As filed with the Securities and Exchange Commission on January 10, 1997
Registration No. 333-17911 and 333-17911-01__________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
_____________________
ENTERGY GULF STATES, INC. ENTERGY GULF STATES CAPITAL I
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in Trust Agreement)
Texas Delaware
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
74-0662730
(I.R.S. Employer Identification To be Applied for
Number) (I.R.S. Employer Identification
Number)
350 Pine Street
Beaumont, Texas 77701 c/o Entergy Gulf States, Inc.
(409) 838-6631 639 Loyola Avenue
(Address, including zip code, and New Orleans, Louisiana 70113
telephone number, including 504-576-4308
area code, of registrant's principal (Address, including zip code, and
executive offices) telephone number, including area
code, of registrant's principal
executive office)
___________________________
LAURENCE M. HAMRIC, Esq. WILLIAM J. REGAN, JR.
DENISE C. REDMANN, Esq. Vice President and Treasurer
Entergy Services, Inc. Entergy Gulf States, Inc.
639 Loyola Avenue 639 Loyola Avenue
New Orleans, Louisiana 70113 New Orleans, Louisiana 70113
504-576-2272 504-576-4308
KEVIN STACEY, Esq.
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
212-603-2144
(Names, addresses, including zip codes, and telephone numbers, including
area codes, of agents for service)
__________________
<PAGE>
<PAGE>
CROSS-REFERENCE SHEET
Item and Caption in Form S-2 Caption in Prospectus
- ------------------------------- ----------------------------------
1. Forepart of the Registration
Statement and Outside Front Cover of
Prospectus . . . . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus . . . . . Inside Front Cover Page; Back Cover
Page
3. Summary Information, Risk
Factors and Ratio of Earnings to
Fixed Charges . . . . . . . . . . . Risk Factors; Ration of Earnings to
Fixed Charges; Selected Financial Data
4. Use of Proceeds . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . Not Applicable
6. Dilution . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders. . . . . . Not Applicable
8. Plan of Distribution . . . . . . . Underwriting
9. Description of Securities to be
Registered. . . . . . . . . . . . . Description of the Preferred
Securities; Description of the
Guarantee; Description of the Junior
Subordinated Debentures; Relationship
Among the Preferred Securities, the
Junior Subordinated Debentures and the
Guarantee
10. Interest of Named Experts and
Counsel . . . . . . . . . . . . . . Experts; Legal Opinions
11. Information With Respect to the
Registrant. . . . . . . . . . . . . Risk Factors; The Company; Selected
Financial Data; Capitalization;
Management's Discussion and Analysis;
Financial Statements; Interim Financial
Statements
12. Incorporation of Certain
Information by Reference . . . . . .Incorporation of Certain Information by
Reference
13. Disclosure of Commission
Position on Indemnification For
Securities Act Liabilities . . . . Not Applicable
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 10, 1997
3,400,000 Preferred Securities
ENTERGY GULF STATES CAPITAL I
___% Cumulative Quarterly Income Preferred Securities, Series A (QUIPSsm)*
(liquidation preference $25 per preferred security)
fully and unconditionally guaranteed, as set forth herein, by
ENTERGY GULF STATES, INC.
________________
The ___% Cumulative Quarterly Income Preferred Securities, Series A (the
"Preferred Securities"), offered hereby represent undivided beneficial
interests in the assets of Entergy Gulf States Capital I, a business trust
created under the laws of the State of Delaware (the "Issuer"). Entergy Gulf
States, Inc. (formerly Gulf States Utilities Company), a Texas corporation
(the "Company"), will be the owner of the beneficial interests represented by
common securities of the Issuer (the "Common Securities"). The Bank of New
York is the Property Trustee of the Issuer. The Issuer exists for the sole
purpose of issuing the Preferred Securities and the Common Securities and
investing the proceeds thereof in ___% Junior Subordinated Deferrable
Interest Debentures, Series A, Due_____ (the "Junior Subordinated
Debentures") to be issued by the Company under the Indenture for Unsecured
Subordinated Debt Securities relating to Trust Securities dated as of
February 1, 1997 (the "Indenture"), which will be qualified under and subject
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
The Preferred Securities will have a preference under certain circumstances
with respect to cash distributions and amounts payable on liquidation,
redemption or otherwise over the Common Securities. See "Description of the
Preferred Securities--Subordination of Common Securities".
(Continued on next page)
________________
See "Risk Factors" beginning on page ___ hereof for certain information
relevant to an investment in the Preferred Securities.
________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
________________
Proceeds to
Initial Public Underwriting the
Offering Price Commission (1) Issuer (2) (3)
Per Preferred $ (2) $
Security..............
Total................. $ (2) $
__________
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securitie and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Preliminary Prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
(1) The Issuer and the Company have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See
"Underwriting".
(2) In view of the fact that the proceeds of the sale of the
Preferred Securities will be used to purchase the Junior
Subordinated Debentures, the Underwriting Agreement provides that
the Company will pay to the Underwriters, as compensation
("Underwriters' Compensation") for their arranging the investment
therein of such proceeds, $_____ per Preferred Security;
provided, that such compensation will be $______ per Preferred
Security sold to certain institutions. Accordingly, the maximum
aggregate amount of Underwriters' Compensation will be less than
such amount to the extent that Preferred Securities are sold to
such institutions. See "Underwriting".
(3) Expenses of the offering, which are payable by the Company, are
estimated to be $________.
________________
The Preferred Securities offered hereby are offered severally by
the Underwriters, as specified herein, subject to receipt and acceptance
by them and subject to their right to reject any order in whole or in
part. It is expected that delivery of the Preferred Securities will be
ready for delivery in book-entry form only through the facilities of The
Depository Trust Company ("DTC") in New York, New York, on or about
___________, 1997, against payment therefor in immediately available
funds.
__________
*QUIPS is a servicemark of Goldman, Sachs & Co.
Goldman, Sachs & Co.
---------------------
------------------
________________
The date of this Prospectus is _____________________, 1997
<Page.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
PREFERRED SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
__________________________
(Continued from previous page)
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions accruing from the date of
original issuance and payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing _____ , 1997, at
the rate of ___% per annum of the liquidation preference of $25 per
Preferred Security ("Distributions"). The Company has the right to
defer the payment of interest on the Junior Subordinated Debentures at
any time or from time to time for one or more periods (each, an
"Extension Period"), provided that such Extension Period, together with
all previous and further extensions thereof prior to its termination,
does not exceed 20 consecutive quarters and does not extend beyond the
maturity of the Junior Subordinated Debentures. Upon the termination of
any such Extension Period and the payment of all amounts then due, the
Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Junior
Subordinated Debentures are so deferred, Distributions on the Preferred
Securities will also be deferred and the Company will not be permitted,
subject to certain exceptions set forth herein, to declare or pay any
cash distributions with respect to the Company's capital stock or debt
securities that rank pari passu with or junior to the Junior
Subordinated Debentures or make any guarantee payments with respect to
the foregoing. During an Extension Period, interest on the Junior
Subordinated Debentures will continue to accrue (and the Preferred
Securities will accumulate additional Distributions thereon at the rate
of ___% per annum, compounded quarterly), and holders of the Preferred
Securities will be required to accrue interest income for United States
Federal income tax purposes prior to receipt of cash related to such
interest income. See Description of the Junior Subordinated Debentures-
- -Option to Extend Interest Payment Period" and "Certain United States
Federal Income Tax Considerations--Potential Extension of Interest
Payment Period and Original Issue Discount".
The Company has, through the Guarantee, the Trust Agreement, the
Junior Subordinated Debentures, the Indenture and the Expense Agreement
(each as defined herein), taken together, fully, irrevocably and
unconditionally guaranteed all of the Issuer's obligations under the
Preferred Securities. The Guarantee of the Company guarantees the
payment of Distributions and payments on liquidation of the Issuer or
redemption of the Preferred Securities as set forth below, in each case
out of funds held by the Issuer, to the extent described herein (the
"Guarantee"). See "Description of the Guarantee." If the Company does
not make interest payments on the Junior Subordinated Debentures held by
the Issuer, the Issuer will have insufficient funds to pay Distributions
on the Preferred Securities. The Guarantee does not cover payment of
Distributions when the Issuer does not have sufficient funds to pay such
Distributions. The obligations of the Company under the Guarantee are
subordinate and junior in right of payment to all Senior Debt (as
defined in "Description of the Junior Subordinated Debentures--
Subordination") of the Company.
The Preferred Securities are subject to mandatory redemption, in
whole or in part, upon repayment of the Junior Subordinated Debentures
at maturity or their earlier redemption in an amount equal to the amount
of Junior Subordinated Debentures maturing or being redeemed at a
redemption price equal to the aggregate liquidation preference of such
Preferred Securities plus accumulated and unpaid Distributions thereon
to the date of redemption. See "Description of the Preferred Securities-
- -Redemptions". The Junior Subordinated Debentures are redeemable prior
to maturity at the option of the Company (i) on or after
___________________, 2002, in whole at any time or in part from time to
time, at a redemption price equal to the accrued and unpaid interest on
the Junior Subordinated Debentures so redeemed to the date fixed for
redemption plus 100% of the principal amount thereof, or (ii) at any
time, in whole (but not in part), upon the occurrence and continuation
of a Special Event (as defined herein), at a redemption price equal to
the accrued and unpaid interest on the Junior Subordinated Debentures so
redeemed to the date fixed for redemption plus 100% of the principal
amount thereof. See "Description of the Junior Subordinated Debentures
- -- Redemption".
At any time, the Company will have the right to terminate the Issuer
and, after satisfaction of liabilities to creditors of the Issuer, if
any, as provided by applicable law, cause the Junior Subordinated
Debentures to be distributed to the holders of the Preferred Securities
and the Common Securities in liquidation of the Issuer. See
"Description of the Preferred Securities--Redemptions -- Special
Event Redemption or Distribution of Junior Subordinated Debentures" and
" -- Liquidation Distribution upon Termination".
The Junior Subordinated Debentures are subordinate and junior in
right of payment to all Senior Debt of the Company. As of September 30,
1996, the Company had approximately $2.3 billion of Senior Debt
outstanding. The terms of the Junior Subordinated Debentures place no
limitation on the amount of Senior Debt that may be incurred by the
Company. See "Description of the Junior Subordinated Debentures--
Subordination."
In the event of the liquidation of the Issuer, after satisfaction of
liabilities to creditors of the Issuer, if any, as provided by
applicable law, the holders of the Preferred Securities will be entitled
to receive a liquidation preference of $25 per Preferred Security plus
accumulated and unpaid Distributions thereon to the date of payment,
which liquidation preference may be in the form of a distribution of
such amount of Junior Subordinated Debentures, subject to certain
exceptions. See "Description of the Preferred Securities--Liquidation
Distribution Upon Termination."
Application has been made to list the Preferred Securities on the
New York Stock Exchange (the "NYSE"). If the Junior Subordinated
Debentures are distributed to the holders of the Preferred Securities
upon the liquidation of the Issuer, the Company will use its best
efforts to list the Junior Subordinated Debentures on the NYSE or such
other stock exchanges or other organizations, if any, on which the
Preferred Securities are then listed.
The Preferred Securities will be represented by one or more global
certificates registered in the name of DTC or its nominee. Beneficial
interests in the Preferred Securities will be shown on, and transfers
thereof will be effected only through, records maintained by
participants in DTC. Except as described under "Description of the
Preferred Securities--Book-Entry Issuance", the Preferred Securities in
certificated form will not be issued in exchange for the global
certificates.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commis
sion"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, Suite 1300, New York, New
York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can also be
obtained at prescribed rates by writing to the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. The Commission maintains a Worldwide Web site
that contains reports, proxy and information statements and other
information regarding reporting companies under the Exchange Act,
including the Company, at http://www.sec.gov. In addition, such
reports, proxy statements and other information concerning the Company
can be inspected at the offices of the NYSE, 20 Broad Street, New York,
New York 10005.
The Company and the Issuer have filed with the Commission a
Registration Statement on Form S-2 (together with all amendments and
exhibits thereto, the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits
thereto, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. For further information with
respect to the Company, the Issuer and the securities offered hereby,
reference is made to the Registration Statement and the exhibits filed
as a part thereof or incorporated by reference therein, which may be
inspected at the public reference facilities of the Commission, at the
addresses set forth above. Statements made in this Prospectus
concerning the contents of any documents referred to herein are not
necessarily complete, and in each instance are qualified in all respects
by reference to the copy of such document filed as an exhibit to the
Registration Statement.
No separate financial statements of the Issuer have been included
herein. The Company and the Issuer do not consider that such financial
statements would be material to holders of the Preferred Securities
because the Issuer is a newly formed special purpose entity, has no
operating history or independent operations and is not engaged in and
does not propose to engage in any activity other than its holding, as
trust assets, the Junior Subordinated Debentures of the Company and its
issuance of the Preferred Securities and Common Securities. The Issuer
does not intend to file separate reports under the Exchange Act, but
must apply for and be granted relief by the Commission to avoid the
requirement to file such reports. See "Entergy Gulf States Capital I",
"Description of the Preferred Securities", "Description of the
Guarantee" and "Description of the Junior Subordinated Debentures".
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
are incorporated into this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
2. The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996.
3. The Company's Current Reports on Form 8-K dated March 22,
1996, April 19, 1996, April 29, 1996, August 26, 1996,
September 5, 1996 and November 27, 1996.
Any statement contained herein, or in a document all or a portion
of which is incorporated by reference herein, shall be deemed to be
modified or superseded for purposes of the Registration Statement and
this Prospectus to the extent that a statement contained herein or in
any other subsequently filed document that also is incorporated by
reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Registration
Statement or this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person,
a copy of any or all of the foregoing documents incorporated by
reference herein (other than exhibits not specifically incorporated by
reference into the texts of such documents). Requests for such
documents should be directed to: Christopher T. Screen, Assistant
Secretary, P.O. Box 61000, New Orleans, Louisiana 70161, telephone:
(504) 576-4212.
<PAGE>
As used herein, (i) the term "Indenture" means the Indenture for
Unsecured Subordinated Debt Securities relating to Trust Securities, as
the same may be amended and supplemented from time to time, between the
Company and The Bank of New York, as Debenture Trustee, pursuant to
which the Junior Subordinated Debentures will be issued, and (ii) the
term "Trust Agreement" means the Amended and Restated Trust Agreement,
among the Company, as Depositor, The Bank of New York, as Property
Trustee, The Bank of New York (Delaware), as Delaware Trustee, and the
three Administrative Trustees named therein who are employees or
officers of or affiliated with the Company (collectively, with the
Property Trustee and the Delaware Trustee, the "Issuer Trustees"). Each
of the other capitalized terms used in this Prospectus and not otherwise
defined has the meaning set forth in the Indenture or the Trust
Agreement, as the case may be.
RISK FACTORS
Prospective purchasers of the Preferred Securities should carefully
review the information contained elsewhere in this Prospectus and should
particularly consider the following matters.
Obligations Under the Guarantee and the Junior Subordinated Debentures
are Unsecured and Subordinate to Senior Debt
The obligations of the Company under the Guarantee issued by the
Company for the benefit of the holders of the Preferred Securities are
unsecured and rank subordinate and junior in right of payment to all
Senior Debt of the Company. The obligations of the Company under the
Junior Subordinated Debentures are subordinate and junior in right of
payment to all such Senior Debt. At September 30, 1996, Senior Debt of
the Company aggregated approximately $2.3 billion. None of the
Indenture, the Guarantee or the Trust Agreement places any limitation on
the amount of secured or unsecured debt, including Senior Debt, that may
be incurred by the Company. See "Description of the Guarantee--Status
of the Guarantee" and "Description of the Junior Subordinated Debentures-
- -Subordination".
The ability of the Issuer to pay amounts due on the Preferred
Securities is solely dependent upon the Company making payments on the
Junior Subordinated Debentures as and when required.
Option to Extend Interest Payment Period; Tax Consequences; Potential
Market Volatility During Extension Period
The Company has the right under the Indenture to defer the payment
of interest on the Junior Subordinated Debentures at any time or from
time to time for one or more Extension Periods, each of which, together
with all previous and further extensions of such Extension Period prior
to its termination, may not exceed 20 consecutive quarters and may not
extend beyond the maturity of the Junior Subordinated Debentures. As a
consequence of any such election, quarterly Distributions on the
Preferred Securities would be deferred (but would continue to accumulate
additional Distributions thereon at the rate of ___% per annum,
compounded quarterly) by the Issuer during any such Extension Period.
In the event that the Company exercises this right, the Company may not
during any such Extension Period (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation
payment with respect to, any of the Company's capital stock or (ii) make
any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities (including other Junior
Subordinated Debentures ) that rank pari passu with or junior in
interest to the Junior Subordinated Debentures or make any guarantee
payments with respect to the foregoing (other than (a) dividends or
distributions in common stock of the Company and (b) payments under the
Guarantee). Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may elect to begin a new
Extension Period, subject to the above requirements. Consequently,
there could be multiple Extension Periods of varying lengths throughout
the term of the Junior Subordinated Debentures. See "Description of the
Preferred Securities--Distributions" and "Description of the Junior
Subordinated Debentures--Option to Extend Interest Payment Period".
Should an Extension Period occur, a holder of the Preferred
Securities will continue to accrue interest income in respect of its pro
rata share of the Junior Subordinated Debentures held by the Issuer for
United States Federal income tax purposes. As a result, a holder of the
Preferred Securities will include such interest in gross income for
United States Federal income tax purposes in advance of the receipt of
cash, and will not receive the cash related to such income from the
Issuer if the holder disposes of the Preferred Securities prior to the
record date for the payment of Distributions. See "Certain United
States Federal Income Tax Considerations--Potential Extension of
Interest Payment Period and Original Issue Discount" and "--Sale,
Exchange and Redemption of the Preferred Securities".
In the event the Company elects to exercise its right to defer
payments of interest on the Junior Subordinated Debentures, the market
price of the Preferred Securities is likely to be affected. A holder
that disposes of its Preferred Securities during an Extension Period,
therefore, might not receive the same return on its investment as a
holder that continues to hold its Preferred Securities. In addition, as
a result of the existence of the Company's right to defer interest
payments, the market price of the Preferred Securities (which represent
preferred undivided beneficial interests in the Junior Subordinated
Debentures) may be more volatile than the market prices of other
securities on which original issue discount accrues that are not subject
to such deferrals.
Special Event Redemption; Adverse Effect of Possible Tax Law Changes
Upon the occurrence and continuation of a Special Event, as
described in "Description of the Preferred Securities--Redemptions
- -- Special Event Redemption or Distribution of Junior Subordinated
Debentures", the Company has the right to redeem the Junior Subordinated
Debentures in whole (but not in part), and thereby cause a mandatory
redemption of the Preferred Securities and the Common Securities, at a
redemption price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption
plus 100% of the principal amount thereof, within 90 days following the
occurrence of such Special Event.
