<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
Central Louisiana Electric Company, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[CENTRAL LOUISIANA ELECTRIC COMPANY, INC. LOGO]
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
AND PROXY STATEMENT
MARCH 12, 1997
<PAGE> 3
[CENTRAL LOUSIANA ELECTRIC COMPANY, INC. LOGO]
March 12, 1997
To the Shareholders of
Central Louisiana Electric Company, Inc.
The annual meeting of shareholders for 1997 will be held at the Pineville
High School Auditorium at 1511 Line Street, Pineville, Louisiana, on Friday,
April 25, 1997, at 9 a.m., Central time. A notice of annual meeting of
shareholders and proxy statement is enclosed herewith, together with a proxy
that may be used by shareholders who are unable to attend the meeting in person.
The principal items of business to be transacted at the annual meeting are:
(1) the election of directors; and (2) the appointment of independent auditors
of the Company for the year ending December 31, 1997.
The board of directors of the Company recommends election of the nominees
for directors and appointment of the independent auditors, in each case as named
or described in the accompanying proxy statement.
You are cordially invited to attend the meeting. Even if you now expect to
attend the meeting, you are requested to sign, date and return the accompanying
proxy in the enclosed addressed envelope that requires no postage if mailed in
the United States. If you attend the meeting, you may vote in person even though
you have mailed in your proxy. Your continued interest and cooperation are
greatly appreciated.
Sincerely,
/s/ GREGORY L. NESBITT
Gregory L. Nesbitt
President and Chief Executive Officer
<PAGE> 4
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 25, 1997
To the Shareholders of
Central Louisiana Electric Company, Inc.
Notice is hereby given that the annual meeting of shareholders of Central
Louisiana Electric Company, Inc. (the "Company") will be held at the Pineville
High School Auditorium at 1511 Line Street, Pineville, Louisiana, on Friday,
April 25, 1997, at 9 a.m., Central time, for the following purposes:
(1) To elect directors;
(2) To consider and act upon a proposal to appoint the firm of Coopers &
Lybrand L.L.P., independent certified public accountants, as auditors
of the Company for the year ending December 31, 1997; and
(3) To transact such other business as may properly come before the meeting
or any adjournments thereof.
Holders of record of common stock and preferred stock of the Company at the
close of business on February 25, 1997 are entitled to notice of and to vote at
the annual meeting.
The bylaws of the Company require that the holders of shares of capital
stock representing a majority of the votes entitled to be cast be represented in
person or by proxy at the meeting in order to constitute a quorum for the
transaction of business. Therefore, it is important that your stock be
represented at the meeting.
Please date, sign and return the enclosed proxy in the accompanying
envelope.
By order of the board of directors.
/s/ MICHAEL P. PRUDHOMME
Michael P. Prudhomme
Secretary/Treasurer
March 12, 1997
<PAGE> 5
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
P. O. Box 5000
Pineville, Louisiana 71361-5000
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS OF
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
The accompanying proxy is solicited on behalf of the board of directors of
Central Louisiana Electric Company, Inc. (the "Company") to be voted at the
annual meeting of shareholders of the Company to be held at the time and place
and for the purposes set forth in the foregoing notice. In addition to the
original solicitation by mail, certain regular employees of the Company may
solicit proxies by telephone, facsimile or in person, and Morrow & Company, Inc.
("Morrow") has been retained on customary terms to assist in the solicitation of
proxies. The Company has engaged Morrow to assist in the solicitation of proxies
at a fee of approximately $11,000, plus expenses. Other than Morrow, no
specially engaged employees or solicitors will be retained to solicit proxies.
All expenses of such solicitation, including the cost of preparing and mailing
this proxy statement and the reimbursement of brokerage firms and other nominees
for their reasonable expenses in forwarding proxy material to beneficial owners
of the Company's capital stock, will be borne by the Company. This proxy
statement and the accompanying proxy are being mailed to shareholders beginning
on or about March 12, 1997.
All duly executed proxies will be voted in accordance with the instructions
thereon. If no instructions have been given in a proxy, the shares represented
thereby will be voted at the annual meeting of shareholders or any adjournments
thereof FOR Item 1 (election of the nominees for director), FOR Item 2
(appointment of Coopers & Lybrand L.L.P. as independent auditors of the Company
for 1997) and, in the discretion of the persons named in the proxy, on any other
business that may properly come before the meeting.
Shareholders who execute proxies retain the right to revoke them at any
time before they are voted. A shareholder who attends the meeting may vote in
person even though such shareholder has mailed in a proxy. A proxy may be
revoked by a proxy bearing a later date. The revocation of a proxy will not be
effective until written notice thereof has been given to the secretary of the
Company, unless the person granting such proxy votes in person.
VOTING OF SECURITIES
As of February 25, 1997, the record date for the determination of
shareholders entitled to vote at the meeting, the Company had outstanding
22,458,556 shares of common stock, par value $2.00 per share ("Common Stock"),
and 364,550 shares of preferred stock, par value $100 per share ("$100 Preferred
Stock"), which are the only classes of stock of the Company outstanding and
entitled to vote at the meeting. Each holder of shares of Common Stock or $100
Preferred Stock is entitled to one vote for each share held, except that at an
election of directors, each holder of shares of Common Stock is entitled to cast
as many votes as equal the number of such holder's shares multiplied by the
number of directors to be elected, and may cumulate all or any part of such
votes for one or more of the nominees.
Under Louisiana law and the Company's articles of incorporation and bylaws,
an abstention from voting on a matter by a shareholder present in person or
represented by proxy at the meeting is not a vote "cast" and is counted neither
"for" nor "against" the matter subject to the abstention. Broker non-votes on
matters are treated as shares as to which voting power has been withheld by the
beneficial holders of those shares and, therefore, as shares not entitled to
vote. Under Louisiana law and the Company's articles of incorporation and
bylaws, a quorum is determined based upon the number of outstanding shares of
capital stock of the Company entitled to vote on a matter, including shares
relating to abstentions.
1
<PAGE> 6
ELECTION OF DIRECTORS
The Company's bylaws provide for the division of the board of directors
into three classes, Class I, Class II and Class III, with each class consisting,
as nearly as possible, of one-third of the number of directors constituting the
whole board. The term of each directorship is three years, and the terms of the
three classes are staggered in a manner so that only one class is elected by the
shareholders annually. Those persons who served as directors of the Company
during the past year are named in the Company's 1996 Summary Annual Report.
Three Class III directors are to be elected this year to serve as members of the
board of directors until the annual meeting of shareholders in 2000, or until
their successors are elected and qualified. The persons named in the
accompanying proxy may act with discretionary authority (i) with respect to
cumulative voting of shares of Common Stock and (ii) upon the unavailability of
a nominee for election, although management is unaware of any circumstances
likely to render any of the nominees unavailable for election. Unless a
shareholder specifies otherwise, the persons named in the accompanying proxy
intend to vote in favor of the nominees listed below. The affirmative vote of a
plurality of the total votes cast is required for the election of directors. All
of the nominees currently serve as directors of the Company. Directors who are
members of Classes I and II, who are continuing as directors at this time and
whose terms of office expire in 1998 and 1999, respectively, are named on page 3
below.
Mr. Ernest L. Williamson, who has served as a director since 1989, will
retire from the board of directors effective at the annual meeting of
shareholders since he has reached the retirement age for outside directors
specified in the Company's bylaws. Neither the shareholders nor the board of
directors have nominated anyone to fill the vacancy created by Mr. Williamson's
retirement. Prior to the annual meeting of shareholders, the board of directors
will take action pursuant to the bylaws to decrease the number of directors from
ten to nine effective with Mr. Williamson's retirement.
