4.75%, Series of 1965
Convertible, Series of 1991
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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
As of February 25, 1997, the aggregate value of the Registrant's voting stock
held by non-affiliates was $597,051,868. The Registrant's Cumulative Preferred
Stock is not listed on any exchange, nor are prices for the Cumulative
Preferred Stock quoted on NASDAQ; therefore, its market value is not readily
determinable and is not included in the foregoing amount.
As of March 14, 1997, there were 22,458,556 shares outstanding of the
Registrant's Common Stock, par value $2.00 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1996 (1996 Annual Report to Shareholders), furnished to the
Securities and Exchange Commission pursuant to Rule 14a - 3(b) under the
Securities Exchange Act of 1934, are filed as Exhibit 13 to this report and
incorporated by reference into Part II herein. Portions of the Registrant's
definitive Proxy Statement dated March 12, 1997, for the Annual Meeting of
Shareholders to be held on April 25, 1997, are incorporated by reference into
Part III herein.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
----
Disclosure Regarding Forward-Looking Statements.................................................. 1
PART I
<S> <C> <C> <C>
Item 1. Business
General............................................................................... 3
Electric Operations................................................................... 3
Regulatory and Environmental Matters.................................................. 8
Item 2. Properties............................................................................ 15
Item 3. Legal Proceedings..................................................................... 16
Item 4. Submission of Matters to a Vote
of Security Holders............................................................ 16
Executive Officers of the Registrant.................................................. 17
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters................................................ 19
Item 6. Selected Financial Data............................................................... 19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................................................... 20
Item 8. Financial Statements and
Supplementary Data............................................................. 20
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure........................................................... 20
PART III
Item 10. Directors and Executive Officers
of the Registrant.............................................................. 21
Item 11. Executive Compensation................................................................ 21
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................................................... 21
Item 13. Certain Relationships and Related
Transactions................................................................... 21
PART IV
Item 14. Exhibits, Financial Statement
Schedule, and Reports on Form 8-K.............................................. 22
</TABLE>
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this report, including, without
limitation, the statements under "Business -- Electric Operations -- Sales,"
"-- Regulatory and Environmental Matters -- Industry Developments/Customer
Choice," "-- Regulatory and Environmental Matters -- Environmental Quality,"
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Industry Developments/Customer Choice," "--Results of Operations,"
"-- Financial Condition -- Liquidity and Capital Resources," "-- Financial
Condition -- Regulatory Matters" and Note K to the Consolidated Financial
Statements contain forward-looking statements. Located elsewhere in this report
are forward-looking statements regarding sales growth, capital expenditures,
the Company's proposed Teche acquisition, the settlement of the Company's
earnings review approved by the Louisiana Public Service Commission (LPSC) in
October 1996, the Company's shelf registration statement, the effect of certain
recent Federal Energy Regulatory Commission (FERC) regulations, future
legislative and regulatory changes affecting electric utilities and other
matters. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, such forward-looking statements are
based on numerous assumptions (some of which may prove to be incorrect) and are
subject to risks and uncertainties which could cause the actual results to
differ materially from the Company's expectations. Forward-looking statements
have been and will be made in written documents and oral presentations of the
Company. Such statements are based on management's beliefs as well as
assumptions made by and information currently available to management. When
used in the Company's documents or oral presentations, the words "anticipate,"
"estimate," "expect," "objective," "projection," "forecast," "goal" and similar
expressions are intended to identify forward-looking statements. In addition to
any assumptions and other factors referred to specifically in connection with
such forward-looking statements, factors that could cause the Company's actual
results to differ materially from those contemplated in any forward-looking
statements include, among others, the following:
Factors affecting utility operations such as unusual weather
conditions; catastrophic weather-related damage; unscheduled
generation outages; unusual maintenance or repairs; unanticipated
changes to fuel costs, gas supply costs, or availability constraints
due to higher demand, shortages, transportation problems or other
developments; environmental incidents; or electric transmission or gas
pipeline system constraints;
Increased competition in the electric power market including effects
of: industry restructuring; transmission system operation or
administration; retail wheeling; or cogeneration;
Regulatory factors such as unanticipated changes in rate-setting
policies or procedures; recovery of investments made under traditional
regulation; and the frequency and timing of rate increases;
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Financial or regulatory accounting principles or policies imposed by
the Financial Accounting Standards Board, the Securities and Exchange
Commission, the FERC, the LPSC or similar entities with regulatory
oversight;
Economic conditions including inflation rates and monetary
fluctuations;
Changing market conditions and a variety of other factors associated
with physical energy and financial trading activities including, but
not limited to, price, basis, credit, liquidity, volatility, capacity,
transmission, interest rate and warranty risks;
Availability or cost of capital, resulting from changes in: the
Company, interest rates, and securities ratings or market perceptions
of the electric utility industry and energy-related industries;
Employee workforce factors including changes in key executives;
Legal and regulatory delays and other obstacles associated with
mergers, acquisitions, or investments in joint ventures;
Cost and other effects of legal and administrative proceedings,
settlements, investigations, claims and other matters; and
Changes in federal, state or local legislature requirements such as
changes in tax laws or rates, or environmental laws and regulations.
The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of changes in actual results,
changes in assumptions or other factors affecting such statements.
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PART I
ITEM 1. BUSINESS
GENERAL
Central Louisiana Electric Company, Inc. (the Company) was incorporated in
1934 under the laws of the State of Louisiana and is engaged principally in the
generation, transmission, distribution and sale of electric energy to
approximately 225,000 customers in 63 communities and contiguous rural areas in
a 14,000 square-mile region in the State of Louisiana. At December 31, 1996,
the Company employed 1,215 persons. The Company's mailing address is P. O. Box
5000, Pineville, Louisiana 71361-5000, and its telephone number is (318)
484-7400.
ELECTRIC OPERATIONS
CERTAIN FACTORS AFFECTING THE COMPANY'S ELECTRIC OPERATIONS
As an electric utility, the Company has been affected, to varying degrees,
by a number of factors affecting the electric utility industry in general.
These factors include increasingly competitive business conditions, the cost of
compliance with environmental regulations and changes in the federal regulation
of the generation and transmission of electricity. For a discussion of various
regulatory changes and competitive forces affecting the Company and other
electric utilities, see "Regulatory and Environmental Matters -- Industry
Developments/Customer Choice" below.
POWER GENERATION
The Company operates and either owns or has an ownership interest in four
steam electric generating stations and a gas turbine. The Company is the sole
owner of Coughlin Power Station, Teche Power Station and Rodemacher Power
Station Unit 1. The Company owns a 50% interest in Dolet Hills Power Station
Unit 1 (Dolet Hills Unit 1), and a 30% interest in Rodemacher Power Station
Unit 2 (Rodemacher Unit 2). At December 31, 1996, the Company's aggregate
electric generating capacity was 1,693,000 kilowatts (excluding the Company's
20,000 kilowatts of firm purchases from the Sabine River Authority). The
following table sets forth certain information with respect to the Company's
generating facilities.
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<TABLE>
<CAPTION>
YEAR CAPACITY TYPE OF
OF AT FUEL
GENERATING INITIAL 12/31/96 USED FOR
GENERATING STATION UNIT # OPERATION (KILOWATTS) GENERATION (1)
- -------------------------- ----------- --------- ----------- --------------
<S> <C> <C> <C>
Franklin Gas Turbine 1973 7,000 gas
Coughlin Power Station 6 1961 110,000 gas/oil(standby)
7 1966 224,000 gas/oil(standby)
Teche Power Station 1 1953 23,000 gas
2 1956 48,000 gas
3 1971 359,000 gas/oil(standby)
Rodemacher Power Station 1 1975 440,000 gas/oil
2 1982 157,000(2) coal/gas
Dolet Hills Power Station 1 1986 325,000(3) lignite
----------
Total Generating Capability 1,693,000
==========
</TABLE>
(1) Where oil is used on a standby basis, capacity may be reduced.
(2) Represents the Company's 30% interest in the capacity of Rodemacher Unit 2,
a 523,000-kilowatt generating unit.
(3) Represents the Company's 50% interest in the capacity of Dolet Hills
Unit 1, a 650,000-kilowatt generating unit.
FUEL AND PURCHASED POWER
Change in fuel and purchased power expenses reflect fluctuations in
generation fuel mix costs, availability of economy power and deferral of
expenses for recovery from customers through fuel adjustment clauses in
subsequent months.
The following table sets forth, for the periods indicated, the percentages
of power generated from various fuels at the Company's electric generating
plants, the cost of fuel used per kilowatt hour (kWh) attributable to each such
fuel and the weighted average fuel cost per kWh.
<TABLE>
<CAPTION>
LIGNITE COAL GAS FUEL OIL WEIGHTED
-------------------- ------------------- -------------------- --------------------- AVERGE
COST COST COST COST COST
PER PERCENT PER PERCENT PER PERCENT PER PERCENT PER
KWh OF KWh OF KWh OF KWh OF KWh
YEAR (MILLS) GENERATION (MILLS) GENERATION (MILLS) GENERATION (MILLS) GENERATION (MILLS)
- ---- ------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 15.45 38.1 16.67 21.3 30.06 39.8 26.09 0.8 21.61
1995 14.86 35.9 18.88 14.3 19.48 49.8 24.77 0.0 17.74
1994 15.09 36.5 19.53 16.0 22.28 47.4 21.00 0.1 19.22
1993 15.50 32.7 20.28 19.5 25.11 47.8 - - 21.02
1992 14.96 37.0 20.07 16.7 21.48 46.3 - - 18.83
</TABLE>
POWER PURCHASES
The Company purchases electric energy from neighboring utilities when the
price of the energy purchased is less than the cost to the Company of
generating such energy from its own facilities. Additionally, the Company has a
long-term contract under which it purchases a small percentage of its total
energy requirements from a hydroelectric generating plant.
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In 1996, the Company purchased substantially more power on the wholesale
market, as a result of increased availability of low-cost, solid fuel
generation. The cost of purchased power was less than the Company's generation
cost due primarily to the substantial increases in natural gas prices. The
following table sets forth the amount of power purchased by the Company on the
wholesale market for the years indicated.
<TABLE>
<CAPTION>
% OF TOTAL
MILLION ENERGY
KWh REQUIREMENTS
--- ------------
<S> <C> <C>
1996 2,529 33%
1995 1,430 19%
1994 818 11%
1993 1,321 18%
1992 512 8%
</TABLE>
For information with respect to the Company's ability to currently pass through
changes in costs of fuel to its customers, see "Regulatory and Environmental
Matters -- Rates" below.
Natural Gas Supply
During 1996, the Company purchased a total of 23,277 billion British
thermal units (MMMBtu) of natural gas for the generation of electricity. The
annual and average per-day quantities of gas purchased by the Company from each
supplier are shown in the table below.
<TABLE>
<CAPTION>
AVERAGE
AMOUNT
1996 PURCHASED PERCENT
PURCHASES PER DAY OF TOTAL
NATURAL GAS SUPPLIER (MMMBTU) (MMMBTU) GAS USED
- -------------------- -------- -------- --------
<S> <C> <C> <C>
NorAm Energy Services, Inc. (NES) 12,642 34.6 54.3
Louisiana Intrastate Gas Corporation (LIG) 7,702* 21.0 33.1
Louisiana Land and Exploration Company (LL&E) 1,830 5.0 7.9
Other 1,103 3.0 4.7
------ ----- -----
23,277 63.6 100.0
====== ===== =====
</TABLE>
- -------------------------
*Of the 1996 purchases from LIG, 160 MMMBtu were for deliveries in 1997.
The Company terminated several gas supply and transportation contracts in
1996 in order to take advantage of a more competitive natural gas market.
The Company accessed this competitive gas supply and transportation market
with the construction of Company-owned pipeline laterals into three of
its power plants. A contract for base supply with NES, a subsidiary of NorAm
Energy Corp. was terminated October 31, 1996 under price reopener provisions
which were initiated by the Company in early 1996. During 1996, the Company
also terminated a contract with LL&E for the purchase and transportation of
5 MMMBtu of gas per day. Effective November 1, 1996 the Company entered into a
one-year contract with LIG which obligates the Company to a purchase commitment
of 13.8 billion cubic feet of gas, about one-third of its total natural gas
requirements.
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The remaining two-thirds of the Company's natural gas requirements are
purchased on the spot market through arrangements made month to month, week to
week and day to day. Arrangements made throughout the month allow the Company
to take advantage of opportunities in the energy market and in the gas market,
as prices tend to vary considerably throughout the month.
The newly constructed Company-owned pipelines give the Company access to
several markets not previously available when the Company was connected only to
the LIG pipeline system. These direct sources include market supplies on the
gas pipeline systems of Trunkline, Columbia Gas and ANR.
Natural gas has been relatively plentiful in recent years; however, future
supplies to the Company are vulnerable to disruption due to weather conditions,
transportation disruption, price changes and other events. Large boiler fuel
users of natural gas, including electric utilities, generally have the lowest
priority among gas users in the event pipeline suppliers are forced to curtail
deliveries due to inadequate supplies. As a result, supplies of natural gas may
become unavailable from time to time, or prices may increase rapidly in
response to temporary supply disruptions. Such events may require the Company
to shift its gas-fired generation to alternative fuel sources, such as fuel
oil, to the extent it has the capability to burn those alternative fuels.
Currently, the Company anticipates that its alternative fuel capability,
combined with its solid-fuel generating resources, is adequate to meet fuel
needs during any temporary interruption of gas supplies.
Coal and Lignite Supply
Substantially all of the coal for Rodemacher Unit 2 is purchased under a
long-term contract expiring in 2007 with Kerr-McGee Coal Corporation from a
mine in Wyoming. The contract may be terminated earlier under a price reopener
provision which may be initiated by either party beginning in early 1997; and
the Company has recently exercised its option to renegotiate the price. If the
parties do not come to an agreement regarding price, the contract terminates
effective mid-1999. The price of coal under the contract is a base price per
ton plus a "total escalation charge" to reflect changes in certain indices
specified in the contract. After purchasing a given annual quantity of base
coal (516,000 tons in 1996), the Company has the right to purchase coal from
third parties in the spot market, and Kerr-McGee has the right to meet the
terms of the proposed purchase if it chooses to do so. The coal is transported
to the Rodemacher Unit 2 site under terms of a long-term rail transportation
contract in unit trains which are leased by the Company pursuant to various
long-term leases.
Substantially all of the lignite used to fuel Dolet Hills Unit 1 is
obtained under two long-term agreements. The Company and Southwestern Electric
Power Company (SWEPCO), each a 50% owner of Dolet Hills Unit 1, have entered
into agreements pursuant to which each acquired an undivided 50% interest in
the other's leased and owned lignite reserves in northwestern Louisiana. The
Company and SWEPCO have also entered into a long-term agreement expiring
in 2011 with the Dolet Hills Mining Venture for the mining and delivery of such
lignite reserves, which reserves are expected to provide a substantial portion
of the fuel requirements for the projected operating life of Dolet Hills Unit
1. The Company's minimum annual purchase requirement is 1,187,500 tons. The
price of lignite delivered pursuant to the agreement is a base price per ton,
subject to escalation based on certain inflation indices, plus specified
"pass-through" costs. Additional spot lignite may be obtained through
competitive bidding.
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Additionally, the Company and SWEPCO have entered into a long-term
agreement expiring in 2011 with Red River Mining Co., a joint venture of the
North American Coal Corporation and Phillips Coal Company, which provides for
base contract purchases and spot purchases of lignite. The Company's minimum
annual purchase requirement is 275,000 tons. The base lignite price under the
contract is a base price per MMMBtu, subject to escalation, plus certain
pass-through costs, while the spot lignite price is determined through
competitive bidding.
The continuous supply of coal and lignite from the mining sources may be
subject to interruption due to adverse weather conditions or other factors
which may disrupt mining operations or transportation. At December 31, 1996,
the Company's coal inventory at Rodemacher Unit 2 was approximately 106,000
tons (about a 49-day supply), and the Company's lignite inventory at Dolet
Hills Unit 1 was approximately 204,000 tons (about a 36-day supply).
Oil Supply
The Company stores fuel oil as an alternative fuel source. Rodemacher
Power Station has storage capacity for an approximate 75-day supply and other
generating stations have storage capacity totaling about a 20-day supply.
However, in accordance with the Company's current fuel oil inventory practices,
at December 31, 1996, the Company had between 5 to 10 days supply of fuel oil
stored at its generating stations. During 1996, 82,451 barrels of fuel oil were
burned. The increase in 1996 was due to an unusually cold winter in early 1996
which resulted in a decrease in gas availability. The Company has been able to
obtain fuel oil by spot purchases as needed.
SALES
The Company is a "public utility" engaged principally in the generation,
transmission, distribution and sale of electricity within Louisiana. For
further information regarding the Company's generating stations and its
transmission and distribution facilities, see "Power Generation" above and
"Properties" in Item 2 of this report. The following table sets forth
information concerning sales by the Company to various classes of customers for
each of the last three years.
<TABLE>
<CAPTION>
SALES (MILLION KWh)
-----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Residential 2,723 2,763 2,532
Commercial 1,338 1,265 1,180
Industrial 2,369 2,227 2,030
Other retail 526 502 487
Sales for resale 291 360 210
----- ----- -----
Total sales to regular customers 7,247 7,117 6,439
Short-term sales to other utilities 330 68 174
----- ----- -----
Total kilowatt-hour sales 7,577 7,185 6,613
===== ===== =====
</TABLE>
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The Company's 1996 system peak demand occurred in July and was 1,500,000
kilowatts. Sales and peak demand are affected by seasonal demand influenced by
weather and are generally highest during the summer air-conditioning and winter
heating seasons. For information concerning the financial effects of seasonal
demand on the Company's quarterly operating results, see Note L to the
Consolidated Financial Statements on pages 28 and 29 of the 1996 Annual Report
to Shareholders, which is filed as Exhibit 13 to this report and incorporated
herein by reference.
The Company expects the peak demand on the system to grow at a compound
annual rate of approximately 3.5% over the next five years. The Company's
capacity reserve margin for 1996 was 12.4%. The Company believes it can
economically meet the anticipated growth in customer demand by such measures as
refurbishing an existing gas-fired unit retired in place in 1984 or by
purchasing the needed capacity on the wholesale market.
No customer accounted for 10% or more of the Company's revenues in 1996.
Additional information regarding the Company's sales and revenues is set forth
in "Results of Operations" in "Management's Discussion and Analysis of Results
of Operations and Financial Condition" on pages 4 through 6 of the 1996 Annual
Report to Shareholders, which is filed as Exhibit 13 to this report and
incorporated herein by reference.
CONSTRUCTION AND FINANCING
For information on the Company's construction program, financing and
related matters, see "Financial Condition" in "Management's Discussion and
Analysis of Results of Operations and Financial Condition" on pages 8 through
11 of the 1996 Annual Report to Shareholders, which is filed as Exhibit 13 to
this report and incorporated herein by reference.