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"),
the revenue portion of President Clinton's budget proposal, was
released. The Bill would, among other things, generally have denied
interest deductions for interest on an instrument issued by a
corporation that has a maximum weighted average maturity of more than 40
years. The Bill would also generally have treated as equity an
instrument, issued by a corporation, that has a maximum term of more
than 20 years and that is not shown as indebtedness on the separate
balance sheet of the issuer or, where the instrument is issued to a
related party (other than a corporation), where the holder or some other
related party issues a related instrument that is not shown as
indebtedness on the issuer's consolidated balance sheet. The above-
described provisions were proposed to be effective generally for
instruments issued on or after December 7, 1995. If either provision
were to apply to the Junior Subordinated Debentures, the Company would
be unable to deduct interest on the Junior Subordinated Debentures.
However, on March 29, 1996, the Chairmen of the Senate Finance and House
Ways and Means Committees issued a joint statement to the effect that it
was their intention that the effective date of the President's
legislative proposals, if adopted, would be no earlier than the date of
appropriate Congressional action. The 104th Congress adjourned without
any such action having been taken. There can be no assurance, however,
that future legislative proposals or final legislation will not affect
the ability of the Company to deduct interest on the Junior Subordinated
Debentures. If legislation were enacted limiting, in whole or in part,
the deductibility by the Company of interest on the Junior Subordinated
Debentures for United States Federal income tax purposes, such enactment
could give rise to a Tax Event. A Tax Event would permit the Company to
cause a mandatory redemption of the Preferred Securities, as described
more fully under "Description of the Preferred Securities--Redemptions
- --Special Event Redemption or Distribution of Junior Subordinated
Debentures".
Distribution of the Junior Subordinated Debentures
At any time, the Company has the right to terminate the Issuer and,
after satisfaction of liabilities to creditors, if any, of the Issuer as
provided by applicable law, cause the Junior Subordinated Debentures to
be distributed to the holders of the Preferred Securities in liquidation
of the Issuer.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed
in exchange for the Preferred Securities if a liquidation of the Issuer
were to occur. Accordingly, the Preferred Securities that an investor
may purchase, whether pursuant to the offer made hereby or in the
secondary market, or the Junior Subordinated Debentures that a holder of
the Preferred Securities may receive on liquidation of the Issuer, could
trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby. Because holders of the Preferred
Securities may receive the Junior Subordinated Debentures if the Company
exercises its right to terminate the Issuer, prospective purchasers of
the Preferred Securities are also making an investment decision with
regard to the Junior Subordinated Debentures and should carefully review
all the information regarding the Junior Subordinated Debentures
contained herein. See "Description of the Preferred Securities--
Redemptions-- Special Event Redemption or Distribution of Junior
Subordinated Debentures" and "Description of the Junior Subordinated
Debentures--Distribution of the Junior Subordinated Debentures".
Rights under the Guarantee; Limitation as to Funds Available to the
Issuer
The Guarantee will be qualified as an indenture under the Trust
Indenture Act. The Bank of New York will act as Guarantee Trustee for
the purposes of compliance with the Trust Indenture Act and will hold
the Guarantee for the benefit of the holders of the Preferred
Securities. The Bank of New York will also act as Debenture Trustee for
the Junior Subordinated Debentures and as Property Trustee under the
Trust Agreement. The Bank of New York (Delaware) will act as Delaware
Trustee under the Trust Agreement. The Guarantee guarantees to the
holders of the Preferred Securities the following payments, to the
extent not paid by the Issuer: (i) any accumulated and unpaid
Distributions required to be paid on the Preferred Securities, to the
extent that the Issuer has funds on hand available therefor, (ii) the
redemption price with respect to any Preferred Securities called for
redemption to the extent that the Issuer has funds on hand available
therefor, and (iii) upon a voluntary or involuntary dissolution, winding-
up or liquidation of the Issuer (unless the Junior Subordinated
Debentures are distributed to holders of the Preferred Securities), the
lesser of (a) the aggregate of the liquidation preference amount and all
accumulated and unpaid Distributions to the date of payment and (b) the
amount of assets of the Issuer remaining available for distribution to
holders of the Preferred Securities. The holders of a majority in
aggregate Liquidation Preference Amount (as defined in "Description of
the Preferred Securities--Redemptions ") of the Preferred Securities have
the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect
of the Guarantee or to direct the exercise of any trust power conferred
upon the Guarantee Trustee under the Guarantee. Any holder of the
Preferred Securities may institute a legal proceeding directly against
the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Issuer, the Guarantee Trustee
or any other person or entity. If the Company were to default on its
obligation to pay amounts payable under the Junior Subordinated
Debentures, the Issuer would lack funds for the payment of Distributions
or amounts payable on redemption of the Preferred Securities or
otherwise, and, in such event, holders of the Preferred Securities would
not be able to rely upon the Guarantee for payment of such amounts. If
the Property Trustee fails to enforce its rights under the Junior
Subordinated Debentures or the Trust Agreement, a holder of the
Preferred Securities may institute a legal proceeding directly against
the Company to enforce the Property Trustee's rights under the Junior
Subordinated Debentures or the Trust Agreement, to the fullest extent
permitted by law, without first instituting any legal proceeding against
the Property Trustee or any other person or entity. Notwithstanding the
foregoing, a holder of the Preferred Securities may directly institute a
proceeding for enforcement of payment to such holder of principal of or
interest on the Junior Subordinated Debentures having a principal amount
equal to the aggregate Liquidation Preference Amount of the Preferred
Securities of such holder on or after the due dates specified in the
Junior Subordinated Debentures. See "Description of the Preferred
Securities", "Description of the Junior Subordinated Debentures" and
"Description of the Guarantee". The Trust Agreement provides that each
holder of the Preferred Securities, by acceptance thereof, agrees to the
provisions of the Guarantee and the Indenture.
Limited Voting Rights
Holders of the Preferred Securities will generally have limited
voting rights relating only to the modification of the Preferred
Securities and the dissolution, winding-up or termination of the Issuer.
Holders of the Preferred Securities will not be entitled to vote to
appoint, remove or replace the Property Trustee or the Delaware Trustee;
such voting rights are vested exclusively in the holder of the Common
Securities except upon the occurrence of certain events. The
Administrative Trustees and the Company may amend the Trust Agreement to
ensure that the Issuer will be classified for United States Federal
income tax purposes as a "grantor trust" without the consent of holders,
unless such action adversely affects in any material respect the
interests of holders. See "Description of the Preferred
Securities--Voting Rights; Amendment of Trust Agreement" and "--Removal
of Issuer Trustees".
Trading Price of the Preferred Securities May Not Reflect Value of
Accrued But Unpaid Interest
Application has been made to list the Preferred Securities on the
NYSE. If approved for listing, the Preferred Securities may trade at a
price that does not fully reflect the value of accrued but unpaid
interest with respect to the underlying Junior Subordinated Debentures.
A holder of Preferred Securities who disposes of its Preferred
Securities will be required to include in income (as ordinary income)
accrued but unpaid interest on the Junior Subordinated Debentures
through the date of disposition for United States Federal income tax
purposes and to add such amount to its adjusted tax basis in the
Preferred Securities disposed of by such holder. Such holder will
recognize a capital loss to the extent that the selling price (which may
not fully reflect the value of accrued but unpaid interest) is less than
its adjusted tax basis (which will include accrued but unpaid interest).
Subject to certain limited exceptions, capital losses cannot be applied
to offset ordinary income for United States Federal income tax purposes.
See "Certain United States Federal Income Tax Considerations--Sale,
Exchange and Redemption of the Preferred Securities".
Significant Legal and Regulatory Proceedings and Other Issues Affecting
the Company
Reference is made to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, its Quarterly Reports on Form 10-Q for
the quarterly periods ended March 31, June 30, and September 30, 1996,
and its Current Reports on Form 8-K dated March 22, 1996, April 19,
1996, April 29, 1996, August 26, 1996, September 5, 1996, and November
27, 1996, incorporated by reference herein, and to the Company's balance
sheets as of December 31, 1995 and 1994 and the statements of income
(loss), retained earnings, and cash flows for each of the three years in
the period ended December 31, 1995 and the Notes thereto (the "Annual
Financial Statements"), and the Company's balance sheet as of September
30, 1996 and the statements of income (loss) for the three and nine
month periods ended September 30, 1996 and 1995 and the statement of
cash flows for the nine month periods ended September 30, 1996 and 1995
and the Notes thereto (the "Interim Financial Statements"), set forth in
this Prospectus , for a discussion of certain legal and/or regulatory
proceedings and other factors affecting the Company, including but not
limited to those described in the following paragraphs:
1. $1.4 billion of Company-wide abeyed and disallowed costs
associated with the River Bend Nuclear Plant ("River Bend") that have
not been allowed in rates in Texas and are the subject of a writ of
appeal before the Texas Supreme Court and which, if ultimately
disallowed in their entirety, could result in a write-off, net of tax,
of approximately $280 million, as of September 30, 1996 (See Note 2,
"Rate and Regulatory Matters -- River Bend" to the Interim Financial
Statements and to the Annual Financial Statements).
2. For customer retention reasons, the Company's industrial
electric sales increasingly are or may be made at negotiated prices that
are lower than the tariff rates that otherwise would be applicable.
(See "Management's Financial Discussion and Analysis -- Significant
Factors and Known Trends", for the year ended December 31, 1995 and
"Management's Financial Discussion and Analysis -- Significant Factors
and Known Trends", for the quarterly period ended September 30, 1996).
3. The increasing competitive challenges that are facing the
Company (See "Management's Financial Discussion and Analysis--
Significant Factors and Known Trends - Competition and Industry
Challenges" for the year ended December 31, 1995 and "Management's
Financial Discussion and Analysis--Significant Factors and Known Trends
- - Competition and Industry Challenges" for the quarterly period ended
September 30, 1996).
4. The Company is subject to the risks attendant upon the
ownership and operation of River Bend, a 655 megawatt nuclear powered
generating unit. These include risks arising from the operation of
nuclear facilities and the storage, handling and disposal of high-level
and low-level radioactive materials, limitations on the amounts and
types of insurance commercially available in respect of losses that
might arise in connection with nuclear operations, and uncertainties
with respect to the technological and financial aspects of
decommissioning nuclear plants at the end of their licensed lives. The
Nuclear Regulatory Commission (the "NRC") has broad authority under
Federal law to impose licensing and safety-related requirements upon
owners and operators of nuclear generating facilities and, in the event
of non-compliance, has the authority to impose fines or shut down a
unit, or both, depending upon its assessment of the severity of the
situation, until compliance is achieved. Safety requirements
promulgated by the NRC have, in the past, necessitated substantial
capital expenditures at nuclear plants and additional such expenditures
could be required in the future. In addition, although the Company has
no reason to anticipate a serious nuclear incident at River Bend, if
such an incident did occur, it could have a material adverse effect on
the financial position of the Company.
<PAGE>
THE COMPANY
Entergy Gulf States, Inc. (formerly Gulf States Utilities Company)
was originally incorporated under the laws of the State of Texas in
1925. The Company's principal executive offices are located at 350 Pine
Street, Beaumont, Texas 77701. Its telephone number is 409-838-6631.
The Company is an electric public utility company engaged in the
generation, distribution and sale of electric energy with substantially
all of its operations in the States of Texas and Louisiana. In addition
to its principal electric business, the Company produces and sells steam
for industrial use and purchases and retails natural gas in the Baton
Rouge, Louisiana area. The Company serves approximately 623,000
electric customers in southeastern Texas and south Louisiana, of which
approximately 49.9% reside in Louisiana and 50.1% reside in Texas. The
Company serves approximately 90,000 natural gas customers in Baton
Rouge, Louisiana. All of the outstanding common stock of the Company is
owned by Entergy ("Entergy"), a Delaware corporation. Entergy is a
registered public utility holding company under the Public Utility
Holding Company Act of 1935, as amended. The Company is subject to the
jurisdiction of the municipal authorities of incorporated cities in
Texas as to retail rates and services within their boundaries, with
appellate jurisdiction over such matters residing in the Public Utility
Commission of Texas (the "PUCT"). The Company is also subject to
regulation by the PUCT as to retail rates and services in rural areas,
certification of new generating plants and extensions of service into
new areas in Texas. The Company is subject to regulation by the
Louisiana Public Service Commission (the "LPSC") as to electric and
gas service, rates and charges, certification of generating facilities and
power or capacity purchase contracts, depreciation, accounting and other
matters involving its service territories in Louisiana. For the nine
month period ended September 30, 1996 and the twelve month period ended
December 31, 1995, residential customers comprised 32.5% and 32% of
total sales, respectively, commercial customers comprised 22.6% and
23.1%, respectively, industrial customers comprised 34.9% and 33.8%,
respectively, and governmental and other sales comprised 10% and 11.1%,
of total sales, respectively.
Recent Developments
Cajun Settlement. Litigation brought by Cajun Electric Power
Cooperative, Inc. ("Cajun"), a generation cooperative, which is a 30% co-
owner of River Bend, against the Company seeking recission and
termination of the River Bend Joint Ownership Participation and
Operating Agreement and recovery of Cajun's $1.6 billion investment in
River Bend plus certain costs and expenses is pending in federal court.
An agreement (the "Cajun Settlement") setting forth terms for resolution
of all such disputes has been reached by the Company, the Cajun
bankruptcy trustee and the U.S. Rural Utility Services, and was approved
by the United States District Court for the Middle District of Louisiana
(the "District Court") on August 26, 1996. On September 6, 1996, the
Committee of Unsecured Creditors in the Cajun bankruptcy proceeding
filed a Notice of Appeal to the United States Court of Appeals for the
Fifth Circuit, objecting that the order approving the Cajun Settlement
was separate from the approval of a plan of reorganization and,
therefore, improper. The Cajun Settlement is subject to this appeal and
to approvals by the appropriate regulatory agencies. The Company
believes that it is probable that the Cajun Settlement will ultimately
be approved and consummated (See Note 1, "Commitments and
Contingencies," to the Interim Financial Statements).
Beginning in 1992, Cajun failed to pay its full share of capital
costs, operating and maintenance expenses, and other costs for repairs
and improvements to River Bend. Cajun's unpaid portion of River Bend
operating and maintenance expenses (including nuclear fuel) and capital
costs for the nine months ended September 30, 1996, was approximately
$42.9 million. The cumulative cost to the Company resulting from
Cajun's failure to pay its full share of River Bend related costs,
reduced by the proceeds from the sale by the Company of Cajun's share of
River Bend power, and payments into the registry of the District Court
for the Company's portion of expenses for Big Cajun 2, Unit 3, was $17.0
million as of September 30, 1996, compared with $31.1 million as of
December 31, 1995. Cajun's unpaid portion of the River Bend related
costs is reflected in long-term receivables with an offsetting reserve
in other deferred credits. The Cajun Settlement will conclude all
disputes regarding the non-payment by Cajun of operating and maintenance
expenses (See Note 1, "Commitments and Contingencies," to the Interim
Financial Statements).
On December 21, 1994, Cajun filed a petition in the United States
Bankruptcy Court for the Middle District of Louisiana (the "Bankruptcy
Court") seeking relief under Chapter 11 of the United States Bankruptcy
Code. In the bankruptcy proceedings, Cajun filed a motion on January
10, 1995, to reject the Operating Agreement as a burdensome executory
contract. The Company responded on January 10, 1995, with a memorandum
opposing Cajun's motion. This dispute will be resolved upon
effectiveness of the Cajun Settlement.
On March 8, 1996, Southwestern Electric Power Company ("SWEPCO"),
the Company and certain member cooperatives of Cajun filed with the
Bankruptcy Court a joint proposal to bring an end to the Cajun
bankruptcy proceeding. The proposal was submitted in response to a bid
procedure established by the Cajun bankruptcy trustee. On April 19,
1996, SWEPCO, the Company, and certain Cajun member cooperatives filed a
separate plan of reorganization with the Bankruptcy Court based upon
their earlier proposal. On April 22, 1996, the Cajun bankruptcy trustee
filed a plan of reorganization with the Bankruptcy Court based on the
proposal of two non-affiliated companies to take over the non-nuclear
operations of Cajun. Proponents of all of the plans of reorganization
submitted to the Bankruptcy Court have incorporated the Cajun Settlement
as an integral condition to the effectiveness of their plan. The timing
and completion of the reorganization depends on Bankruptcy Court
approval and any required regulatory approvals (See Note 1, "Commitments
and Contingencies" to the Interim Financial Statements ).
Competitive Transition Filings. On November 27, 1996, the Company.
filed a plan with the PUCT that calls for the accelerated recovery of
costs associated with River Bend. The costs would be recovered over a
seven year period and include only those River Bend costs already in
rate base. River Bend costs not in rate base and which are the subject
of an appeal pending before the Texas Supreme Court are not included in
the plan.
This plan is designed to achieve an orderly transition to retail
electric competition in Texas while protecting ratepayers from potential
cost shifting among customer classes. It contains the following key
elements:
* Base rates will be frozen for seven years.
* The investment in River Bend as of June 30, 1996 will be
recovered over a seven year period. At the end of this
period, that investment would cease to be recovered from
customers through electric rates.
* To prevent unfair cost shifting among customer classes, the
plan provides for a universal service charge to be paid by all
customers, including those who choose to purchase their
electricity from another source, but remain connected to the
Company system. For customers who continue to purchase
electricity from the Company, electric bills would not
increase because the charge is already included in electric
rates.
* The filing proposes performance standards for River Bend by
setting a ceiling on operating, capital and fuel expenses. If
expenses exceed the ceiling, then the Company will absorb the
higher costs unless they were caused by a catastrophic event.
If expenses fall below the ceiling, the Company will benefit
from those efficiencies.
* The filing also includes a performance rate plan that has a
return on equity band of two percent around a mid-point
established by the PUCT. The Company will absorb costs or
keep savings within the band. However, if costs or savings
are outside of the band, then these would be shared equally
with customers. This proposal provides an incentive for the
Company to operate more efficiently.
The PUCT has not yet established a procedural schedule for this
proceeding. See "Management's Financial Discussion and Analysis --
Significant Factors and Known Trends" for the quarter ended September
30, 1996, regarding the Company's competitive transition filing in
Louisiana with the LPSC.
Significant Legal and Regulatory Proceedings
Proceedings currently pending before Texas and Louisiana
regulators, in which various parties are seeking reductions in the
Company's base rates or disallowances of fuel costs, are discussed in
Note 2, "Rate and Regulatory Matters" to the Interim Financial
Statements.
The foregoing information relating to the Company does not purport
to be comprehensive and should be read together with the Annual
Financial Statements and the Interim Financial Statements and other
information contained herein.