DIRECTORS
The following sets forth information concerning the three nominees for
election as directors at the annual meeting of shareholders and the continuing
directors, including the business experience of each during the past five years.
NOMINEES FOR ELECTION UNTIL 2000 ANNUAL MEETING
CLASS III DIRECTORS
J. PATRICK GARRETT has been president and chief executive officer of
Windsor Food Company Ltd., a privately held company engaged in the food
processing business, since July 1995. Prior to that time, he had been engaged in
the practice of law for more than five years as a member of the law firm of
Baker & Botts, L.L.P. Mr. Garrett (age 53) has served as a director of the
Company since 1981 and is a member of the compensation committee of the board of
directors.
F. BEN JAMES, JR. has been president of James Investments, Inc., a company
primarily engaged in real estate development and international marketing, for
more than five years. Mr. James (age 61) has been a director of the Company
since 1986 and is chairman of the audit committee of the board of directors. He
is also a director of First Commerce Corporation.
A. DELOACH MARTIN, JR. has been chairman of Central Engineering & Supply
Company, a company engaged in the wholesale distribution of refrigeration and
mill supplies, for more than five years. Mr. Martin (age 67) became a director
of the Company in 1978 and is chairman of the executive committee and a member
of the audit committee of the board of directors.
2
<PAGE> 7
CONTINUING DIRECTORS
CLASS I DIRECTORS
(TERMS OF OFFICE EXPIRE IN 1998)
SHERIAN G. CADORIA has served as president of Cadoria Speaker and
Consultancy Service since January 1992. She retired in 1990 as Brigadier General
of the United States Army after a 29-year military career. Ms. Cadoria (age 57)
has been a director of the Company since 1993 and is a member of the
compensation committee of the board of directors.
HUGH J. KELLY is a retired president and chief executive officer of Ocean
Drilling & Exploration Company, a company which has offshore drilling operations
and explores for and produces oil and gas. Before his retirement in 1989, he had
served as chief executive officer since 1977 and as president and director since
1974. He is now an oil and gas consultant. Mr. Kelly (age 71) has been a
director of the Company since 1992 and is a member of the audit committee of the
board of directors. He is also a director of Tidewater Inc., Hibernia
Corporation, Hibernia National Bank, Chieftain International, Inc. and Gulf
Island Fabrication, Inc.
GREGORY L. NESBITT has served as chief executive officer of the Company
since 1993 and has served as president since 1992; he had served as chief
operating officer from 1991 to 1993 and as executive vice president from 1988 to
1991. Mr. Nesbitt (age 59) has been a director of the Company since 1988 and is
a member of the executive committee of the board of directors. He joined the
Company in 1980 and served as senior vice president of the Company's electric
power supply group until January 1988.
CLASS II DIRECTORS
(TERMS OF OFFICE EXPIRE IN 1999)
ROBERT T. RATCLIFF has been chairman, president and chief executive officer
of Ratcliff Construction Company, Inc., a company primarily engaged in the
design and construction of industrial, commercial and governmental facilities,
since 1975. Mr. Ratcliff (age 54) has been a director of the Company since 1993
and is a member of the audit committee of the board of directors. He is also a
director of Hibernia Corporation and Hibernia National Bank.
EDWARD M. SIMMONS is chairman of the board and chief executive officer of
McIlhenny Company (makers of Tabasco brand products). Prior to being named
chairman of the board in June 1996, Mr. Simmons had served as president and
chief executive officer of McIlhenny Company for more than five years. Mr.
Simmons (age 68) has been a director of the Company since 1992 and he previously
served on the Company's board of directors during the period 1971-1981. He is
chairman of the compensation committee and a member of the executive committee
of the board of directors and also serves as a director of First Commerce
Corporation, First National Bank of Commerce, Pan American Life Insurance
Company and Piccadilly Cafeterias, Inc.
WILLIAM H. WALKER, JR. is president and a director of Howard, Weil,
Labouisse, Friedrichs Inc., an investment banking firm, and has served in such
positions for more than five years. Mr. Walker (age 51) has been a director of
the Company since September 1996.
ORGANIZATION AND COMPENSATION OF THE BOARD OF DIRECTORS
The board of directors has an executive committee, an audit committee (the
"Audit Committee") and a compensation committee (the "Compensation Committee").
The members of such committees are identified under "-- Directors" above. The
board of directors has no standing nominating committee.
The Audit Committee recommends to the board of directors the appointment of
the independent auditors of the Company, reviews the scope of audits, reviews
and recommends to the board of directors financial reporting and accounting
practices, reviews the scope and results of the Company's procedures for
internal auditing and the adequacy of the system of internal accounting controls
of the Company, and
3
<PAGE> 8
has responsibility with respect to audit matters generally. During 1996, the
Audit Committee held two meetings.
The Compensation Committee approves, or in some cases recommends to the
board of directors, remuneration arrangements and compensation plans involving
the Company's directors, officers and employees, and administers the granting of
restricted stock and other awards to eligible employees under the Company's
long-term incentive compensation plan and annual incentive compensation program
described below. The Compensation Committee held two meetings in 1996.
The board of directors held four regular meetings and two special meetings
during 1996. At intervals between formal meetings, members of the board are
provided with information regarding the operations of the Company and are
consulted informally from time to time with respect to pending business. During
1996, all directors attended at least 75% of the total number of meetings of the
board of directors and of the committees of the board of directors on which such
directors served.
The director who is a regularly employed officer of the Company receives no
fees for serving as a director of the Company. Each other director who is not
the chairman of a board committee receives an annual fee of $12,000 for serving
as a director. Each director who is the chairman of a board committee receives
an additional annual fee of $3,000. Each director receives $800 for each day he
or she attends one or more meetings of the board of directors or its committees.
The Company also reimburses directors for travel and related expenses incurred
in attending meetings of the board of directors or such committees. The Company
has in effect a deferred compensation plan for directors under which a director
may elect to defer all or part of his or her compensation as a director. The
Company has a retirement plan for its non-employee directors under which
directors with five years of service receive at age 65 or upon later retirement
an annual payment equal to the annual board fee in effect at the time of
retirement. Benefits are payable for life or a period equal to the number of
years of service as a director, whichever is shorter. The Company also provides
its non-employee directors $200,000 of life insurance and permanent total
disability coverage under the Company's group accidental death and dismemberment
plan, which covers all active, full-time employees.