REGULATORY AND ENVIRONMENTAL MATTERS
RATES
Retail electric operations of the Company are subject to the jurisdiction
of the Louisiana Public Service Commission (LPSC) with respect to rates,
standards of service, accounting and other matters. The LPSC establishes base
rates based upon nonfuel costs, including the cost of capital and sales. The
Company is also subject to the jurisdiction of the Federal Energy Regulatory
Commission (FERC) with respect to certain aspects of its electric business,
including rates for wholesale service and interconnections with, and the
transmission of power for, other utilities. Periodically, the Company has
sought and received increases in base rates from both the LPSC and the FERC to
cover increases in operating costs and costs associated with additions to
generation, transmission and distribution facilities.
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The Company's electric rates include a fuel and purchased power cost
adjustment clause which enables the Company to reflect monthly fluctuations in
the cost of fuel and short-term purchased power. Additionally, pretax income
from certain off-system sales to other utilities is passed on to customers
through the fuel cost adjustment clause. Fuel costs and fuel adjustment billing
factors are approved by the LPSC and the FERC. These cost adjustments are based
on costs from earlier periods which result in over- or under-recovery for the
period in which the adjustment is made. Any over- or under-recovery is
corrected by an adjustment in later periods. As of December 31, 1996, the net
accumulated balance of over-recovery on sales subject to the LPSC's
jurisdiction was approximately $2.2 million.
The Company's 1996 earnings review settlement with the LPSC provided for a
$3 million reduction in annual base rates effective November 1, 1996, and a $2
million reduction to annual base rates effective January 1, 1998. For
additional information concerning the settlement of the Company's earnings
review, see "Retail Rates" in "Management's Discussion and Analysis of Results
of Operations and Financial Condition" on page 10 of the 1996 Annual Report to
Shareholders, which is filed as Exhibit 13 to this report and incorporated
herein by reference.
FRANCHISES
The Company operates under nonexclusive franchise rights granted by
governmental units and enforced by state regulation. These franchises are for
fixed terms, which vary from ten years to 50 years. In the past, the Company
has been successful in the timely renewal of franchises as each reaches the end
of its term and expires.
INDUSTRY DEVELOPMENTS/CUSTOMER CHOICE
There is currently a movement toward increased competition in the electric
utility industry. Forces driving the movement involve numerous and complex
economic, political and technological factors. These factors have resulted in
the introduction of federal and state legislation and regulatory initiatives
that are likely to result in even greater competition at both the wholesale and
retail levels in the future. In 1995 the LPSC opened a docket to consider the
request of a large customer of another electric utility to wheel power, and
this issue was expanded in 1996 into a generic docket to investigate customer
choice for all electric power suppliers. In 1996 legislation was proposed but
not enacted at both the federal and Louisiana levels that would have led to
various degrees of retail customer "choice" of electric supplier. The Company
has taken the position that all customers, large or small, should have a choice
in electric supplier. The Company recognizes the need to work out issues to
create a level playing field for all energy suppliers. The increasingly
competitive environment presents opportunities to compete for new customers, as
well as the risk of loss of existing customers. The Company believes that it is
a reliable, low-cost provider of electricity and, as such, is currently
positioned to compete effectively in the changing marketplace.
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Wholesale Electric Competition
The Energy Policy Act, adopted in October 1992, significantly changed U.S.
energy policy, including that governing the electric utility industry. The
Energy Policy Act allows the FERC, on a case-by-case basis and with certain
restrictions, to order wholesale transmission access and to order electric
utilities to enlarge their transmission systems. The Energy Policy Act does,
however, prohibit FERC-ordered retail wheeling (i.e., opening up the electric
utility systems to allow customer choice of energy suppliers at the retail
level), including "sham" wholesale transactions. Further, under the Energy
Policy Act, a FERC transmission order requiring a transmitting utility to
provide wholesale transmission services must include provisions generally
permitting the utility to recover from the FERC applicant all of the costs
incurred in connection with the transmission services, any enlargement of the
transmission system and associated services.
In addition, the Energy Policy Act revised the Public Utility Holding
Company Act of 1935 (the Holding Company Act) to permit utilities, including
registered holding companies, and non-utilities to form "exempt wholesale
generators" without the principal restrictions of the Holding Company Act.
Under prior law, independent power producers were generally required to adopt
inefficient and complex ownership structures to avoid pervasive regulation
under the Holding Company Act. Management believes that the Energy Policy Act
has made wholesale markets more competitive.
On April 24, 1996, the FERC issued Order No. 888, a final rule requiring
open access transmission by all public utilities that own, operate or control
transmission lines. Each such utility was required to have on file, by July 9,
1996, a nondiscriminatory open access tariff that offers transmission customers
the same transmission services such utilities provide themselves, under
comparable terms and conditions. The Company filed its open access tariff and
proposed rate schedule with the FERC on July 8, 1996. The FERC accepted the
Company's tariff and allowed its proposed rates to go into effect, subject to
refund, on July 9, 1996, but has set all rates for hearing under its standard
review procedures. Utilities must take transmission service for their own
wholesale transactions under the terms and conditions of their open access
tariffs: after July 9, 1996 for any new transactions, and after January 1, 1997
for all short-term inter-utility transactions under bilateral contracts entered
into prior to July 9, 1996. Order No. 888 provides for the full recovery from a
utility's departing customers of wholesale stranded costs to the extent such
costs were prudently incurred to serve wholesale customers and would go
unrecovered if those customers use open access transmission service to move to
another supplier. The Order also allows customers under existing wholesale
contracts to seek FERC approval to modify their contracts on a case-by-case
basis.
The Company has three firm-sales wholesale customers, which represented
0.9% of its sales to regular customers for the twelve months ended December 31,
1996. Management cannot predict what, if any, effects Order No. 888 may have on
wholesale prices in the Company's service area.
Wholesale energy markets, including the market for wholesale electric
power, have been competitive and are becoming even more so as the number of
competitors in these markets increases as a result of enactment of the Energy
Policy Act. The Company competes with other public
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<PAGE> 13
utilities, cogenerators and qualified facilities in other forms for sales of
electric power at wholesale. This environment has encouraged the formation of
power marketing companies, which own no transmission or generation facilities,
but which compete in the wholesale market by buying electricity from utilities
and other generators and reselling the electricity at market-based rates. Many
such power marketers now transact business in all regions of the country.
Under the Energy Policy Act, any participant in the wholesale market can obtain
an order requiring transmission services be provided by the Company under
certain conditions.
In recent years, the Company has been successful in competing for
wholesale sales within its service territory, including sales to the city of
Alexandria and a full requirements sale to the city of St. Martinville. Sales
under the St. Martinville agreement, which is subject to the jurisdiction of
the FERC, began in May 1995 and represent an approximate 13 MW load. Sales to
St. Martinville provide additional base revenues, net of facility payments, of
about $4 million over the term of the agreement, which extends through December
2000. This contract was challenged in 1993 by the previous supplier, Louisiana
Energy and Power Authority (LEPA), as well as the city of Lafayette and the
American Public Power Association, with assertions of preferential,
discriminatory and predatory pricing. An initial decision of the FERC's
presiding administrative law judge (ALJ) in February 1995 rejected LEPA's
arguments. Under FERC procedures, LEPA has filed a brief requesting the FERC to
revise the initial decision ,and this matter is still pending before the FERC.
The Company has opposed LEPA's brief. Management believes that the ALJ's
initial decision will be upheld.
Retail Electric Competition
Currently the LPSC does not provide exclusive service territories for
electric utilities under its jurisdiction. Instead, retail service is obtained
through the aforementioned long-term, nonexclusive franchises. Also, the LPSC
has used a "300 foot rule" for determining the supplier for new customers. The
application of this rule has led to competition with neighboring utilities for
retail customers at the borders of the Company's service areas. The Company
also competes in its service area with suppliers of alternative forms of
energy, some of which may be less costly for certain applications than
electricity. The Company could experience some competition for electric sales
to industrial customers in the form of cogeneration or from independent power
producers. However, the Company believes that its rates, and the quality and
reliability of its service, place it in a favorable competitive position in
current retail markets.
In October 1996, the LPSC requested comments on various electric industry
restructuring issues in a docket opened in 1995 to consider aspects of
competition in the provision of retail electric service. Specifically, the LPSC
requested input from interested parties on its policy statement on the
"principles to guide the investigation into whether electric industry
restructuring and retail competition are in the public interest." The Company
filed comments on this matter in November 1996. The LPSC has not taken further
action in this matter at this time. The Company expects that legislation
regarding the restructuring of the Louisiana electric utility industry will be
introduced in upcoming sessions of the Louisiana legislature. The Company
cannot predict whether any such legislation will be enacted and, if enacted,
what form such legislation would take.
11
<PAGE> 14
Regulatory Changes and Matters
Various federal and state legislative and regulatory bodies are
considering a number of issues in addition to those discussed above that will
shape the future of the electric utility industry. Such issues include
deregulation of retail electricity sales; the ability of electric utilities to
recover stranded costs; the repeal or modification of the Holding Company Act;
the unbundling of vertically integrated electric utility companies into
separate business segments or companies (i.e., generation, transmission,
distribution and retail energy services); the role of electric utilities,
independent power producers and competitive bidding in the construction and
operation of new generating capacity; and the pricing of transmission service
on an electric utility's transmission system. The Company is unable to predict
the outcome of such issues or their effect on the Company's financial position,
results of operations or cash flows at this time.
For information on certain regulatory matters and regulatory accounting
affecting the Company, see "Regulatory Matters" in "Management's Discussion and
Analysis of Results of Operations and Financial Condition" on page 11 of the
1996 Annual Report to Shareholders, which is filed as Exhibit 13 to this report
and incorporated herein by reference.
ENVIRONMENTAL QUALITY
The Company is subject to numerous laws and regulations administered by
federal, state and local authorities to protect the environment. These
statutory and regulatory provisions impose various substantive requirements,
the violation of which may result in substantial fines and penalties.
Environmental requirements continue to increase as a result of new legislation,
administrative actions and judicial interpretations. Therefore, the precise
future effects of existing and potential requirements are difficult to
determine. During 1996, the Company's capital expenditures related to
environmental compliance were about $1.9 million, and such expenditures are
estimated to total about $0.5 million in 1997, due largely to the completion,
in 1996, of two water treatment projects.
Air Quality
The State of Louisiana regulates emissions from each of the Company's
generating units through regulations issued by the Air Quality Division (AQD)
of the Louisiana Department of Environmental Quality (LDEQ). In addition, the
AQD implements certain programs initially established by the federal
Environmental Protection Agency (EPA). The AQD establishes standards of
performance or requires permits for certain generating units in Louisiana. The
Company's three generating units which are subject to these requirements are
Rodemacher Units 1 and 2 and Dolet Hills Unit 1.
The federal Clean Air Act Amendments of 1990 (the Act) established a
regulatory program to address the effects of acid rain and imposed restrictions
on sulfur dioxide (SO2) emissions from certain utility units. The Act
essentially requires that utilities, like the Company, must hold a regulatory
"allowance" for each ton of SO2 emitted beginning in the year 2000. The EPA is
required to allocate a set number of allowances to each affected unit based on
its historic emissions. After
12
<PAGE> 15
the initial allocation was made by the EPA, the Company requested an adjustment
to the allowance allocation for Rodemacher Unit 2 because of an extended outage
of the unit during one of the years used in the EPA's calculation. Because the
final allowance allocation did not reflect the requested adjustment, the Company
filed a petition for judicial review of the EPA's action on May 21, 1993 in the
United States Court of Appeals for the District of Columbia Circuit. In October
1995, the EPA entered into a settlement agreement with the Company in which it
agreed to give Rodemacher Unit 2 the additional allowances requested. In
December 1996, the EPA published proposed changes to the Acid Rain Program in
the Federal Register. The proposed changes included the additional allowances
requested for Rodemacher Unit 2. While the EPA has agreed to provide the
additional allowances to Rodemacher Unit 2, the allowances will not be allocated
until June 1998.
The Act also requires the EPA to revise nitrogen oxides (NOx) emission
limits for existing coal-fired boilers. In November 1996, the EPA finalized
rules lowering the NOx emission rate for certain boilers, including Rodemacher
Unit 2 and Dolet Hills Unit 1. Under this rule Rodemacher Unit 2 and Dolet
Hills Unit 1 would have to meet this new emission rate by January 1, 2000. The
rule also allows an option to "early elect," that is, achieve compliance with a
less restrictive Nox limit beginning January 1, 1997. Early election would
protect the Company from any further reductions in the NOx permitted emission
rate until 2008. Significant reductions in NOx emission limits may require
modification of burners or other capital improvements at either or both of the
units. In December 1996, the Company exercised the "early election" option.
Water Quality
The Company has received from the EPA all National Pollutant Discharge
Elimination System (NPDES) permits required under the Clean Water Act for
discharges from its four generating stations. NPDES permits have fixed dates of
expiration, and the Company has applied for renewal of these permits within the
applicable time periods. The Office of Water Resources of the LDEQ requires
facilities which discharge wastewater into Louisiana waters to be permitted
under the Louisiana Water Discharge Permit System (LWDPS). The Company has
applied for and received LWDPS permits for its four generating stations.
In 1996, the LDEQ was granted authority to administer the federal NPDES
program in Louisiana. The NPDES permit is substantially similar to the LWDPS
permit, and eventually LDEQ intends to merge the two into a single LWDPS
permit. Until then, all data required by the NPDES permit and the LWDPS permit
are reported to the LDEQ.
The most recently issued NPDES permit for Dolet Hills Unit 1 contained an
Administrative Order requiring biomonitoring of the discharge from the
impoundment associated with the fly ash/scrubber sludge landfill. Because the
discharge from this impoundment failed all or part of the biomonitoring test at
various times during the testing schedule specified in the permit, the Company
has had discussions with the EPA regarding the results. The Company does not
expect administrative action on the part of the EPA until the NPDES permit is
renewed in 1997. At that time, the EPA may set a biomonitoring limit in the
NPDES permit. Violation of that limit may then
13
<PAGE> 16
require submittal to the EPA of a plan describing options for reducing certain
constituents in the discharge. None of the options, if implemented, would
affect the operation of the unit, or involve a significant increase in the
Company's five-year construction plan.
Solid Waste Disposal
The Solid Waste Division (SWD) of the LDEQ has adopted regulations and a
permitting system for the management and disposal of solid waste generated by
electric utilities. The Company has received all required permits from the SWD
for the on-site disposal of solid waste generated at its generating stations
and is in the process of repermitting its solid waste disposal facilities under
recently revised rules.
The Company has requested approval of an alternate liner system for the
Dolet Hills landfill facility and has received conditional approval from the
LDEQ. The Company is in the process of obtaining additional information to
submit to the LDEQ, which will make the approval permanent. The alternate
system, if approved, is expected to save $360,000 to $900,000 per year in
operating costs at the landfill.
Hazardous Waste Generation
The Company produces certain wastes at its four generating stations and at
other locations which are classified as hazardous. The Hazardous Waste Division
of the LDEQ regulates these wastes and has issued identification numbers to the
sites where such wastes are produced. The Company does not treat, store or
dispose of these wastes on-site; therefore, no permits are required. All
hazardous wastes produced by the Company are disposed of at federally permitted
hazardous waste disposal sites.
ELECTRIC AND MAGNETIC FIELDS
The possibility that exposure to electric and magnetic fields (EMF)
emanating from power lines, household appliances and other electric devices may
result in adverse health effects or damage to the environment has been a
subject of current public attention. The Company funds research on electric and
magnetic fields through various organizations. The scientific research
conducted to date concerning the effects of EMFs has not led to any definitive
results; however, such research is continuing. Lawsuits have arisen in several
states against electric utilities and others alleging that the presence or use
of electric power transmission and distribution lines has an adverse effect on
health and/or property values.
14
<PAGE> 17
OTHER EVENTS
Co-op Developments
In February 1994, the Company approached the management of Teche Electric
Cooperative, Inc. (Teche) about the possibility of purchasing Teche. Teche
serves about 8,600 customers, and its service area, which comprises parts of
Iberia, St. Martin and St. Mary parishes, is adjacent to the Company's service
area. The acquisition of Teche would result in an increase in the Company's
kilowatt-hour sales to regular customers of about 2.4%.
In February 1995, Teche and the Company executed a purchase and sale
agreement (Agreement)for a purchase price, including the Company's assumption
or other discharge of Teche's liabilities, of approximately $22.4 million. The
members of Teche overwhelmingly approved the sale at their annual meeting in
March 1995. On March 31, 1996, the board of directors of Teche voted to extend
the Agreement with the Company for an additional twelve months until March 31,
1997. On March 24, 1997, the board of directors of Teche voted to extend the
Agreement with the Company for an additional twelve months until March 31,
1998, to allow for the Teche wholesale power contract with Cajun Electric Power
Cooperative, Inc. (Cajun) to be resolved through Cajun's bankruptcy process.
Consummation of the acquisition is subject to a number of conditions, including
approval by the LPSC, the Rural Utilities Service and other governmental
agencies, the successful resolution of Teche's wholesale power supply contract
with Cajun and certain other conditions. Each plan of reorganization currently
filed with the bankruptcy court in the Cajun bankruptcy includes a provision
for the assignment or substitution of Teche's supply contract to or with the
Company. This provision is subject to a number of approvals, including
confirmation by the bankruptcy court.
ITEM 2. PROPERTIES
All of the Company's electric generating stations and all other operating
properties are located in the State of Louisiana. The Company considers all of
its properties to be well maintained, in good operating condition and suitable
for their intended purposes.
ELECTRIC GENERATING STATIONS
As of December 31, 1996, the Company either owned or had an ownership
interest in four steam electric generating stations and a gas turbine with a
combined electric generating capacity of 1,693,000 kilowatts. For additional
information regarding the Company's generating facilities, see "Electric
Operations -- Power Generation" in Item 1 of this report.
SUBSTATIONS
As of December 31, 1996, the Company owned 80 transmission substations and
320 distribution substations.
15
<PAGE> 18
ELECTRIC LINES
As of December 31, 1996, the Company's transmission system consisted of
approximately 67 circuit miles of 500 kilovolt (kV) lines; 454 circuit miles of
230 kV lines; 648 circuit miles of 138 kV lines; and 21 circuit miles of 69 kV
lines. The Company's distribution system consisted of approximately 2,096
circuit miles of 34.5 kV lines and 10,745 circuit miles of other lines.
GENERAL PROPERTIES
The Company owns various properties, which include a seven-story
headquarters office building, regional offices, a central warehouse, service
centers, telecommunications equipment and other facilities owned for general
purposes.
TITLE
The Company's electric generating plants and certain other principal
properties are owned in fee. Electric transmission and distribution lines are
located either on private rights-of-way or along streets or highways by public
consent.