ENTERGY GULF STATES CAPITAL I
Entergy Gulf States Capital I is a statutory business trust created
under Delaware law pursuant to (i) a trust agreement executed by the
Company, as depositor of the Issuer, the Property Trustee, the Delaware
Trustee and an Administrative Trustee who is an officer of the Company
and (ii) the filing of a certificate of trust with the Delaware
Secretary of State. Such trust agreement will be amended and restated
in its entirety substantially in the form of the Trust Agreement filed
as an exhibit to the Registration Statement of which this Prospectus is
a part. The Trust Agreement will be qualified as an indenture under the
Trust Indenture Act. The Issuer will have five Issuer Trustees: The
Bank of New York, as Property Trustee, The Bank of New York (Delaware),
as Delaware Trustee, and three individual Administrative Trustees who
are employees or officers of or affiliated with the Company. The Bank
of New York, as Property Trustee, will act as sole indenture trustee
under the Trust Agreement for purposes of compliance with the Trust
Indenture Act. The Bank of New York will also act as Guarantee Trustee
under the Guarantee, and Debenture Trustee under the Indenture. See
"Description of the Guarantee" and "Description of the Junior
Subordinated Debentures". The holder of the Common Securities, or the
holders of a majority in liquidation preference of the Preferred
Securities if a Debenture Event of Default has occurred and is
continuing, will be entitled to appoint, remove or replace the Property
Trustee and/or the Delaware Trustee. In no event will the holders of
the Preferred Securities have the right to vote to appoint, remove or
replace the Administrative Trustees; such voting rights are vested
exclusively in the holder of the Common Securities. The duties and
obligations of the Issuer Trustees are governed by the Trust Agreement.
The Company will pay all fees and expenses related to the Issuer and the
offering of the Preferred Securities and will pay, directly or
indirectly, all ongoing costs, expenses and liabilities of the Issuer.
The Issuer exists for the exclusive purposes of (i) issuing and
selling the Preferred Securities and the Common Securities, (ii) using
the proceeds from the sale of such securities to acquire the Junior
Subordinated Debentures issued by the Company and (iii) engaging in only
those other activities necessary or incidental thereto. Accordingly,
the Junior Subordinated Debentures will be the sole assets of the Issuer
and payments under the Junior Subordinated Debentures will be the sole
revenue of the Issuer. All of the Common Securities will be owned by
the Company. The Common Securities will rank pari passu, and payments
will be made thereon pro rata, with the Preferred Securities, except
that upon the occurrence and continuance of an event of default under
the Trust Agreement resulting from a Debenture Event of Default, the
rights of the Company as holder of the Common Securities to payment in
respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the
Preferred Securities. See "Description of the Preferred
Securities--Subordination of Common Securities". The Company will
acquire Common Securities having an aggregate liquidation amount equal
to 3% of the total capital of the Issuer. The Issuer has a term of
approximately 54 years, but may terminate earlier as provided in the
Trust Agreement. The principal executive office of the Issuer is 639
Loyola Avenue, New Orleans, Louisiana 70113, Attention: Treasurer,
telephone: (504) 576-4308.
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE TWELVE MONTH PERIOD ENDED
September 30, December 31,
- ------------- ---------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
1.34 1.09 1.86 0.36(1) 1.54 1.72 1.56
(1) Earnings for the year ended December 31, 1994 for the Company were not
adequate to cover fixed charges by $144.8 million.
SELECTED FINANCIAL DATA
(Dollars in Thousands)
The selected financial information of the Company set forth below
has been derived from and should be read in conjunction with the Annual
Financial Statements and the Interim Financial Statements of the Company
and other financial information contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
For the Nine Months For the Twelve Months
Ended September 30 Ended December 31
---------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992(1) 1991(1)
---- ---- ---- ---- ---- ------- -------
Operating
Revenues $1,574,328 $1,419,242 $1,861,974 $1,797,365 $1,827,620 $1,773,374 $1,702,235
Operating
Income 262,065 249,680 304,429 213,651 270,616 338,620 334,970
Interest
Expense
(net) 148,149 148,034 199,199 203,059 209,868 247,469 259,968
Net Income
(Loss)
before
extraordinar
y items and
the
cumulative
effect of
accounting
changes (14,152) 115,100 122,919 (82,755) 69,461 139,413 112,391
Net Income
(Loss) (14,152) 115,100 122,219 (82,755) 78,862 133,848 112,030
Total Assets
6,568,575 6,858,223 6,861,058 6,843,461 7,137,351 ,164,447 7,183,119
Long-term
obligations(
2) $2,346,532 $2,585,558 $2,521,103 $2,689,042 $2,772,002 $2,798,768 $2,816,577
</TABLE>
(1) Selected financial information for the years ended December 31,
1992 and 1991 have been restated due to the adoption on January 1,
1993 of Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes.
(2) Includes long-term debt (excluding currently maturing debt),
preferred and preference stock with sinking fund, and non- current
capital lease obligations.
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months For the Twelve Months
Ended September 30 Ended December 31
----------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
Electric Operating Revenues:
Residential $488,000 $447,700 $573,566 $569,997 $585,799 $560,552 $547,147
Commercial 340,500 311,900 412,601 414,929 415,267 400,803 383,883
Industrial 524,300 454,800 604,688 626,047 650,230 642,298 582,568
Governmental 23,500 18,300 25,042 25,242 26,118 26,195 24,792
--------- --------- --------- --------- --------- --------- ---------
Total retail 1,376,300 1,232,700 1,615,897 1,636,215 1,677,414 1,629,848 1,538,390
Sales for resale
Associated - -
companies 13,600 43,900 62,431 45,263 -
Non-associated
companies 1,300 52,300 67,103 2,967 31,898 24,485 44,136
Other (1) 50,500 37,200 43,533 (15,244) 38,649 40,203 41,433
--------- --------- --------- --------- --------- --------- ---------
Total $1,501,700 $1,366,100 $1,788,964 $1,719,201 $1,747,961 $1,694,536 $1,623,959
========== ========== ========== ========== ========== ========== ==========
Billed Electric Energy
Sales (Millions of kWh):
Residential 6,396 6,012 7,699 7,351 7,192 6,825 6,925
Commercial 4,905 4,680 6,219 6,089 5,711 5,474 5,460
Industrial 12,457 11,500 15,393 15,026 14,294 14,413 13,629
Governmental 329 231 311 297 296 302 295
--------- --------- --------- --------- --------- --------- ---------
Total retail 24,087 22,423 29,622 28,763 27,493 27,014 26,309
Sales for resale
Associated
companies 399 2,092 2,935 1,866 - - -
Non-associated
companies 1,714 1,744 2,212 1,650 666 540 1,049
--------- --------- --------- --------- --------- --------- ---------
Total Electric
Department 26,200 26,259 34,769 32,279 28,159 27,554 27,358
Steam
Department 1,367 1,308 1,742 1,659 1,597 1,722 1,711
--------- --------- --------- --------- --------- --------- ---------
Total 27,567 27,567 36,511 33,938 29,756 29,276 29,069
========== ========== ========== ========== ========== ========== ==========
</TABLE>
(1) 1994 includes the effects of the Company's reserve for rate refund.
Quarterly Financial Data
Operating Net Income
Revenues Operating Income (Loss)
------------- ------------------ --------------
1996:
First Quarter 456,631 65,075 (152,257)
Second Quarter 525,567 89,550 47,140
Third Quarter 592,130 107,440 90,965
<PAGE>
CAPITALIZATION
(Dollars in Thousands)
The following table sets forth the capitalization of the Company as
of September 30, 1996. The following data has been derived from and
should be read in conjunction with the Interim Financial Statements of
the Company and other financial information contained elsewhere in this
Prospectus.
As of September 30, 1996
Actual As Adjusted(1)
----------------------- ----------------
Amount Percent Amount Percent
Common Stock and Paid-in
Capital............. $ 1,266,744 31.8%
Retained Earnings...... 322,054 8.1
Total Common
Shareholder's Equity 1,588,798 39.9
Preference Stock 150,000 3.8
Preferred Stock (without
sinking fund). 136,444 3.4
Preferred Stock (with
sinking fund).......... 77,460 1.9
Company Obligated
Mandatorily Redeemable
Preferred Securities of
Subsidiary Trust (2).... -- --
First Mortgage Bonds (3) 1,489,611 37.4
Other Long-Term Debt (3) 540,683 13.6
Total Capitalization. $ 3,982,996 100.0%
(1) Adjusted to give effect to the consummation of the offering of the
Preferred Securities and the application of the estimated net proceeds
therefrom, together with general corporate funds, to redeem shares of
preferred stock. See "Use of Proceeds".
(2) As described herein, all of the assets of the Issuer will be
approximately $____ million of the Junior Subordinated Debentures
issued by the Company to the Issuer. The Junior Subordinated
Debentures will bear interest at the annual rate of ___% of the
principal amount thereof and will mature on ___________________. The
Company owns all of the Common Securities of the Issuer.
(3) Excludes current maturities of First Mortgage Bonds and Other
Long-Term Debt of $110.0 million and $50.9 million, respectively.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
DECEMBER 31, 1995
Cash Flows
The Company is involved in a capital-intensive business that
requires large investments in long-lived assets. While capital
expenditures for the construction of new generating capacity are not
currently planned, the Company does require significant capital
resources for the periodic maturity of debt and preferred stock and
ongoing construction expenditures. Net cash flow from operations
totaled $401 million, $326 million, and $ 255 million in 1995, 1994, and
1993, respectively. The Company's net cash flow from operations
increased in 1995 due to higher revenues and lower operation and
maintenance expenses. This increase was partially offset by a Texas
retail rate refund recorded in 1994 and paid in 1995.
Financing Sources
In recent years, cash flows of the Company, supplemented by cash on
hand, have been sufficient to meet substantially all investing and
financing requirements, including capital expenditures, dividends and
debt/preferred stock maturities. The Company's ability to fund these
capital requirements with cash from operations results, in part, from
continued efforts to streamline operations and reduce costs, as well as
from collections under rate phase-in plans that exceed current cash
requirements for the related costs. In the income statement, these
revenue collections are offset by the amortization of previously
deferred costs; therefore, there is no effect on net income.
The Company's phase-in plan for River Bend will expire in 1998. In
addition, the Company has the ability to meet future capital
requirements through future debt or preferred stock issuances, as
discussed below. Also, to the extent current market interest and
dividend rates allow, the Company may continue to refinance high-cost
debt and preferred stock prior to maturity. See Notes 5, 6, and 8 in
the Annual Financial Statements for additional information on the
Company's capital and refinancing requirements in 1996 - 2000.
The Company periodically reviews its capital structure to determine
its future needs for debt and equity financing. Certain agreements and
restrictions limit the amount of mortgage bonds and preferred stock that
can be issued by the Company. Based on the most restrictive applicable
tests as of December 31, 1995, and an assumed annual interest rate of
8.25%, the Company could have issued mortgage bonds in the amount of
$824 million. The Company was precluded from issuing preferred stock at
December 31, 1995.
In addition to these amounts, the Company has the ability, subject
to certain conditions, to issue approximately $600 million in bonds
against retired bond credits. In some cases, no earnings coverage test
is required. The Company has no earnings coverage limitations on the
issuance of preference stock. See Notes 5 and 6 in the Annual Financial
Statements for long-term debt and preferred stock issuances and
retirements. See Note 4 in the Annual Financial Statements for
information on the Company's short-term borrowings.
SIGNIFICANT FACTORS AND KNOWN TRENDS
Financing Requirements
See Notes 2 and 8 in the Annual Financial Statements regarding
River Bend rate appeals and litigation with Cajun. Adverse rulings in
the River Bend rate appeal could result in approximately $289 million of
potential write-offs (net of tax) and $182 million in refunds of
previously collected revenue. Such write-offs and charges, as well as
the application of Statement of Financial Accounting Standards ("SFAS")
121 (see Note 1 in the Annual Financial Statements ), could result in
substantial net losses being reported in the future by the Company, with
resulting adverse adjustments to common equity of the Company. Adverse
resolution of these matters could adversely affect the Company's ability
to obtain financing, which could in turn affect the Company's liquidity
and ability to pay dividends.
Competition and Industry Challenges
Electric utilities traditionally have operated as regulated
monopolies in which there was little opportunity for direct competition
in the provision of electric service. In return for the ability to
receive a reasonable return on and of their investments, utilities were
obligated to provide service and meet future customer requirements.
However, the electric utility industry is now undergoing a transition to
an environment of increased retail and wholesale competition.
Pressures that underlie the movement toward increasing competition
are numerous and complex. They include legislative and regulatory
changes, technological advances, consumer demands, greater availability
of natural gas, environmental needs, and other factors. The
increasingly competitive environment presents opportunities to compete
for new customers, as well as the risk of loss of existing customers.
Competition presents the Company with many challenges. The following
have been identified by the Company as its major competitive challenges.
The Energy Policy Act of 1992
The Energy Policy Act of 1992 ("EPAct") addresses a wide range of
energy issues and is being implemented by both the Federal Energy
Regulatory Commission ("FERC") and state regulators. The EPAct is
designed to promote competition among utility and non utility generators
by amending the Public Utility Holding Company Act of 1935, as amended,
("PUHCA") to exempt from regulation a class of Exempt Wholesale
Generators ("EWGs"), among others, consisting of utility affiliates and
non utilities that own and operate facilities for the generation and
transmission of power for sale at wholesale. The EPAct also gave FERC
the authority to order investor-owned utilities to transmit power and
energy to or for wholesale purchasers and sellers. This creates
potential for electric utilities and other power producers to gain
increased access to the transmission systems of other utilities to
facilitate wholesale sales.
In response to the EPAct, FERC issued a notice of proposed
rulemaking in mid-1994. This rulemaking concerns a regulatory
framework for dealing with recovery of costs that were prudently
incurred by electric utilities to serve customers under the traditional
regulatory framework. These costs may become "stranded" as a result of
increased competition. On March 29, 1995, FERC issued a supplemental
notice of proposed rulemaking in this proceeding that would require
public utilities to provide nondiscriminatory open access transmission
service to wholesale customers and would also provide guidance on the
recovery of wholesale and retail stranded costs. The risk of exposure
to stranded costs that may result from competition in the industry will
depend on the extent and timing of retail competition, the resolution of
jurisdictional issues concerning stranded cost recovery, and the extent
to which such costs are recovered from departing or remaining customers.
With regard to pending proceedings, including Entergy's open access
transmission tariff proceedings originally filed in 1991 and amended in
1994 and 1995, FERC directed the parties to proceed with their cases
while taking into account FERC's proposed rule. Comments and reply
comments on the proposed rulemaking have now been filed with FERC by
interested parties. Certain of the parties filing comments have
proposed that FERC should order the immediate unbundling of all retail
services as part of the final rulemaking in this proceeding, which is
expected in the second quarter of 1996. In its comments in the proposed
rulemaking, Entergy urged FERC to exercise its authority and
responsibility to serve as a "backstop" in the event a state is unable
or unwilling to provide for stranded-cost recovery -- particularly in
the case of multi-state utilities (such as Entergy and its
subsidiaries), where cost shifting among jurisdictions might otherwise
occur.
Retail and Wholesale Rate Issues
The Company has recently been ordered to grant base rate
reductions and has refunded or credited customers for previous
overcollections of rates. See Note 2 in the Annual Financial
Statements for additional discussion of rate reductions and incentive-
rate regulation.
In connection with the Merger consummated on December 31, 1993, by
which the Company became a subsidiary of Entergy (the "Merger"), the
Company agreed with the LPSC and the PUCT to a five-year rate cap on
retail electric rates, which is the level of the Company's retail
electric base rates in effect at December 31, 1993, for the Louisiana
retail jurisdiction, and the level of such rates in effect prior to the
settlement agreement with the PUCT on July 21, 1994, for the Texas
retail jurisdiction, which may not be exceeded before December 31, 1998
("Rate Cap"). Additionally, the Company agreed to pass through to
retail customers the fuel savings and a certain percentage of the
nonfuel savings created by the Merger. Under the terms of their
respective Merger agreements, the LPSC and PUCT have reviewed the
Company's base rates during the first post-Merger earnings analysis and
ordered rate reductions. See Note 2 in the Annual Financial Statements
for additional discussion of the Company's post-Merger filings with the
LPSC and the PUCT.
Potential Changes in the Electric Utility Industry
Retail wheeling, the transmission by an electric utility of energy
produced by another entity over the utility's transmission and
distribution system to a retail customer in the electric utility's area
of service, continues to evolve. Approximately 40 states including
Louisiana and Texas have initiated studies of the concept of retail
competition or are considering it as part of industry restructuring.
The PUCT is currently developing rules that will permit greater
wholesale electric competition in Texas, as mandated by the Texas
legislature in its 1995 session. These wholesale transmission access
rules are expected to be in place by the first quarter of 1996. In
addition, the PUCT is developing information to be contained in reports
that will be submitted to the 1997 legislature concerning broader
competitive issues such as the unbundling of electric utility
operations, market-based pricing, performance-based ratemaking, and the
identification and recovery of potential stranded costs as part of the
transition to a more competitive electric industry environment. This
information will be developed through a series of workshops and comments
by interested parties throughout 1996. In addition, during 1995, the
Texas legislature revised the Public Utility Regulatory Act, the law
regulating electric utilities in Texas. The revised law permits utility
and non-utility EWGs and power marketers to sell wholesale power in the
state. The revised law also permits the discounting of rates with
certain conditions, but does not change the current law governing retail
wheeling or the treatment of federal income taxes.
During the second quarter of 1995, the Louisiana legislature
considered a bill permitting local retail wheeling. The bill was
defeated, but similar bills are likely to be introduced in the future.
During the same time period, the LPSC initiated a generic docket to
investigate retail, wholesale, and affiliate wheeling of electricity.
Currently, no procedural schedule has been set for this docket.
During January 1996, a bill entitled the "Electric Power
Competition Act of 1996" was introduced into the United States House of
Representatives. The bill proposes to amend certain provisions under
Public Utility Regulatory Policies Act ("PURPA") for the purpose of
facilitating future deregulation of the electric power industry.
In some areas of the country, municipalities (or comparable
entities) whose residents are served at retail by an investor-owned
utility pursuant to a franchise, are exploring the possibility of
establishing new electric distribution systems, or extending existing
ones. In some cases, municipalities are also seeking new delivery
points in order to serve retail customers, especially large industrial
customers, which currently receive service from an investor-owned
utility. Where successful, however, the establishment of a municipal
system or the acquisition by a municipal system of a utility's customers
could result in the utility's inability to recover costs that it has
incurred for the purpose of serving those customers.
Significant Industrial Cogeneration Effects
Many of the Company's industrial customers, whose costs structures
are energy-sensitive, have energy alternatives available to them such as
fuel switching, cogeneration, and production shifting. Cogeneration is
generally defined as the combined production of electricity and some
other useful form of heat, typically steam. Cogenerated power may
either be sold by its producer to the local utility at its avoided cost
under PURPA, and/or utilized by the cogenerator to displace purchases
from the utility. To the extent that cogeneration is used by industrial
customers to meet their own power requirements, the Company may suffer
loss of industrial load. It is the practice of the Company to negotiate
the renewal of contracts with large industrial customers prior to their
expiration. In certain cases, contracts or special tariffs that use
flexible pricing have been negotiated with industrial customers to keep
these customers as the Company's customers. The pricing agreements are
not at fully allocated cost of service. Such rates may fully recover
all related costs, but provide only a minimal return, if any, on
investment. In 1995, kilowatt-hour ("kWh") sales to the Company's
industrial customers at less than full cost-of-service rates made up
approximately 27% of the Company's total industrial class sales.