4
<PAGE> 9
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock and
$100 Preferred Stock beneficially owned as of February 1, 1997 by each director
and nominee, each of the executive officers named in the Summary Compensation
Table below and all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
AMOUNT AND NATURE OF BENEFICIAL BENEFICIAL
OWNERSHIP OF COMMON STOCK(1) OWNERSHIP OF
---------------------------------------- $100 PREFERRED
OPTIONS STOCK(2)
EXERCISABLE -------------------
WITHIN PERCENT PERCENT
DIRECT 60 DAYS OTHER OF CLASS INDIRECT OF CLASS
------- ----------- ----- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS
- -----------
Sherian G. Cadoria....................... 150 * *
J. Patrick Garrett....................... 4,744 * *
F. Ben James, Jr......................... 2,400 * *
Hugh J. Kelly............................ 2,000 * *
A. DeLoach Martin, Jr.................... 19,200 * *
Gregory L. Nesbitt(3).................... 45,631 2,000 * 283 *
Robert T. Ratcliff....................... 1,000 * *
Edward M. Simmons........................ 1,283 * *
William H. Walker, Jr.................... 0 * *
Ernest L. Williamson..................... 1,000 * *
NAMED OFFICERS
- ------------------
Robert L. Duncan......................... 29,269 2,600 * 327 *
David M. Eppler.......................... 16,810 2,800 7 * 334 *
Catherine C. Powell...................... 3,371 * 181 *
Michael P. Prudhomme..................... 5,380 6,000 * 207 *
All directors and executive officers as a
group (16 persons, including those
listed above).......................... 138,853 18,400 7 .70% 1,704 *
</TABLE>
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(1) In accordance with Securities and Exchange Commission regulations, shares
are deemed to be "beneficially owned" by a person if such person directly or
indirectly has or shares the power to vote or to dispose of the shares,
regardless of whether such person has any economic interest in the shares.
In addition, a person is deemed to own beneficially any shares of which such
person has the right to acquire beneficial ownership within 60 days, as in
the case of the stock options which are set forth under the "Options
Exercisable Within 60 Days" column. Shares of Common Stock listed under the
"Direct" column are those as to which each named individual has sole voting
or dispositive power, including shares held under the Company's 401(k)
Savings and Investment Plan (1,311 shares for Mr. Nesbitt, 144 shares for
Mr. Eppler, 29 shares for Ms. Powell, 43 shares for Mr. Prudhomme and 268
shares for other executive officers included in the amount shown for all
directors and executive officers as a group) and shares granted as
restricted stock awards under the Company's long-term incentive compensation
plan described below (10,726 shares for Mr. Nesbitt, 3,718 shares for Mr.
Eppler, 3,367 shares for Mr. Duncan, 2,576 shares for Ms. Powell, 1,760
shares for Mr. Prudhomme and 1,835 shares for other executive officers
included in the amount shown for all directors and executive officers as a
group). Shares listed under the "Other" column are those as to which the
named individual shares voting and dispositive power with another person.
(2) The shares of $100 Preferred Stock beneficially owned by the individuals
indicated in the table are shares held for the respective accounts of
executive officers under the ESOP Component of the Company's 401(k) Savings
and Investment Plan.
(3) Mr. Nesbitt is also the president and chief executive officer of the
Company.
* Less than 1% of class.
5
<PAGE> 10
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)"), requires the Company's executive officers and directors, and persons
who beneficially own more than 10% of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission and the New York
Stock Exchange initial reports of ownership and reports of changes in ownership
of the Company's equity securities. To the Company's knowledge, based solely on
review of the copies of such reports furnished to the Company and written
representations that no year-end reports on Form 5 were required, during the
fiscal year ended December 31, 1996, all Section 16(a) filing requirements
applicable to its executive officers, directors and greater-than-10%
shareholders were satisfied.
EXECUTIVE COMPENSATION
GENERAL
The Summary Compensation Table sets forth individual compensation
information with respect to the chief executive officer and the four other most
highly paid executive officers of the Company for services rendered in all
capacities to the Company during the fiscal years ended December 31, 1996,
December 31, 1995 and December 31, 1994. The table discloses the annual salary,
bonuses and other compensation awards and payouts to the named executive
officers.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION PAYOUTS
------------------------------------ ------------
(a) (b) (c) (d) (e) (f) (g)
- -------------------------------------------------------------------------------------------------------
OTHER ALL
ANNUAL OTHER
COMPEN- LTIP COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) SATION(2)(3) PAYOUTS(4) SATION(5)
- --------------------------- ---- -------- -------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Nesbitt.......... 1996 $271,081 $130,600 $11,954 $144,187 $6,000
President and Chief 1995 269,796 94,800 10,546 146,135 6,000
Executive Officer 1994 242,431 66,000 17,530 54,476 6,000
David M. Eppler............. 1996 $140,808 $62,800 $ 4,302 $ 58,526 $6,483
Executive Vice President 1995 140,807 49,956 4,446 72,970 6,442
1994 140,031 25,300 7,012 27,343 6,098
Robert L. Duncan............ 1996 $131,004 $53,100 $ 3,909 $ 51,626 $6,939
Vice President -- Customer 1995 128,945 42,268 4,080 69,182 6,898
Operations 1994 124,200 31,900 6,584 30,036 6,843
Catherine C. Powell......... 1996 $102,000 $44,400 $ 2,872 $ 33,523 $5,683
Vice President -- Employee 1995 96,024 32,528 1,666 0 4,715
& Corporate Services 1994 85,126 15,400 2,182 0 3,405
Michael P. Prudhomme........ 1996 $102,672 $30,300 $ 2,171 $ 27,505 $6,038
Secretary -- Treasurer 1995 107,970 17,600 2,606 48,258 5,576
1994 99,451 9,000 3,326 26,509 5,244
</TABLE>
- ---------------
(1) The "Bonus" column includes cash awards that are payable or have been paid
to executive officers pursuant to an annual incentive compensation program
under which participants may receive incentive compensation in addition to
base compensation determined by the performance of the Company and the
individual participants, and merit lump-sum payments received by certain
named officers.
(2) For 1994, 1995 and 1996, the "Other Annual Compensation" column includes
long-term incentive plan compensation which represents dividends paid on
restricted stock awards. Dividends on restricted stock are paid quarterly
and at the same rate as dividends on the Common Stock. As
(Footnotes continued on following page)
6
<PAGE> 11
permitted by the rules on executive officer compensation disclosure,
restricted stock awards granted under the Company's long-term incentive
compensation plan, which are subject to performance-based vesting
requirements, are reported under the "Long-Term Incentive Plan -- Awards in
1996" table below. The number and value of the aggregate restricted stock
holdings at December 31, 1996, a portion of which is included in the "LTIP
Payouts" column, for each of the named executive officers were as follows:
Gregory L. Nesbitt, 7,813 shares with a value of $215,834; David M. Eppler,
2,812 shares with a value of $77,681; Robert L. Duncan, 2,555 shares with a
value of $70,582; Catherine C. Powell, 1,877 shares with a value of $51,852;
and Michael P. Prudhomme, 1,419 shares with a value of $39,200.
(3) For 1994, the "Other Annual Compensation" column includes the amount paid to
the named executive officers as reimbursement for payment of taxes incurred
relating to future benefits accrued in 1994 pursuant to the Company's
Supplemental Executive Retirement Plan.
(4) For 1994, 1995 and 1996, the "LTIP Payouts" column includes the value of
restricted stock and opportunity shares under the Company's long-term
incentive compensation plan vested in 1995 relating to the performance
period January 1, 1992 to December 31, 1994, in 1996 relating to the
performance period January 1, 1993 to December 31, 1995, and in 1997
relating to the performance period January 1, 1994 to December 31, 1996,
respectively, and related tax gross-up amounts.
(5) For 1994, 1995 and 1996, respectively, the "All Other Compensation" column
includes: (i) amounts contributed or accrued by the Company under the
Company's 401(k) Savings and Investment Plan on behalf of the named
executive officers as follows: Gregory L. Nesbitt, $6,000, $6,000 and
$6,000; David M. Eppler, $5,999, $6,000 and $6,000; Robert L. Duncan,
$6,000, $6,000 and $6,000; Catherine C. Powell, $3,405, $4,594 and $5,488;
and Michael P. Prudhomme, $4,436, $4,679 and $5,099; and (ii) term life
insurance premiums paid for the benefit of the named executive officers as
follows: Gregory L. Nesbitt, $0, $0 and $0; David M. Eppler, $99, $442 and
$483; Robert L. Duncan, $843, $898 and $939; Catherine C. Powell, $0, $121
and $195; and Michael P. Prudhomme, $808, $897 and $939.