Substantially all of the Company's property, plant and equipment is
subject to a lien securing obligations of the Company under an Indenture of
Mortgage, which does not impair the use of such properties in the operation of
its business.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any legal proceeding to which it is a party
which would have a material adverse effect on its financial condition, results
of operations, cash flows or competitive position. For a discussion of certain
legal proceedings and regulatory matters involving the Company, see (i)
"Business -- Regulatory and Environmental Matters -- Industry
Developments/Customer Choice" and "--Environmental Quality" in Item 1 of this
report and (ii) "Results of Operations --Nonfuel Operating Expenses and Income
Taxes" in "Management's Discussion and Analysis of Results of Operations and
Financial Condition" on pages 7 and 8 of the 1996 Annual Report to
Shareholders, which information is filed as Exhibit 13 to this report, which
sections are herein incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders of the
Company during the fourth quarter of 1996.
16
<PAGE> 19
EXECUTIVE OFFICERS OF THE REGISTRANT
The names of the executive officers of the Company, their positions held,
five-year employment history, ages and years of service as of December 31, 1996
are presented below. Executive officers are appointed annually to serve for the
ensuing year or until their successors have been appointed.
<TABLE>
<CAPTION>
POSITION AND FIVE-YEAR
NAME OF EXECUTIVE OFFICER EMPLOYMENT HISTORY
- ------------------------- ----------------------
<S> <C>
Gregory L. Nesbitt...................... President and Chief Executive Officer since April 1993;
President and Chief Operating Officer from April 1992
to April 1993; Executive Vice President and Chief
Operating Officer from July 1991 to April 1992;
Executive Vice President from January 1988 to July
1991. (Age 58; 16 years of service)
David M. Eppler......................... Executive Vice President since January 1997; Vice
President-Power Supply and Energy Transmission
from July 1995 to January 1997; Vice President-
Finance from October 1993 to July 1995; Vice
President and Treasurer from July 1987 to October
1993. (Age 46; 15 years of service)
Robert L. Duncan........................ Vice President-Customer Operations since July 1984.
(Age 54; 31 years of service)
Catherine C. Powell..................... Vice President-Employee and Corporate Services since
(formerly Catherine C. Scheffler) July 1995; Vice President-Human Resources from
October 1993 to July 1995; General Manager-Human
Resources from August 1993 to October 1993;
Administrator-Compensation from May 1991 to August
1993; Vice President of Rapides Bank and Trust
Company from December 1987 to April 1991. (Age 41; 5
years of service)
John L. Baltes, Jr...................... Controller since April 1989. (Age 50; 15 years of
service)
Michael P. Prudhomme.................... Secretary-Treasurer since January 1994; Secretary from
October 1993 to January 1994; Vice President-
Customer Services from May 1985 to October 1993.
(Age 53; 27 years of service)
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
POSITION AND FIVE-YEAR
NAME OF EXECUTIVE OFFICER EMPLOYMENT HISTORY
- ------------------------- ------------------
<S> <C>
Judy P. Miller.......................... Assistant Corporate Secretary since April 1995; Acting
Assistant Corporate Secretary from February 1995 to
April 1995; Supervisor-Plant Accounting from October
1993 to February 1995; Supervisor-Income and Other
Taxes from June 1990 to October 1993. (Age 39; 12
years of service)
</TABLE>
18
<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed for trading on the New York Stock
Exchange (NYSE) and the Pacific Stock Exchange. The following table sets forth
high and low sales prices for the Company's common stock as reported on the
NYSE Composite Tape and dividends paid per share during each calendar quarter
of 1996 and 1995.
<TABLE>
1996 1995
------------------------------------ --------------------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $27-3/4 $25-3/8 $0.375 $24-1/2 $22 $0.365
Second Quarter $27-3/8 $25-1/8 $0.385 $24-1/2 $22-1/8 $0.375
Third Quarter $27-1/4 $25-3/8 $0.385 $25-5/8 $22-1/4 $0.375
Fourth Quarter $29-1/4 $26-1/8 $0.385 $28-1/8 $25-1/4 $0.375
</TABLE>
Subject to the prior rights of the holders of the respective series of the
Company's preferred stock, such dividends as determined by the Board of
Directors of the Company may be declared and paid on the common stock from time
to time out of funds legally available therefor. The provisions of the
Company's charter applicable to preferred stock and certain provisions
contained in the debt instruments of the Company under certain circumstances
restrict the amount of retained earnings available for the payment of dividends
by the Company. The most restrictive covenant requires that common
shareholders' equity be not less than 30% of total capitalization, including
short-term debt. At December 31, 1996, approximately $144,300,000 of retained
earnings was not restricted. On January 24, 1997, the Board of Directors of the
Company declared a quarterly dividend of $0.385 per share, which dividend was
paid on February 15, 1997, to common shareholders of record on February 3,
1997.
As of March 14, 1997, there were 11,599 holders of record of the Company's
common stock, and the closing price of the Company's common stock as reported
on the NYSE Composite Tape was $27.125 per share.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth in "Selected Financial Data" on page 3 of the
1996 Annual Report to Shareholders is incorporated herein by reference; such
information is filed as Exhibit 13 to this report. This information should be
read in conjunction with the Consolidated Financial Statements and the related
Notes thereto set forth on pages 12 through 29 of the 1996 Annual Report to
Shareholders, which is filed as Exhibit 13 to this report and incorporated
herein by reference.
19
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth in "Management's Discussion and Analysis of
Results of Operations and Financial Condition" on pages 4 through 11 of the
1996 Annual Report to Shareholders is incorporated herein by reference; such
information is filed as Exhibit 13 to this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth on pages 12 through 29 of the 1996 Annual Report
to Shareholders is incorporated herein by reference; such information is filed
as Exhibit 13 to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
20
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth (i) under the subcaption "Directors" under the
caption "Election of Directors" on pages 2 and 3 of, and (ii) under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 6 of the
Company's definitive Proxy Statement dated March 12, 1997, filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (1997 Proxy Statement), is incorporated herein
by reference. See also "Executive Officers of the Registrant" on pages 17 and
18 of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the subcaption "Organization and
Compensation of the Board of Directors" under the caption "Election of
Directors" on pages 3 and 4 of, and under the caption "Executive Compensation"
on pages 6 through 15 of the 1997 Proxy Statement (excluding the information
required by paragraphs (k) and (l) of Item 402 of Regulation S-K) is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of
Directors and Management" on page 5 and under the caption "Security Ownership
of Certain Beneficial Owners" on pages 16 and 17 of the 1997 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
21
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
REFERENCE (PAGE)
-----------------------------------
1996 ANNUAL
FORM 10-K REPORT TO
ANNUAL REPORT SHAREHOLDERS
------------- ------------
<S> <C> <C> <C>
14(a)(1) Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 12
Consolidated Balance Sheets at December 31, 1996 and
1995 13
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 14
Consolidated Statements of Changes in Common
Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994 15
Notes to Consolidated Financial Statements 16
Report of Independent Accountants 30
14(a)(2) Financial Statement Schedules
Report of Independent Accountants 29
Schedule II - Valuation and Qualifying Accounts 30
Financial Statement Schedules other than those shown
in the above index are omitted because they are
either not required or are not applicable or the
required information is shown in the Consolidated
Financial Statements and Notes thereto.
14(a)(3) List of Exhibits
</TABLE>
The Exhibits designated by an asterisk are filed herewith. The Exhibits not so
designated have been previously filed with the Securities and Exchange
Commission and are incorporated herein by reference. The Exhibits designated by
two asterisks are management contracts and compensatory plans and arrangements
required to be filed as Exhibits to this report.
22
<PAGE> 25
<TABLE>
<CAPTION>
SEC FILE OR REGISTRATION
REGISTRATION STATEMENT EXHIBIT
EXHIBITS NUMBER OR REPORT NUMBER
-------- ------ ----------- -------
<S> <C> <C> <C> <C>
3(a) Restated Articles of Incorporation of the 1-5663 10-Q(3/92) 3
Company dated as of July 24, 1989,
as amended through April 24, 1992
3(b) Amended and Restated Bylaws of the 1-5663 10-Q(6/96) 3
Company, as amended to July 19, 1996
4(a)(1) Indenture of Mortgage dated as of July 1, 2-27284 S-1(10/17/67) 4(b)(1)
1950, between the Company and First
National Bank of New Orleans, as Trustee
4(a)(2) First Supplemental Indenture dated as 2-27284 S-1(10/17/67) 4(b)(2)
of October 1, 1951, to Exhibit 4(a)(1)
4(a)(3) Second Supplemental Indenture dated as 2-27284 S-1(10/17/67) 4(b)(3)
of June 1, 1952, to Exhibit 4(a)(1)
4(a)(4) Third Supplemental Indenture dated as 2-27284 S-1(10/17/67) 4(b)(4)
of January 1, 1954, to Exhibit 4(a)(1)
4(a)(5) Fourth Supplemental Indenture dated as 2-27284 S-1(10/17/67) 4(b)(5)
of November 1, 1954, to Exhibit 4(a)(1)
4(a)(6) Tenth Supplemental Indenture dated as 1-5663 10-K(1986) 4(a)(11)
of September 1, 1965, to Exhibit 4(a)(1)
4(a)(7) Eleventh Supplemental Indenture dated 2-32069 S-9(4/7/69) 2(m)
as of April 1, 1969, to Exhibit 4(a)(1)
4(a)(8) Eighteenth Supplemental Indenture dated as 1-5663 10-K(1993) 4(a)(8)
of December 1, 1982, to Exhibit 4(a)(1)
4(a)(9) Nineteenth Supplemental Indenture dated as 1-5663 10-K(1993) 4(a)(9)
of January 1, 1983, to Exhibit 4(a)(1)
4(a)(10)Twenty-Sixth Supplemental Indenture dated as 1-5663 8-K(3/90) 4(a)(27)
of March 15, 1990, to Exhibit 4(a)(1)
4(b) Indenture between the Company and Bankers 33-24896 S-3(10/11/88) 4(b)
Trust Company, as Trustee, dated as of
October 1, 1988
4(b)(1) Agreement Appointing Successor Trustee dated 333-02895 S-3(4/26/96) 4(a)(2)
as of April 1, 1996 by and among Central
Louisiana Electric Company, Inc., Bankers
Trust Company and The Bank of New York
4(c) Trust Indenture (The Industrial Development 1-5663 10-K(1991) 4(i)
Board of the Parish of Rapides, Inc.
(Louisiana) Adjustable Tender Pollution
Control Revenue Refunding Bonds, Series 1991)
dated as of May 1, 1991, between The Industrial
Development Board of the Parish of Rapides,
Inc. and First National Bank of Commerce
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
SEC FILE OR REGISTRATION
REGISTRATION STATEMENT EXHIBIT
EXHIBITS NUMBER OR REPORT NUMBER
-------- ------ --------- ------
<S> <C> <C> <C>
4(c)(1) First Supplemental Trust Indenture (The Industrial 1-5663 10-K(1994) 4(e)(1)
Development Board of the Parish of Rapides, Inc.
(Louisiana) Adjustable Tender Pollution Control
Revenue Refunding Bonds, Series 1991) dated as of May 1, 1993,
between The Industrial Development Board of the Parish of
Rapides, Inc. and First National Bank of Commerce, relating to
Exhibit 4(c)
4(d) Refunding Agreement (The Industrial 1-5663 10-Q(6/91) 10(a)
Development Board of the Parish of Rapides,
Inc. (Louisiana) Adjustable Tender Pollution
Control Revenue Refunding Bonds, Series
1991) dated as of May 1, 1991, between the
Company and The Industrial Development
Board of the Parish of Rapides, Inc.
4(e) Trust Indenture (Parish of DeSoto, State of 1-5663 10-K(1991) 4(k)
Louisiana Adjustable Tender Pollution Control
Revenue Refunding Bonds, Series 1991A) dated
as of May 1, 1991, between Parish of DeSoto,
State of Louisiana and First National Bank of Commerce
4(e)(1) First Supplemental Trust Indenture (Parish 1-5663 10-K(1994) 4(g)(l)
of DeSoto, State of Louisiana
Adjustable Tender Pollution Control
Revenue Refunding Bonds, Series 1991A) dated as of May 1, 1993,
between the Parish of DeSoto, State of Louisiana and First
National Bank of Commerce, relating to Exhibit 4(e)
4(f) Refunding Agreement (Parish of DeSoto, 1-5663 10-Q(6/91) 10(b)
State of Louisiana Adjustable Tender Pollution
Control Revenue Refunding Bonds, Series
1991A) dated as of May 1, 1991, between
the Parish of DeSoto, State of Louisiana
and the Company
4(g) Trust Indenture (Parish of DeSoto, State of 1-5663 10-K(1991) 4(m)
Louisiana Adjustable Tender Pollution
Control Revenue Refunding Bonds, Series 1991B)
dated as of May 1, 1991, between Parish of
DeSoto, State of Louisiana and First National
Bank of Commerce
4(g)(1) First Supplemental Trust Indenture (Parish of DeSoto 1-5663 10-K(1994) 4(i)(1)
State of Louisiana Adjustable Tender Pollution Control
Revenue Refunding Bonds, Series 1991B) dated as of May 1, 1993,
between the Parish of DeSoto, State of Louisiana and First
National Bank of Commerce, relating to Exhibit 4(g)
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
SEC FILE OR REGISTRATION
REGISTRATION STATEMENT EXHIBIT
EXHIBITS NUMBER OR REPORT NUMBER
-------- ------ ----------- --------
<S> <C> <C> <C> <C>
4(h) Refunding Agreement (Parish of DeSoto, 1-5663 10-Q(6/91) 10(c)
State of Louisiana Adjustable Tender Pollution
Control Revenue Refunding Bonds, Series
1991B) dated as of May 1, 1991, between
the Parish of DeSoto, State of Louisiana
and the Company
4(i) $100,000,000 Credit Agreement 1-5663 10-Q(6/95) 4
dated as of June 15, 1995, among the
Company, certain Banks parties thereto,
and The Bank of New York, as Agent
**10(a) 1990 Long-Term Incentive Compensation Plan 1-5663 1990 Proxy A
Statement (4/90)
**10(b) 1981 Incentive Stock Option Plan 1-5663 10-K(1992) 10(i)
**10(c) Participation Agreement, Annual Incentive
Compensation Plan
**10(d) Deferred Compensation Plan for Directors 1-5663 10-K(1992) 10(n)
**10(e)(1) Supplemental Executive Retirement Plan 1-5663 10-K(1992) 10(o)(1)
**10(e)(2) Form of Supplemental Executive Retirement 1-5663 10-K(1992) 10(o)(2)
Plan Participation Agreement between the
Company and the following officers:
Gregory L. Nesbitt, David M. Eppler,
Robert L. Duncan, Catherine C. Powell, and
Michael P. Prudhomme
**10(f) Form of Executive Severance Agreement between 1-5663 10-K(1995) 10(f)
the Company and the following officers:
Gregory L. Nesbitt, David M. Eppler,
Robert L. Duncan, Catherine C. Powell, and
Michael P. Prudhomme
10(g)(1) Receivables Purchase Agreement, dated 1-5663 10-K(1994) 10(n)(l)
as of April 9, 1990, as Amended and
Restated as of March 1, 1995, among the
Company, Corporate Asset Funding Company,
Inc. and Citicorp North America, Inc.
10(g)(2) Receivables Purchase Agreement, dated 1-5663 10-K(1994) 10(n)(2)
as of April 9, 1990, as Amended and Restated
as of March 1, 1995, among the Company, Citicorp,
N.A. and Citicorp North America, Inc.
10(h)(1) Term Loan Agreement dated as of April 2, 1991, 1-5663 10-Q(3/91) 4(b)
among the 401(k) Savings and Investment Plan
ESOP Trust, the Company, as Guarantor, the
Banks listed therein and The Bank of New York,
as Agent, relating to Exhibit 10(m)
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
SEC FILE OR REGISTRATION
REGISTRATION STATEMENT EXHIBIT
EXHIBITS NUMBER OR REPORT NUMBER
-------- ------ --------- ------
<S> <C> <C> <C>
10(h)(2)Assignment and Assumption Agreement, effective 1-5663 10-Q(3/91) 4(c)
as of May 6, 1991, between The Bank of New York and the
Canadian Imperial Bank of Commerce, relating to Exhibit 10(h)(1)
10(h)(3)Assignment and Assumption Agreement dated as of 1-5663 10-K(1991) 10(y)(3)
July 3, 1991, between The Bank of New York
and Rapides Bank and Trust Company in
Alexandria, relating to Exhibit 10(h)(1)
10(h)(4)Assignment and Assumption Agreement dated as of 1-5663 10-K(1992) 10(bb)(4)
July 6, 1992, among The Bank of New York,
CIBC, Inc. and Rapides Bank and Trust Company
in Alexandria, as Assignors, the 401(k)
Savings and Investment Plan ESOP Trust, as
Borrower, and the Company, as Guarantor, relating
to Exhibit 10(h)(1)
10(i) Reimbursement Agreement (The Industrial 1-5663 10-Q(6/91) 4(a)
Development Board of the Parish of Rapides,
Inc. (Louisiana) Adjustable Tender Pollution
Control Revenue Refunding Bonds, Series
1991) dated as of May 29, 1991, among the
Company, various financial institutions,
Swiss Bank Corporation and The First
National Bank of Chicago
10(i)(1)Remarketing Agreement (The Industrial Development 1-5663 10-Q(9/94) 10(a)
Board of the Parish of Rapides, Inc. (Louisiana)
Adjustable Tender Pollution Control Revenue
Refunding Bonds, Series 1991) dated as of
July 19,1994, between the Company and PaineWebber
Incorporated
10(i)(2)Tender Agreement (The Industrial Development Board 1-5663 10-K(1991) 10(z)(2)
of the Parish of Rapides, Inc. (Louisiana)
Adjustable Tender Pollution Control Revenue
Refunding Bonds, Series 1991) dated as of
May 1, 1991, among First National Bank of Commerce,
as Trustee, the Company, The First National
Bank of Chicago, as Tender Agent and Registrar,
Smith Barney, Harris Upham & Co. Incorporated,
as Remarketing Agent, and Swiss Bank Corporation,
as Bank
10(i)(3)Amendment No. 1 to Reimbursement Agreements (The 1-5663 10-K(1994) 10(p)(3)
Industrial Development Board of the Parish of Rapides,
Inc. (Louisiana) Adjustable Tender Pollution Control
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
SEC FILE OR REGISTRATION
REGISTRATION STATEMENT EXHIBIT
EXHIBITS NUMBER OR REPORT NUMBER
-------- ------ --------- ------
<S> <C> <C> <C> <C>
Revenue Refunding Bonds, Series 1991, 1991A and 1991B) dated as
of December 9, 1994, among the Company, various financial
institutions, Swiss Bank Corporation, New York Branch, as Issuer
of the Letters of Credit, and Swiss Bank Corporation, New York
Branch, as Agent, relating to Exhibits 10(i), 10(j) and 10(k)
10(j) Reimbursement Agreement (Parish of DeSoto, 1-5663 10-Q(6/91) 4(b)
State of Louisiana Adjustable Tender Pollution
Control Revenue Refunding Bonds, Series
1991A) dated as of May 29, 1991, among the
Company, various financial institutions,
Swiss Bank Corporation and The First
National Bank of Chicago
10(j)(1)Remarketing Agreement (Parish of DeSoto, State of 1-5663 10-Q(9/94) 10(b)
Louisiana Adjustable Tender Pollution Control
Revenue Refunding Bonds, Series 1991A) dated as
of July 19, 1994, between the Company and
PaineWebber Incorporated
10(j)(2)Tender Agreement (Parish of DeSoto, State of 1-5663 10-K(1991) 10(aa)(2)
Louisiana Adjustable Tender Pollution Control
Revenue Refunding Bonds, Series 1991A) dated as
of May 1, 1991, among First National Bank of
Commerce, as Trustee, the Company, The
First National Bank of Chicago, as Tender Agent
and Registrar, Smith Barney, Harris Upham &
Co. Incorporated, as Remarketing Agent, and
Swiss Bank Corporation, as Bank
10(k) Reimbursement Agreement (Parish of DeSoto, 1-5663 10-Q(6/91) 4(c)
State of Louisiana Adjustable Tender
Pollution Control Revenue Refunding Bonds, Series 1991B) dated as
of May 29, 1991, among the Company, various financial
institutions, Swiss Bank Corporation and The First National Bank
of Chicago
10(k)(1)Remarketing Agreement (Parish of DeSoto, State of Louisiana 1-5663 10-Q(9/94) 10(c)
Adjustable Tender Pollution Control Revenue Refunding Bonds,
Series 1991B) dated as of July 19, 1994, between the Company and
PaineWebber Incorporated
10(k)(2)Tender Agreement (Parish of DeSoto, State of Louisiana Adjustable 1-5663 10-K(1991) 10(bb)(2)
Tender Pollution Control Revenue Refunding Bonds, Series 1991B)
dated as of May 1, 1991, among First National Bank of Commerce,
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
SEC FILE OR REGISTRATION
REGISTRATION STATEMENT EXHIBIT
EXHIBITS NUMBER OR REPORT NUMBER
-------- ------ --------- ------
<S> <C> <C> <C> <C>
as Trustee, the Company, The First National Bank of
Chicago, as Tender Agent and Registrar, Smith Barney,
Harris Upham & Co. Incorporated, as Remarketing Agent,
and Swiss Bank Corporation, as Bank
10(l) Selling Agency Agreement between the Company 333-02895 S-3(12/10/96) 1
and Salomon Brothers Inc, Merrill Lynch & Co.,
Smith Barney Inc. and First Chicago Capital Markets, Inc.