Since PURPA was enacted in 1978, the Company has been largely
successful in retaining industrial load. The Company anticipates it
will be successful in renegotiating such contracts with large industrial
customers. However, this competitive challenge will likely increase.
There can be no assurance that the Company will be successful or that
future revenues will not be lost to other forms of generation.
Deregulated Utility Operations
The Company discontinued regulatory accounting principles for its
wholesale jurisdiction and steam department and the Louisiana
deregulated portion of River Bend during 1989 and 1991, respectively.
The operating income (loss) from these operations was $7.2 million in
1995, $(5.2) million in 1994, and $(2.9) million in 1993.
The increase in 1995 net income from deregulated operations was due
to increased revenues and reduced operation and maintenance expenses,
partially offset by increased depreciation. The larger net loss from
deregulated operations in 1994 was principally due to a smaller income
tax benefit. The future impact of the deregulated utility operations on
the Company's results of operations and financial position will depend
on future operating costs, the efficiency and availability of generating
units, and the future market for energy over the remaining life of the
assets. The Company expects the performance of its deregulated utility
operations to improve, due to continued reductions in operation and
maintenance expenses. The deregulated operations will be subject to the
requirements of SFAS 121, as discussed in Note 1 in the Annual Financial
Statements, in determining the recognition of any asset impairment.
Property Tax Exemptions
The Company is working with tax authorities to determine the
method for calculating the amount of property taxes to be paid once
River Bend's local property tax exemptions expire. River Bend's
exemption expires in December 1996.
Environmental Issues
The Company has been notified by the U. S. Environmental Protection
Agency ("EPA") that it has been designated as a Potentially Responsible
Party ("PRP") for the clean-up of certain hazardous waste disposal
sites. See Note 8 in the Annual Financial Statements for additional
information.
Accounting Issues
New Accounting Standard - In March 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS
121"), effective January 1, 1996. This standard describes circumstances
that may result in assets being impaired and provides criteria for
recognition and measurement of asset impairment. See Notes 1 and 2 in
the Annual Financial Statements for information regarding the potential
impacts of the new accounting standard on the Company.
Continued Application of SFAS 71 - As a result of the EPAct and
actions of regulatory commissions, the electric utility industry is
moving toward a combination of competition and a modified regulatory
environment. The Company's financial statements currently reflect, for
the most part, assets and costs based on current cost-based ratemaking
regulations in accordance with SFAS 71, "Accounting for the Effects of
Certain Types of Regulation" ("SFAS 71"). Continued applicability of
SFAS 71 to the Company's financial statements requires that rates set by
an independent regulator on a cost-of-service basis can actually be
charged to and collected from customers.
In the event that all or a portion of a utility's operations cease
to meet those criteria for various reasons, including deregulation, a
change in the method of regulation, or a change in the competitive
environment for the utility's regulated services, the utility should
discontinue application of SFAS 71 for the relevant portion. That
discontinuation should be reported by elimination from the balance sheet
of the effects of any actions of regulators recorded as regulatory
assets and liabilities.
Except for certain portions of the Company's business, as of
December 31, 1995, and for the foreseeable future, the Company's
financial statements continue to follow SFAS 71. See Note 1 in the
Annual Financial Statements for additional discussion of the Company's
application of SFAS 71.
Accounting for Decommissioning Costs - The staff of the Commission
has been reviewing the financial accounting practices of the electric
utility industry regarding the recognition, measurement, and
classification of nuclear decommissioning costs for nuclear generating
stations in the financial statements of electric utilities. In February
1996 the FASB issued an exposure draft of the proposed SFAS addressing
the accounting for decommissioning costs as well as liabilities related
to the closure and removal of all long-lived assets. See Note 8 in the
Annual Financial Statements for a discussion of proposed changes in the
accounting for decommissioning/closure costs and the potential impact of
these changes on the Company.
RESULTS OF OPERATIONS
December 31, 1995
Net Income
Net income increased in 1995 principally as the result of an
increase in electric operating revenues, a decrease in other operation
and maintenance expenses, and an increase in other income. These
changes were partially offset by higher income taxes.
Net income decreased in 1994 due primarily to write-offs and
charges associated with the resolution of contingencies and additional
Merger-related costs aggregating $137 million, a base rate reduction
ordered by the PUCT applied retroactively to March 1994, and
restructuring costs. See Note 2 and Note 11 in the Annual Financial
Statements for additional information.
Significant factors affecting the results of operations and causing
variances between the years 1995 and 1994, and 1994 and 1993, are
discussed under "Revenues and Sales", "Expenses", and "Other" below.
Revenues and Sales
See "SELECTED FINANCIAL DATA", for information on operating
revenues by source and kWh sales. The changes in electric operating
revenues for the twelve months ended December 31, 1995, are as follows:
Increase/
Description (Decrease)
--------------------- -------------
(In Millions)
Change in base $32.0
revenues
Fuel cost recovery (29.6)
Sales volume/weather 35.0
Other revenue 1.1
(including unbilled)
Sales for resale 31.3
-------
Total $69.8
=======
Electric operating revenues increased in 1995 primarily due to
increased sales volume/weather and higher sales for resale. These
increases were partially offset by lower fuel adjustment revenues, which
do not affect net income. Base revenues also increased in 1995 as a
result of rate refund reserves established in 1994, as discussed below,
which were subsequently reduced as a result of an amended PUCT order.
The increase in base revenues was partially offset by rate reductions in
effect for Texas and Louisiana. Sales volume/weather increased because
of warmer than normal weather and an increase in usage by all customer
classes. Sales for resale increased as a result of changes in
generation availability and requirements among the subsidiaries of
Entergy which include Entergy Arkansas, Inc., the Company, Entergy
Louisiana, Inc., Entergy Mississippi, Inc., and Entergy New Orleans,
Inc., (collectively referred to as the "Operating Companies").
Electric operating revenues decreased in 1994 due primarily to a
base rate reduction ordered by the PUCT applied retroactively to March
1994, see Note 2 in the Annual Financial Statements for additional
information, and lower retail fuel revenues partially offset by
increased wholesale revenues associated with higher sales for resale and
increased retail base revenue. The decrease in retail revenues is
primarily due to a decrease in fuel recovery revenue and a November 1993
rate reduction in Texas. Energy sales increased due primarily to higher
sales for resale as a result of the Company's participation in the
Entergy power pool, which includes Entergy and its various direct and
indirect subsidiaries (the "System").
Gas operating revenues decreased for 1995 primarily due to a
decrease in residential sales. This decrease was the result of a milder
winter than in 1994.
Expenses
Operating expenses decreased in 1995 as a result of lower other
operation and maintenance expenses and purchased power expenses,
partially offset by higher income taxes. Other operation and
maintenance expenses decreased primarily due to charges made in 1994 for
Merger-related costs, restructuring costs, and certain pre-acquisition
contingencies including unfunded Cajun-River Bend costs and
environmental clean-up costs. Purchased power expenses decreased
because of the availability of less expensive gas and nuclear fuel for
use in electric generation as well as changes in the generation
requirements among the Operating Companies. In addition, the decrease
in purchased power expenses in 1995 was the result of the recording of a
provision for refund of disallowed purchased power expenses in 1994.
Income taxes increased primarily due to higher pre-tax income in 1995.
Operating expenses increased in 1994 due primarily to higher
purchased power and other operation and maintenance expenses, partially
offset by lower fuel for electric generation and fuel-related expense
and lower income tax expense. Purchased power expenses increased in
1994 due to the Company's participation in joint dispatch through the
System power pool resulting from increased energy sales as discussed
above. The increase in purchased power expenses in 1994 was also due to
the recording of a provision for refund of disallowed purchased power
costs resulting from a Louisiana Supreme Court ruling. Fuel, fuel-
related expenses, and gas purchased for resale decreased in 1994
primarily due to lower gas prices.
Other operation and maintenance expenses increased in 1994 due
primarily to charges associated with certain pre-acquisition
contingencies, additional Merger-related costs and restructuring costs
as discussed in Note 11 in the Annual Financial Statements.
Income taxes decreased in 1994 due primarily to lower pretax income
resulting from the charges discussed above.
Other
Other miscellaneous income increased in 1995 as the result of
certain adjustments made in 1994 related to pre-acquisition
contingencies including Cajun-River Bend litigation (see Note 8 in the
Annual Financial Statements for additional information) the write-off
of previously disallowed rate deferrals, and plant held for future use.
As a result of these charges, income taxes on other income were
significantly higher in 1995 compared to 1994.
Other miscellaneous income decreased in 1994 due to the write-off
of plant held for future use, establishment of a reserve related to the
Cajun-River Bend litigation, the write-off of previously disallowed rate
deferrals, and obsolete spare parts. These charges were partially
offset by lower interest expense as a result of the continued
refinancing of high-cost debt.
Income taxes decreased in 1994 due primarily to the charges
discussed above.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
SEPTEMBER 30, 1996
Cash Flows
Net cash flow from operations for the Company was $263.4 million
and $344.3 million for the nine months ended September 30, 1996, and
1995, respectively. The Company's cash flow from operations decreased
for the nine months ended September 30, 1996, due to increased accounts
receivable balances resulting from higher energy sales, and greater
amounts of under-recovered fuel costs over the same period in 1995.
Financing Sources
The Company's current ability to fund most of the capital
requirements for its domestic utility businesses with cash from
operations results from continued efforts to streamline operations and
to reduce costs, as well as from collections under rate phase-in plans
that exceed current cash requirements for the related costs. In the
income statement, these revenue collections are offset by the
amortization of previously deferred costs so that there is no effect on
net income. These phase-in plans will continue to contribute to the
Company's cash position until 1998. Should additional cash be needed
for investing and financing requirements, the Company has the ability,
subject to regulatory approval and compliance with issuance tests, to
issue debt or preferred securities to meet such requirements, as
discussed below. In addition, to the extent market interest and
dividend rates allow, the Company will continue to refinance higher cost
debt and preferred stock prior to maturity.
The Company periodically reviews its capital structure to determine
its future needs for debt and equity financing. Certain agreements and
restrictions limit the amount of mortgage bonds and preferred stock that
can be issued by the Company. Based on the most restrictive applicable
tests and available retired bond credits as of September 30, 1996, and
an assumed annual interest rate of 8.5%, the Company could have issued
mortgage bonds in the amount of $867 million. The Company was precluded
from issuing preferred stock under its earnings coverage tests at
September 30, 1996. The Company has no earnings coverage limitations
on the issuance of preference stock.
The Company also has Commission authorization to effect short-term
borrowings. See Note 4 in the Annual Financial Statements for
information on the Company's short-term borrowing authorizations and
bank lines of credit.
Financing Uses
Due to its financial position, the Company has not paid common
stock dividends since the third quarter of 1994 and is not currently
expected to pay common stock dividends during the remainder of 1996.
Declarations of dividends on common stock are made at the discretion of
the Company's Board of Directors. See Note 7 in the Annual Financial
Statements for information on dividend restrictions.
See Notes 1 and 2 in the Interim Financial Statements regarding
the River Bend rate appeal and litigation with Cajun, including the
Cajun Settlement. An adverse ruling in this appeal could result in
approximately $280 million of potential write-offs (net of tax) and $199
million in refunds of previously collected revenue. Such write-offs and
charges could result in additional substantial net losses being reported
in the future by the Company, with resulting adverse adjustments to
common equity of the Company. Adverse resolution of these matters could
adversely affect the Company's' ability to obtain financing, which in
turn could affect its liquidity and ability to pay dividends.
SIGNIFICANT FACTORS AND KNOWN TRENDS
Competition and Industry Challenges
See "Management's Financial Discussion and Analysis - Significant
Factors and Known Trends" for the year ended December 31, 1995, for a
discussion of the increasing competitive pressures facing the Company
and the electric utility industry.
On April 24, 1996, the FERC issued Order No. 888 affirming its
initial proposal that all public utilities subject to its jurisdiction
provide comparable wholesale transmission access through the filing of a
single open access tariff. FERC established the minimum conditions that
must be included in such open access tariffs and also set forth certain
provisions concerning the structuring of transactions within power
pools, public utility holding companies, and bilateral coordination
arrangements. The rules took effect sixty days after they were
published in the Federal Register. In addition, FERC ruled that public
utilities are entitled to full recovery of prudently incurred costs
allocable to FERC jurisdictional customers. If the costs are stranded
by retail wheeling, public utilities should first seek recovery of these
costs from the appropriate state or local regulators.
Concurrent with the issuance of Order No. 888, FERC issued Order
No. 889 which prescribes the requirements and procedures for the
implementation and maintenance of an open access same-time information
system by each public utility. In addition, FERC issued a Notice of
Proposed Rulemaking concerning capacity reservation tariffs as the next
phase of FERC's efforts to promote wholesale competition. On July 9,
1996, Entergy filed, on behalf of its subsidiaries including the
Company, an open access proforma tariff.
On September 20, 1996, FERC issued an order revising the original
requirement in Order No. 889 that open access same-time information
service sites and Standards of Conduct be in place for all transmission
providers by November 1, 1996. The Commission has now scheduled a two-
step compliance procedure where the operation of open access same-time
information service sites must begin on a test basis starting on
December 2, 1996, with full commercial operations and compliance with
the Standards of Conduct to begin January 3, 1997.
As discussed in "Management's Financial Discussion And Analysis -
Significant Factors And Known Trends" for the year ended December 31,
1995, Entergy proposed that FERC serve in a federal "back-stop" role for
wholesale stranded cost recovery in a holding company or other multi-
state situation. FERC's final rule in Order No. 888 recognized that
denial of retail stranded cost recovery by a state regulatory authority
could inappropriately shift the disallowed costs to affiliated operating
companies in other states. FERC encouraged the affected state
regulators in such situations to seek a mutually agreeable approach to
this potential problem. If the approach results in a filing to modify a
jurisdictional agreement, FERC could agree with such a proposal,
particularly if other interested parties support the filing. In the
event the state or local regulators cannot reach a consensus, FERC would
ultimately have to resolve the appropriate treatment of such stranded
costs.
The Company has initiated discussions with its state and local
(Texas Cities) regulators regarding an orderly transition to a more
competitive market for electricity.
On October 5, 1996, the Company filed a proposal with the LPSC
designed to achieve an orderly transition to retail electric competition
in Louisiana, while protecting certain classes of ratepayers from
unfairly bearing the burden of cost shifting. The proposal does not
increase rates for any customer class. However, the proposal does
provide for a universal service charge for customers that remain
connected to the Company's electric facilities and choose to purchase
their electricity from another source. In addition, the proposal
includes a base rate freeze, which would be put into effect for seven
years in the Louisiana areas serviced by the Company. This proposal
also allows for the complete amortization of the remaining plant
investment associated with River Bend over a seven year period.
Retail and Wholesale Rate Issues
See Note 2 in the Annual Financial Statements for a discussion of
the ongoing trend of regulatory-ordered rate reductions including recent
LPSC orders for the Company.
Potential Changes in the Electric Utility Industry
Refer to "Management's Financial Discussion and Analysis -
Significant Factors And Known Trends" for the year ended December 31,
1995 for a discussion of legislative and regulatory developments
relating to the potential for retail competition in the areas served by
the Company.
Significant Industrial Cogeneration Effects
The development of proposals for cogeneration projects by certain
industrial customers of the Company over the last several years has
caused the Company to develop and secure approval for rate tariffs lower
than those previously approved by the PUCT and the LPSC for such
industrial customers. In certain cases, contracts or special tariffs
that use flexible pricing have been negotiated with industrial customers
to keep these customers as the Company's customers. The contracts and
tariffs are not at fully allocated cost-of-service rates. Although the
rates fully recover operating expenses and depreciation, they provide no
more than a minimal return on investment. During the nine months ended
September 30, 1996, kWh sales to industrial customers of the Company at
less than fully allocated cost-of-service rates made up approximately
30% of total industrial sales.
Deregulated Utility Operations
The Company discontinued regulatory accounting principles in 1989
for its wholesale jurisdiction and steam department and in 1991 for the
Louisiana deregulated portion of River Bend. The recent improving trend
in net income from these operations continued during the three months
and nine months ended September 30, 1996, when the related operating
income was $3.3 million and $11.3 million, respectively, compared to
$1.2 million for the fiscal year ended 1995.
The improvement in net income from deregulated operations in the
three months and nine months ended September 30, 1996, was principally
due to increased revenues, partially offset by increased income taxes.
The future impact of the deregulated utility operations on the Company's
results of operations and financial position will depend on future
operating costs, future efficiency and availability of generating units,
and future market prices for energy over the remaining life of the
assets. The Company expects the performance of its deregulated utility
operations to continue to improve due to ongoing reductions in operation
and maintenance expenses.
Property Tax Exemptions
As discussed in "Management's Financial Discussion And Analysis -
Significant Factors And Known Trends" for the year ended December 31,
1995, River Bend's local property tax exemption will expire in December
1996. The Company is working with tax authorities to determine the
method for calculating the amount of property taxes to be paid when
River Bend's local property tax exemption expires in December 1996.
Environmental Issues
The Company has been notified by the EPA that it has been
designated as a PRP for the clean-up of certain hazardous waste disposal
sites. See Note 1 in the Annual Financial Statements for additional
information.
Accounting Issues
Continued Application of SFAS 71 - As a result of the EPAct, the
actions of regulatory commissions, and other factors, the electric
utility industry is moving toward a combination of competition and a
modified regulatory environment. The Company's financial statements
currently reflect, for the most part, assets and costs based on existing
cost-based ratemaking regulations in accordance with SFAS 71. Continued
applicability of SFAS 71 to the Company's financial statements requires
that rates set by an independent regulator on a cost-of-service basis be
charged to and collected from customers.
In the event that all or a portion of a utility's operations cease
to meet those criteria for various reasons, including deregulation, a
change in the method of regulation, or a change in the competitive
environment for the utility's regulated services, the utility shall
discontinue application of SFAS 71 for the relevant portion of its
operations by eliminating from the balance sheet the effects of any
actions of regulators recorded as regulatory assets and liabilities.
The Company's financial statements continue to follow SFAS 71 for
their regulated operations, except for those portions of the Company's
business described in "Deregulated Utility Operations" above.
Accounting for Decommissioning Costs - In February 1996, the FASB
issued an exposure draft of a proposed SFAS addressing the accounting
for decommissioning costs of nuclear generating units as well as
liabilities related to the closure and removal of all long-lived assets.
See Note 1 in the Interim Financial Statements for a discussion of
proposed changes in the accounting for decommissioning/closure costs and
the potential impact of these changes on the Company.
_______________________________________________
Investors are cautioned that forward-looking statements contained herein
with respect to the revenues, earnings, competitive performance, or
other prospects for the business of the Company may be influenced by
factors that could cause actual outcomes and results to be materially
different than projected. Such factors include, but are not limited to,
the effects of weather, the performance of generating, units, fuel
prices and availability, regulatory decisions and the effects of changes
in law, capital spending requirements, the evolution of competition,
changes in accounting standards, and other factors.