STOCK OPTION PLANS
The Company currently maintains two plans pursuant to which options to
purchase shares of Common Stock are outstanding or available for future grants.
The Company's 1981 Incentive Stock Option Plan (the "Stock Option Plan"),
covering an aggregate of 800,000 shares of Common Stock, expired in 1991 and no
future grants can be made under this plan. As of February 1, 1997, options
covering 18,400 shares remained to be exercised pursuant to grants made under
the Stock Option Plan. The Company has in effect a long-term incentive
compensation plan pursuant to which certain officers and key employees may
receive stock options or stock appreciation rights. This plan is discussed in
greater detail under the section "Long-Term Incentive Plan" below. No stock
options were granted under the long-term incentive compensation plan in 1996.
Although the long-term incentive compensation plan permits grants of stock
appreciation rights, no such rights had been granted under the plan as of
December 31, 1996.
7
<PAGE> 12
The following table sets forth, for each of the persons listed in the
Summary Compensation Table, certain information concerning stock options
exercised during 1996. The table also discloses information concerning
unexercised stock options held at December 31, 1996.
AGGREGATE OPTION EXERCISES IN 1996 AND 1996 YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
SHARES DECEMBER 31, 1996(#) DECEMBER 31, 1996
ACQUIRED ON VALUE --------------------------- ------------------------------
NAME EXERCISE(#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE
---- ----------- ----------- ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Nesbitt..... 1,000 $10,595 2,000 0 $21,690 $0
David M. Eppler........ 2,800 28,266 2,800 0 30,366 0
Robert L. Duncan....... 3,000 30,847 2,600 0 28,197 0
Catherine C. Powell.... 0 0 0 0 0 0
Michael P. Prudhomme... 0 0 6,000 0 65,070 0
</TABLE>
- ---------------
(1) Based on the closing price of the Common Stock on the New York Stock
Exchange Composite Tape on the exercise date and at year-end, as the case
may be, minus the exercise price.
LONG-TERM INCENTIVE PLAN
The Company has in effect a long-term incentive compensation plan (the
"Long-Term Plan"), pursuant to which certain officers and key employees may
receive stock incentives and/or cash incentives based on the value of the Common
Stock. Five types of awards may be granted under the Long-Term Plan: (i) stock
awards consisting of restricted stock and "opportunity shares" which may be
awarded in connection with restricted stock awards; (ii) restricted unit awards
consisting of Common Stock equivalent units and "opportunity units" which may be
awarded in connection with restricted unit awards; (iii) nonstatutory stock
options or incentive stock options; (iv) stock appreciation rights attached to
stock options; and (v) stock appreciation rights not attached to stock options.
An aggregate of 800,000 shares of Common Stock, or cash equivalents of Common
Stock, may be issued pursuant to the Long-Term Plan (such number being subject
to antidilution adjustments under certain circumstances). Plan participants,
awards to participants, performance measurement periods and performance goals
are determined by the Compensation Committee. Upon a change of control of the
Company or merger or similar transaction involving the Company, all restrictions
imposed on awards under the Long-Term Plan will lapse, all unvested rights will
vest and all stock options and similar rights granted under the plan will become
fully exercisable, subject to certain limitations imposed by the Long-Term Plan.
The following table sets forth, for each of the persons listed in the
Summary Compensation Table, information as to long-term incentive plan awards
granted under the Long-Term Plan during 1996.
LONG-TERM INCENTIVE PLAN -- AWARDS IN 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f)
- -------------------------------------------------------------------------------------------------------
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR ------------------------------------------
OTHER PERIOD UNTIL NUMBER OF NUMBER OF NUMBER OF
NUMBER OF MATURATION OR THRESHOLD TARGET MAXIMUM
NAME SHARES(#)(1) PAYOUT SHARES(#)(2) SHARES(#)(2) SHARES(#)(3)
---- ------------ ------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Gregory L. Nesbitt...... 3,036 1/1/96-12/31/98 759 3,036 4,554
David M. Eppler......... 1,048 1/1/96-12/31/98 262 1,048 1,572
Robert L. Duncan........ 975 1/1/96-12/31/98 244 975 1,462
Catherine C. Powell..... 759 1/1/96-12/31/98 190 759 1,139
Michael P. Prudhomme.... 573 1/1/96-12/31/98 143 573 860
</TABLE>
(Footnotes on following page)
8
<PAGE> 13
- ---------------
(1) The amounts under column (b) "Number of Shares" represent the target level
of performance-based restricted stock awards granted to the named executive
officers in 1996, as reflected in column (e) "Number of Target Shares." For
further information concerning these awards and the award of "opportunity
shares" granted in connection with the restricted stock, see the discussion
under footnotes 2 and 3 below.
(2) The amounts under columns (d) "Number of Threshold Shares" and (e) "Number
of Target Shares" represent performance-based restricted stock awards
granted to the named executive officers in 1996 that will vest under the
threshold and target levels established by the Compensation Committee. The
restricted stock awards vest based on total return to shareholders (Common
Stock price appreciation plus dividends paid during performance cycle) in
relation (by percentile) to a peer group of other utilities ("Total Return
to Shareholders"). The vesting (payout) schedule for the restricted stock
awards set forth under these two columns, based on the Company's Total
Return to Shareholders ranking, is as follows:
(a) No awards vest if the Company's ranking is below the 25th
percentile.
(b) Threshold performance provides 25% award payout at the 25th
percentile.
(c) Target performance provides 100% award payout from the 45th
percentile to the 55th percentile.
Performance awards above the threshold level and below the target level
will be prorated.
The recipient of a restricted stock award is the record owner of the number
of target shares awarded, which are issued in the name of the recipient but
held in escrow by the Company until delivery to or forfeiture by the
recipient. The recipient may vote the shares covered by the award and
receives dividends with respect thereto, but generally may not sell, pledge
or otherwise transfer such shares until the restriction period imposed by
the Compensation Committee comes to an end and the performance goals
established by the committee have been met. The recipient may, at the end
of the restriction period, forfeit all or a portion of the restricted
shares awarded depending on the performance level achieved. The restriction
period for restricted stock awarded during 1996 is three years from the
date of grant (January 1999). The restricted stock awards require an
additional three-year holding period following vesting before any shares
may be sold.
(3) The amounts under column (f) "Number of Maximum Shares" represent the number
of performance-based restricted stock awards that vest at the target level
set forth under column (e) "Number of Target Shares" plus the number of
performance-based "opportunity shares" granted to the named executive
officers in 1996 that will vest between the target and maximum levels
established by the Compensation Committee. The "opportunity shares" vest
based on Total Return to Shareholders and will be issued when the
restriction period on the associated restricted stock awards lapses. The
vesting (payout) schedule for the "opportunity shares" included in this
column, based on the Company's Total Return to Shareholders ranking, is as
follows:
(a) No awards of "opportunity shares" vest if the Company's ranking is
at or below the 55th percentile.
(b) Maximum performance provides 100% "opportunity share" award payout
(equal to 50% of number of target shares of restricted stock) at the
75th percentile.