dated as of December 12, 1996
10(m) 401(k) Savings and Investment Plan ESOP 1-5663 10-Q(3/91) 4(a)
Trust Agreement dated as of April 2, 1991,
between State Street Bank and Trust
Company and the Company
10(m)(1)First Amendment to 401(k) Savings and Investment 1-5663 10-K(1995)
Plan ESOP Trust Agreement dated as of July 30, 1993, between
State Street Bank and Trust Company and the Company
* 11 Computation of Net Income Per Common Share
* 12 Computation of Earnings to Fixed Charges and Earnings
to Combined Fixed Charges and Preferred Stock Dividends
* 13 Management's Discussion and Analysis of Financial
Condition and Results of Operations, Consolidated
Financial Statements and Notes and Report of
Independent Accountants
* 23 Consent of Independent Accountants
* 24 Power of Attorney from each Director of the Company
whose signature is affixed to this Form 10-K
for the year ended December 31, 1996
* 27 Financial Data Schedule UT
</TABLE>
14(b) Reports on Form 8-K
During the three-month period ended December 31, 1996, the Company filed
no Current Reports on Form 8-K.
28
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Central Louisiana Electric Company, Inc.:
Our report on the consolidated financial statements of Central Louisiana
Electric Company, Inc. has been incorporated by reference in this Form 10-K
from page 30 of the 1996 Annual Report to Shareholders of Central Louisiana
Electric Company, Inc. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule
listed in Item 14(a)(2) on page 22 of this Form 10-K. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based upon our
audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
New Orleans, Louisiana
January 29, 1997
29
<PAGE> 32
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------------------------
ADDITIONS UNCOLLECTIBLE
BALANCE AT CHARGED TO ACCOUNTS BALANCE AT
BEGINNING COSTS AND WRITE-OFFS, END
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS OF PERIOD EXPENSES LESS RECOVERIES OF PERIOD (1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996 $538 $887 $744 $681
Year Ended December 31, 1995 $444 $817 $723 $538
Year Ended December 31, 1994 $537 $442 $535 $444
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
(1) Deducted in the balance sheet.
30
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
(REGISTRANT)
BY: GREGORY L. NESBITT
(Gregory L. Nesbitt, President
and Chief Executive Officer)
Date: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
GREGORY L. NESBITT President, Chief Executive Officer and Director
(Gregory L. Nesbitt) (Principal Executive Officer and March 27, 1997
Principal Financial Officer)
JOHN L. BALTES, JR. Controller
(John L. Baltes, Jr.) (Principal Accounting Officer) March 27, 1997
SHERIAN G. CADORIA )
)
J. PATRICK GARRETT )
)
F. BEN JAMES, JR. )
)
HUGH J. KELLY )
)
A. DELOACH MARTIN, JR. )
)---- DIRECTORS*
ROBERT T. RATCLIFF )
)
EDWARD D. SIMMONS )
)
WILLIAM H. WALKER, JR. )
)
ERNEST L. WILLIAMSON )
*BY: GREGORY L. NESBITT
(Gregory L. Nesbitt, as March 27, 1997
Attorney-in-Fact)
</TABLE>
31
<PAGE> 34
INDEX TO EXHBITS
----------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------
<S> <C>
11 Computation of Net Income Per Common Share
12 Computation of Earnings to Fixed Charges and Earnings
to Combined Fixed Charges and Preferred Stock Dividends
13 Management's Discussion and Analysis of Financial
Condition and Results of Operations, Consolidated
Financial Statements and Notes and Report of
Independent Accountants
23 Consent of Independent Accountants
24 Power of Attorney from each Director of the Company
whose signature is affixed to this Form 10-K
for the year ended December 31, 1996
27 Financial Data Schedule UT
</TABLE>
<PAGE> 1
EXHIBIT 11
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except share and per share amounts)
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
PRIMARY
- -------
Net income applicable to common stock $ 50,061 $ 46,651 $ 43,017
=========== =========== ===========
Weighted average number of shares of common
stock outstanding during the year 22,442,683 22,417,522 22,394,891
Common stock under stock option grants 10,079 13,237 19,940
----------- ----------- -----------
Average shares 22,452,762 22,430,759 22,414,831
=========== =========== ===========
Primary net income per common share $ 2.23 $ 2.08 $ 1.92
=========== =========== ===========
FULLY DILUTED
- -------------
Net income applicable to common stock $ 50,061 $ 46,651 $ 43,017
Adjustments to net income related to Employee
Stock Ownership Plan (ESOP) under the
"if-converted" method:
Add loss of deduction from net income for actual
dividends paid on convertible preferred stock,
net of tax 1,462 1,474 1,486
Deduct additional cash contribution
required which is equal to dividends
on preferred stock less dividends
paid at the common dividend rate, net
of tax (140) (176) (213)
Add tax benefit associated with dividends
paid on allocated common shares 227 185 114
----------- ----------- -----------
Adjusted income applicable to common stock $ 51,610 $ 48,134 $ 44,404
=========== =========== ===========
Weighted average number of shares of common
stock outstanding during the year 22,442,683 22,417,522 22,394,891
Number of equivalent common shares
attributable to ESOP 1,405,205 1,416,360 1,427,368
Common stock under stock option grants 10,642 15,972 19,940
----------- ----------- -----------
Average shares 23,858,530 23,849,854 23,842,199
=========== =========== ===========
Fully diluted net income per common share $ 2.16 $ 2.01 $ 1.86
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 12
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
COMPUTATION OF EARNINGS TO
FIXED CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except ratios)
1996 1995 1994 1993 1992
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations $ 52,135 $ 48,703 $ 45,043 $ 41,812 $ 45,239
Income taxes 26,154 25,229 19,901 19,565 18,595
---------- --------- --------- --------- ---------
Earnings from continuing operations
before income taxes 78,289 73,932 64,944 61,377 63,834
---------- --------- --------- --------- ---------
Fixed charges:
Interest, long-term debt 25,134 24,516 23,194 22,089 26,142
Interest, other 2,359 3,482 2,542 2,750 1,604
Amortization of debt expense and
premium, net 1,107 1,234 1,223 1,402 1,282
Portion of rental expense
representative of interest
factor 445 457 707 485 547
---------- --------- --------- --------- ---------
Total fixed charges $ 29,045 $ 29,689 $ 27,666 $ 26,726 $ 29,575
---------- --------- --------- --------- ---------
Earnings from continuing operations
before income taxes and
fixed charges $ 107,334 $ 103,621 $ 92,610 $ 88,103 $ 93,409
========== ========= ========= ========= =========
Ratio of earnings to fixed charges 3.70x 3.49x 3.35x 3.30x 3.16x
========== ========= ========= ========= =========
Fixed charges from above $ 29,045 $ 29,689 $ 27,666 $ 26,726 $ 29,575
Preferred dividends 2,909 2,960 2,966 3,008 3,440
---------- --------- --------- --------- ---------
Total fixed charges and preferred
stock dividends $ 31,954 $ 32,649 $ 30,632 $ 29,734 $ 33,015
========== ========= ========= ========= =========
Ratio of earnings to combined
fixed charges and preferred
stock dividends 3.36x 3.17x 3.02x 2.96x 2.83x
========== ========= ========= ========= =========
</TABLE>
<PAGE> 1
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -----------
(In thousands, except per share amounts, ratios and operating statistics)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
Statement of Income Data
Operating revenues.................... $ 435,416 $ 394,426 $ 379,603 $ 382,433 $351,613
Net income............................ $ 52,135 $ 48,703 $ 45,043 $ 41,812 $ 45,239
Net income applicable to common
stock.............................. $ 50,061 $ 46,651 $ 43,017 $ 39,827 $ 43,010
Primary net income per common share... $ 2.23 $ 2.08 $ 1.92 $ 1.78 $ 1.93(1)
Fully diluted net income per common
share.............................. $ 2.16 $ 2.01 $ 1.86 $ 1.73 $ 1.89(1)
Cash dividends paid per common
share.............................. $ 1.53 $ 1.49 $ 1.45 $ 1.41 $ 1.37(1)
Ratio of earnings to fixed charges...... 3.70X 3.49x 3.35x 3.30x 3.16x
Ratio of earnings to combined fixed
charges and preferred stock
dividends............................. 3.36X 3.17x 3.02x 2.96x 2.83x
Balance Sheet Data
(at end of period)
Total assets.......................... $1,321,771 $1,226,034 $1,178,191 $1,161,635 $978,220
Long-term obligations and redeemable
preferred stock.................... $ 347,231 $ 367,432 $ 343,509 $ 358,329 $318,214
OPERATING STATISTICS
Electric sales -- regular system
customers (million KWH)
Residential........................... 2,723 2,763 2,532 2,470 2,353
Commercial............................ 1,338 1,265 1,180 1,109 1,062
Industrial............................ 2,369 2,227 2,030 2,005 1,972
Other retail.......................... 526 502 487 463 477
Sales for resale...................... 291 360 210 175 146
---------- ---------- ---------- ---------- --------
Total sales to regular customers...... 7,247 7,117 6,439 6,222 6,010
Short-term energy sales to other
utilities
(million KWH)......................... 330 68 174 266 88
---------- ---------- ---------- ---------- --------
Total electric sales.................. 7,577 7,185 6,613 6,488 6,098
========== ========== ========== ========== ========
System peak (thousand kilowatts)........ 1,500 1,473 1,310 1,346 1,308
Electric customers...................... 224,703 220,923 217,568 212,559 213,941
</TABLE>
- ---------------
(1) Amounts have been restated to reflect a two-for-one stock split effective in
May 1992.
3
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
INDUSTRY DEVELOPMENTS/CUSTOMER CHOICE
Forces driving the movement toward increased competition in the electric
utility industry involve numerous and complex economic, political and
technological factors. These factors have resulted in the introduction of
federal and state legislation and other regulatory initiatives that are likely
to result in even greater competition at both the wholesale and retail level in
the future. In 1995 the LPSC opened a docket to investigate customer choice of
electric power supplier. In 1996 legislation was proposed at the federal and
Louisiana levels that would have mandated retail customer "choice" of electric
supplier. The Company expects that customer choice debate will continue in
legislative and regulatory bodies in 1997. The Company has taken the position
that all customers, large or small, should have a choice in electric supplier.
The Company recognizes the need to work out issues to create a level playing
field for all energy suppliers. The increasingly competitive environment
presents opportunities to compete for new customers, as well as the risk of loss
of existing customers. The Company believes that it is a reliable, low-cost
provider of electricity and as such is currently positioned to compete
effectively in the changing marketplace.
RESULTS OF OPERATIONS
Net income applicable to common stock for 1996 totaled $50.1 million, or
$2.23 per share, an increase of $0.15 per share from 1995 earnings of $46.1
million, or $2.08 per share. Net income applicable to common stock for 1994 was
$43.0 million, or $1.92 per share. The increase in 1996 earnings was primarily
due to the effect on base revenues of increased kilowatt-hour sales to
commercial and industrial customers, slightly offset by an increase in nonfuel
operating expenses. Results for 1995 were affected by increased kilowatt-hour
sales resulting from warmer-than-normal weather, which were partially offset by
higher operating expenses compared to 1994. Net income for 1994 reflected a
$0.03 per share after-tax restructuring charge for a customer service office
consolidation plan.
Earnings for the past three years are not necessarily indicative of future
earnings and results. The Company's future earnings may be affected by weather
conditions, the Company's business development programs, the overall economy of
the Company's service area, increased property and other taxes, a full-year's
effect of a $3 million rate reduction, a scheduled rate reduction of $2 million
in 1998, legislative and other regulatory changes and increased competition.
REVENUES AND SALES
Revenues and kilowatt-hour (kwh) sales for 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Revenues 1996 1995
-------- -------------------- --------------------
In Percent In Percent
Thousands Change Thousands Change
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Base (nonfuel).......................... $266,301 2.0% $261,143 7.0%
Fuel cost recovery...................... 169,115 26.9% 133,283 (1.7)%
-------- ---- -------- ----
Total revenues................ $435,416 10.4% $394,426 3.9%
======== ==== ======== ====
</TABLE>
4
<PAGE> 3
<TABLE>
<CAPTION>
Sales 1996 1995
----- ------------------ ------------------
Million Percent Million Percent
kwh Change kwh Change
------- ------- ------- -------
<S> <C> <C> <C> <C>
Regular customers
Residential........................... 2,723 (1.4)% 2,763 9.1%
Commercial............................ 1,338 5.8% 1,265 7.2%
Industrial............................ 2,369 6.4% 2,227 9.7%
Other retail.......................... 526 4.8% 502 3.1%
Sales for resale...................... 291 (19.2)% 360 71.4%
----- ----- ----- -----
Total sales to regular customers........ 7,247 1.8% 7,117 10.5%
Short-term sales to other utilities..... 330 385.3% 68 (60.9)%
----- ----- ----- -----
Total electric sales.......... 7,577 5.5% 7,185 8.6%
===== ===== ===== =====
</TABLE>
The Company's base rates did not change in 1995 or 1994, but were reduced
in 1996 by the settlement of the Company's earnings review conducted by the
LPSC. For more information concerning the settlement of the LPSC earnings review
of the Company, see "Financial Condition -- Retail Rates" below. The $41.0
million increase in 1996 operating revenues compared to 1995 was primarily due
to a $35.8 million increase in fuel cost recovery revenues, caused primarily by
higher natural gas prices in effect during 1996. Base revenues improved $5.2
million due to an increase in kilowatt-hour sales to commercial and industrial
customers. Net income is not affected by changes in the cost of fuel and
purchased power because these cost fluctuations are currently passed on to
customers through fuel adjustment clauses.
Total operating revenues were 3.9% higher in 1995 compared to 1994 largely
as a result of the effect on base revenues of weather-related increases in
kilowatt-hour sales. The net increase in operating revenues resulted from an
increase in base revenues offset by a slight decrease in fuel cost recovery
revenues resulting from lower natural gas prices.
During 1996, consumption by commercial and industrial customers was higher
than in 1995 due to customer growth and increased consumption by the Company's
largest industrial customer. Residential kilowatt-hour sales are influenced
significantly by weather. The summer weather in 1996 was milder than experienced
in 1995, resulting in a 1.4% decrease in residential sales. The unusually hot
weather during 1995, together with industrial growth, produced higher sales in
1995 than in 1994.
During the last five years, sales growth to regular customers averaged 4.2%
per year, and is expected to range from 2.5% to 4.5% per year during the next
five years. The level of future sales will depend upon weather conditions,
customer conservation efforts, the Company's retail marketing and business
development programs, acquisitions of other electric utility properties and the
overall economy of the service area. Sales to industrial customers are also
affected by the national economy and worldwide demand for wood products, since
the Company's two largest customers are producers of such products. Issues
facing the electric utility industry that could affect sales include
deregulation, retail wheeling, legislative and regulatory changes, retention of
large industrial customers, municipal franchises and access to transmission
systems.
In 1995, the Company leased the England Industrial Airpark distribution
system from the industrial development authority for a twenty year period. This
facility includes a new commercial airport, industrial park, golf course and
residential village. These are all portions of the former England Air Force Base
near Alexandria which the Company was serving prior to its closure several years
ago.
Also in 1996, the Company signed a contract to serve a new industrial port
on the Red River at Natchitoches. This port is a development resulting from a
federal project which has made the Red River navigable from its confluence with
the Mississippi River to near Shreveport. The Red River
5
<PAGE> 4
runs through the Company's service territory in central and western Louisiana
and provides a water transportation connection to the world via the Mississippi
River and the Gulf of Mexico.
On May 1, 1995, the Company began providing approximately 13 megawatts of
wholesale power service to the city of St. Martinville under a five-year
contract subject to the jurisdiction of the FERC. This contract was challenged
in 1993 by the previous supplier, Louisiana Energy and Power Authority (LEPA),
as well as the city of Lafayette and the American Public Power Association, with
assertions of preferential, discriminatory and predatory pricing. An initial
decision of the FERC's presiding administrative law judge (ALJ) in February 1995
rejected LEPA's arguments. Under FERC procedures, LEPA filed a brief requesting
the FERC to revise the initial decision and this matter is still pending before
the FERC. The Company has opposed LEPA's brief. Management believes that the
ALJ's initial decision will be upheld.
FUEL AND PURCHASED POWER
Changes in fuel and purchased power expenses reflect fluctuations in
generation mix, fuel costs, availability of economy power and deferral of
expenses for recovery from customers through fuel adjustment clauses in
subsequent months.