<PAGE>
RESULTS OF OPERATIONS
September 30, 1996
Net Income
Net income increased for the three months ended September 30, 1996,
primarily due to the reversal of an accrual for the Cajun-River Bend
litigation. In September 1994, the Company recorded a reserve for the
anticipated costs of the Cajun-River Bend litigation. Based on the
Bankruptcy Court's approval of the settlement (refer to Note 1 in the
Interim Financial Statements ), the litigation accrual was reversed
resulting in miscellaneous income. Excluding the effects of the
reversal of the litigation reserve, net income for the three months
ended September 30, 1996 would have decreased approximately 11% due to
an increase in other operation and maintenance expenses and other
interest expense.
Net income decreased for the nine months ended September 30, 1996,
due to the $174 million net of tax write-off of River Bend rate
deferrals required by the adoption of SFAS 121. Excluding the write-off
and the third quarter reversal of the Cajun-River Bend litigation
accrual, net income for the nine months ended September 30, 1996, would
have increased due to reduced other operation and maintenance expenses.
Significant factors affecting the results of operations and causing
variances between the three months and nine months ended September 30,
1996, and 1995 are discussed under "Revenues and Sales," "Expenses," and
"Other" below.
Revenues and Sales
The changes in electric operating revenues for the three months and
nine months ended September 30, 1996, are as follows:
Three Nine
Months Months
Ended Ended
Description Increase/ Increase/
(Decrease) (Decrease)
- ----------------------- --------------------- -------------------
Change in base revenues ($11.2) ($30.4)
Fuel cost recovery 44.1 135.4
Sales volume/weather 13.8 60.2
Other revenue (including
unbilled) 4.0 (8.3)
Sales for resale (3.6) (21.3)
------- -------
Total $47.1 $135.6
======= =======
Electric operating revenues increased for the three months and nine
months ended September 30, 1996, as a result of higher fuel adjustment
revenues, which do not affect net income, increased number of customers,
and increased customer usage. These increases were partially offset by
a rate reduction ordered for Texas in 1995 and lower sales for resale to
associated companies, due to changing generation availability and
requirements among the operating companies of Entergy.
Gas operating revenues and steam operating revenues increased for
the three months and nine months ended September 30, 1996, primarily due
to higher fuel prices and increased usage.
Expenses
Operating expenses increased for the three months and nine months
ended September 30, 1996, as a result of higher fuel expenses, including
purchased power, and higher income taxes. Fuel and purchased power
expenses, taken together, increased because of higher gas prices. In
addition, increased energy requirements resulting from higher energy
sales contributed to the increase in fuel and purchased power for the
nine months ended September 30, 1996. Income taxes increased primarily
due to higher pre-tax income, excluding the net effect of the write-off
of River Bend rate deferrals discussed below. For the three months
ended September 30, 1996, other operation and maintenance expenses
increased as a result of increased litigation reserves and higher lease
expenses relating to computer equipment. These increases were partially
offset by lower payroll-related expenses due to employee attrition.
Other operation and maintenance expenses decreased for the nine months
ended September 30, 1996, principally due to lower payroll-related
expenses associated with restructuring programs recorded in 1995.
Other interest charges increased for the three months and nine
months ended September 30, 1996 due to interest charges recorded in
connection with a fuel cost refund.
Other
Other income increased for the three months ended September 30,
1996, due to the reversal of the Cajun-River Bend litigation accrual, as
discussed above.
Other income decreased for the nine months ended September 30,
1996, primarily due to the write-off of River Bend rate deferrals
pursuant to the adoption of SFAS 121, which became effective January 1,
1996. See Note 2 in the Interim Financial Statements for further
discussion. This decrease was partially offset by the reversal of the
Cajun-River Bend litigation accrual, as discussed above.
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer
will be included in the consolidated financial statements of the
Company. The Preferred Securities will be presented as a separate line
item in the consolidated balance sheet of the Company entitled "Company
Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trust Holding Solely Company Junior Subordinated Deferrable Debentures"
and appropriate disclosures about the Preferred Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the
notes to the consolidated financial statements. For financial reporting
purposes, the Company will record Distributions payable on the Preferred
Securities as an expense.
USE OF PROCEEDS
All of the proceeds from the sale of the Preferred Securities will
be invested by the Issuer in the Junior Subordinated Debentures. The
Company intends to use the proceeds from the sale of such Junior
Subordinated Debentures, together with general corporate funds, to
redeem shares of its outstanding preferred stock. The series of
preferred stock that may be redeemed are as follows: $35 million in
aggregate par value of the Company's 9.96 % Preferred Stock and $50
million in aggregate par value of the Company's 8.52% Preferred Stock.
DESCRIPTION OF THE PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement, the Issuer will issue
the Preferred Securities and the Common Securities. The Preferred
Securities will represent preferred undivided beneficial interests in
the assets of the Issuer and the holders thereof will be entitled to a
preference in certain circumstances with respect to Distributions and
amounts payable on redemption or liquidation over the Common Securities
of the Issuer, as well as other benefits as described in the Trust
Agreement. This summary of certain provisions of the Trust Agreement
does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Trust Agreement,
including the definitions therein of certain terms, and the Trust
Indenture Act. Wherever particular defined terms of the Trust Agreement
are referred to, such defined terms are incorporated herein by
reference. The form of the Trust Agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus forms a part.
General
The Preferred Securities of the Issuer will rank pari passu and
payments will be made thereon pro rata with the Common Securities of the
Issuer except as described under "--Subordination of Common Securities".
Legal title to the Junior Subordinated Debentures will be held by the
Property Trustee in trust for the benefit of the holders of the
Preferred Securities and Common Securities. The Company has, through
the Guarantee, the Trust Agreement, the Junior Subordinated Debentures,
the Indenture and the Expense Agreement, taken together, fully,
irrevocably and unconditionally guaranteed all of the Issuer's
obligations under the Preferred Securities.
Distributions
Distributions on each Preferred Security will be payable at the rate
of ___% per annum of the stated Liquidation Preference Amount of $25,
payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year. Distributions that are in arrears for more
than one quarter will accumulate additional Distributions thereon at the
rate of _____% per annum thereof, compounded quarterly ("Additional
Amounts"). The term "Distributions" as used herein shall include any
such Additional Amounts. Distributions will accumulate from
____________, 1997, the date of original issuance. The first
Distribution payment date for the Preferred Securities will be _______
__, 1997. The amount of Distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
So long as no Debenture Event of Default under the Indenture has
occurred and is continuing, the Company has the right under the
Indenture to defer the payment of interest on the Junior Subordinated
Debentures at any time and from time to time, for one or more Extension
Periods, each of which, together with all previous and further
extensions of such Extension Period prior to its termination, may not
exceed 20 consecutive quarters and may not extend beyond the maturity of
the Junior Subordinated Debentures. As a consequence of any such
election, quarterly Distributions on the Preferred Securities would be
deferred (but would continue to accumulate additional Distributions
thereon at the rate of ___% per annum, compounded quarterly) by the
Issuer during any such Extension Period. In the event that the Company
exercises this right, during any such Extension Period, the Company may
not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of
the Company's capital stock or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities (including other Indenture Debentures (as defined herein))
that rank pari passu with or junior in interest to the Junior
Subordinated Debentures or make any guarantee payments with respect to
the foregoing (other than (a) dividends or distributions in common stock
of the Company and (b) payments under the Guarantee and all other
guarantees issued by the Company with respect to any preferred
securities issued by any trust, partnership or other entity which is a
financing vehicle of the Company). Upon the termination of any such
Extension Period and the payment of all amounts then due, the Company
may elect to begin a new Extension Period, subject to the above
requirements. See "Description of the Junior Subordinated Debentures--
Option to Extend Interest Payment Period" and "Certain United States
Federal Income Tax Considerations--Potential Extension of Interest
Payment Period and Original Issue Discount".
The Company has no current intention of exercising its right to
defer payments of interest by extending the interest payment period on
the Junior Subordinated Debentures.
In the event that any date on which Distributions are payable on the
Preferred Securities is not a Business Day (as defined below), payment
of the Distributions payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day
is in the next succeeding calendar year, payment of such Distributions
shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date (each date on
which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). A "Business Day" shall mean any day other than a
Saturday or a Sunday, or a day on which banking institutions in The City
of New York are authorized or required by law or executive order to
remain closed or a day on which the corporate trust office of the
Property Trustee or the Debenture Trustee is closed for business.
It is anticipated that the revenue of the Issuer available for
distribution to holders of its Preferred Securities will be limited to
payments under the Junior Subordinated Debentures in which the Issuer
will invest the proceeds from the issuance and sale of its Preferred
Securities and its Common Securities. See "Description of the Junior
Subordinated Debentures". If the Company does not make interest
payments on the Junior Subordinated Debentures, the Property Trustee
will not have funds available to pay Distributions on the Preferred
Securities. The payment of Distributions (if and to the extent the
Issuer has funds available for the payment of such Distributions and
cash sufficient to make such payments) is guaranteed by the Company on a
limited basis as set forth herein under "Description of the Guarantee".
Distributions on the Preferred Securities of the Issuer will be
payable to the holders of record thereof as they appear on the register
of the Issuer on the relevant record dates, which, as long as the
Preferred Securities remain in book-entry only form, will be one
Business Day prior to the relevant Distribution Date. Subject to any
applicable laws and regulations and the provisions of the Trust
Agreement, each such payment will be made as described under
"--Book-Entry Issuance". In the event any Preferred Securities are not
in book-entry only form, the relevant record date for such Preferred
Securities shall be the date 15 days prior to the relevant Distribution
Date.
Redemptions
Mandatory Redemption. Upon the repayment or redemption, in whole
or in part, of the Junior Subordinated Debentures, whether at maturity
or upon earlier redemption as provided in the Indenture, the proceeds
from such repayment or redemption shall be applied by the Property
Trustee to redeem a Like Amount of the Preferred Securities, upon not
less than 30 nor more than 60 days notice to each holder of Preferred
Securities at its registered address, at a Redemption Price equal to the
aggregate Liquidation Preference Amount of the Preferred Securities plus
accumulated and unpaid Distributions thereon to the Redemption Date.
Optional Redemption of Junior Subordinated Debentures. The Company
will have the right to redeem the Junior Subordinated Debentures on or
after ___________, 2002, in whole at any time or in part from time to
time, at a redemption price equal to the accrued and unpaid interest on
the Junior Subordinated Debentures so redeemed to the date fixed for
redemption plus 100% of the principal amount thereof and thereby cause a
mandatory redemption of a Like Amount of Preferred Securities at the
Redemption Price. See "Description of the Junior Subordinated
Debentures--Redemption."
Special Event Redemption or Distribution of Junior Subordinated
Debentures. If a Special Event in respect of the Preferred Securities
and Common Securities shall occur and be continuing, the Company has the
right to redeem the Junior Subordinated Debentures at any time in whole
(but not in part) at a redemption price equal to the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date
fixed for redemption plus 100% of the principal amount thereof, and
thereby cause a mandatory redemption of the Preferred Securities and
Common Securities in whole (but not in part) at the Redemption Price
within 90 days following the occurrence of such Special Event.
Whether or not a Special Event has occurred, the Company has the
right, at any time, to terminate the Issuer and, after satisfaction of
liabilities to creditors of the Issuer, if any, as provided by
applicable law, cause the Junior Subordinated Debentures to be
distributed to the holders of the Preferred Securities and Common
Securities in liquidation of the Issuer. Under current United States
federal income tax law, provided the Issuer is treated as a "grantor
trust" at the time of such distribution, such distribution would not be
a taxable event to holders of the Preferred Securities. See "Certain
United States Federal Income Tax Considerations -- Receipt of the Junior
Subordinated Debentures or Cash Upon Liquidation of the Issuer". If the
Company does not elect any of the options described above, the Preferred
Securities will remain outstanding and, in the event a Tax Event has
occurred and is continuing, Additional Interest (as described under
"Description of the Junior Subordinated Debentures -- Certain Covenants
of the Company") will be payable on the Junior Subordinated Debentures.
See "--Liquidation Distribution Upon Termination", "Description of the
Junior Subordinated Debentures -- Redemption" and " -- Distribution of
the Junior Subordinated Debentures".
"Tax Event" means the receipt by the Issuer or the Company of an
Opinion of Counsel experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof
or therein affecting taxation, or as a result of any official
administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after
the date of issuance of the Preferred Securities by the Issuer under the
Trust Agreement, there is more than an insubstantial risk that (i) the
Issuer is, or will be within 90 days of the date thereof, subject to
United States Federal income tax with respect to income received or
accrued on the Junior Subordinated Debentures, (ii) interest payable by
the Company on the Junior Subordinated Debentures is not, or within 90
days of the date thereof, will not be, deductible by the Company, in
whole or in part, for United States Federal income tax purposes, or
(iii) the Issuer is, or will be within 90 days of the date thereof,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
"Investment Company Event" means the occurrence of a change in law
or regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law") to the effect that the
Issuer is or will be considered an "investment company" that is required
to be registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), which Change in 1940 Act Law becomes
effective on or after the date of original issuance of the Preferred
Securities.
"Special Event' means the occurrence of a Tax Event or an Investment
Company Event.
"Like Amount" means (i) with respect to a redemption of any
Preferred Securities, Preferred Securities and Common Securities having
a Liquidation Preference Amount equal to that portion of the principal
amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Indenture and the proceeds of which will
be used to pay the Redemption Price of such Preferred Securities and
Common Securities, and (ii) with respect to a distribution of Junior
Subordinated Debentures to holders of the Preferred Securities in
connection with a termination and liquidation of the Issuer, Junior
Subordinated Debentures having a principal amount equal to the
Liquidation Preference Amount of the Preferred Securities of the holder
to whom such Junior Subordinated Debentures are distributed.
"Liquidation Preference Amount" means the stated amount of $25 per
Preferred Security and Common Security.
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures for the Preferred Securities (i) the Preferred
Securities will no longer be deemed to be outstanding, (ii) DTC or its
nominee, as the record holder of the Preferred Securities, will receive
a registered global certificate or certificates representing the Junior
Subordinated Debentures to be delivered upon such distribution, (iii)
the Company will use its reasonable efforts to list the Junior
Subordinated Debentures on the NYSE or such other exchanges or other
organizations, if any, on which the Preferred Securities are then listed
or traded and (iv) any certificates representing the Preferred
Securities not held by DTC or its nominee will be deemed to represent
the Junior Subordinated Debentures having a principal amount equal to
the stated liquidation preference of the Preferred Securities, and
bearing accrued and unpaid interest in an amount equal to the accrued
and unpaid Distributions on the Preferred Securities until such
certificates are presented to the Administrative Trustees or their agent
for transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed
in exchange for the Preferred Securities if a termination and
liquidation of the Issuer were to occur. Accordingly, the Preferred
Securities that an investor may purchase, or the Junior Subordinated
Debentures that the investor may receive upon termination and
liquidation of the Issuer, may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby.
Redemption Procedures
Preferred Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of the Junior Subordinated Debentures.
Redemptions of the Preferred Securities shall be made and the Redemption
Price shall be payable on each Redemption Date only to the extent that
the Issuer has funds on hand available for the payment of such
Redemption Price. See also "--Subordination of Common Securities".
If the Issuer gives a notice of redemption in respect of the
Preferred Securities, then, by 12:00 noon, New York City time, on the
Redemption Date, to the extent funds are available, the Property Trustee
will deposit irrevocably with DTC funds sufficient to pay the applicable
Redemption Price and will give DTC irrevocable instructions and
authority to pay the Redemption Price to the holders of such Preferred
Securities. See "--Book-Entry Issuance". If the Preferred Securities
are no longer in book-entry form, the Issuer, to the extent funds are
available, will irrevocably deposit with the paying agent for the
Preferred Securities funds sufficient to pay the applicable Redemption
Price and will give such paying agent irrevocable instructions and
authority to pay the Redemption Price to the holders thereof upon
surrender of their certificates evidencing such Preferred Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Preferred Securities called for redemption shall
be payable to the holders of such Preferred Securities as of the
relevant record dates for the related Distribution Dates. If notice of
redemption shall have been given and funds deposited as required, then
upon the date of such deposit, all rights of the holders of such
Preferred Securities so called for redemption will cease, except the
right of the holders of such Preferred Securities to receive the
Redemption Price, but without interest on such Redemption Price, and
such Preferred Securities will cease to be outstanding. In the event
that any date fixed for redemption of Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay),
except that, if such Business Day falls in the next succeeding calendar
year, such payment will be made on the immediately preceding Business
Day. In the event that payment of the Redemption Price in respect of
Preferred Securities called for redemption is improperly withheld or
refused and not paid either by the Issuer or by the Company pursuant to
the Guarantee as described under "Description of the Guarantee",
Distributions on the Preferred Securities will continue to accrue at the
then applicable rate, from the Redemption Date originally established by
the Issuer for such Preferred Securities to the date such Redemption
Price is actually paid, in which case the actual payment date will be
the date fixed for redemption for purposes of calculating the Redemption
Price.
Subject to applicable law (including, without limitation, United
States Federal securities law), the Company or its subsidiaries may at
any time and from time to time purchase outstanding Preferred Securities
by tender, in the open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Junior Subordinated Debentures to holders of Preferred
Securities shall be made to the applicable recordholders thereof as they
appear on the register for the Preferred Securities as of the relevant
record date, which shall be one Business Day prior to the relevant
Redemption Date or liquidation date, as applicable; provided, however,
that in the event that the Preferred Securities are not in book-entry
form, the relevant record date for the Preferred Securities shall be the
date 15 days prior to the Redemption Date or liquidation date, as
applicable.
If less than all of the Preferred Securities and Common Securities
are to be redeemed on a Redemption Date, then the aggregate Liquidation
Preference Amount of such Preferred Securities and Common Securities to
be redeemed shall be allocated pro rata among the Preferred Securities
and the Common Securities. The particular Preferred Securities to be
redeemed shall be selected on a pro rata basis not more than 60 days
prior to the Redemption Date by the Property Trustee from the
outstanding Preferred Securities not previously called for redemption,
by such method as the Property Trustee shall deem fair and appropriate
and which may provide for the selection for redemption of portions
(equal to $25 or an integral multiple of $25 in excess thereof) of the
Liquidation Preference Amount of Preferred Securities of a denomination
larger than $25. The Property Trustee shall promptly notify the
transfer agent and registrar in writing of the Preferred Securities
selected for redemption and, in the case of any Preferred Securities
selected for partial redemption, the aggregate Liquidation Preference
Amount thereof to be redeemed. For all purposes of the Trust Agreement,
unless the context otherwise requires, all provisions relating to the
redemption of Preferred Securities shall relate, in the case of any
Preferred Securities redeemed or to be redeemed only in part, to the
portion of the aggregate Liquidation Preference Amount of Preferred
Securities which has been or is to be redeemed.