Performance awards of "opportunity shares" above the target level and below
the maximum level will be prorated.
"Opportunity shares" awarded in connection with a restricted stock award
will not be issued until the lapse of restrictions on the related
restricted stock and do not entitle the recipient to the rights of a
shareholder with respect to the "opportunity shares" until the time of
issuance of the Common
(Footnotes continued on following page)
9
<PAGE> 14
Stock representing the "opportunity shares." Provisions of the "opportunity
share" awards require an additional three-year holding period following
vesting before any of the shares may be sold.
PENSION PLAN
The Company has in effect a pension plan and related trust (the "Pension
Plan"), covering substantially all employees of the Company, under which the
Company makes such contributions as are actuarially necessary to provide for the
retirement benefits established under the plan. Benefits are based on employees'
earnings, length of service, age at retirement, payment form elected,
application of statutory benefit limits, and certain other factors, and are
payable upon normal retirement at age 65, upon early retirement beginning at age
55 or after termination of employment under certain circumstances. Annual
benefits under the Pension Plan are limited to the maximum amount prescribed by
sections 415 and 401(a)(17) of the Internal Revenue Code of 1986, as amended
(the "Code"). For 1997, the annual compensation of each employee which is to be
taken into account under the Pension Plan cannot exceed $160,000, and the
maximum allowable pension benefit for the plan is limited to $125,000. Payments
to retired employees under the Pension Plan are not reduced for Social Security
benefits or other offsetting amounts.
In addition, effective July 1, 1992, the Company established a Supplemental
Executive Retirement Plan (the "SERP") for the benefit of certain participants
designated by the Compensation Committee. The SERP provides participants who
have completed ten years of service and terminated employment after reaching age
65 with a right to monthly payments for the life of the participant and
surviving spouse equal to 65% of final average compensation, reduced by the
Pension Plan benefit and benefits under other previous employer pension plans.
The SERP also provides adjusted benefits for early retirement on or after age 55
with ten years of service, for termination of service due to disability and for
beneficiaries in the event of the death of the participant. Benefits under the
SERP are payable out of the Company's general funds. The SERP participants in
1996 were the five individuals named in the Summary Compensation Table and one
other executive officer of the Company.
Under the Pension Plan, eligible remuneration for purposes of determining
the annual pension benefit payable to a participant upon retirement is based
upon the average of the five consecutive years (of the participant's last ten
years of employment) during which the participant received his or her highest
amount of remuneration from the Company. Under the SERP, eligible remuneration
is based on the sum of the highest annual salary paid during the five years
prior to termination of employment and the average of the three highest annual
incentive compensation program awards paid to the participant during the
preceding five years. The remuneration covered by the Pension Plan and the SERP
consists of salaries and bonuses paid to Pension Plan and SERP participants,
including the salaries and bonuses set forth in columns (c) and (d) of the
Summary Compensation Table. The estimated annual benefits payable upon
retirement at normal retirement age under the Pension Plan and the SERP for Mr.
Nesbitt, Mr. Eppler, Mr. Duncan, Ms. Powell and Mr. Prudhomme would be
approximately $239,339, $126,084, $114,013, $88,205 and $85,478, respectively.
These amounts are based on the assumption that these executive officers will
continue to work for the Company until age 65 and that their earnings in the
five years prior to such retirement will be the same, respectively, as their
earnings during the past five years.
LONG-TERM DISABILITY PLAN
The Company maintains a long-term disability plan that provides disability
benefits up to 60% of salary or a maximum of $7,500 per month for all active
full-time employees with two or more years of service. These benefits are
provided for the first 24 months out of the Company's general funds, and
thereafter pursuant to an insurance contract under which premiums are paid by
the Company.
SEVERANCE AGREEMENTS
The Company has severance agreements with Mr. Nesbitt, Mr. Eppler, Mr.
Duncan, Ms. Powell and Mr. Prudhomme and one other executive officer of the
Company. The agreement for each such officer
10
<PAGE> 15
provides generally for payment of a minimum annual salary equal to such
executive officer's current annual base salary, participation in all Company
benefit plans and programs applicable to the Company's executive officers and
reimbursement of employment-related expenses incurred while performing such
officer's duties. Under the severance agreements, the base salaries for 1997 for
Mr. Nesbitt, Mr. Eppler, Mr. Duncan, Ms. Powell and Mr. Prudhomme are $300,000,
$162,000, $144,100, $112,200 and $102,700, respectively. The severance
agreements had an initial term of three years ending on July 1, 1995, with
continuously renewing one-year extensions thereafter, unless either the Company
or the executive officer gives notice prior to such extension that such
officer's term of employment will not be extended.
The severance agreements include provisions governing reductions in salary
or duties, termination of employment and change in control. Generally, if the
executive's employment is terminated (i) by the Company for any reason other
than a material breach by the executive (as defined in the agreements) or (ii)
by the executive following a reduction in base salary (other than a reduction in
pay uniformly applicable to all officers) or a significant reduction in the
executive's authority, duties or responsibilities, the executive is entitled to
receive, as severance pay, an amount equal to his or her annual base salary at
the time of termination. The executive is also entitled to continued health plan
coverage for up to 18 months after such termination. The executive is also
entitled to require the Company to (i) purchase his or her principal residence
(if it is located within 60 miles of the Company's Pineville office) for an
amount equal to the greater of (x) the purchase price of the residence plus the
cost of capital improvements or (y) the fair market value of the residence, and
(ii) pay or reimburse the executive for relocation costs.
Generally, in the event a change in control occurs and within three years
after such change in control the executive's employment is terminated by the
Company for reasons other than a material breach by the executive (as defined in
the agreements) or the executive terminates his or her employment for good
reason (as defined in the agreements), the Company will pay the executive, in
lieu of any severance obligation otherwise payable under the severance
agreement, an amount equal to three times the executive's average compensation
paid during the five calendar years preceding the change in control. In the
event of a change in control, payments under the agreements for the individuals
named in the Summary Compensation Table, using compensation for the years 1992
through 1996, would be approximately as follows: Mr. Nesbitt, $706,157; Mr.
Eppler, $423,491; Mr. Duncan, $394,352; Ms. Powell, $239,324; and Mr. Prudhomme,
$309,404. However, the severance agreements limit the amount payable upon a
change in control to an amount that would not result in the disallowance of a
deduction to the Company under the "golden parachute" provisions of the Code or
the imposition of an excise tax on the employee under Section 4999 of the Code.
The severance agreements also generally require the executives not to
disclose confidential information relating to the Company and, for a period of
one year after termination, not to hire Company officers, employees or agents,
or solicit or divert any customer or supplier of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (in this report, the "Committee") has prepared
its report of 1996 executive compensation. The Committee, composed entirely of
directors who are not current or former officers or employees of the Company, is
responsible for implementing, or making recommendations to the board of
directors with respect to, the Company's officer compensation programs. The
Committee has retained the services of executive compensation consultants to
provide professional assistance, data and advice regarding pay practices at the
Company. This report describes the basis on which such 1996 compensation
determinations or recommendations were made by the Committee with respect to the
Company's executive officers. This report, required by rules of the Securities
and Exchange Commission, provides specific information regarding compensation of
the Company's president and chief executive officer (the "Chief Executive
Officer") and general information regarding compensation of the Company's
executive officers as a group. The Chief Executive Officer and four other most
highly compensated executive officers are sometimes referred to as the "Named
Executives."