Fuel and purchased power expenses for 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
In Percent In Percent
Thousands Change Thousands Change
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Fuel used for electric generation............ $115,642 6.8% $108,322 (10.1)%
Power purchased.............................. 55,609 103.2% 27,367 57.5%
-------- ----- -------- -----
Total fuel expenses................ $171,251 26.2% $135,689 (1.6)%
======== ===== ======== =====
</TABLE>
The increase in the cost of fuel used for electric generation is
attributable primarily to the higher cost of natural gas in 1996, compared to
1995. The increase in purchased power resulted from the increased availability
of low-cost power (generally from solid fuel generation) on the wholesale
market, primarily due to the substantial increases in natural gas prices.
The Company obtains coal and lignite under long-term contracts. The Company
purchases natural gas under short-term contracts on the spot market when prices
are advantageous. Power is purchased from other utilities when the purchase
price is less than the Company's cost to generate. During 1996, 33% of the
Company's energy requirements were met with purchased power, compared to 18% in
1995.
During 1996, the Company constructed natural gas pipelines at its three
power stations where natural gas is used as a primary fuel. These pipelines
increase the Company's access to natural gas markets and lower-cost gas
supplies. These pipelines are owned and operated by a consolidated subsidiary of
the Company. Also during the year, the Company terminated its contracts with its
main transporter and supplier of natural gas and replaced them with a base
supply contract for approximately one-third of the Company's natural gas
requirements. The combination of the new natural gas contracts and access to the
gas markets afforded by the pipelines will help assure that the Company's
generating units remain competitive.
CO-OP DEVELOPMENTS
In February 1994, the Company approached the management of Teche Electric
Cooperative, Inc. (Teche) about the possibility of purchasing Teche. Teche
serves about 8,600 customers, and its service area, which comprises parts of
Iberia, St. Martin and St. Mary parishes, is adjacent to the Company's service
area. The acquisition of Teche would result in an increase in the Company's
kilowatt-hour sales to regular customers of about 2.4%.
6
<PAGE> 5
In February 1995, Teche and the Company executed a purchase and sale
agreement for a purchase price, including the Company's assumption or other
discharge of Teche's liabilities, of approximately $22.4 million. The members of
Teche overwhelmingly approved the sale at their annual meeting in March 1995. On
March 31, 1996, the board of directors of Teche voted to extend the Purchase and
Sale Agreement with the Company for an additional twelve months until March 31,
1997, to allow for the Teche wholesale power contract with Cajun Electric Power
Cooperative, Inc. (Cajun) to be resolved through Cajun's bankruptcy process.
Consummation of the acquisition is subject to a number of conditions, including
approval by the LPSC, the Rural Utilities Service and other governmental
agencies, the successful resolution of Teche's wholesale power supply contract
with Cajun and certain other conditions. Each plan of reorganization currently
filed with the bankruptcy court in the Cajun bankruptcy includes a provision for
the assignment or substitution of Teche's supply contract to or with the
Company. This provision is subject to a number of approvals, including
confirmation by the bankruptcy court.
NONFUEL OPERATING EXPENSES AND INCOME TAXES
The changes in nonfuel operating expenses (excluding restructuring charges)
for 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
In Percent In Percent
Thousands Change Thousands Change
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Other operation......................... $(2,898) (4.4)% $ 9,402 16.6%
Maintenance............................. $ 873 3.9% $(2,064) (8.4)%
Depreciation............................ $ 2,277 5.5% $ 1,157 2.9%
Other taxes............................. $ 532 1.8% $ 164 0.6%
Income taxes............................ $ 925 3.7% $ 5,328 26.8%
------- ---- ------- ----
Total......................... $ 1,709 0.9% $13,987 8.2%
======= ==== ======= ====
</TABLE>
In 1996, total nonfuel operating expenses increased 0.9% compared to 1995.
The increase was primarily due to higher depreciation expense and federal and
state income taxes offset by a decrease in costs to operate the Company's
electric system. Depreciation expense increased primarily due to property
additions associated with the Energy Control Center and transmission and
distribution facilities. The increase in federal and state income taxes resulted
from an increase in pretax income. The cost of operating the Company's electric
system decreased as a result of reduced co-op acquisition expenses during 1996
and a higher employee incentive expense incurred in 1995. Maintenance expenses
increased as a result from additional upkeep of the water plant facilities at
Coughlin Power Station.
Nonfuel operating expenses in 1995 increased 8.2% over 1994, excluding the
effects of restructuring charges. This increase was primarily due to costs
associated with the Company's electric cooperative acquisition efforts, an
employee incentive plan, prior year criteria pollutant fees assessed by the
Louisiana Department of Environmental Quality in 1995, costs associated with the
start-up of the Company's 24-hour call center (while customer service offices
remained open until full implementation of the call center) and uncollectible
accounts expense resulting from higher sales and a pre-bankruptcy receivable
from Cajun. Maintenance expenses in 1995 decreased relative to 1994 because of a
major inspection at Teche power plant performed in 1994 and because of a
reduction in the portion of employees' time associated with maintenance
activities. Income taxes increased primarily due to higher taxable income in
1995.
An audit of the Company's 1991 and 1992 tax returns was completed by agents
of the Internal Revenue Service (IRS) in January 1995. A settlement of these
audit assessments totaling $0.9 million has been proposed by an IRS appeals
officer. Deferred federal income taxes have been provided for all temporary
differences, and reserves have been provided for other issues. In October 1996,
the IRS completed an audit of the Company's 1993 and 1994 tax returns. The
7
<PAGE> 6
assessments in this audit totaling $1.3 million were agreed to and paid by the
Company at the conclusion of the audit. Interest has not been paid in either
settlement but all interest through December 31, 1996 has been accrued.
In 1997, a ten-year property tax exemption will expire on the Dolet Hills
Power Station. The Company expects that taxes other than income taxes will
increase approximately $3 million annually, its estimated share of the property
taxes on this generating station.
A number of parishes have attempted in recent years to impose franchise
fees on retail revenues earned within the unincorporated areas served by the
Company. If the parishes are ultimately successful, taxes other than income
taxes could increase substantially in future years.
OTHER INCOME AND INTEREST EXPENSE
During 1996, "other income (expenses), net" increased $0.2 million as a
result of lower charitable donations and other miscellaneous expenses compared
to 1995. In 1995, the Company donated several closed customer service offices to
local government authorities. "Other income (expenses), net" increased in 1995
as compared to the prior year, as a result of earnings from short-term
instruments held by an unregulated subsidiary.
Total interest expense decreased $0.2 million in 1996, as compared to 1995,
due, in part, to lower interest rates on short-term debt and variable-rate
pollution control bonds. During 1996, $50 million of 9 5/8% first mortgage bonds
were redeemed with proceeds from $45 million of medium-term notes issued at a
weighted average interest rate of 6.37%. Interest expense increased $1.8 million
in 1995, as compared to 1994, due to higher interest rates on short-term debt
and variable-rate pollution control bonds. Also during 1995, $25 million of
medium-term notes were issued at a weighted average interest rate of 6.63% to
refinance $14 million of maturing 5.0% first mortgage bonds and to reduce
short-term debt levels.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
AFUDC represents the estimated cost of financing construction
work-in-progress and is not a current source of cash. A return on and recovery
of AFUDC is generally permitted by regulatory bodies in setting rates charged
for utility services. In the absence of a specified return on equity in the LPSC
earnings review, a rolling average of the last three years was used. AFUDC for
1996 decreased as a result of a lower AFUDC rate as well as lower average
construction work-in-progress balances compared to 1995. AFUDC increased in 1995
from the prior year as a result of higher average construction work-in-progress
balances. AFUDC accounted for 1.5% of net income applicable to common stock in
1996, compared to 4.5% in 1995 and 3.3% in 1994.
EARNINGS PER SHARE
In 1996, potentially dilutive securities had more than a 3% dilutive effect
on net income per common share due to the assumed conversion of the Incentive
Stock Option Plan and the convertible preferred stock held by the Employee Stock
Ownership Plan (ESOP). As a result, both primary and fully diluted average
shares of common stock outstanding and earnings per share are presented in the
Consolidated Statements of Income.
FINANCIAL CONDITION
- ----------------------------
LIQUIDITY AND CAPITAL RESOURCES
Financing for construction requirements and operational needs is dependent
upon the cost and availability of external funds through capital markets and
from financial institutions. Access to funds is dependent upon factors such as
general economic conditions, regulation and the Company's credit rating.
8
<PAGE> 7
Since 1990, the Company participated in a program where up to $35 million
of receivables were sold on an ongoing basis. The amount of receivables that
could be sold at any time depended upon seasonal fluctuations in the amount of
eligible receivables. In December 1996, the Company reduced to zero outstanding
sales of accounts receivable under this program. The Company plans to terminate
this program in early 1997. To replace this short-term liquidity program, the
Company plans to increase its committed bank borrowing capacity by $25 million
in 1997. For more information concerning the Company's accounts receivables, see
"Note C -- Receivables" included in the notes to the Consolidated Financial
Statements.
The Company has an effective shelf registration statement and all
regulatory approvals necessary to issue up to $180 million of medium-term notes.
At December 31, 1996 and 1995, the Company had $65.2 million and $23.1
million, respectively, of short-term debt outstanding in the form of commercial
paper borrowings and bank loans. Short-term debt increased as a result of the
Company discontinuing the sale of accounts receivable. The Company currently has
a $100 million revolving credit facility, which supports the issuance of
commercial paper, and is scheduled to continue through June 2000. Uncommitted
lines of credit with banks totaling $20 million are available to meet short-term
working capital needs. Additionally, at December 31, 1996, an unregulated
consolidated subsidiary of the Company held $14.1 million of cash and marketable
securities.
CASH GENERATION AND CASH REQUIREMENTS
During 1996, the Company generated $60.8 million of cash flows from
operating activities, as shown in the Consolidated Statements of Cash Flows. Net
cash provided by operating activities resulted from net income, adjusted for
noncash charges to income, and changes in working capital. Net cash used in
investing activities is related to additions to utility plant and changes in
utility and nonutility investments. Net cash used in financing activities
resulted principally from the payment of dividends to shareholders and long-term
financing activities.
In recent years, the construction program has consisted primarily of
enhancements to the transmission and distribution systems. In 1996, the Company
completed $10 million in additions to its Energy Control Center. Utility
expenditures, excluding AFUDC, totaled $60 million in 1996 and $55 million in
1995.
Construction expenditures, excluding AFUDC, for 1997 are estimated to be
$67.5 million and for the five-year period ending 2001 are expected to total
$280 million. About half of the planned construction in the five-year period
will support line extensions and substation upgrades to accommodate new business
and load growth. Approximately 25% will be used to enhance or rehabilitate the
Company's transmission and distribution systems. About 10% will be used to lower
fuel cost, extend the life of generating units and comply with environmental
standards. The remaining investments will be in information technology and
general infrastructure to operate the Company more efficiently.
Scheduled maturities of debt and preferred stock will total about $15.3
million for 1997 and approximately $111.6 million for the five-year period
ending 2001. In 1991, the Company began a common stock repurchase program, and
as part of that program, up to $23.5 million of common stock may be repurchased
in the future. The Company did not repurchase any shares of common stock during
1996. The Company may require additional funds to purchase outstanding shares of
the Company's common stock.
Approximately 96% of total construction requirements were funded internally
in 1996, as compared to 93% in 1995 and 100% in 1994. In 1997, 81% of
construction requirements are expected to be funded internally. For the
five-year period ending 2001, all of the construction requirements are expected
to be funded internally.
Other capital requirements in 1996 and 1995 were funded by the issuance of
debt, while in 1994, other capital requirements were funded internally.
9
<PAGE> 8
RETAIL RATES
Retail rates, which are regulated by the LPSC, account for 97% of total
revenues. Fuel costs and monthly fuel adjustment billing factors are subject to
audit by the LPSC. The LPSC establishes base rates for the Company which reflect
nonfuel costs, including the cost of capital, and sales. In the past, the
Company has sought increases in base rates to reflect the cost of service
related to plant facility additions and increases in operating costs. If the
Company were to request an increase in its rates and adequate rate relief was
not granted on a timely basis, the Company's ability to attract capital at
reasonable costs to finance its operations and capital improvements might be
impaired.
The LPSC elected in 1993 to review the earnings of all electric, gas, water
and telecommunications utilities regulated by it to determine whether the
returns on equity of these companies may be higher than returns that might be
awarded in the current economic environment. The LPSC began its review of the
Company's earnings in August 1995. In October 1996, the LPSC approved a
settlement of the Company's earnings review, providing for lower electricity
rates to the Company's customers. The first rate decrease was effective November
1, 1996, with a second decrease scheduled for January 1, 1998.
On November 1, 1996, the Company's annual base rate tariff for electric
service was reduced by $3 million. In January 1998, the Company's annual base
rate tariff for electric service will be reduced an additional $2 million. The
terms of this settlement will be effective for a five-year period.
During the five-year period, which began November 1, 1996, a rate
stabilization plan will be in place. This plan will allow the Company to retain
all earnings equating to a regulatory return on equity up to and including
12.25% on its regulated utility operations. Any earnings over 12.25%, up to and
including 13%, will be shared equally between the Company and its customers,
which effectively provides the Company with the opportunity to realize a
regulatory rate of return of up to 12.625%. Any earnings above this level would
be refunded fully to customers.
During the five-year period, 1997-2001, the Company's revenues and return
on equity will be reviewed each year by the LPSC. If the Company is found to be
achieving a regulatory return on equity in any given year which requires a
refund to customers, the refund will be made in the form of billing credits
during the months of July, August and September following the evaluation period.
During the five-year rate stabilization period, the Company will have the
right to apply for a rate increase if a significant event affecting its earnings
would justify it, such as regulatory or economic changes, major hurricane damage
or other unforeseen circumstances. During the period, the Company will also be
able to propose for LPSC consideration any revenue-neutral rate design changes
it feels appropriate, such as revenue redistribution among customer classes
which may be warranted. Also, during the period, the LPSC may amend or modify
any of the settlement's terms should it determine changes are warranted by the
public interest.
INFLATION AND FUEL COSTS
The Company is a capital-intensive electric utility. As such, it is
affected by inflation since depreciation, which is based on the historical cost
of assets, will in all likelihood not fully reflect the cost of replacing
assets. Although the cost of fuel used for electric generation is a major
component of total costs, the Company is not currently exposed to the effects of
market fluctuations in fuel prices since fuel costs are currently recovered from
customers through fuel adjustment clauses.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws and regulations
governing the protection of the environment. Violations of such laws and
regulations may result in substantial fines and penalties. The Company has
obtained all material environmental permits necessary for its operations and
believes it is in substantial compliance with these permits, as well as all
applicable environmental laws and regulations. The Company does not anticipate
that existing environmental rules will significantly impact its operations, but
some capital improvements may have to be made in response to new environmental
programs expected in the next few years.
10
<PAGE> 9
Implementation of Phase I of the Clean Air Act will not require the Company
to reduce sulfur emissions at its solid-fuel generating units, which either burn
low-sulfur coal or utilize pollution control equipment. Installation of
continuous emission monitoring equipment on its generating units has been
completed at a cost of approximately $3.0 million. Although Phase II of the
legislation, effective in 2000, involves more stringent limits on emissions, it
should not significantly affect the operation of the Company's generating units.
However, some capital investment may be necessary in order to comply with Phase
II requirements. Capital expenditures for environmental matters in 1997 are
estimated to be $0.5 million.
REGULATORY MATTERS
In 1996, the FERC issued rules requiring open transmission access. The open
access provisions require FERC-regulated electric utilities to offer third
parties open access to transmission under comparable terms and conditions as the
utilities' use of their own systems. Providing unbundled transmission services
to firm-requirements customers may have significant financial consequences to
the utility industry. Providing open access for non-firm sales may have a
significant effect on utility operations. Currently, the Company has three
wholesale full-requirements customers representing about 0.9% of the Company's
total kilowatt-hour sales to regular customers.
Federal and state regulators and legislators are studying potential effects
of deintegrating the vertically integrated utility systems and providing retail
customers a choice of supplier. At this time, it is not possible to predict
when, if, or to what extent, retail customers will be able to choose their
electric service suppliers. The regulatory requirement to serve customers and
industry standards for reliability of electric supply have resulted in the
construction of facilities sufficient to meet peak load conditions with a margin
for reserve.
With customer choice, costs associated with utility assets specifically
dedicated to, or used by, departing customers would have to be paid by the
departing customers (stranded costs), absorbed by remaining and new customers or
written off by the Company.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121), establishes accounting standards for determining if long-lived
assets are impaired, and when and how losses, if any, should be recognized. The
Company believes that the net cash flows that will result from the operation of
its assets are sufficient to cover the carrying value of the assets.
The Company has recorded regulatory assets and liabilities, primarily for
the effects of income taxes, as a result of past rate actions of the Company's
regulators, pursuant to Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71). The
effects of potential deregulation of the industry or possible future changes in
the method of rate regulation of the Company could require the Company to
discontinue the application of SFAS 71, pursuant to Statement of Financial
Accounting Standards No. 101, "Regulated Enterprises -- Accounting for the
Discontinuation of Application of FASB Statement No. 71" (SFAS 101). At December
31, 1996, the Company had recorded $43.8 million of regulatory assets, net of
regulatory liabilities, because of the regulatory requirement to flow through
the tax benefits of accelerated deductions to current customers and an implied
regulatory compact that future customers would pay when the Company paid the
additional taxes. These differences occur over the lives of relatively
long-lived assets, up to 30 years or more. Under the current regulatory and
competitive environment, the Company believes that these regulatory assets are
fully recoverable. However, if in the future, as a result of regulatory changes
or increased competition, the Company's ability to recover these regulatory
assets would not be probable, then to the extent that such regulatory assets
were determined not to be recoverable, the Company would be required to write
off or write down such assets.