Subordination of Common Securities
Payment of Distributions (including Additional Amounts, if
applicable) on, and the Redemption Price of, the Preferred Securities
and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Preference Amount of such Preferred Securities and
Common Securities; provided, however, that if on any Distribution Date
or Redemption Date, any Event of Default resulting from a Debenture
Event of Default shall have occurred and be continuing, no payment of
any Distribution (including Additional Amounts, if applicable) on, or
Redemption Price of, any of the Common Securities, and no other payment
on account of the redemption, liquidation or other acquisition of the
Common Securities, shall be made unless payment in full in cash of all
accumulated and unpaid Distributions (including Additional Amounts, if
applicable) on all of the outstanding Preferred Securities for all
Distribution periods terminating on or prior thereto, or in the case of
payment of the Redemption Price the full amount of such Redemption Price
on all of the outstanding Preferred Securities, shall have been made or
provided for, and all funds available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions
(including Additional Amounts, if applicable) on, or Redemption Price
of, the Preferred Securities then due and payable.
In the case of any Event of Default resulting from a Debenture Event
of Default, the Company, as holder of the Common Securities, will be
deemed to have waived any right to act with respect to any such Event of
Default under the Trust Agreement until the effect of all such Events of
Default with respect to the Preferred Securities have been cured, waived
or otherwise eliminated. Until any such Events of Default under the
Trust Agreement with respect to the Preferred Securities have been so
cured, waived or otherwise eliminated, the Property Trustee shall act
solely on behalf of the holders of the Preferred Securities and not on
behalf of the Company as holder of the Common Securities, and only the
holders of the Preferred Securities will have the right to direct the
Property Trustee to act on their behalf.
Liquidation Distribution upon Termination
Pursuant to the Trust Agreement, the Issuer shall automatically
terminate upon expiration of its term and shall be terminated on the
first to occur of: (i) the occurrence of certain events of bankruptcy,
dissolution or liquidation of the Company; (ii) the delivery of written
direction to the Property Trustee to terminate the Issuer (which
direction is optional and wholly within the discretion of the Company as
Depositor of the Issuer) (see "-- Redemptions--Special Event Redemption
or Distribution of Junior Subordinated Debentures"); (iii) the
redemption of all of the Preferred Securities as described under "--
Redemptions -- Mandatory Redemption"; and (iv) an order for the
termination of the Issuer shall have been entered by a court of
competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or
(iv) above, the Issuer shall be liquidated by the Issuer Trustees as
expeditiously as the Issuer Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the
Issuer, if any, as provided by applicable law, to the holders of such
Preferred Securities and Common Securities a Like Amount of the Junior
Subordinated Debentures, unless such distribution is determined by the
Property Trustee not to be practical, in which event the holders will be
entitled to receive out of the assets of the Issuer available for
distribution to holders, after satisfaction of liabilities to creditors
of the Issuer, if any, as provided by applicable law, an amount equal
to, in the case of holders of Preferred Securities, the aggregate of the
Liquidation Preference Amount plus accumulated and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). See "Description of the Junior Subordinated Debentures-
- -Distribution of the Junior Subordinated Debentures". If such
Liquidation Distribution can be paid only in part because the Issuer has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Issuer on the
Preferred Securities shall be paid on a pro rata basis. The holder(s)
of the Common Securities will be entitled to receive distributions upon
any such liquidation pro rata with the holders of the Preferred
Securities, except that if a Debenture Event of Default has occurred and
is continuing, the Preferred Securities shall have a priority over the
Common Securities.
Liquidation Value
The amount payable on the Preferred Securities in the event of any
liquidation of the Issuer is $25 per Preferred Security plus accumulated
and unpaid Distributions, unless, subject to certain exceptions, in
connection with such liquidation, the Junior Subordinated Debentures are
distributed to the holders of the Preferred Securities. See "--
Liquidation Distribution upon Termination".
Events of Default; Notice
Any one of the following events constitutes an "Event of Default"
under the Trust Agreement (an "Event of Default") (whatever the reason
for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the
Indenture (see "Description of the Junior Subordinated Debentures--
Debenture Events of Default"); or
(ii) default by the Issuer in the payment of any Distribution
when it becomes due and payable, and continuation of such default
for a period of 30 days; or
(iii) default by the Issuer in the payment of any Redemption
Price of any Preferred Security or Common Security when it becomes
due and payable; or
(iv) default in the performance, or breach, in any material
respect, of any covenant or warranty of the Issuer Trustees in the
Trust Agreement (other than a covenant or warranty a default in the
performance of which or the breach of which is dealt with in clause
(ii) or (iii) above), and continuation of such default or breach for
a period of 60 days after there has been given, by registered or
certified mail, to the defaulting Issuer Trustee or Trustees by the
holders of at least 10% in aggregate Liquidation Preference Amount
of the outstanding Preferred Securities, a written notice specifying
such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" under the Trust Agreement;
or
(v) the occurrence of certain events of bankruptcy with respect
to the Issuer.
Within five Business Days after the occurrence of any Event of
Default known to the Property Trustee, the Property Trustee shall
transmit notice of such Event of Default to the holders of the Preferred
Securities, the Administrative Trustees and the Company, as depositor,
unless such Event of Default shall have been cured or waived. The
Company, as depositor, and the Administrative Trustees are required to
file annually with the Property Trustee a certificate as to whether or
not they are in compliance with all the conditions and covenants
applicable to them under the Trust Agreement.
If a Debenture Event of Default with respect to the Junior
Subordinated Debentures has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities upon
termination of the Issuer as described above. See "--Liquidation
Distribution upon Termination".
Removal of Issuer Trustees
Unless a Debenture Event of Default with respect to the Junior
Subordinated Debentures shall have occurred and be continuing, any
Issuer Trustee may be removed at any time by the holder of the Common
Securities. If such a Debenture Event of Default has occurred and is
continuing, the Property Trustee and the Delaware Trustee may be removed
at such time by the holders of a majority in aggregate Liquidation
Preference Amount of the outstanding Preferred Securities. In no event
will the holders of the Preferred Securities have the right to vote to
appoint, remove or replace the Administrative Trustees, which voting
rights are vested exclusively in the Company as the holder of the Common
Securities. No resignation or removal of an Issuer Trustee and no
appointment of a successor trustee shall be effective until the
acceptance of appointment by a successor trustee in accordance with the
provisions of the Trust Agreement.
Co-trustees and Separate Property Trustee
Unless an Event of Default shall have occurred and be continuing, at
any time or times, for the purpose of meeting the legal requirements of
the Trust Indenture Act or of any jurisdiction in which any part of the
applicable Trust Property may at the time be located, the Company, as
the holder of the Common Securities, and the Property Trustee shall have
the power to appoint one or more persons either to act as a co-trustee,
jointly with the Property Trustee, of all or any part of such Trust
Property, or to act as separate trustee of any such property, in either
case with such powers as may be provided in the instrument of
appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject
to the provisions of the Trust Agreement. In case a Debenture Event of
Default with respect to the Junior Subordinated Debentures has occurred
and is continuing, the Property Trustee alone shall have power to make
such appointment.
Merger or Consolidation of Issuer Trustees
Any entity into which the Property Trustee, the Delaware Trustee or
any Administrative Trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any entity resulting
from any merger, conversion or consolidation to which such Trustee shall
be a party, or any entity succeeding to all or substantially all the
corporate trust business of such Trustee, shall be the successor of such
Trustee under the Trust Agreement, provided such entity shall be
otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Issuer
The Issuer may not merge with or into, consolidate, amalgamate, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except
as described below or as otherwise described in the Trust Agreement.
The Issuer may, at the request of the Company, with the consent of the
Administrative Trustees and without the consent of the holders of the
Preferred Securities, merge with or into, consolidate, amalgamate, be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws
of any State; provided, that (i) such successor entity either (a)
expressly assumes all of the obligations of the Issuer with respect to
the Preferred Securities or (b) substitutes for the Preferred Securities
other securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Preferred Securities rank in priority
with respect to distributions and payments upon liquidation, redemption
and otherwise, (ii) the Company expressly appoints a trustee of such
successor entity possessing substantially the same powers and duties as
the Property Trustee as the holder of the Junior Subordinated
Debentures, (iii) the Successor Securities are listed or traded, or any
Successor Securities will be listed or traded upon notification of
issuance, on any national securities exchange or other organization on
which the Preferred Securities are then listed, if any, (iv) such
merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not cause the Preferred Securities (including any
Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders
of the Preferred Securities (including any Successor Securities) in any
material respect, (vi) such successor entity has a purpose substantially
identical to that of the Issuer, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease,
the Company has received an opinion from independent counsel to the
Issuer experienced in such matters to the effect that (a) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease
does not adversely affect the rights, preferences and privileges of the
holders of the Preferred Securities (including any Successor Securities)
in any material respect, and (b) following such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, neither the
Issuer nor such successor entity will be required to register as an
investment company under the Investment Company Act and (viii) the
Company or any permitted successor or assignee owns all of the common
securities of such successor entity and guarantees the obligations of
such successor entity under the Successor Securities at least to the
extent provided by the Guarantee. Notwithstanding the foregoing, the
Issuer shall not, except with the consent of holders of 100% in
aggregate Liquidation Preference Amount of the Preferred Securities,
consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger or replacement would cause the Issuer or the
successor entity to be classified as other than a "grantor trust" for
United States Federal income tax purposes.
Voting Rights; Amendment of Trust Agreement
Except as provided below and under "Description of the Guarantee--
Amendments and Assignment" and as otherwise required by law and the
Trust Agreement, the holders of the Preferred Securities will have no
voting rights.
The Trust Agreement may be amended from time to time by the Company
and the Administrative Trustees, without the consent of the holders of
the Preferred Securities (i) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement which may be
inconsistent with any other provision, or to make any other provisions
with respect to matters or questions arising under the Trust Agreement,
that shall not be inconsistent with the other provisions of the Trust
Agreement, (ii) to modify, eliminate or add to any provisions of the
Trust Agreement to such extent as shall be necessary to ensure that the
Issuer will be classified for United States Federal income tax purposes
as a grantor trust at all times that any of its Preferred Securities and
Common Securities are outstanding or to ensure that the Issuer will not
be required to register as an "investment company" under the Investment
Company Act, or (iii) to effect the acceptance of appointment by a
successor Issuer Trustee; provided, however, that in the case of clause
(ii), such action shall not adversely affect in any material respect the
interests of any holder of the Preferred Securities or Common
Securities, and, in the case of clause (i), any amendments of the Trust
Agreement shall become effective when notice thereof is given to the
holders of Preferred Securities and Common Securities. The Trust
Agreement may be amended by the Administrative Trustees and the Company
with (i) the consent of holders representing a majority (based upon
aggregate Liquidation Preference Amount) of the outstanding Preferred
Securities and Common Securities and (ii) receipt by the Issuer Trustees
of an Opinion of Counsel to the effect that such amendment or the
exercise of any power granted to the Issuer Trustees in accordance with
such amendment will not affect the Issuer's status as a grantor trust
for United States Federal income tax purposes or the Issuer's exemption
from status of an "investment company" under the Investment Company Act,
provided that without the consent of each holder of the Preferred
Securities and Common Securities, the Trust Agreement may not be amended
to (i) change the amount or timing of any Distribution on the Preferred
Securities and Common Securities or otherwise adversely affect the
amount of any Distribution required to be made in respect of the
Preferred Securities and Common Securities as of a specified date or
(ii) restrict the right of holders of the Preferred Securities and
Common Securities to institute suit for the enforcement of any such
payment on or after such date as described below.
So long as any Junior Subordinated Debentures are held by the
Property Trustee, the Issuer Trustees shall not (i) direct the time,
method and place of conducting any proceeding for any remedy available
to the Debenture Trustee, or executing any trust or power conferred on
the Property Trustee with respect to such Junior Subordinated
Debentures, (ii) waive any past default that is waiveable under Section
813 of the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification
or termination of the Indenture or the Junior Subordinated Debentures,
where such consent shall be required, without, in each case, obtaining
the prior approval of the holders of a majority in aggregate Liquidation
Preference Amount of all outstanding Preferred Securities; provided,
however, that where a consent under the Indenture would require the
consent of each holder of Junior Subordinated Debentures affected
thereby, no such consent shall be given by the Property Trustee without
the prior written consent of each holder of the Preferred Securities.
The Issuer Trustees shall not revoke any action previously authorized or
approved by a vote of the Preferred Securities except by subsequent vote
of the holders of the Preferred Securities. The Property Trustee shall
notify all holders of Preferred Securities of any notice of default with
respect to the Junior Subordinated Debentures. In addition to obtaining
the foregoing approvals of the holders of the Preferred Securities,
prior to taking any of the foregoing actions, the Issuer Trustees shall
obtain an Opinion of Counsel experienced in such matters to the effect
that the Issuer will be classified as a "grantor trust" and not as an
association taxable as a corporation for United States Federal income
tax purposes on account of such action.
If the Property Trustee fails to enforce its rights under the Junior
Subordinated Debentures or the Trust Agreement, a holder of Preferred
Securities may institute a legal proceeding directly against the Company
to enforce the Property Trustee's rights with respect to the Junior
Subordinated Debentures or the Trust Agreement, to the fullest extent
permitted by law, without first instituting any legal proceeding against
the Property Trustee or any other person. Notwithstanding the
foregoing, a holder of Preferred Securities may directly institute a
proceeding for enforcement of payment to such holder of principal of or
interest on the Junior Subordinated Debentures having a principal amount
equal to the aggregate Liquidation Preference Amount of the Preferred
Securities of such holder on or after the due dates specified in the
Junior Subordinated Debentures. See "Description of the Guarantee".
Any required approval of holders of Preferred Securities may be
given at a meeting of holders of Preferred Securities convened for such
purpose or pursuant to written consent. The Property Trustee will cause
a notice of any meeting at which holders of Preferred Securities are
entitled to vote, or of any matter upon which action by written consent
of such holders is to be taken, to be given to each holder of record of
Preferred Securities in the manner set forth in the Trust Agreement.
No vote or consent of the holders of Preferred Securities will be
required for the Issuer to redeem and cancel the Preferred Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of
the Preferred Securities that are owned by the Company, the Issuer
Trustee or any affiliate of the Company or any Issuer Trustees, shall,
for purposes of such vote or consent, be treated as if they were not
outstanding.
Payment and Paying Agency
Payments in respect of the Preferred Securities shall be made to
DTC, which shall credit the relevant accounts at DTC on the applicable
Distribution Dates or, if any Preferred Securities are not held by DTC,
such payments shall be made by check mailed to the address of the holder
entitled thereto as such address shall appear on the Securities
Register. The paying agent (the "Paying Agent") shall initially be the
Property Trustee and any co-paying agent chosen by the Property Trustee
and acceptable to the Administrative Trustees and the Company. The
Paying Agent shall be permitted to resign as Paying Agent upon 30 days'
written notice to the Administrative Trustees and the Company. In the
event that the Property Trustee shall no longer be the Paying Agent, the
Administrative Trustees shall appoint a successor to act as Paying Agent
(which shall be a bank or trust company acceptable to the Property
Trustee and the Company).
Book-Entry Issuance
DTC will act as securities depositary for the Preferred Securities.
The Preferred Securities will be issued only as fully-registered
securities registered in the name of Cede & Co. (DTC's nominee). One
or more fully-registered global certificates will be issued for the
Preferred Securities, representing the aggregate total number of the
Preferred Securities, and will be deposited with DTC.
DTC is a limited purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating the
need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations
("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the NYSE, the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC
system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain
custodial relationships with Direct Participants, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and
its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made
by or through Direct Participants, which will receive a credit for the
Preferred Securities on DTC's records. The ownership interest of each
actual purchaser of each Preferred Security ("Beneficial Owner") is in
turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants
through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Preferred
Securities, except in the event that use of the book-entry system for
the Preferred Securities is discontinued.
To facilitate subsequent transfers, all of the Preferred Securities
deposited by the Participants with DTC are registered in the name of
DTC's nominee, Cede & Co. The deposit of Preferred Securities with DTC
and their registration in the name of Cede & Co. effect no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Preferred Securities; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners.
The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will
be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. as the registered
holder of the Preferred Securities. If less than all of the Preferred
Securities are being redeemed, DTC's current practice is to determine by
lot the amount of the interest of each Direct Participant to be
redeemed.
Although voting with respect to the Preferred Securities is limited
to the holders of record of the Preferred Securities, in those instances
in which a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an omnibus proxy (the "Omnibus Proxy") to the
Issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts such Preferred Securities are credited on
the record date (identified in a listing attached to the Omnibus Proxy).
Distribution payments on the Preferred Securities will be made to
DTC. DTC's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown
on DTC's records unless DTC has reason to believe that it will not
receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such Participant
and not of DTC, the Property Trustee, the Issuer or the Company, subject
to any statutory or regulatory requirements as may be in effect from
time to time. Payment of Distributions to DTC is the responsibility of
the Issuer, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursements of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect
Participants.
DTC may discontinue providing its services as securities depositary
with respect to the Preferred Securities at any time by giving
reasonable notice to the Issuer and the Company. In the event that a
successor securities depositary is not obtained, definitive Preferred
Security certificates representing the Preferred Securities are required
to be printed and delivered. The Company, at its option, may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depositary). After a Debenture Event of Default, the holders
of a majority in aggregate Liquidation Preference Amount of Preferred
Securities may determine to discontinue the system of book-entry
transfers through DTC. In any such event, definitive certificates for
the Preferred Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Issuer and the Company
believe to be accurate, but the Issuer and the Company assume no
responsibility for the accuracy thereof. Neither the Issuer nor the
Company has any responsibility for the performance by DTC or its
Participants of their respective obligations as described herein or
under the rules and procedures governing their respective operations.
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer agent for
the Preferred Securities.
Registration of transfers of Preferred Securities will be effected
without charge by or on behalf of the Issuer, but upon payment of any
tax or other governmental charges that may be imposed in connection with
any transfer or exchange. The Issuer will not be required to register
or cause to be registered the transfer of Preferred Securities after
such Preferred Securities have been called for redemption.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and
continuance of an Event of Default, undertakes to perform only such
duties as are specifically set forth in the Trust Agreement and, after
such Event of Default, must exercise the same degree of care and skill
as a prudent person would exercise or use in the conduct of his or her
own affairs. Subject to this provision, the Property Trustee is under
no obligation to exercise any of the powers vested in it by the Trust
Agreement at the request of any holder of Preferred Securities unless it
is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby. If no Event of Default has
occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous
provisions in the Trust Agreement or is unsure of the application of any
provision of the Trust Agreement, and the matter is not one on which
holders of Preferred Securities are entitled under the Trust Agreement
to vote, then the Property Trustee shall take such action as is directed
by the Company and if not so directed, shall take such action as it
deems advisable and in the best interests of the holders of the
Preferred Securities and the Common Securities and will have no
liability except for its own bad faith, negligence or willful
misconduct.