11
<PAGE> 16
Section 162(m) of the Code limits to $1,000,000 in a taxable year the
deduction publicly held companies may claim for compensation paid to an
executive officer, unless certain requirements are met. The Committee has
reviewed this provision and has determined that the Company is not affected by
Section 162(m) because no compensation paid to any officer currently approaches
or is expected to approach $1,000,000 in the near term. Accordingly, no change
to any of the compensation plans is contemplated at this time.
Compensation Philosophy and Overall Objective of Executive Compensation
Programs
The Company seeks to ensure that executive compensation is directly linked
to corporate performance and shareholder value, as well as comparable pay
practices in the industry. Each year, the Committee, in making compensation
decisions and recommendations, and the board of directors, in approving base
salaries, review the performance of the Company and compare such performance to
specified internal and external performance standards. The Committee has
developed the following compensation guidelines as the principles upon which
compensation decisions and recommendations are made:
- Provide variable compensation opportunities that are linked to the
financial performance of the Company and that align executive
compensation with the interests of shareholders.
- Provide incentives to increase corporate performance and shareholder
value relative to those of other electric utilities.
- Establish executive officer base pay levels somewhat below the
competitive market, while providing incentive awards (from the annual and
long-term plans) above the market, provided that performance objectives
are achieved.
- Provide a competitive total compensation package that is "at-risk" driven
and enables the Company to attract and retain key executives.
Compensation Program Components
The compensation program for executive officers is currently comprised of
base salary and two at-risk components: annual performance-related incentives
and performance-based awards of restricted stock and related "opportunity
shares" granted under the Long-Term Plan, as discussed above under "Long-Term
Incentive Plan." In addition, certain of the executive officers have stock
options outstanding that were granted under the Stock Option Plan, which expired
in 1991 and under which no future grants can be made. See "Stock Option Plans."
The compensation programs for the Company's executive officers are further
explained below.
- Base Salary -- Base pay levels recommended by the Committee are largely
determined through comparisons with those of other electric utilities of
similar size and complexity to the Company. These companies, as well as
other electric utilities, are included in the Edison Electric Institute
Index of approximately 100 investor-owned electric utilities (the "Edison
Electric Institute Index") graphed in the performance graph shown
elsewhere. Actual salaries are based on individual performance
contributions within a salary structure that is established through job
evaluation and market comparisons. While the actual relationship may vary
from year to year, it is the Company's policy to have base pay levels for
the Company's executive officers, including the Named Executives, to be
at or somewhat below the average of the competitive market. Including
1996 base salary increases, actual base pay levels for the Company's
executive officers, including the Named Executives, are consistent with
this policy. Increases in base salary for 1996 to continuing executive
officers were recommended by the Committee and approved by the board of
directors in January 1996. In January 1996, the base salary of one of the
executive officers, other than the Chief Executive Officer who received a
5% increase (see "-- 1996 Compensation for the President and Chief
Executive Officer -- Base Salary"), was increased 4%.
12
<PAGE> 17
The other executive officers, whose base salaries were already at the
average of the competitive market, received merit lump-sum payments in
1996 in lieu of increases in base salary. The merit lump-sum payments to
the Named Executives averaged approximately 6% of base salary and the
other executive officer received a merit lump-sum payment equal to 2% of
base salary. The merit lump-sum payments for 1996 to the executive
officers were recommended by the Committee and approved by the board of
directors in January 1996 and were paid in February 1996 in order to
recognize the individual performance and team contribution of each of
these executive officers.
- Annual Incentive Compensation -- The Company's executive officers are
eligible to participate in an annual incentive compensation program with
awards generally based on earnings per share goals and the Company's
actual return on equity in relation to that of the Edison Electric
Institute Index, a peer group of approximately 100 electric utilities.
Earnings per share and return on equity goals are generally of equal
weight. Based on actual results, awards from 0% to 150% of target
incentive levels may be made. For 1996, the earnings per share target
was $2.10. The Company's return on equity target was the 50th to 59th
percentile of the Edison Electric Institute Index. The Company's return
on equity performance for the twelve months ended September 30, 1996 was
in the 75th to 99th percentile of the Edison Electric Institute Index,
and its primary earnings per share in 1996 were $2.23. Based on the
earnings per share and return on equity financial performance, the
Committee approved actual awards for 1996 at 150% of target annual bonus
levels. The objective of the annual incentive compensation program is to
deliver competitive levels of at-risk compensation (i.e., award levels
compared to the Company's competitive peer group for comparable
performance) for the attainment of short-term financial objectives that
the Committee believes are primary determinants of shareholder value
over time, and to reinforce behaviors that contribute to consistent
growth of the enterprise. The Committee bases target annual bonus levels
on average competitive bonus levels among other electric utility
companies of similar size and complexity. These companies are included
in the Edison Electric Institute Index. Targeted awards for executive
officers of the Company under this program range from 15% to 32% of base
salary. Awards are paid in the first quarter of the year following the
year for which the award is earned. The amounts of actual awards are
further subject to the discretion of the Committee, within established
program guidelines (i.e., the ability of the Committee to make
adjustments to reflect extraordinary items of income or expense).
- Long-Term Incentive Compensation Plan -- The Committee supports increased
stock ownership by key executives of the Company and favors awards to key
executives of stock and/or cash based on the Company's stock price
appreciation and other measures of performance. The basis for such
position is the Committee's belief that the Company benefits by providing
those persons who have substantial responsibility for the management and
growth of the Company with additional incentives by increasing their
proprietary interest in the success of the Company or by awarding those
persons for increases in the Company's stock price or the achievement of
other long-term performance goals for the Company. Thus, under the
Long-Term Plan, executive officers may be eligible to receive
performance-based grants of restricted stock, related "opportunity
shares," restricted unit grant awards, related "opportunity units," stock
options and stock appreciation rights, giving them the right to receive
or purchase shares of Common Stock under specified circumstances, or to
receive cash awards based on the Company's stock price appreciation or
the achievement of pre-established long-term performance goals. The
Committee believes that such programs are also important as a means of
retaining senior management over the long term. The number of shares of
stock and other awards granted to executive officers under the Long-Term
Plan is based on competitive practices (i.e., compensation practices of
other utilities that constitute the Edison Electric Institute Index).
Grants of restricted stock and awards of related "opportunity shares"
under the Long-Term Plan were made to all executive officers in 1996.
Awards to executive officers are based on a competitive compensation
analysis (i.e., compensation practices of other utilities that
constitute the Edison Electric Institute Index). Awards actually earned
are based on the Company's performance during a three-year performance
cycle compared to the other electric utilities in the
13
<PAGE> 18
Edison Electric Institute Index over the same period. For the fourth
three-year performance cycle which ended December 31, 1996, the Company's
total return to shareholders placed it at the 73rd percentile compared to
the Edison Electric Institute Index, thus meeting the objectives, as
specified in the Long-Term Plan, for such performance cycle. Provisions of
the restricted stock and "opportunity share" grants require an additional
three-year holding period following vesting before any shares may be sold.
No other types of awards under the Long-Term Plan were made to executive
officers in 1996.
Other Executive Compensation Plans
The Company also provides executive officers with certain executive
benefits, such as a supplemental retirement plan and severance agreements. The
Committee considers each of these programs to be reasonably competitive and
appropriate for executive officers of the Company.