11
<PAGE> 10
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31
------------------------------------
1996 1995 1994
---------- ---------- ----------
(In thousands,
except share and per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES................................... $435,416 $394,426 $379,603
---------- ---------- ----------
Operating expenses
Fuel used for electric generation.................. 115,642 108,322 120,546
Power purchased.................................... 55,609 27,367 17,376
Other operation.................................... 63,065 65,963 56,561
Restructuring charges.............................. 1,203
Maintenance........................................ 23,489 22,616 24,680
Depreciation....................................... 43,441 41,164 40,007
Taxes other than income taxes...................... 29,595 29,063 28,899
Federal and state income taxes..................... 26,154 25,229 19,901
---------- ---------- ----------
Total operating expenses................... 356,995 319,724 309,173
---------- ---------- ----------
OPERATING INCOME..................................... 78,421 74,702 70,430
Interest income...................................... 256 219 238
Allowance for other funds used during construction... 1,134 1,912 1,716
Other income (expenses), net......................... 333 74 (967)
---------- ---------- ----------
INCOME BEFORE INTEREST CHARGES....................... 80,144 76,907 71,417
---------- ---------- ----------
Interest charges
Interest on debt and other......................... 27,492 27,998 25,736
Allowance for borrowed funds used during
construction.................................... (590) (1,028) (585)
Amortization of debt discount, premium and expense,
net............................................. 1,107 1,234 1,223
---------- ---------- ----------
Total interest charges..................... 28,009 28,204 26,374
---------- ---------- ----------
NET INCOME........................................... 52,135 48,703 45,043
Preferred dividend requirements, net................. 2,074 2,052 2,026
---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK................ $ 50,061 $ 46,651 $ 43,017
========== ========== ==========
AVERAGE SHARES OF COMMON STOCK OUTSTANDING
Primary............................................ 22,452,762 22,430,759 22,414,831
Fully diluted...................................... 23,858,530 23,849,854 23,842,199
========== ========== ==========
EARNINGS PER SHARE
Primary............................................ $2.23 $2.08 $1.92
Fully diluted...................................... $2.16 $2.01 $1.86
---------- ---------- ----------
CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK........ $1.53 $1.49 $1.45
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
12
<PAGE> 11
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31
-----------------------
1996 1995
---------- ----------
(In thousands)
<S> <C> <C>
ASSETS
Utility plant (Notes A and B)
Property, plant and equipment............................. $1,379,035 $1,319,815
Accumulated depreciation.................................. (475,212) (441,686)
---------- ----------
Net property, plant and equipment......................... 903,823 878,129
Construction work-in-progress............................. 49,075 51,390
---------- ----------
Total utility plant, net............................ 952,898 929,519
---------- ----------
Investments and other assets (Note D)....................... 8,488 8,097
---------- ----------
Current assets
Cash and cash equivalents (Note A)........................ 20,307 20,621
Accounts receivable, net (Note C)
Customer accounts receivable............................ 23,145 6,081
Other accounts receivable............................... 20,767 10,994
Unbilled revenues......................................... 11,193 3,098
Fuel inventory, at average cost........................... 9,366 8,699
Material and supplies inventory, at average cost.......... 17,029 15,819
Prepayments and other current assets...................... 2,505 2,501
---------- ----------
Total current assets...................................... 104,312 67,813
---------- ----------
Prepayments................................................. 8,683 8,213
---------- ----------
Regulatory assets -- deferred taxes (Note J)................ 103,839 118,967
---------- ----------
Other deferred charges...................................... 69,320 66,967
---------- ----------
Accumulated deferred federal and state income taxes (Note
J)........................................................ 74,231 66,458
---------- ----------
TOTAL ASSETS........................................ $1,321,771 $1,266,034
========== ==========
CAPITALIZATION AND LIABILITIES
Common shareholders' equity
Common stock, $2 par value, authorized 50,000,000 shares,
issued 22,760,154 and 22,745,104 shares at December 31,
1996 and 1995, respectively (Note F).................... $ 45,520 $ 45,490
Premium on capital stock.................................. 113,702 113,444
Retained earnings......................................... 240,414 224,688
Treasury stock, at cost, 307,577 and 318,446 shares at
December 31, 1996 and 1995, respectively................ (6,242) (6,459)
---------- ----------
Total common shareholders' equity................... 393,394 377,163
---------- ----------
Preferred stock (Note H)
Not subject to mandatory redemption....................... 30,280 30,519
Subject to mandatory redemption........................... 6,372 6,610
Deferred compensation related to preferred stock held by
ESOP...................................................... (20,751) (22,595)
Long-term debt, net (Note E)................................ 340,859 360,822
---------- ----------
Total capitalization................................ 750,154 752,519
---------- ----------
Current liabilities
Short-term debt (Note E).................................. 65,161 23,062
Long-term debt due within one year (Note E)............... 15,000
Accounts payable.......................................... 50,022 51,087
Customer deposits......................................... 19,761 19,725
Taxes accrued (Note J).................................... 5,806 2,503
Interest accrued.......................................... 7,521 8,909
Accumulated deferred fuel................................. 2,168 3,651
Other current liabilities................................. 3,252 2,343
---------- ----------
Total current liabilities........................... 168,691 111,280
---------- ----------
Deferred credits
Accumulated deferred federal and state income taxes (Note
J)...................................................... 281,684 266,873
Accumulated deferred investment tax credits (Note J)...... 31,364 33,173
Regulatory liabilities -- deferred taxes (Note J)......... 60,058 79,332
Other deferred credits.................................... 29,820 22,857
---------- ----------
Total deferred credits.............................. 402,926 402,235
---------- ----------
Commitments and contingencies (Notes E, F, H, I, J and K)
TOTAL CAPITALIZATION AND LIABILITIES................ $1,321,771 $1,266,034
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
13
<PAGE> 12
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31
--------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 52,135 $ 48,703 $ 45,043
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization......................... 44,548 42,398 40,095
Allowance for funds used during construction.......... (1,724) (2,940) (2,301)
Amortization of investment tax credits................ (1,809) (1,814) (1,819)
Deferred income taxes................................. 3,818 2,854 2,445
Deferred fuel costs................................... (1,483) (2,463) 799
Restructuring charge.................................. 1,152
Gain (loss) on disposition of utility plant, net...... (20) (270) 25
Changes in assets and liabilities
Accounts receivable, net............................ (26,837) (5,928) (446)
Unbilled revenues................................... (8,095) (2,525) 933
Fuel, material and supplies inventories............. (1,877) 611 776
Accounts payable.................................... (1,065) 7,621 2,076
Customer deposits................................... 36 212 875
Taxes accrued....................................... 3,303 (759) (1,807)
Interest accrued.................................... (1,388) 611 (31)
Other, net............................................ 1,251 1,343 981
-------- -------- --------
Net cash provided by operating activities........... 60,793 87,654 88,796
-------- -------- --------
INVESTING ACTIVITIES
Additions to utility plant................................ (64,425) (57,839) (55,445)
Allowance for funds used during construction.............. 1,724 2,940 2,301
Sale of utility plant..................................... 482 546 373
Purchase of investments................................... (420) (2,618) (203,165)
Sale of investments....................................... 807 14,278 203,749
-------- -------- --------
Net cash used in investing activities............... (61,832) (42,693) (52,187)
-------- -------- --------
FINANCING ACTIVITIES
Issuance of common stock.................................. 288 379 208
Repurchase of common stock................................ (16) (309)
Redemption of preferred stock............................. (238) (310) (322)
Issuance of long-term debt................................ 45,000 25,000
Retirement of long-term debt.............................. (50,000) (15,481) (650)
Increase (decrease) in short-term debt, net............... 42,099 (5,915) 603
Dividends paid on common and preferred stock, net......... (36,408) (35,453) (34,501)
-------- -------- --------
Net cash provided by (used in) financing
activities........................................ 725 (31,780) (34,971)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (314) 13,181 1,638
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 20,621 7,440 5,802
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 20,307 $ 20,621 $ 7,440
======== ======== ========
Supplementary cash flow information
Interest paid (net of amount capitalized)................. $ 29,881 $ 27,744 $ 27,457
======== ======== ========
Income taxes paid......................................... $ 20,351 $ 24,357 $ 25,762
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE> 13
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Years Ended December 31, 1994, 1995 and 1996
-------------------------------------------------------------------
Common Stock Premium Treasury Stock
--------------------- on Capital Retained ----------------
Shares Amount Stock Earnings Shares Cost
---------- ------- ------------ -------- ------- ------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994............ 22,708,874 $45,418 $112,829 $200,908 326,380 $6,600
---------- ------- -------- -------- ------- ------
Redemptions of preferred stock...... 48
Incentive stock options exercised... 11,200 22 186
Repurchase of common stock.......... 14,300 309
Issuance of treasury stock.......... 7 (11,247) (228)
Capital stock expense............... (12)
Dividend requirements, preferred
stock, net........................ (2,026)
Cash dividends paid, common stock,
$1.45 per share................... (32,475)
Unrealized holding loss on
available-for-sale securities,
net............................... (240)
Net income.......................... 45,043
---------- ------- -------- -------- ------- ------
BALANCE, DECEMBER 31, 1994.......... 22,720,074 45,440 113,070 211,198 329,433 6,681
---------- ------- -------- -------- ------- ------
Redemptions of preferred stock...... 39
Incentive stock options exercised... 25,030 50 329
Issuance of treasury stock.......... 6 (10,987) (222)
Dividend requirements, preferred
stock, net........................ (2,052)
Cash dividends paid, common stock,
$1.49 per share................... (33,401)
Change in unrealized holding loss on
available-for-sale securities,
net............................... 240
Net income.......................... 48,703
---------- ------- -------- -------- ------- ------
BALANCE, DECEMBER 31, 1995.......... 22,745,104 45,490 113,444 224,688 318,446 6,459
---------- ------- -------- -------- ------- ------
Redemptions of preferred stock...... 31
Incentive stock options exercised... 15,050 30 220
Issuance of treasury stock.......... 7 (11,484) (233)
Incentive shares forfeited.......... 615 16
Dividend requirements, preferred
stock, net........................ (2,073)
Cash dividends paid, common stock,
$1.53 per share................... (34,336)
Net income.......................... 52,135
---------- ------- -------- -------- ------- ------
BALANCE, DECEMBER 31, 1996.......... 22,760,154 $45,520 $113,702 $240,414 307,577 $6,242
========== ======= ======== ======== ======= ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE> 14
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION AND REGULATION
Central Louisiana Electric Company, Inc. (the Company) provides electric
service to a diversified base of residential, commercial and industrial
customers in 23 parishes of Louisiana. The Company maintains its accounts in
accordance with the Uniform System of Accounts prescribed for electric utilities
by the Federal Energy Regulatory Commission (FERC), as adopted by the Louisiana
Public Service Commission (LPSC). The Company's retail rates for residential,
commercial and industrial customers and other retail sales are regulated by the
LPSC, and its rates for transmission services and wholesale power sales are
regulated by the FERC. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UTILITY PLANT AND DEPRECIATION
Utility plant is stated at the original cost of construction, which
includes certain materials, labor, payroll taxes and benefits, administrative
and general costs, and the estimated cost of funds used during construction. The
cost of repairs and minor replacements is charged as incurred to the appropriate
operating expense and clearing accounts. The cost of improvements is
capitalized. Upon retirement or disposition, the recorded cost of depreciable
plant and the cost of removal, net of salvage value, are charged to accumulated
depreciation.
The provision for depreciation is computed using the straight-line method
at rates which will amortize the unrecovered cost of depreciable property over
its estimated useful life. Annual depreciation provisions expressed as a
percentage of average depreciable property were 3.21% for 1996, 3.19% for 1995
and 3.17% for 1994.
CASH EQUIVALENTS
The Company considers highly liquid, marketable securities and other
similar instruments with original maturity dates of three months or less at the
time of purchase to be cash equivalents.
INCOME TAXES
Deferred income taxes are provided at the current enacted income tax rate
on all temporary differences between tax and book bases of assets and
liabilities. The Company recognizes regulatory assets and liabilities for the
tax effect of temporary differences, which, to the extent past ratemaking
practices are continued by regulators, will be realized over the accounting
lives of the related properties.
INVESTMENT TAX CREDITS
Investment tax credits which were deferred for financial statement purposes
are amortized to income over the estimated service lives of the properties which
gave rise to the credits.
16
<PAGE> 15
DEBT EXPENSE, PREMIUM AND DISCOUNT
Expense, premium and discount applicable to debt securities are amortized
to income ratably over the lives of the related issues. Expense and call premium
related to refinanced debt are amortized over the remaining life of the original
issue.
REVENUES AND FUEL COSTS
Revenues from sales of electricity are recognized based upon the amount of
energy delivered. The cost of fuel is currently recovered from customers through
fuel adjustment clauses, based upon fuel costs incurred in prior months. These
adjustments are subject to audit and final determination by regulators.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
The capitalization of AFUDC is a utility accounting practice prescribed by
the FERC. AFUDC represents the estimated cost of financing construction
work-in-progress. AFUDC does not represent a current source of cash, but under
regulatory practices, a return on and recovery of AFUDC is permitted in setting
rates charged for utility services. The composite AFUDC rate, including borrowed
and other funds on a combined basis, for 1996 was 13.33% on a pre-tax basis
(8.20% net of tax), and was 15.10% on a pre-tax basis (9.29% net of tax) for the
years 1995 and 1994.
NET INCOME PER COMMON SHARE
Net income per common share has been computed using the weighted average
number of shares of common stock outstanding during the year. In 1996
potentially dilutive securities had more than a 3% dilutive effect on net income
per common share due to the assumed conversion of the Incentive Stock Option
Plan and the convertible preferred stock held by the Employee Stock Ownership
Plan (ESOP). As a result, both primary and fully diluted average shares of
common stock outstanding and earnings per share are presented.
DERIVATIVES
From time to time the Company may limit or expand its exposure to interest
rate risk or electricity or generator boiler fuel market price risk by using
hedging transactions. In each case the transactions reflect underlying
indebtedness or commodity requirements. No hedging transactions are entered into
for speculative purposes. The Company did not engage in any interest rate hedges
in 1996 and has only diminimus amounts of natural gas futures transactions
outstanding at December 31, 1996.
NOTE B -- JOINTLY OWNED GENERATING UNITS
Two electric generating units operated by the Company are jointly owned
with other utilities. The Company's proportionate share of operation and
maintenance expenses associated with these two units is reflected in the
financial statements.
<TABLE>
<CAPTION>
At December 31, 1996
-------------------------
Rodemacher Dolet Hills
Unit #2 Unit #1
---------- -----------
(Dollar amounts in
thousands)
<S> <C> <C>
Percentage of ownership..................................... 30% 50%
Utility plant in service.................................... $85,234 $271,401
Accumulated depreciation.................................... $36,818 $ 86,781
Unit capability (thousand kilowatts)........................ 523.0 650.0
Share of capability (thousand kilowatts).................... 156.9 325.0
</TABLE>
17
<PAGE> 16
NOTE C -- RECEIVABLES
During 1996 and 1995, the Company participated in a program in which it
sold an ownership interest in certain types of accounts receivable and unbilled
revenues. A maximum of $35 million of receivables could be sold at any time, and
new receivables were sold as previously sold receivables were collected. The
Company discontinued selling receivables in late 1996 and plans to terminate its
participation in the program in early 1997.
<TABLE>
<CAPTION>
For the year ended
December 31
------------------
1996 1995
------- -------
(In thousands)
<S> <C> <C>
Receivables sold but not collected (at
year-end)............................. $ 0 $35,000
Average amount of receivables sold...... $33,706 $34,058
Costs charged to operating expense...... $ 1,911 $ 2,251
Receivables subject to repurchase (at
year-end)............................. $ 0 $ 4,137
Accumulated provision for uncollectible
accounts (at year-end)................ $ 681 $ 538
</TABLE>
NOTE D -- INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS
The Company classifies various debt securities it owns as
"available-for-sale" securities and carries these securities at fair value.
These securities are invested through an outside investment manager pending
final determination by the Company as to their ultimate utilization. The
original cost and fair market values for the "available-for-sale" securities
that are not classified as cash equivalents because of their short-term nature
are shown below.
<TABLE>
<CAPTION>
At December 31
-----------------------------------------------
1996 1995
---------------------- ----------------------
Original Fair Market Original Fair Market
Cost Value Cost Value
-------- ----------- -------- -----------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury/Government Agency......... $0 $0 $594 $594
-- -- ---- ----
Total marketable securities... $0 $0 $594 $594
-- -- ---- ----
</TABLE>
During 1996, there were no sales of "available-for-sale" securities.
Proceeds from the sales of "available-for-sale" securities in 1995 were $15.1
million and these sales produced gross realized gains of approximately $78,000
and gross realized losses of approximately $76,000.
18
<PAGE> 17
The amounts reflected in the financial statements at December 31, 1996 and
1995 for cash and cash equivalents, accounts receivable, accounts payable and
short-term debt approximate fair value because of their short-term nature. The
fair value of investments at December 31, 1996 and 1995 is estimated based on
quoted market prices for these or similar investments. The fair value of the
Company's long-term debt and nonconvertible preferred stock is estimated based
upon the quoted market price for the same or similar issues or by a discounted
present value analysis of future cash flows using current rates obtainable by
the Company for debt and preferred stock with similar maturities. The fair value
of convertible preferred stock is estimated assuming its conversion into common
stock at the market price per common share at December 31, 1996 and 1995, with
proceeds from the sale of the common stock used to repay the principal balance
of the Company's loan to the ESOP.
<TABLE>
<CAPTION>
At December 31
---------------------------------------------
1996 1995
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Investments............................... $ 585 $ 585 $ 7,786 $ 7,786
Long-term debt............................ $356,260 $364,784 $361,260 $384,427
Preferred stock
Not subject to mandatory redemption..... $ 9,529 $ 15,889 $ 7,924 $ 13,359
Subject to mandatory redemption......... $ 6,372 $ 5,490 $ 6,610 $ 4,597
</TABLE>
NOTE E -- DEBT
The Company has a $100 million revolving credit facility with a group of
banks that provides for uncollateralized borrowings at prevailing market
interest rates or at interest rates established by competitive bids. The
facility has a scheduled termination date of June 15, 2000. The Company pays a
commitment fee (currently 0.10%) on the full amount of the facility, based upon
the Company's lowest senior secured debt rating. The Company is not required to
maintain compensating balances in connection with the revolving credit facility.
In addition to its revolving credit facility, the Company also has various
uncommitted borrowing arrangements with banks totaling $20 million. The banks
are not obligated to lend under uncommitted arrangements, and any borrowings are
made at negotiated interest rates and are uncollateralized. The Company pays no
fees on any of the uncommitted arrangements, nor are compensating balances
required. The weighted average interest rate on short-term debt was 5.56% at
December 31, 1996 and 5.90% at December 31, 1995.