Miscellaneous
The Administrative Trustees are authorized and directed to conduct
the affairs of and to operate the Issuer in such a way that the Issuer
will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or classified other than as
a "grantor trust" for United States Federal income tax purposes and so
that the Junior Subordinated Debentures will be treated as indebtedness
of the Company for United States Federal income tax purposes. In this
connection, the Company and the Administrative Trustees are authorized
to take any action, not inconsistent with applicable law, the
certificate of trust of the Issuer or the Trust Agreement, that the
Company and the Administrative Trustees determine in their discretion to
be necessary or desirable for such purposes, as long as such action does
not materially adversely affect the interests of the holders of the
Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar
rights.
The Issuer may not borrow money or issue debt or mortgage or pledge
any of its assets.
DESCRIPTION OF THE GUARANTEE
The Guarantee will be executed and delivered by the Company
concurrently with the issuance by the Issuer of the Preferred Securities
for the benefit of the holders from time to time of the Preferred
Securities. The Bank of New York will act as indenture trustee (the
"Guarantee Trustee") under the Guarantee for the purposes of compliance
with the Trust Indenture Act, and the Guarantee will be qualified as an
Indenture under the Trust Indenture Act. This summary of certain
provisions of the Guarantee does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the
provisions of the Guarantee Agreement, including the definitions therein
of certain terms, and the Trust Indenture Act. The form of the
Guarantee has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Preferred Securities.
General
The Company will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth herein, the Guarantee Payments (as
defined below) to the holders of the Preferred Securities, as and when
due, regardless of any defense, right of set-off or counterclaim that
the Issuer may have or assert other than the defense of payment. The
following payments with respect to the Preferred Securities, to the
extent not paid by or on behalf of the Issuer (the "Guarantee
Payments"), will be subject to the Guarantee: (i) any accumulated and
unpaid Distributions required to be paid on the Preferred Securities, to
the extent that the Issuer has funds on hand available therefor, (ii)
the Redemption Price with respect to any Preferred Securities called for
redemption to the extent that the Issuer has funds on hand available
therefor, or (iii) upon a voluntary or involuntary dissolution, winding-
up or liquidation of the Issuer (unless the Junior Subordinated
Debentures are distributed to holders of the Preferred Securities), the
lesser of (a) the aggregate of the Liquidation Preference Amount and all
accumulated and unpaid Distributions on the Preferred Securities to the
date of payment and (b) the amount of assets of the Issuer remaining
available for distribution to holders of the Preferred Securities. The
Company's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Company to the holders of
the Preferred Securities or by causing the Issuer to pay such amounts to
such holders.
The Guarantee will be an irrevocable guarantee on a subordinated
basis of the Issuer's obligations under the Preferred Securities, but
will apply only to the extent that the Issuer has funds sufficient to
make such payments, and is not a guarantee of collection.
If the Company does not make interest payments on the Junior
Subordinated Debentures held by the Issuer, it is expected that the
Issuer will not pay Distributions on the Preferred Securities and will
not have funds available therefor. The Guarantee will rank subordinate
and junior in right of payment to all Senior Debt. See "--Status of the
Guarantee". The Guarantee will not limit the incurrence or issuance of
other secured or unsecured debt of the Company, whether under the
Indenture, any other indenture that the Company may enter into in the
future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the
Junior Subordinated Debentures, the Indenture and the Expense Agreement,
taken together, fully, irrevocably and unconditionally guaranteed all of
the Issuer's obligations under the Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such a guarantee. It is only the
combined operation of these documents that has the effect of providing a
full, irrevocable and unconditional guarantee of the Issuer's
obligations under the Preferred Securities. See "Relationship Among the
Preferred Securities, the Junior Subordinated Debentures and the
Guarantee".
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of payment to all Senior
Debt.
The Guarantee will rank pari passu with all other guarantees issued
by the Company with respect to any preferred securities issued by any
trust, partnership or other entity which is a financing vehicle of the
Company. The Guarantee will constitute a guarantee of payment and not
of collection (i.e., the guaranteed party may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against any other
person or entity). The Guarantee will be held for the benefit of the
holders of the Preferred Securities. The Guarantee will not be
discharged except by payment of the Guarantee Payments in full to the
extent not paid by the Issuer or upon distribution to the holders of the
Preferred Securities of the Junior Subordinated Debentures. The
Guarantee does not place a limitation on the amount of additional Senior
Debt that may be incurred by the Company. The Company expects from time
to time to incur additional indebtedness constituting Senior Debt.
Amendments and Assignment
Except with respect to any changes that do not materially adversely
affect the rights of holders of the Preferred Securities (in which case
no vote will be required), the Guarantee may not be amended without the
prior approval of the holders of a majority of the aggregate Liquidation
Preference Amount of the outstanding Preferred Securities. The manner
of obtaining any such approval is set forth under "Description of the
Preferred Securities--Voting Rights; Amendment of Trust Agreement". All
guarantees and agreements contained in the Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the
Company and shall inure to the benefit of the holders of the Preferred
Securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure
of the Company to perform any of its payment or other obligations
thereunder. The holders of a majority in aggregate Liquidation
Preference Amount of the Preferred Securities have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to
direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee.
Any holder of the Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the
Issuer, the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under
the Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than prior to the occurrence and after
the curing of a default by the Company in performance of the Guarantee,
undertakes to perform only such duties as are specifically set forth in
the Guarantee and, after default with respect to the Guarantee, must
exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs.
Notwithstanding this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee
at the request of any holder of the Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities
that might be incurred thereby.
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect
upon full payment of the Redemption Price of the Preferred Securities,
upon full payment of the amounts payable upon liquidation of the Issuer
or upon distribution of the Junior Subordinated Debentures to the
holders of the Preferred Securities. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any
holder of the Preferred Securities must restore payment of any sums paid
under the Preferred Securities or the Guarantee.
Governing Law
The Guarantee will be governed by and construed in accordance with
the laws of the State of New York.
The Expense Agreement
Pursuant to the Expense Agreement entered into by the Company under
the Trust Agreement (the "Expense Agreement"), the Company will
irrevocably and unconditionally guarantee to each person or entity to
whom the Issuer becomes indebted or liable, the full payment, when and
as due, of any costs, expenses or liabilities of the Issuer, other than
obligations of the Issuer to pay to the holders of the Preferred
Securities the amounts due such holders pursuant to the terms of the
Preferred Securities.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the
Indenture with terms corresponding to the terms of the Preferred
Securities. This summary of certain terms and provisions of the Junior
Subordinated Debentures and the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by
reference to, the Indenture, the form of which is filed as an exhibit to
the Registration Statement of which this Prospectus forms a part, and
the Trust Indenture Act. Whenever particular defined terms of the
Indenture (as supplemented or amended from time to time) are referred to
herein, such defined terms are incorporated herein or therein by
reference.
General
Concurrently with the issuance of the Preferred Securities, the
Issuer will invest the proceeds thereof and the consideration paid by
the Company for the Common Securities in the Junior Subordinated
Debentures issued by the Company. The Junior Subordinated Debentures
will bear interest at the rate of ____% per annum of the principal
amount thereof, payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year (each, an "Interest Payment
Date"), commencing _____ __, 1997, to the person in whose name each
Junior Subordinated Debenture is registered, subject to certain
exceptions, as of the close of business on the Business Day (as defined
in the Indenture) next preceding such Interest Payment Date. Each
Junior Subordinated Debenture will be held in the name of the Property
Trustee in trust for the benefit of the holders of the Preferred
Securities. The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. In the
event that any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the
next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on the date such payment was originally payable.
Interest that is in arrears for more than one quarter will bear
additional interest on the amount thereof (to the extent permitted by
law) at the rate of ___% per annum thereof, compounded quarterly. The
term "interest" as used herein shall include quarterly interest
payments, interest on quarterly interest payments in arrears and
Additional Interest, as applicable.
The Junior Subordinated Debentures will mature on ____________,
_____. The Junior Subordinated Debentures will be unsecured and will
rank junior and be subordinate in right of payment to all Senior Debt of
the Company. Additional series of debentures (together with the Junior
Subordinated Debentures, the "Indenture Debentures") may be issued,
without limitation as to amount, under the Indenture and the Indenture
does not limit the incurrence or issuance of other secured or unsecured
debt of the Company, whether under the Indenture, any other indenture
that the Company may enter into in the future or otherwise. See "--
Subordination".
Option to Extend Interest Payment Period
So long as no Debenture Event of Default under the Indenture has
occurred and is continuing, the Company has the right under the
Indenture at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to
time for one or more Extension Periods, each of which, together with all
previous and further extensions of such Extensions Period prior to its
termination, may not exceed 20 consecutive quarters and may not extend
beyond the maturity of the Junior Subordinated Debentures. At the end
of such Extension Period, the Company must pay all interest then accrued
and unpaid (together with interest thereon at the rate of _____% per
annum to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of the Junior
Subordinated Debentures will be required to accrue interest income for
United States Federal income tax purposes. See "Certain United States
Federal Income Tax Considerations -- Potential Extension of Interest
Payment Period and Original Issue Discount".
In the event that the Company exercises this right, during any such
Extension Period, the Company may not (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation
payment with respect to, any of the Company's capital stock or (ii) make
any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities (including other Indenture
Debentures) that rank pari passu with or junior in interest to the
Junior Subordinated Debentures or make any guarantee payments with
respect to the foregoing (other than (a) dividends or distributions in
common stock of the Company and (b) payments under the Guarantee). Upon
the termination of any such Extension Period and the payment of all
amounts then due, the Company may elect to begin a new Extension Period,
subject to the above requirements. No interest shall be due and payable
during an Extension Period, except at the end thereof. The Company must
give the Property Trustee, the Administrative Trustees and the Debenture
Trustee notice of its selection of such Extension Period at least one
Business Day prior to the earlier of (i) the date the Distributions on
the Preferred Securities are payable and (ii) the date the
Administrative Trustees are required to give notice to the NYSE or other
applicable self-regulatory organization or to holders of such the
Preferred Securities of the record date or the date such Distributions
are payable, but in any event not less than one Business Day prior to
such record date. An Administrative Trustee shall give notice of the
Company's election to begin such Extension Period to the holders of the
Preferred Securities within five business days of the receipt of notice
thereof.
Redemption
The Junior Subordinated Debentures are redeemable prior to maturity
at the option of the Company (i) on or after ________, 2002, in whole at
any time or in part from time to time, at a redemption price equal to
the accrued and unpaid interest on the Junior Subordinated Debentures so
redeemed to the date fixed for redemption plus 100% of the principal
amount thereof, or (ii) at any time, in whole (but not in part), within
90 days following the occurrence of a Special Event, at a redemption
price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption
plus 100% of the principal amount thereof.
For so long as the Issuer is the holder of the Junior Subordinated
Debentures, the proceeds of any such redemption will be used by the
Issuer to redeem the Preferred Securities in accordance with their
terms. The Company may not redeem less than all of Junior Subordinated
Debentures unless all accrued and unpaid interest if any, has been paid
in full on all outstanding Junior Subordinated Debentures for all
interest periods terminating on or prior to the Redemption Date.
Notice of any redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each holder of Junior
Subordinated Debentures to be redeemed at his registered address.
Unless the Company defaults in payment of the redemption price, on and
after the Redemption Date interest ceases to accrue on the Junior
Subordinated Debentures or portions thereof called for redemption.
Distribution of the Junior Subordinated Debentures
Whether or not a Special Event has occurred, at any time, the
Company has the right to terminate the Issuer, and, in such event, cause
the Junior Subordinated Debentures to be distributed to the holders of
the Preferred Securities in liquidation of the Issuer after satisfaction
of liabilities to creditors of the Issuer as provided by applicable law.
See "Description of the Preferred Securities -- Liquidation Distribution
upon Termination". If distributed to holders of the Preferred
Securities in liquidation, the Junior Subordinated Debentures will
initially be issued in the form of one or more global securities and
DTC, or any successor depositary for the Preferred Securities, will act
as depositary for the Junior Subordinated Debentures. It is anticipated
that the depositary arrangements for the Junior Subordinated Debentures
would be substantially identical to those in effect for the Preferred
Securities. If the Junior Subordinated Debentures are distributed to
the holders of the Preferred Securities upon the liquidation of the
Issuer, the Company will use its best efforts to list the Junior
Subordinated Debentures on the NYSE or such other stock exchanges or
other organizations, if any, on which the Preferred Securities are then
listed. There can be no assurance as to the market price of the Junior
Subordinated Debentures that may be distributed to the holders of the
Preferred Securities. For a description of DTC and the terms of the
depositary arrangements relating to payments, transfers, voting rights,
redemption and other notices and other matters, see "Description of the
Preferred Securities--Book-Entry Issuance".
Debenture Events of Default
The Indenture provides that any one or more of the following
described events with respect to a series of Indenture Debentures that
has occurred and is continuing constitutes a "Debenture Event of
Default" with respect to such series of Indenture Debentures:
(i) failure for 60 days to pay any interest on such series of
Indenture Debentures, when due and payable (subject to the deferral
of any interest payments in the case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on such
series of Indenture Debentures when due and payable; or
(iii) failure to perform, or breach of, any covenant or warranty
of the Company contained in the Indenture for 60 days after written
notice to the Company from the Debenture Trustee or to the Company
and the Debenture Trustee by the holders of at least 33% in
aggregate principal amount of such series of outstanding Indenture
Debentures as provided in the Indenture; or
(iv) certain events in bankruptcy, insolvency or reorganization
of the Company; or
(v) any other Event of Default specified with respect to such
series of Indenture Debentures.
If a Debenture Event of Default due to the default in payment of
principal of, or interest on, any series of Indenture Debentures or due
to the default in the performance or breach of any other covenant or
warranty of the Company applicable to the Indenture Debentures of such
series but not applicable to all series occurs and is continuing, then
either the Debenture Trustee or the holders of not less than 33% in
aggregate principal amount of the outstanding Indenture Debentures of
such series may declare the principal of all of the Indenture Debentures
of such series and interest accrued thereon to be due and payable
immediately (subject to the subordination provisions of the Indenture)
and, in the case of the Junior Subordinated Debentures, should the
Debenture Trustee or such holders of such Junior Subordinated Debentures
fail to make such declaration, the holders of at least 33% in aggregate
Liquidation Preference Amount of the Preferred Securities shall have
such right. If a Debenture Event of Default due to the default in the
performance of any other covenants or agreements in the Indenture
applicable to all outstanding Indenture Debentures or due to certain
events of bankruptcy, insolvency or reorganization of the Company has
occurred and is continuing, either the Debenture Trustee or the holders
of not less than 33% in aggregate principal amount of all outstanding
Indenture Debentures (or Preferred Securities, as described above),
considered as one class, and not the holders of the Indenture Debentures
(or Preferred Securities) of any one of such series may make such
declaration of acceleration (subject to the subordination provisions of
the Indenture).
At any time after such a declaration of acceleration with respect
to the Indenture Debentures of any series has been made and before a
judgment or decree for payment of the money due has been obtained, the
Debenture Event or Events of Default giving rise to such declaration of
acceleration will, without further act, be deemed to have been waived,
and such declaration and its consequences will, without further act, be
deemed to have been rescinded and annulled, if
(a) the Company has paid or deposited with the Debenture Trustee a
sum sufficient to pay
(1) all overdue interest on all Indenture Debentures of such
series;
(2) the principal of and premium, if any, on any Indenture
Debentures of such series which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate or rates
prescribed therefor in such Indenture Debentures;
(3) interest upon overdue interest at the rate or rates
prescribed therefor in such Indenture Debentures, to the extent that
payment of such interest is lawful; and
(4) all amounts due to the Debenture Trustee under the
Indenture;
(b) any other Debenture Event or Events of Default with respect to
Indenture Debentures of such series, other than the nonpayment of the
principal of the Indenture Debentures of such series which has become
due solely by such declaration of acceleration, have been cured or
waived as provided in the Indenture.
The holders of a majority in aggregate principal amount of the
Indenture Debentures of all series then outstanding may waive compliance
by the Company with certain restrictive provisions of the Indenture.
The holders of a majority in principal amount of the outstanding
Indenture Debentures of any series may, on behalf of the holders of all
the Indenture Debentures of such series, waive any past default under
the Indenture with respect to such series, except a default in the
payment of principal or interest (unless such default has been cured and
a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision
which under the Indenture cannot be modified or amended without the
consent of the holder of each outstanding Indenture Debenture of such
series affected. With respect to the Junior Subordinated Debentures,
the Issuer may not waive compliance by the Company with certain
restrictive provisions of the Indenture or waive any past defaults
thereunder without the consent of a majority in aggregate liquidation
preference amount of the outstanding Preferred Securities.
The Company is required to file annually with the Debenture Trustee
a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Indenture.
In case a Debenture Event of Default shall occur and be continuing
as to the Junior Subordinated Debentures, the Property Trustee will have
the right to declare the principal of and the interest on the Junior
Subordinated Debentures and any other amounts payable under the
Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
If the Property Trustee fails to enforce its rights with respect to the
Junior Subordinated Debentures or the Trust Agreement, a holder of
Preferred Securities may institute a legal proceeding directly against
the Company to enforce the Property Trustee's rights with respect to the
Junior Subordinated Debentures or the Trust Agreement, to the fullest
extent permitted by law, without first instituting any legal proceeding
against the Property Trustee or any other person. See "Description of
the Preferred Securities--Voting Rights; Amendment of Trust Agreement".
Notwithstanding the foregoing, a holder of Preferred Securities may
directly institute a proceeding for enforcement of payment to such
holder of principal of or interest on the Junior Subordinated Debentures
having a principal amount equal to the aggregate liquidation preference
amount of the Preferred Securities of such holder on or after the due
dates specified in the Junior Subordinated Debentures. See "Description
of the Guarantee".