1996 Compensation for the President and Chief Executive Officer
The Committee believes that the role of the Chief Executive Officer is
particularly important in reaching corporate goals and accomplishing
organizational objectives. As such, for fiscal year 1996, the Committee made the
following recommendations or determinations regarding the compensation for Mr.
Nesbitt:
- Base Salary -- Mr. Nesbitt is president and chief executive officer of
the Company. His base salary was increased in January 1996 from $260,000
to $272,000, an increase of approximately 5%. The amount of this increase
was based on the continued performance of Mr. Nesbitt as evaluated by the
Committee. Even with this adjustment, his base pay is significantly below
peers in the industry.
- Annual Incentive -- Mr. Nesbitt was eligible to participate in 1996 in
the Company's annual incentive compensation program discussed in this
report above (see "-- Annual Incentive Compensation"). The Chief
Executive Officer's 1996 target award was 32% of his base salary. His
actual award for 1996 was 150% of target, or 48%.
- Long-Term Incentive -- Awards were made to Mr. Nesbitt under the
Long-Term Plan during 1996. The number of shares of stock and other
awards granted to the Chief Executive Officer under the Long-Term Plan
are based on competitive practices within the industry. Administration is
consistent with the provisions of the plan as described above in
"Long-Term Incentive Plan." For the three-year performance cycle ended
December 31, 1996, the Chief Executive Officer's award was 147.5% of
target, or 2,912 shares.
Summary
The Committee believes that base pay levels and increases and
performance-based awards are reasonable and competitive with the compensation
programs provided to officers and other executives by electric utilities of
similar size and complexity to the Company. The Committee believes further that
the degree of performance sensitivity in the annual incentive program continues
to be reasonable, yielding awards that are directly linked to the annual
financial and operational results of the Company. The Long-Term Plan continues
to provide, in the view of the Committee, financial opportunities to
participants and retention features for the Company that are consistent with the
relative returns that are generated on behalf of the Company's shareholders.
The Compensation Committee
Edward M. Simmons, Chairman
Sherian G. Cadoria, Brig. General
(retired)
J. Patrick Garrett
Ernest L. Williamson
14
<PAGE> 19
PERFORMANCE GRAPH
The following performance graph compares the performance of the Common
Stock to the S&P 500 Index and to the Edison Electric Institute Index (which
includes the Company) for the Company's last five fiscal years. The graph
assumes that the value of the investment in the Common Stock and each index was
$100 at December 31, 1991 and that all dividends were reinvested.
<TABLE>
<CAPTION>
Measurement Period CLECO S&P 500 Index EEI Index(1)
(Fiscal Year Covered)
<S> <C> <C> <C>
1991 $100 $100 $100
1992 $104 $108 $108
1993 $113 $118 $120
1994 $113 $120 $106
1995 $139 $165 $139
1996 $151 $203 $140
</TABLE>
(1) The Edison Electric Institute Index is comprised of: Allegheny Power System,
Inc.; American Electric Power Company, Inc.; Atlantic Energy, Inc.;
Baltimore Gas & Electric Company; Bangor Hydro-Electric Company; Black Hills
Corporation; Boston Edison Company; Carolina Power & Light Company;
Centerior Energy Corporation; Central & South West Corporation; Central
Hudson Gas & Electric Corporation; Central Louisiana Electric Company, Inc.;
Central Maine Power Company; Central Vermont Public Service Corporation;
Cilcorp Inc.; CINergy Corp.; Cipsco Inc.; CMS Energy Corp.; Commonwealth
Energy System; Consolidated Edison Company of New York, Inc.; Delmarva Power
& Light Co.; Dominion Resources, Inc.; DPL Inc.; DQE Inc.; DTE Energy Co.;
Duke Power Company; Eastern Utilities Associates; Edison International
(formerly SCEcorp); Empire District Electric Company; Enova Corp.; Entergy
Corporation; ESELCO Inc.; Florida Progress Corporation; FPL Group, Inc.;
General Public Utilities Corporation; Green Mountain Power Corporation;
Hawaiian Electric Industries, Inc.; Houston Industries Incorporated; Idaho
Power Company; IES Industries, Inc.; Illinova Corp.; Interstate Power Co.;
IPALCO Enterprises Inc.; Kansas City Power & Light Company; KU Energy Corp.;
LG&E Energy Corp.; Long Island Lighting Company; Madison Gas & Electric Co.;
Maine Public Service Company; MidAmerican Energy Co.; Minnesota Power &
Light Co.; Montana Power Co.; Nevada Power Company; New England Electric
System; New York State Electric & Gas Corporation; Niagara Mohawk Power
Corp.; NIPSCO Industries, Inc.; Northeast Utilities; Northern States Power
Co.; Northwestern Public Service Co.; Ohio Edison Company; Oklahoma Gas &
Electric Company; Orange & Rockland Utilities, Inc.; Otter Tail Power
Company; Pacific Gas & Electric Co.; Pacificorp; Peco Energy Co.; Pinnacle
West Capital Corp.; Portland General Corporation; Potomac Electric Power
Corporation; PP&L Resources Inc.; Public Service Co. of Colorado; Public
Service Company of New Mexico; Public Service Enterprise Group Incorporated;
Puget Sound Power & Light Company; Rochester Gas & Electric Corporation;
SCANA Corp.; Sierra Pacific Resources; SIGECORP (holding company of Southern
Indiana Gas & Electric Co.); Southern Company; Southern Indiana Gas &
Electric Co.; Southwestern Public Service Company; St. Joseph Light & Power
Co.; TECO Energy, Inc.; Texas Utilities Company; TNP Enterprises, Inc.;
Tucson Electric Power Company; Unicom Corp.; Union Electric Co.; United
Illuminating Company; Unitil Corp.; Upper Peninsula Energy Corp.; Utilicorp
United Inc.; Washington Water Power Co.; Western Resources, Inc.; Wisconsin
Energy Corporation; WPL Holdings Inc.; and WPS Resources Corp.
15
<PAGE> 20
APPOINTMENT OF AUDITORS
The firm of Coopers & Lybrand L.L.P., independent certified public
accountants, has served as auditors for the Company continuously since 1952. The
board of directors, upon recommendation of the Audit Committee, proposes to
continue such firm's services as auditors for the Company for the year ending
December 31, 1997. Neither such firm nor any of its associates has any
relationship with the Company except in their capacity as auditors. The persons
named in the accompanying proxy will vote in accordance with the choice
specified thereon, or, if no choice is properly indicated, in favor of the
appointment of Coopers & Lybrand L.L.P. as auditors of the Company.
A representative of Coopers & Lybrand L.L.P. is expected to attend the
annual meeting. If present, the representative will have an opportunity to make
a statement during the meeting if he or she so desires and will respond to
appropriate questions raised during the meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, to the knowledge of the Company based on a
review of the information and as of the dates indicated, certain information
with respect to each person who is the beneficial owner of more than 5% of the
outstanding shares of any class of the Company's voting securities.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF $100 PREFERRED
BENEFICIALLY OWNED STOCK BENEFICIALLY OWNED
------------------------ ------------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL PERCENTAGE BENEFICIAL PERCENTAGE
NAME AND ADDRESS OWNERSHIP OF CLASS OWNERSHIP OF CLASS
---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
College Retirement Equities Fund
730 Third Avenue
New York, NY 10017........................ 1,134,364(1) 5.1%
State Street Bank and Trust Company,
Trustee of the ESOP Component of the
Company's 401(k) Savings and Investment
Plan
225 Franklin Street
Boston, MA 02110.......................... 292,507(2) 80.2%
</TABLE>
- ---------------
(1) As of December 31, 1996, based on a Schedule 13G filed with the Securities
and Exchange Commission. The reporting entity states that it has sole voting
and dispositive power with respect to 1,134,364 shares of Common Stock and
shared voting and dispositive power with respect to no shares of Common
Stock.