19
<PAGE> 18
Changes in total indebtedness for the two-year period ended December 31,
1996, were as follows:
<TABLE>
<CAPTION>
At December 31
----------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Commercial paper, net...................................... $ 65,161 $ 22,922
Bank loans................................................. 140
-------- --------
Total short-term debt............................ $ 65,161 $ 23,062
======== ========
First mortgage bonds
Series X, 9 1/2%, due 2005............................... $ 60,000 $ 60,000
Series Y, 9 5/8%, due 2021, redeemed 1996................ 50,000
Pollution control revenue bonds, variable rate, due 2018... 61,260 61,260
Medium-term notes
9.10%, due 1997.......................................... 5,000 5,000
9.15%, due 1997.......................................... 10,000 10,000
7.85%, due 2000.......................................... 25,000 25,000
7.55%, due 2004, callable at 100%, 2002.................. 15,000 15,000
7.50%, due 2004, callable at 100%, 2002.................. 10,000 10,000
7.00%, due 2003.......................................... 10,000 10,000
6.90%, due 1998.......................................... 15,000 15,000
5.90%, due 1999.......................................... 10,000 10,000
6.55%, due 2003.......................................... 15,000 15,000
6.33%, due 2002.......................................... 25,000 25,000
5.78%, due 2001.......................................... 10,000 10,000
6.20%, due 2006.......................................... 15,000 15,000
6.42%, due 2001.......................................... 15,000 15,000
6.95%, due 2006.......................................... 10,000 10,000
6.53%, due 2007.......................................... 10,000
6.32%, due 2006.......................................... 15,000
6.28%, due 2018, putable at 100%, 1999................... 20,000
-------- --------
Total long-term debt............................. $356,260 $361,260
Amount due within one year................................. (15,000)
Unamortized premium and discount, net...................... (401) (438)
-------- --------
Total long-term debt, net........................ $340,859 $360,822
======== ========
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 Thereafter
------- ------- ------- ------- ------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts payable under long-term debt
agreements........................ $15,000 $15,000 $30,000 $25,000 $25,000 $246,260
======= ======= ======= ======= ======= ========
</TABLE>
NOTE F -- COMMON STOCK
In association with incentive compensation plans in effect during the
three-year period ended December 31, 1996, certain officers and key employees
could be awarded shares of restricted or unrestricted common stock or granted
options to purchase shares of the Company's common stock at 100% of the fair
market value of the common stock at the dates the options were granted. The cost
of the restricted stock awards, as measured by the market value of the common
stock at the time of the grant, is recorded as compensation expense during the
periods in which the restrictions on the common stock lapse. Had the Company
accounted for the value of these awards after 1995 using an estimate of their
"fair value," including the effect of historical volatility of the market price,
rather than their intrinsic value, there would have been no significant change
in net income or
20
<PAGE> 19
earnings per share. The Company makes no charge to expense with respect to the
granting of options. At December 31, 1996, all options were exercisable, while
the number of shares of restricted stock previously granted for which
restrictions had not lapsed totaled 42,291 shares.
Changes in incentive shares for the three-year period ended December 31,
1996, were as follows:
<TABLE>
<CAPTION>
Incentive Shares
----------------------------------------------
Option Price Unexercised Available for
per Share Option Shares Future Grants
------------ ------------- -------------
<S> <C> <C> <C>
Balance, January 1, 1994................ 70,430 771,315
------- -------
Options exercised....................... $14.75 (6,500)
$16.78 (4,700)
Restricted stock granted................ (9,263)
Incentive stock awarded................. (2,274)
------- -------
Balance, December 31, 1994.............. 59,230 759,778
------- -------
Options exercised....................... $14.75 (18,230)
$16.78 (6,800)
Restricted stock granted................ (11,186)
------- -------
Balance, December 31, 1995.............. 34,200 748,592
------- -------
Options exercised....................... $14.75 (1,250)
$16.78 (13,800)
Options lapsed.......................... $14.75 (750)
Restricted stock granted................ (12,751)
Restricted stock forfeited.............. 615
Incentive stock awarded................. (3,607)
------- -------
BALANCE, DECEMBER 31, 1996.............. 18,400 732,849
======= =======
</TABLE>
Various debt agreements of the Company contain covenants which restrict the
amount of retained earnings that may be distributed as dividends to common
shareholders. The most restrictive covenant requires that common shareholders'
equity be not less than 30% of total capitalization, including short-term debt.
At December 31, 1996, approximately $144.3 million of retained earnings was not
restricted.
NOTE G -- SUPPLEMENTARY PROFIT AND LOSS INFORMATION
<TABLE>
<CAPTION>
For the years ended December 31
--------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Operating revenue derived from one
customer.............................. $33,359 $28,695 $28,259
======= ======= =======
Other taxes included in the consolidated
income statements..................... $29,595 $29,063 $28,899
Other taxes capitalized to plant........ 1,049 1,010 742
------- ------- -------
Total other taxes....................... $30,644 $30,073 $29,641
======= ======= =======
Other taxes consist of:
State and municipal property.......... $16,302 $15,868 $15,406
State and municipal franchise......... 10,434 10,072 10,424
Other................................. 3,908 4,133 3,811
------- ------- -------
Total other taxes....................... $30,644 $30,073 $29,641
======= ======= =======
</TABLE>
21
<PAGE> 20
NOTE H -- PREFERRED STOCK
In connection with the establishment of the ESOP, the Company sold 300,000
shares of 8.125% convertible preferred stock to the ESOP. Each share of
preferred stock is convertible into 4.8 shares of common stock. The amount of
total capitalization reflected in the consolidated financial statements has been
reduced by an amount of deferred compensation expense related to the shares of
convertible preferred stock which have not yet been allocated to ESOP
participants. The amount shown in the consolidated financial statements for
preferred dividend requirements in 1996, 1995 and 1994 has been reduced by
$658,000, $716,000 and $771,000, respectively, to reflect the benefit of the
income tax deduction for dividend requirements on unallocated shares held by the
ESOP.
Upon involuntary liquidation, preferred shareholders are entitled to
receive par value for shares held before any distribution is made to common
shareholders. Upon voluntary liquidation, preferred shareholders are entitled to
receive the redemption price per share applicable at the time such liquidation
occurs plus any accrued dividends.
Information about the components of preferred stock capitalization is as
follows:
<TABLE>
<CAPTION>
Balance Balance Balance Balance
Jan. 1, Dec. 31, Dec. 31, Dec. 31,
1994 Change 1994 Change 1995 Change 1996
--------- ------- --------- ------- --------- ------- ---------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
CUMULATIVE PREFERRED STOCK, $100 par
value
NOT SUBJECT TO MANDATORY REDEMPTION
4.50%............................... $ 1,029 $ 1,029 $ 1,029 $ 1,029
Convertible, Series of 1991,
variable rate..................... 29,953 $ (234) 29,719 $ (229) 29,490 $ (239) 29,251
--------- ------- --------- ------- --------- ------- ---------
$ 30,982 $ (234) $ 30,748 $ (229) $ 30,519 $ (239) $ 30,280
========= ======= ========= ======= ========= ======= =========
SUBJECT TO MANDATORY REDEMPTION
4.50%, Series of 1955............... $ 480 $ (40) $ 440 $ (40) $ 400 $ (40) $ 360
4.65%, Series of 1964............... 3,500 (140) 3,360 (140) 3,220 (140) 3,080
4.75%, Series of 1965............... 3,262 (142) 3,120 (130) 2,990 (58) 2,932
--------- ------- --------- ------- --------- ------- ---------
$ 7,242 $ (322) $ 6,920 $ (310) $ 6,610 $ (238) $ 6,372
========= ======= ========= ======= ========= ======= =========
Deferred compensation related to
convertible preferred stock held by
the ESOP............................ $ (26,118) $ 1,714 $ (24,404) $ 1,809 $ (22,595) $ 1,844 $ (20,751)
========= ======= ========= ======= ========= ======= =========
CUMULATIVE PREFERRED STOCK, $100 par
value
Number of Shares
Authorized.......................... 1,419,619 (2,819) 1,416,800 (2,700) 1,414,100 (1,975) 1,412,125
Issued and Outstanding.............. 382,238 (5,562) 376,676 (5,389) 371,287 (4,768) 366,519
========= ======= ========= ======= ========= ======= =========
CUMULATIVE PREFERRED STOCK, $25 par
value
Number of Shares Authorized
(None outstanding).................. 3,000,000 3,000,000 3,000,000 3,000,000
========= ========= ========= =========
</TABLE>
22
<PAGE> 21
Preferred stock, other than the convertible preferred stock held by the
ESOP, is redeemable at the Company's option, subject to 30 days' prior written
notice to holders. Preferred stock subject to mandatory redemption is redeemable
annually through sinking funds or purchase funds at prices of not more than $100
per share until all shares have been redeemed. The convertible preferred stock
is redeemable at any time at the Company's option. If the Company were to elect
to redeem the convertible preferred shares, shareholders may elect to receive
the optional redemption price or convert the preferred shares into common stock.
The redemption provisions for the various series of preferred stock are shown in
the following table.
<TABLE>
<CAPTION>
Optional Redemption Mandatory Redemption
------------------- ----------------------------
Price Number of Price
Series per Share Shares Annually per Share
------ --------- --------------- ---------
<S> <C> <C> <C>
4.50%................................... $101
4.50%, Series of 1955................... $102 400 $100
4.65%, Series of 1964................... $102 1,400 $100
4.75%, Series of 1965................... $100 1,300* $100
Convertible, Series of 1991
Through April 1, 1997................. $104.0625
Thereafter............................ $103.25 to $100
</TABLE>
* The Company is required to offer holders of the Series of 1965 the opportunity
to redeem 1,300 shares each year. The Company is required to redeem only
shares actually tendered, if any.
NOTE I -- PENSION PLAN AND EMPLOYEE BENEFITS
Substantially all employees are covered by a noncontributory, defined
benefit pension plan. Benefits under the plan reflect an employee's years of
service, age at retirement and highest total average compensation for any
consecutive five calendar years during the last ten years of employment with the
Company. The Company's policy is to fund contributions to the employee pension
plan based upon actuarial computations utilizing the projected unit credit
method, subject to the Internal Revenue Service's full funding limitation. No
contributions to the pension plan were required during the three-year period
ended December 31, 1996. Effective January 1, 1993, the Company began accounting
for its pension plan on an accrual basis for ratemaking purposes with the
approval of the LPSC staff. A previously recorded regulatory credit with regard
to the pension plan is being amortized to income over a five-year period,
subject to review by the LPSC in future proceedings.
<TABLE>
<CAPTION>
For the years ended December 31
--------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Service costs for benefits earned during
the period............................ $ 3,010 $ 2,498 $ 2,648
Interest costs on projected benefit
obligation............................ 6,768 6,542 6,269
Actual gain on assets................... (9,572) (8,920) (8,730)
Net amortization and deferral........... (1,037) (1,037) (1,037)
------- ------- -------
Net pension benefit cost................ $ (831) $ (917) $ (850)
======= ======= =======
Actuarial assumptions
Weighted average discount rate........ 7.50% 7.00% 7.50%
Rate of increase in future
compensation....................... 5.00% 5.00% 5.00%
Rate of return on plan assets......... 9.50% 9.50% 9.50%
</TABLE>
Employee pension plan assets are invested in the Company's common stock,
other publicly traded domestic common stocks, U.S. government, federal agency
and corporate obligations, an international equity fund, commercial real estate
funds and pooled temporary investments.
23
<PAGE> 22
The employee pension plan's funded status as determined by the actuary at
December 31, 1996 and 1995 is presented in the following table.
<TABLE>
<CAPTION>
1996 1995
-------- ---------
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligation
Vested benefits........................................... $(77,769) $ (77,427)
Nonvested benefits........................................ (3,648) (3,479)
-------- ---------
Accumulated benefit obligation............................ (81,417) (80,906)
Effect of projected future compensation levels............ (16,307) (19,352)
-------- ---------
Projected benefit obligation for service rendered to date... (97,724) (100,258)
Plan assets at fair market value............................ 138,672 121,801
-------- ---------
Plan assets in excess of projected benefit obligation....... 40,948 21,543
Unamortized transition asset................................ (9,261) (10,578)
Unrecognized net gain....................................... (26,226) (6,336)
-------- ---------
Prepaid pension asset....................................... $ 5,461 $ 4,629
======== =========
</TABLE>
Substantially all employees are eligible to participate in a savings and
investment plan (401(k) Plan). The Company makes matching contributions to
401(k) Plan participants by allocating shares of convertible preferred stock
held by the ESOP. Compensation expense related to the 401(k) Plan is based upon
the value of shares of preferred stock allocated to ESOP participants, and the
amount of interest incurred by the ESOP, less dividends on unallocated shares
held by the ESOP. At December 31, 1996 and 1995, the ESOP had allocated to
employees 89,655 and 71,761 shares, respectively.
The table below contains information about the 401(k) Plan and the ESOP:
<TABLE>
<CAPTION>
For the years ended December 31
--------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
401(k) Plan expense.................................... $1,490 $1,542 $1,537
------ ------ ------
Dividend requirements to ESOP on convertible preferred
stock................................................ $2,378 $2,396 $2,415
------ ------ ------
Interest incurred by ESOP on its indebtedness.......... $1,746 $1,905 $2,008
------ ------ ------
Company contributions to ESOP.......................... $1,239 $1,071 $1,205
------ ------ ------
</TABLE>
The Company's retirees and their dependents are eligible to receive health,
dental and life insurance benefits. The Company recognizes the expected cost of
these benefits during the periods in which the benefits are earned.
The components of net postretirement benefit cost for 1996, 1995 and 1994,
were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Service costs for benefits earned...................... $ 596 $ 639 $ 640
Interest costs......................................... 934 1,066 1,025
Amortization of transition obligation.................. 513 513 567
------ ------ ------
Net postretirement benefit cost........................ $2,043 $2,218 $2,232
====== ====== ======
</TABLE>
24
<PAGE> 23
The financial status of the postretirement benefit plan at December 31,
1996 and 1995, as determined by the actuary, is presented in the following
table.
<TABLE>
<CAPTION>
1996 1995
------- -------
(In thousands)
<S> <C> <C>
Accumulated benefit obligation
Retirees.................................................. $ 8,169 $10,255
Fully eligible participants............................... 2,581 1,958
Other active participants................................. 2,591 3,954
------- -------
Total accumulated benefit obligation........................ 13,341 16,167
Unamortized transition obligation........................... (8,213) (8,726)
Unrecognized gain (loss).................................... 3,005 (630)
------- -------
Accrued unfunded postretirement benefit liability........... $ 8,133 $ 6,811
======= =======
</TABLE>
The assumed health care cost trend rate used to measure the expected cost
of benefits was 10% in 1996, declining to 5.5% by 2008 and remaining at 5.5%
thereafter. The initial health care cost trend rate was reduced from 10.5% in
1995 to 8.5% in 1996 and resulted in an unrecognized gain. If the health care
cost trend rate assumptions were increased by 1%, the accumulated benefit
obligation would be $13.8 million at December 31, 1996, and the aggregate of the
service and interest cost components of the net periodic cost of health care
benefits would be $1.6 million annually. The weighted average assumed discount
rate used to measure the accumulated benefit obligation in 1996 was changed from
7% to 7.5% and together with a decrease in per capita claims cost, resulted in
an unrecognized gain. The weighted average assumed discount rate used to measure
the accumulated benefit obligation in 1995 was changed from 7.5% to 7% and
resulted in an unrecognized loss.
In 1994 the Company announced a plan to consolidate 25 customer service
offices into ten regional offices by June 1995. This plan resulted in a
restructuring charge to 1994 earnings of $1.2 million. This charge consisted
mainly of voluntary severance benefits and customer service office lease
commitment costs.
25
<PAGE> 24
NOTE J -- INCOME TAX EXPENSE
Federal income tax expense is less than the amount computed by applying the
statutory federal rate to book income before tax as follows:
<TABLE>
<CAPTION>
For the years ended December 31
---------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
Amount % Amount % Amount %
------- ----- ------- ----- ------- -----
(In thousands, except for %)
<S> <C> <C> <C> <C> <C> <C>
Book income before tax................ $78,289 100.0 $73,932 100.0 $64,944 100.0
------- ----- ------- ----- ------- -----
Tax at statutory rate on book income
before tax.......................... $27,401 35.0 $25,876 35.0 $22,730 35.0
Increase (decrease):
Tax effect of AFUDC................. (185) (0.2) (1,029) (1.4) (805) (1.2)
Amortization of investment tax
credits.......................... (1,809) (2.3) (1,814) (2.5) (1,819) (2.8)
Tax effect of prior-year tax
benefits not deferred............ 921 1.1 900 1.2 537 0.8
Other, net.......................... (3,296) (4.2) (1,435) (1.9) (3,219) (5.0)
------- ----- ------- ----- ------- -----
Total federal income tax expense...... 23,032 29.4 22,498 30.4 17,424 26.8
------- ----- ------- ----- ------- -----
Current state income tax expense...... 3,122 4.0 2,731 3.7 2,477 3.8
------- ----- ------- ----- ------- -----
Total federal and state income tax
expense............................. $26,154 33.4 $25,229 34.1 $19,901 30.6
======= ===== ======= ===== ======= =====
</TABLE>
Information about current and deferred income tax expense is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current federal income tax expense.................. $21,023 $21,458 $16,798
Deferred federal income tax expense................. 3,818 2,854 2,445
Amortization of accumulated deferred investment tax
credits........................................... (1,809) (1,814) (1,819)
------- ------- -------
Total federal income tax expense.................... 23,032 22,498 17,424
Current state income tax expense.................... 3,122 2,731 2,477
------- ------- -------
Total federal and state income tax expense.......... $26,154 $25,229 $19,901
======= ======= =======
Deferred federal income tax expense attributable to:
Depreciation...................................... $ 4,834 $ 3,746 $ 4,466
Storm damages..................................... 70 (15) (340)
Asset basis differences........................... 425 (1,213) (352)
Employee benefits................................. (504) (558) (455)
Fuel costs........................................ (481) 890 (244)
Other............................................. (526) 4 (630)
------- ------- -------
Total deferred federal income tax expense........... $ 3,818 $ 2,854 $ 2,445
======= ======= =======
</TABLE>
26
<PAGE> 25
The balance of accumulated deferred federal and state income tax assets and
liabilities at December 31, 1996 and 1995 was comprised of the tax effect of the
following:
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
Asset Liability Asset Liability
------- --------- ------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Depreciation and property basis
differences......................... $ 6,851 $129,710 $ 6,311 $125,494
Allowance for funds used during
construction........................ 41,564 42,038
Investment tax credits................ 19,617 20,844
FASB 109 adjustments.................. 38,897 101,287 34,126 93,383
Postretirement benefits other than
pension............................. 3,007 2,414
Other................................. 5,859 9,123 2,763 5,958
------- -------- ------- --------
Accumulated deferred federal and state
income taxes........................ $74,231 $281,684 $66,458 $266,873
======= ======== ======= ========
</TABLE>
Regulatory assets recorded for deferred taxes at December 31, 1996 and 1995
were $103.8 million and $119 million, respectively. Regulatory liabilities
recorded for deferred taxes at December 31, 1996 and 1995 were $60.1 million and
$79.3 million, respectively. Regulatory assets and liabilities will be realized
over the accounting lives of the related properties to the extent past
ratemaking practices are continued by regulators.
An audit of the Company's 1991 and 1992 tax returns was completed by agents
of the Internal Revenue Service (IRS) in January 1995. A settlement of these
audit assessments totaling $0.9 million has been proposed by IRS appeals
officer. Deferred federal income taxes have been provided for all temporary
differences, and reserves have been provided for other issues. In October 1996,
the IRS agents completed an audit of the 1993 and 1994 tax returns. The
assessments in this audit totaling $1.3 million were agreed to and paid at the
conclusion of the audit. Interest has not been paid in either settlement but all
interest through December 31, 1996, has been accrued.