(2) As of December 31, 1996, based upon a Schedule 13G filed with the Securities
and Exchange Commission. The reporting entity states that it has shared
dispositive power with respect to 292,507 shares and shared voting power
with respect to 292,507 shares. Such 292,507 shares are held by State Street
Bank and Trust Company as trustee (the "ESOP Trustee") of the ESOP component
(the "ESOP") of the Company's 401(k) Savings and Investment Plan (the
"Savings Plan"). Such 292,507 shares are convertible under certain
circumstances pursuant to the Company's Restated Articles of Incorporation
and the governing instruments of the ESOP and the Savings Plan into
1,404,034 shares of Common Stock, subject to antidilution adjustment, or
approximately 6.3% of the Common Stock outstanding as of December 31, 1996.
Participants in the Savings Plan have voting rights with respect to shares
of $100 Preferred Stock (or Common Stock into which such stock has been
converted) allocated to their accounts. The ESOP Trustee is required to vote
unallocated shares in the same proportion as allocated shares as to which it
has received voting instructions from participants. Participants in the
Savings Plan have, in the event of a tender or exchange offer,
(Footnotes continued on following page)
16
<PAGE> 21
investment discretion with respect to shares of $100 Preferred Stock (or
Common Stock into which such stock has been converted) allocated to their
accounts. In such an event, the ESOP Trustee is required to tender
unallocated shares in the same proportion that it tenders allocated shares
as to which it has received investment instructions, but has no power to
tender allocated shares as to which it has received no investment
instructions. The reporting entity also states that it, as trustee of
various collective investor funds for employee benefit plans and other
index accounts and various personal trust accounts, has sole voting power
with respect to 96,442 shares of Common Stock, shared voting power with
respect to 2,931 shares of Common Stock, sole dispositive power with
respect to 98,308 shares of Common Stock and shared dispositive power with
respect to 3,965 shares of Common Stock.
ANNUAL REPORT
The Company's 1996 Summary Annual Report, together with the enclosed 1996
Annual Report to Shareholders, which contains the Company's consolidated
financial statements for the year ended December 31, 1996, accompany the proxy
material being mailed to all shareholders. The Summary Annual Report and the
Annual Report to Shareholders are not a part of the proxy solicitation material.
PROPOSALS BY SHAREHOLDERS
Proposals of shareholders intended to be presented at the Company's annual
meeting of shareholders to be held in 1998, and otherwise eligible, must be
received by the Company (at the address indicated on the first page of this
proxy statement) no later than November 12, 1997 (subject to certain provisions
of the Company's bylaws which require that certain proposals be submitted 180
days before such meeting) to be included in the Company's proxy material and
form of proxy relating to such meeting.
OTHER MATTERS
Management does not intend to bring any other matters before the meeting
and has not been informed that any other matters are to be presented to the
meeting by others. If other matters properly come before the meeting or any
adjournments thereof, the persons named in the accompanying proxy and acting
thereunder intend to vote in accordance with their best judgment.
ALL SHARES THAT A SHAREHOLDER OWNS, NO MATTER HOW FEW, SHOULD BE
REPRESENTED AT THE ANNUAL MEETING OF SHAREHOLDERS. THE ACCOMPANYING PROXY SHOULD
THEREFORE BE COMPLETED, SIGNED, DATED AND RETURNED AS SOON AS POSSIBLE.
By order of the board of directors.
/s/ GREGORY L. NESBITT
Gregory L. Nesbitt
President and Chief Executive
Officer
March 12, 1997
17
<PAGE> 22
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
Proxy Solicited on Behalf of the Board of Directors of the Company
for the Annual Meeting on April 25, 1997
P The undersigned hereby constitutes and appoints Gregory L. Nesbitt, David
M. Eppler and Michael P. Prudhomme, and each of them (the "Proxy
R Committee"), his or her true and lawful agents and proxies, with full
power of substitution in each, to represent the undersigned at the
O annual meeting of shareholders of Central Louisiana Electric Company,
Inc., to be held at the Pineville High School Auditorium, 1511 Line
X Street, Pineville, Louisiana, on Friday, April 25, 1997, and at any
adjournments thereof, on all matters coming before said meeting. Receipt
Y of the notice of the meeting and the proxy statement, both dated
March 12, 1997, is acknowledged. The following items of business will
be considered at the aforesaid annual meeting:
1.Election of three Class III Directors. Nominees:
J. Patrick Garrett, F. Ben James, Jr. and A. DeLoach Martin, Jr., whose
terms of office expire in 2000.
2. Proposal to approve appointment of Coopers & Lybrand L.L.P. as auditors.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES
(SEE REVERSE SIDE) BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXY COMMITTEE
CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. ACTION TAKEN
PURSUANT TO THIS PROXY CARD WILL BE EFFECTIVE AS TO ALL THE SHARES (WHETHER
COMMON OR PREFERRED, AND, IF PREFERRED, OF ANY CLASS OR SERIES) THAT YOU OWN.
<PAGE> 23
Please mark your
|x| votes as in this 1628
example.
This proxy when executed will be voted in the manner directed herein. If no
direction is made, this proxy will be voted "FOR" Items 1 and 2.
- ------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR all proposals.
- ------------------------------------------------------------------------------
1. Election of FOR WITHHELD
Directors. | | | |
(see reverse)
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
2. Proposal to approve FOR AGAINST ABSTAIN
appointment of | | | | | |
Coopers & Lybrand L.L.P.
as auditors.
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, trustee or guardian, please give
full title as such.
- ---------------------------------------------
- ---------------------------------------------
SIGNATURE(S) DATE
<PAGE> 24
EXHIBIT INDEX
Exhibit 99 -- 1996 Annual Report to Shareholders
<PAGE> 1
1996 ANNUAL REPORT TO SHAREHOLDERS
[CLECO LOGO]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Disclosure Regarding Forward-Looking
Statements............................ 1
Selected Financial Data................. 3
Management's Discussion and Analysis of
Results of Operations and Financial
Condition
Industry Developments/Customer
Choice............................. 4
Results of Operations................. 4
Financial Condition................... 8
Consolidated Statements of Income....... 12
Consolidated Balance Sheets............. 13
Consolidated Statements of Cash Flows... 14
Consolidated Statements of Changes in
Common Shareholders' Equity........... 15
Notes to Consolidated Financial
Statements............................ 16
Report of Independent Accountants....... 30
</TABLE>
i
<PAGE> 3
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 "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 acquisition of Teche
Electric Cooperative, Inc., 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 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 environment, 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;
Financial or regulatory accounting principles or policies imposed
by the Financial Accounting Standards Board, the Securities and
Exchange Commission, FERC, LPSC, or similar entities with regulatory
or accounting 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;
1
<PAGE> 4
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 law 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.
2
<PAGE> 5
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> 6
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> 7
<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> 8
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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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> 15
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> 16
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> 17
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> 18
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> 19
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> 20
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> 21
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> 22
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> 23
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> 24
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> 25
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> 26
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> 27
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> 28
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> 29
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> 30
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> 31
<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> 32
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