NOTE K -- COMMITMENTS AND CONTINGENCIES
Construction expenditures for 1997 are estimated to be $67.5 million,
excluding AFUDC, and for the five-year period ending 2001 are expected to total
$280 million, excluding AFUDC. Scheduled maturities of debt and preferred stock
will total about $15.3 million for 1997 and approximately $111.6 million for the
five-year period ending 2001.
The Company has entered into various long-term contracts for the
procurement of coal and lignite to fuel certain of its generating stations.
These contracts contain provisions for price changes, minimum purchase levels
and other financial commitments. The Company purchases, as an additional fuel
source for generation, natural gas under short-term contracts on the spot
market.
The Company has accrued for liabilities to third parties, environmental
claims, employee medical benefits, storm damages and deductibles under insurance
policies which it maintains on major properties, primarily generating stations
and transmission substations. Consistent with regulatory treatment, annual
charges to operating expense to provide a reserve for future storm damages are
based upon the average amount of noncapital, uninsured storm damages experienced
by the Company during the previous five years.
In early 1995, the Company and Teche Electric Cooperative, Inc. (Teche)
executed a purchase and sale agreement regarding a purchase of all of the assets
of Teche by the Company for a purchase price, including the Company's assumption
or other discharge of Teche's liabilities, of approximately $22.4 million.
Closing of the transaction is subject to a number of conditions,
27
<PAGE> 26
including approval by the LPSC and the Rural Utilities Service, successful
resolution of Teche's power supply contract with Cajun Electric Cooperative,
Inc. (Cajun) and certain other conditions. The Teche members approved the sale
at their annual meeting in March 1995. On March 31, 1996, the board of directors
of Teche voted to extend the Purchase and Sale Agreement with the Company for an
additional twelve months until March 31, 1997 to allow for the Teche wholesale
power contract with Cajun to be resolved through Cajun's bankruptcy process.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121), establishes accounting standards for determining if long-lived
assets are impaired, and when and how losses, if any, should be recognized. The
Company believes that the net cash flows that will result from the operation of
its assets are sufficient to cover the carrying value of the assets.
The Company has recorded regulatory assets and liabilities, primarily for
the effects of income taxes, as a result of past rate actions of the Company's
regulators, pursuant to Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71). The
effects of potential deregulation of the industry or possible future changes in
the method of rate regulation of the Company could require that the Company
discontinue the application of SFAS 71, pursuant to Statement of Financial
Accounting Standards No. 101, "Regulated Enterprises -- Accounting for the
Discontinuation of Application of FASB Statement No. 71" (SFAS 101). At December
31, 1996, the Company had recorded $43.8 million of regulatory assets, net of
regulatory liabilities, because of the regulatory requirement to flow through
the tax benefits of accelerated deductions to current customers and an implied
regulatory compact that future customers would pay when the Company paid the
additional taxes. These differences occur over the lives of relatively
long-lived assets, up to 30 years or more. Under the current regulatory and
competitive environment, the Company believes that these regulatory assets are
fully recoverable. However, if in the future, as a result of regulatory changes
or increased competition, the Company's ability to recover these regulatory
assets would not be probable, then to the extent that such regulatory assets
were determined not to be recoverable, the Company would be required to write
off or write down such assets.
NOTE L -- MISCELLANEOUS FINANCIAL INFORMATION (UNAUDITED)
Quarterly information for 1996 and 1995 is shown in the following table.
<TABLE>
<CAPTION>
1996
------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- -------- -------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues.......................... $98,606 $112,867 $130,054 $93,889
Operating income............................ $16,747 $ 21,566 $ 27,190 $12,918
Net income applicable to common stock....... $ 9,516 $ 14,026 $ 20,379 $ 6,140
Primary net income per average common
share..................................... $ 0.42 $ 0.63 $ 0.91 $ 0.27
Fully diluted net income per average common
share..................................... $ 0.41 $ 0.61 $ 0.87 $ 0.27
Dividends paid per common share............. $ 0.375 $ 0.385 $ 0.385 $ 0.385
Market price per share
High...................................... $27 3/4 $ 27 3/8 $ 27 1/4 $29 1/4
Low....................................... $25 3/8 $ 25 1/8 $ 25 3/8 $26 1/8
</TABLE>
28
<PAGE> 27
<TABLE>
<CAPTION>
1995
------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- -------- -------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues.......................... $79,872 $100,599 $123,383 $90,572
Operating income............................ $14,589 $ 20,295 $ 27,444 $12,374
Net income applicable to common stock....... $ 7,582 $ 13,490 $ 20,556 $ 5,023
Primary net income per average common
share..................................... $ 0.34 $ 0.60 $ 0.92 $ 0.22
Fully diluted net income per average common
share..................................... $ 0.33 $ 0.58 $ 0.88 $ 0.22
Dividends paid per common share............. $ 0.365 $ 0.375 $ 0.375 $ 0.375
Market price per share
High...................................... $24 1/2 $ 24 1/2 $ 25 5/8 $28 1/8
Low....................................... $ 22 $ 22 1/8 $ 22 1/4 $25 1/4
</TABLE>
The Company's common stock is listed for trading on the New York and
Pacific stock exchanges under the ticker symbol "CNL." The Company's preferred
stock is not listed on any stock exchange. On December 31, 1996, the Company had
11,765 common and 184 preferred shareholders, as determined from the records of
the transfer agent.
On January 24, 1997, the Company's Board of Directors declared a quarterly
dividend of 38 1/2 cents per share payable February 15, 1997, to common
shareholders of record on February 3, 1997. Preferred dividends were also
declared, payable March 1, 1997, to preferred shareholders of record on February
15, 1997.
29
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Central Louisiana Electric Company, Inc.
We have audited the accompanying consolidated balance sheets of Central
Louisiana Electric Company, Inc. as of December 31, 1996 and 1995, and the
related consolidated statements of income, cash flows and changes in common
shareholders' equity for each of the three years in the period ended December
31, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Central Louisiana Electric Company, Inc. as of December 31, 1996 and 1995, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
New Orleans, Louisiana
January 29, 1997
30
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Central Louisiana Electric Company, Inc. on Form S-8 (Registration Nos.
2-79671, 33-10169, 33-38362 and 33-44663) and Form S-3 (Nos. 33-24895, 33-62950
and 333-02895) of our reports dated January 29, 1997, on our audits of the
consolidated financial statements and financial statement schedule of Central
Louisiana Electric Company, Inc. as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995 and 1994, which reports are included or
incorporated by reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
New Orleans, Louisiana
March 25, 1997
<PAGE> 1
EXHIBIT 24
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
POWER OF ATTORNEY
WHEREAS, Central Louisiana Electric Company, Inc., a Louisiana
corporation (the "Company"), intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Act"), an Annual Report on Form 10-K (the "Form 10-K") for the
Company's fiscal year ended December 31, 1996, with any and all amendments
thereto as may be necessary or appropriate, together with any and all exhibits
and other documents having relation to the Form 10-K;
NOW, THEREFORE, the undersigned, in the capacity of a director
or officer or both a director and officer of the Company, as the case may be,
does hereby appoint Gregory L. Nesbitt and Michael P. Prudhomme, and each of
them severally, his true and lawful attorney(s)-in-fact and agent(s) with power
to act without the other, with full power of substitution and resubstitution,
to execute in his name, place and stead, in any and all capacities, the Form
10-K and any and all amendments thereto and any and all instruments necessary
or incidental in connection therewith, to file the same with the Commission and
to appear before the Commission in connection with any matter relating thereto.
Each of said attorneys-in-fact and agents shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying, approving and confirming
the acts that said attorneys-in-fact and agents and each of them, or their or
his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 24th day of January, 1997.
/s/ SHERIAN G. CADORIA
---------------------------
Sherian G. Cadoria
<PAGE> 2
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
POWER OF ATTORNEY
WHEREAS, Central Louisiana Electric Company, Inc., a Louisiana
corporation (the "Company"), intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Act"), an Annual Report on Form 10-K (the "Form 10-K") for the
Company's fiscal year ended December 31, 1996, with any and all amendments
thereto as may be necessary or appropriate, together with any and all exhibits
and other documents having relation to the Form 10-K;
NOW, THEREFORE, the undersigned, in the capacity of a director
or officer or both a director and officer of the Company, as the case may be,
does hereby appoint Gregory L. Nesbitt and Michael P. Prudhomme, and each of
them severally, his true and lawful attorney(s)-in-fact and agent(s) with power
to act without the other, with full power of substitution and resubstitution,
to execute in his name, place and stead, in any and all capacities, the Form
10-K and any and all amendments thereto and any and all instruments necessary
or incidental in connection therewith, to file the same with the Commission and
to appear before the Commission in connection with any matter relating thereto.
Each of said attorneys-in-fact and agents shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying, approving and confirming
the acts that said attorneys-in-fact and agents and each of them, or their or
his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 24th day of January, 1997.
/s/ J.PATRICK GARRETT
-------------------------
J. Patrick Garrett
<PAGE> 3
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
POWER OF ATTORNEY
WHEREAS, Central Louisiana Electric Company, Inc., a Louisiana
corporation (the "Company"), intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Act"), an Annual Report on Form 10-K (the "Form 10-K") for the
Company's fiscal year ended December 31, 1996, with any and all amendments
thereto as may be necessary or appropriate, together with any and all exhibits
and other documents having relation to the Form 10-K;
NOW, THEREFORE, the undersigned, in the capacity of a director
or officer or both a director and officer of the Company, as the case may be,
does hereby appoint Gregory L. Nesbitt and Michael P. Prudhomme, and each of
them severally, his true and lawful attorney(s)-in-fact and agent(s) with power
to act without the other, with full power of substitution and resubstitution,
to execute in his name, place and stead, in any and all capacities, the Form
10-K and any and all amendments thereto and any and all instruments necessary
or incidental in connection therewith, to file the same with the Commission and
to appear before the Commission in connection with any matter relating thereto.
Each of said attorneys-in-fact and agents shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying, approving and confirming
the acts that said attorneys-in-fact and agents and each of them, or their or
his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 24th day of January, 1997.
/s/ F. BEN JAMES, JR.
-----------------------------
F. Ben James, Jr.
<PAGE> 4
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
POWER OF ATTORNEY
WHEREAS, Central Louisiana Electric Company, Inc., a Louisiana
corporation (the "Company"), intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Act"), an Annual Report on Form 10-K (the "Form 10-K") for the
Company's fiscal year ended December 31, 1996, with any and all amendments
thereto as may be necessary or appropriate, together with any and all exhibits
and other documents having relation to the Form 10-K;
NOW, THEREFORE, the undersigned, in the capacity of a director
or officer or both a director and officer of the Company, as the case may be,
does hereby appoint Gregory L. Nesbitt and Michael P. Prudhomme, and each of
them severally, his true and lawful attorney(s)-in-fact and agent(s) with power
to act without the other, with full power of substitution and resubstitution,
to execute in his name, place and stead, in any and all capacities, the Form
10-K and any and all amendments thereto and any and all instruments necessary
or incidental in connection therewith, to file the same with the Commission and
to appear before the Commission in connection with any matter relating thereto.
Each of said attorneys-in-fact and agents shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying, approving and confirming
the acts that said attorneys-in-fact and agents and each of them, or their or
his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 24th day of January, 1997.
/s/ HUGH J. KELLY
---------------------------
Hugh J. Kelly
<PAGE> 5
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
POWER OF ATTORNEY
WHEREAS, Central Louisiana Electric Company, Inc., a Louisiana
corporation (the "Company"), intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Act"), an Annual Report on Form 10-K (the "Form 10-K") for the
Company's fiscal year ended December 31, 1996, with any and all amendments
thereto as may be necessary or appropriate, together with any and all exhibits
and other documents having relation to the Form 10-K;
NOW, THEREFORE, the undersigned, in the capacity of a director
or officer or both a director and officer of the Company, as the case may be,
does hereby appoint Gregory L. Nesbitt and Michael P. Prudhomme, and each of
them severally, his true and lawful attorney(s)-in-fact and agent(s) with power
to act without the other, with full power of substitution and resubstitution,
to execute in his name, place and stead, in any and all capacities, the Form
10-K and any and all amendments thereto and any and all instruments necessary
or incidental in connection therewith, to file the same with the Commission and
to appear before the Commission in connection with any matter relating thereto.
Each of said attorneys-in-fact and agents shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying, approving and confirming
the acts that said attorneys-in-fact and agents and each of them, or their or
his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 24th day of January, 1997.
/s/ WILLIAM H. WALKER, JR.
--------------------------------
William H. Walker, Jr.
<PAGE> 6
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
POWER OF ATTORNEY
WHEREAS, Central Louisiana Electric Company, Inc., a Louisiana
corporation (the "Company"), intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Act"), an Annual Report on Form 10-K (the "Form 10-K") for the
Company's fiscal year ended December 31, 1996, with any and all amendments
thereto as may be necessary or appropriate, together with any and all exhibits
and other documents having relation to the Form 10-K;
NOW, THEREFORE, the undersigned, in the capacity of a director
or officer or both a director and officer of the Company, as the case may be,
does hereby appoint Gregory L. Nesbitt and Michael P. Prudhomme, and each of
them severally, his true and lawful attorney(s)-in-fact and agent(s) with power
to act without the other, with full power of substitution and resubstitution,
to execute in his name, place and stead, in any and all capacities, the Form
10-K and any and all amendments thereto and any and all instruments necessary
or incidental in connection therewith, to file the same with the Commission and
to appear before the Commission in connection with any matter relating thereto.
Each of said attorneys-in-fact and agents shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying, approving and confirming
the acts that said attorneys-in-fact and agents and each of them, or their or
his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 24th day of January, 1997.
/s/ A. DeLOACH MARTIN, JR.
------------------------------
A. DeLoach Martin, Jr.
<PAGE> 7
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
POWER OF ATTORNEY
WHEREAS, Central Louisiana Electric Company, Inc., a Louisiana
corporation (the "Company"), intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Act"), an Annual Report on Form 10-K (the "Form 10-K") for the
Company's fiscal year ended December 31, 1996, with any and all amendments
thereto as may be necessary or appropriate, together with any and all exhibits
and other documents having relation to the Form 10-K;
NOW, THEREFORE, the undersigned, in the capacity of a director
or officer or both a director and officer of the Company, as the case may be,
does hereby appoint Gregory L. Nesbitt and Michael P. Prudhomme, and each of
them severally, his true and lawful attorney(s)-in-fact and agent(s) with power
to act without the other, with full power of substitution and resubstitution,
to execute in his name, place and stead, in any and all capacities, the Form
10-K and any and all amendments thereto and any and all instruments necessary
or incidental in connection therewith, to file the same with the Commission and
to appear before the Commission in connection with any matter relating thereto.
Each of said attorneys-in-fact and agents shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying, approving and confirming
the acts that said attorneys-in-fact and agents and each of them, or their or
his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 24th day of January, 1997.
/s/ ROBERT T. RATCLIFF
-------------------------------
Robert T. Ratcliff
<PAGE> 8
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
POWER OF ATTORNEY
WHEREAS, Central Louisiana Electric Company, Inc., a Louisiana
corporation (the "Company"), intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Act"), an Annual Report on Form 10-K (the "Form 10-K") for the
Company's fiscal year ended December 31, 1996, with any and all amendments
thereto as may be necessary or appropriate, together with any and all exhibits
and other documents having relation to the Form 10-K;
NOW, THEREFORE, the undersigned, in the capacity of a director
or officer or both a director and officer of the Company, as the case may be,
does hereby appoint Gregory L. Nesbitt and Michael P. Prudhomme, and each of
them severally, his true and lawful attorney(s)-in-fact and agent(s) with power
to act without the other, with full power of substitution and resubstitution,
to execute in his name, place and stead, in any and all capacities, the Form
10-K and any and all amendments thereto and any and all instruments necessary
or incidental in connection therewith, to file the same with the Commission and
to appear before the Commission in connection with any matter relating thereto.
Each of said attorneys-in-fact and agents shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying, approving and confirming
the acts that said attorneys-in-fact and agents and each of them, or their or
his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 24th day of January, 1997.
/s/ EDWARD M. SIMMONS
-----------------------------
Edward M. Simmons
<PAGE> 9
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
POWER OF ATTORNEY
WHEREAS, Central Louisiana Electric Company, Inc., a Louisiana
corporation (the "Company"), intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Act"), an Annual Report on Form 10-K (the "Form 10-K") for the
Company's fiscal year ended December 31, 1996, with any and all amendments
thereto as may be necessary or appropriate, together with any and all exhibits
and other documents having relation to the Form 10-K;
NOW, THEREFORE, the undersigned, in the capacity of a director
or officer or both a director and officer of the Company, as the case may be,
does hereby appoint Gregory L. Nesbitt and Michael P. Prudhomme, and each of
them severally, his true and lawful attorney(s)-in-fact and agent(s) with power
to act without the other, with full power of substitution and resubstitution,
to execute in his name, place and stead, in any and all capacities, the Form
10-K and any and all amendments thereto and any and all instruments necessary
or incidental in connection therewith, to file the same with the Commission and
to appear before the Commission in connection with any matter relating thereto.
Each of said attorneys-in-fact and agents shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying, approving and confirming
the acts that said attorneys-in-fact and agents and each of them, or their or
his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 24th day of January, 1997.
/s/ ERNEST L. WILLIAMSON
------------------------------
Ernest L. Williamson
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 952,898
<OTHER-PROPERTY-AND-INVEST> 8,488
<TOTAL-CURRENT-ASSETS> 104,312
<TOTAL-DEFERRED-CHARGES> 247,390
<OTHER-ASSETS> 8,683
<TOTAL-ASSETS> 1,321,771
<COMMON> 45,520
<CAPITAL-SURPLUS-PAID-IN> 107,460
<RETAINED-EARNINGS> 240,414
<TOTAL-COMMON-STOCKHOLDERS-EQ> 393,394
6,372
9,529
<LONG-TERM-DEBT-NET> 120,859
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 220,000
<COMMERCIAL-PAPER-OBLIGATIONS> 65,161
<LONG-TERM-DEBT-CURRENT-PORT> 15,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 491,456
<TOT-CAPITALIZATION-AND-LIAB> 1,321,771
<GROSS-OPERATING-REVENUE> 435,416
<INCOME-TAX-EXPENSE> 26,154
<OTHER-OPERATING-EXPENSES> 330,841
<TOTAL-OPERATING-EXPENSES> 356,995
<OPERATING-INCOME-LOSS> 78,421
<OTHER-INCOME-NET> 1,723
<INCOME-BEFORE-INTEREST-EXPEN> 80,144
<TOTAL-INTEREST-EXPENSE> 28,009
<NET-INCOME> 52,135
2,074
<EARNINGS-AVAILABLE-FOR-COMM> 50,061
<COMMON-STOCK-DIVIDENDS> 34,336
<TOTAL-INTEREST-ON-BONDS> 12,735
<CASH-FLOW-OPERATIONS> 60,793
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.16
</TABLE>