Modification of Indenture
Without the consent of any holder of Indenture Debentures, the
Company and the Debenture Trustee may enter into one or more
supplemental indentures for any of the following purposes: (a) to
evidence the assumption by any permitted successor to the Company of the
covenants of the Company in the Indenture and in the Indenture
Debentures; or (b) to add one or more covenants of the Company or other
provisions for the benefit of the holders of outstanding Indenture
Debentures or to surrender any right or power conferred upon the Company
by the Indenture; or (c) to add any additional Debenture Events of
Default with respect to outstanding Indenture Debentures; or (d) to
change or eliminate any provision of the Indenture or to add any new
provision to the Indenture, provided that if such change, elimination or
addition will adversely affect the interests of the holders of any
series of Indenture Debentures in any material respect, such change,
elimination or addition will become effective with respect to such
series only (1) when the consent of the holders of Indenture Debentures
of such series has been obtained in accordance with the Indenture, or
(2) when no Indenture Debentures of such series remain outstanding under
the Indenture; or (e) to provide collateral security for the Indenture
Debentures; or (f) to establish the form or terms of Indenture
Debentures of any other series as permitted by the Indenture; or (g) to
provide for the authentication and delivery of bearer securities and
coupons appertaining thereto representing interest, if any, thereon and
for the procedures for the registration, exchange and replacement
thereof and for the giving of notice to, and the solicitation of the
vote or consent of, the holders thereof, and for any and all other
matters incidental thereto; or (h) to evidence and provide for the
acceptance of appointment of a separate or successor Debenture Trustee
under the Indenture with respect to the Indenture Debentures of one or
more series and to add to or change any of the provisions of the
Indenture as shall be necessary to provide for or to facilitate the
administration of the trusts under the Indenture by more than one
trustee; or (i) to provide for the procedures required to permit the
utilization of a noncertificated system of registration for the
Indenture Debentures of all or any series; or (j) to change any place
where (1) the principal of and premium, if any, and interest, if any, on
all or any series of Indenture Debentures shall be payable, (2) all or
any series of Indenture Debentures may be surrendered for registration
of transfer or exchange and (3) notices and demands to or upon the
Company in respect of Indenture Debentures and the Indenture may be
served; or (k) to cure any ambiguity or inconsistency or to add or
change any other provisions with respect to matters and questions
arising under the Indenture, provided such changes or additions shall
not adversely affect the interests of the holders of Indenture
Debentures of any series in any material respect. The Indenture
contains provisions permitting the Company and the Debenture Trustee,
with the consent of the holders of a majority in principal amount of
each outstanding series of Indenture Debentures affected, to modify the
Indenture in a manner affecting the rights of the holders of such series
of the Indenture Debentures; provided, that no such modification may
(i)change the Stated Maturity of any series of Indenture Debentures,
or reduce the principal amount thereof, or reduce the rate or extend the
time of payment of interest thereon (except such extension as is
contemplated thereby), (ii) reduce the percentage of principal amount of
Indenture Debentures of any series, the holders of which are required to
consent to any such modification of the Indenture, or (iii) modify
certain of the provisions of the Indenture relating to supplemental
indentures, waivers of certain covenants and waivers of past defaults
with respect to the Indenture Debentures of any series, without the
consent of the holder of each outstanding Indenture Debenture affected
thereby, provided that, in the case of the Junior Subordinated
Debentures, so long as any of the Preferred Securities remain
outstanding, no such modification may be made that adversely affects the
holders of the Preferred Securities, and no termination of the Indenture
may occur, and no waiver of any Debenture Event of Default or compliance
with any covenant under the Indenture may be effective, without the
prior consent of the holders of a majority of the aggregate Liquidation
Preference Amount of such Preferred Securities unless and until the
principal of the Junior Subordinated Debentures and all accrued and
unpaid interest thereon have been paid in full and certain other
conditions are satisfied.
Certain Covenants of the Company
The Company will covenant in the Indenture that it will not (i)
declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the
Company's capital stock or (ii) make any payment of principal, premium,
if any, or interest on or repay or repurchase or redeem any debt
securities (including the Indenture Debentures) that rank pari passu
with or junior in interest to the Indenture Debentures or make any
guarantee payments with respect to the foregoing (other than (a)
dividends or distributions in common stock of the Company, and (b)
payments under the Guarantee and all other guarantees issued by the
Company with respect to any preferred securities issued by any trust,
partnership or other entity which is a financing vehicle of the Company)
if at such time (i) there shall have occurred and be continuing a
payment default (whether before or after expiration of any period of
grace) or a Debenture Event of Default with respect to any series of
Indenture Debentures, (ii) the Company shall be in default with respect
to its payment of any obligations under the Guarantee or any other such
guarantee as described above or (iii) the Company shall have given
notice of its election of an Extension Period as provided in the
Indenture with respect to any series of Indenture Debentures and shall
not have rescinded such notice, and such Extension Period, or any
extension thereof, shall be continuing.
The Company also will covenant that so long as any Preferred
Securities remain outstanding, if the Issuer shall be required to pay,
with respect to its income derived from the interest payments on the
Junior Subordinated Debentures, any amounts for or on account of any
taxes, duties, assessments or governmental charges of whatever nature
imposed by the United States, or any other taxing authority, then, in
any such case, the Company will pay as interest on the Junior
Subordinated Debentures such Additional Interest as may be necessary in
order that the net amounts received and retained by the Issuer after the
payment of such taxes, duties, assessments or governmental charges shall
result in the Issuer's having such funds as it would have had in the
absence of the payment of such taxes, duties, assessments or
governmental charges.
The Company will also covenant, (i) to maintain directly or
indirectly 100% ownership of the Common Securities, provided that
certain successors which are permitted pursuant to the Indenture may
succeed to the Company's ownership of the Common Securities, (ii) not to
voluntarily terminate, wind-up or liquidate the Issuer, except (a) in
connection with a distribution of Junior Subordinated Debentures to the
holders of the Preferred Securities in liquidation of the Issuer, or (b)
in connection with certain mergers, consolidations or amalgamations
permitted by the Trust Agreement, (iii) to remain the sole depositor
under the Trust Agreement of the Issuer and timely perform in all
material respects all of its duties as depositor of the Issuer, and (iv)
to use its reasonable efforts, consistent with the terms and provisions
of the Trust Agreement, to cause the Issuer to remain a business trust
and otherwise continue to be treated as a "grantor trust" for United
States Federal income tax purposes.
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture provides that the Company shall not consolidate with
or merge into any other corporation or convey, transfer or lease its
properties and assets substantially as an entirety to any person, unless
(i) in case the Company consolidates with or merges into another
corporation or conveys or transfers its properties and assets
substantially as an entirety to any person, the successor corporation is
organized under the laws of the United States or any State or the
District of Columbia, and such successor corporation expressly assumes
the Company's obligations on all Indenture Debentures; (ii) immediately
after giving effect thereto, no Debenture Event of Default, and no event
which, after notice or lapse of time or both, would become a Debenture
Event of Default, shall have occurred and be continuing; and (iii)
certain other conditions as prescribed in the Indenture are met.
The general provisions of the Indenture do not afford holders of the
Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Company that may adversely
affect holders of the Junior Subordinated Debentures.
Satisfaction And Discharge
The principal amount of Junior Subordinated Debentures will be
deemed to have been paid for purposes of the Indenture and the entire
indebtedness of the Company in respect thereof will be deemed to have
been satisfied and discharged, if there shall have been irrevocably
deposited with the Debenture Trustee or any Paying Agent, in trust: (a)
money in an amount which will be sufficient, or (b) in the case of a
deposit made prior to the maturity of the Junior Subordinated
Debentures, Government Obligations (as defined herein), which do not
contain provisions permitting the redemption or other prepayment thereof
at the option of the issuer thereof, the principal of and the interest
on which when due, without any regard to reinvestment thereof, will
provide moneys which, together with the money, if any, deposited with or
held by the Debenture Trustee, will be sufficient, or (c) a combination
of (a) and (b) which will be sufficient, to pay when due the principal
of and premium, if any, and interest, if any, due and to become due on
the Junior Subordinated Debentures that are outstanding. For this
purpose, Government Obligations include direct obligations of, or
obligations unconditionally guaranteed by, the United States of America
entitled to the benefit of the full faith and credit thereof and
certificates, depositary receipts or other instruments which evidence a
direct ownership interest in such obligations or in any specific
interest or principal payments due in respect thereof.
Subordination
In the Indenture, the Company has covenanted and agreed that any
Indenture Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Debt to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon
any liquidation, dissolution, winding-up, reorganization, assignment for
the benefit of creditors, marshaling of assets or any bankruptcy,
insolvency, debt restructuring or similar proceedings in connection with
any insolvency or bankruptcy proceeding of the Company, the holders of
Senior Debt will first be entitled to receive payment in full of
principal of (and premium, if any) and interest, if any, on such Senior
Debt before the holders of Indenture Debentures will be entitled to
receive or retain any payment in respect of the principal of, premium,
if any, or interest, if any, on the Indenture Debentures.
In the event of the acceleration of the maturity of any Indenture
Debentures, the holders of all Senior Debt outstanding at the time of
such acceleration will be entitled to receive payment in full of all
amounts due thereon (including any amounts due upon acceleration) before
the holders of Indenture Debentures will be entitled to receive any
payment upon the principal of, premium, if any, or interest, if any, on
the Indenture Debentures.
No payments on account of principal, premium, if any, or interest,
if any, in respect of any Indenture Debentures may be made if there
shall have occurred and be continuing a default in any payment with
respect to Senior Debt, or an event of default with respect to any
Senior Debt resulting in the acceleration of the maturity thereof
remaining incurred.
The term Senior Debt is defined in the Indenture to mean all
obligations (other than non-recourse obligations and the indebtedness
issued under the Indenture) of, or guaranteed or assumed by, the Company
for borrowed money, including both senior and subordinated indebtedness
for borrowed money (other than Indenture Debentures), or for the payment
of money relating to any lease which is capitalized on the consolidated
balance sheet of the Company and its subsidiaries in accordance with
generally accepted accounting principles as in effect from time to time,
or evidenced by bonds, debentures, notes or other similar instruments,
and in each case, amendments, renewals, extensions, modifications and
refundings of any such indebtedness or obligations, whether existing as
of the date of the Indenture or subsequently incurred by the Company
unless, in the case of any particular indebtedness, renewal, extension
or refunding, the instrument creating or evidencing the same or the
assumption or guarantee of the same expressly provides that such
indebtedness, renewal, extension or refunding is not superior in right
of payment to or is pari passu with the Indenture Debentures; provided
that the Company's obligations under the Guarantee and all other
guarantees issued by the Company with respect to any preferred
securities issued by any trust, partnership or other entity which is a
financing vehicle of the Company shall not be deemed to be Senior Debt.
The Indenture places no limitation on the amount of additional
Senior Debt that may be incurred by the Company. The Company expects
from time to time to incur additional indebtedness constituting Senior
Debt.
Governing Law
The Indenture and the Junior Subordinated Debentures will be
governed by and construed in accordance with the laws of the State of
New York.
Information Concerning the Debenture Trustee
The Debenture Trustee shall have, and shall be subject to, all the
duties and responsibilities specified with respect to an indenture
trustee under the Trust Indenture Act. Subject to such provisions, the
Debenture Trustee is under no obligation to exercise any of the powers
vested in it by the Indenture at the request of any holder of Junior
Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be
incurred thereby. The Debenture Trustee is not required to expend or
risk its own funds or otherwise incur personal financial liability in
the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured
to it.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
As long as payments of interest and other payments are made when due
on the Junior Subordinated Debentures, such payments will be sufficient
to cover Distributions and other payments due on the Preferred
Securities, primarily because (i) the aggregate principal amount of the
Junior Subordinated Debentures will be equal to the sum of the aggregate
Liquidation Preference Amount of the Preferred Securities and the Common
Securities; (ii) the interest rate and interest and other payment dates
on the Junior Subordinated Debentures will match the Distribution rate
and Distribution and other payment dates for the Preferred Securities;
(iii) the Company shall pay for all and any costs, expenses and
liabilities of the Issuer except the Issuer's obligations to holders of
the Preferred Securities under such Preferred Securities; and (iv) the
Trust Agreement further provides that the Issuer will not engage in any
activity that is not consistent with the limited purposes of the Issuer.
Payments of Distributions and other amounts due on the Preferred
Securities (to the extent the Issuer has funds available for the payment
of such Distributions) are irrevocably guaranteed by the Company as and
to the extent set forth under "Description of the Guarantee". Taken
together, the Company's obligations under the Junior Subordinated
Debentures, the Indenture, the Trust Agreement, the Expense Agreement,
and the Guarantee provide a full, irrevocable and unconditional
guarantee of payments of distributions and other amounts due on the
Preferred Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that
has the effect of providing a full, irrevocable and unconditional
guarantee of the Issuer's obligations under the Preferred Securities.
If and to the extent that the Company does not make payments on the
Junior Subordinated Debentures, the Issuer will not pay Distributions or
other amounts due on the Preferred Securities. The Guarantee does not
cover payment of Distributions when the Issuer does not have sufficient
funds to pay such Distributions. In such event, the remedies of holders
of the Preferred Securities are as described above under "Description of
the Junior Subordinated Debentures -- Debenture Events of Default" and
"Description of the Preferred Securities -- Voting Rights; Amendment of
Trust Agreement". The obligations of the Company under the Guarantee
are subordinate and junior in right of payment to all Senior Debt of the
Company.
Notwithstanding anything to the contrary in the Indenture, the
Company has the right to set-off any payment it is otherwise required to
make thereunder with and to the extent the Company has theretofore made,
or is concurrently on the date of such payment making, a payment under
the Guarantee.
A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Guarantee
Trustee, the Issuer or any other person or entity.
The Preferred Securities evidence the rights of the holders thereof
to the benefits of the Issuer, and the Issuer exists for the sole
purpose of issuing the Preferred Securities and Common Securities and
investing the proceeds thereof in the Junior Subordinated Debentures. A
principal difference between the rights of a holder of a Preferred
Security and the rights of a holder of a Junior Subordinated Debenture
is that a holder of a Junior Subordinated Debenture is entitled to
receive the principal amount of and interest accrued on Junior
Subordinated Debentures held, while a holder of Preferred Securities is
entitled to receive Distributions only from the Issuer (or from the
Company under the Guarantee) if and to the extent the Issuer has funds
available for the payment of such Distributions.
Upon any voluntary or involuntary termination, winding-up or
liquidation of the Issuer not involving the distribution of the Junior
Subordinated Debentures, after satisfaction of creditors of the Issuer,
if any, as provided by applicable law, the holders of Preferred
Securities will be entitled to receive, out of assets held by the
Issuer, the Liquidation Distribution in cash. See "Description of the
Preferred Securities--Liquidation Distribution upon Termination". Upon
any voluntary or involuntary liquidation or bankruptcy of the Company,
the Property Trustee, as holder of the Junior Subordinated Debentures,
would be a subordinated creditor of the Company, subordinated in right
of payment to all Senior Debt, but entitled to receive payment in full
of principal and interest, before any stockholders of the Company
receive payments or distributions. Since the Company is the guarantor
under the Guarantee and has agreed to pay for all costs, expenses and
liabilities of the Issuer (other than the Issuer's obligations to the
holders of the Preferred Securities), the positions of a holder of
Preferred Securities and a holder of Junior Subordinated Debentures
relative to other creditors and to stockholders of the Company in the
event of liquidation or bankruptcy of the Company would be substantially
the same.
A default or event of default under any Senior Debt would not
constitute a default or Debenture Event of Default. However, in the
event of payment defaults under, or acceleration of, Senior Debt, the
subordination provisions of the Indenture provide that no payments may
be made in respect of the Junior Subordinated Debentures until such
Senior Debt has been paid in full or any payment default thereunder has
been cured or waived. Failure to make required payments on any Junior
Subordinated Debentures would constitute a Debenture Event of Default.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States Federal
income tax consequences relevant to the purchase, ownership and
disposition of the Preferred Securities as of the date hereof and
represents the opinion of Reid & Priest LLP, counsel to the Company,
insofar as it relates to matters of law or legal conclusions. Except
where noted, it deals only with the Preferred Securities held as capital
assets and does not deal with special situations, such as those of
dealers in securities or currencies, financial institutions, life
insurance companies, persons holding the Preferred Securities as part of
a hedging or conversion transaction or a straddle, United States Holders
(as defined herein) whose "functional currency" is not the United States
dollar, or persons who are not United States Holders. In addition, this
discussion does not address the tax consequences to persons who purchase
the Preferred Securities other than pursuant to their initial issuance
and distribution. Furthermore, the discussion below is based upon the
provisions of the Internal Revenue Code of 1986, as amended, and
regulations, rulings and judicial decisions thereunder as of the date
hereof, and such authorities may be repealed, revoked or modified at any
time so as to result in United States Federal income tax consequences
different from those discussed below. These authorities are subject to
various interpretations and it is therefore possible that the United
States Federal income tax treatment of the Preferred Securities may
differ from the treatment described below.
<PAGE>
PROSPECTIVE PURCHASERS OF PREFERRED SECURITIES, INCLUDING PERSONS
WHO ARE NOT UNITED STATES HOLDERS AND PERSONS WHO PURCHASE PREFERRED
SECURITIES IN THE SECONDARY MARKET, ARE ADVISED TO CONSULT WITH THEIR
TAX ADVISORS AS TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF PREFERRED SECURITIES IN LIGHT
OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE,
LOCAL OR OTHER TAX LAWS.
United States Holders
As used herein, a "United States Holder" means a Preferred Security
holder that is a citizen or a resident of the United States, a
corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision
thereof, or an estate or trust the income of which is subject to United
States Federal income taxation regardless of its source.
Classification of Entergy Gulf States Capital I
Reid & Priest LLP, counsel to the Company and the Issuer, is of the
opinion that, under current law and assuming full compliance with the
terms of the Indenture and the instruments establishing the Issuer (and
certain other documents), the Issuer will be classified as a "grantor
trust" for United States Federal income tax purposes and will not be
classified as an association taxable as a corporation. Each United
States Holder will be treated as owning an undivided beneficial interest
in the Junior Subordinated Debentures. Accordingly, each United States
Holder will be required to include in its gross income interest (in the
form of original issue discount ("OID")) accrued with respect to its
allocable share of the Junior Subordinated Debentures as described
below. No amount included in income with respect to the Preferred
Securities will be eligible for the dividends received deduction.
Investors should be aware that the opinion of Reid & Priest LLP is not
binding on the Internal Revenue Service (the "IRS") or the courts.
Classification of the Junior Subordinated Debentures
Based on the advice of its counsel, the Company believes and
intends to take the position that the Junior Subordinated Debentures
will constitute indebtedness for United States Federal income tax
purposes. No assurance can be given that such position will not be
challenged by the IRS, or, if challenged, that such challenge will not
be successful. By purchasing and accepting the Preferred Securities,
each holder thereof covenants to treat the Junior Subordinated
Debentures as indebtedness and the Preferred Securities as evidence of
an indirect beneficial ownership in the Junior Subordinated Debentures.
The remainder of this discussion assumes that the Junior Subordinated
Debentures will be classified as indebtedness of the Company for United
States Federal income tax purposes.
Possible Tax Law Changes
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the
"Bill"), the revenue portion of President Clinton's budget proposal, was
released. The Bill would, among other things, generally have denied
interest deductions for interest on an instrument issued by a
corporation that has a maximum weighted average maturity of more than 40
years. The Bill would also generally have treated as equity an
instrument, issued by a corporation, that has a maximum term of more
than 20 years and that is not shown as indebtedness on the separate
balance sheet of the issuer or, where the instrument is issued to a
related party (other than a corporation), where the holder or some other
related party issues a related instrument that is not shown as
indebtedness on the issuer's consolidated balance sheet. The above-
described provisions were proposed to be effective generally for
instruments issued on or after December 7, 1995. If either provision
were to apply to the Junior Subordinated Debentures, the Company would
be unable to deduct interest on the Junior Subordinated Debentures.
However, on March 29, 1996, the Chairmen of the Senate Finance and House
Ways and Means Committees issued a joint statement to the effect that it
was their intention that the effective date of the President's
legislative proposals, if adopted, will be no earlier than the date of
appropriate Congressional action. The 104th Congress adjourned without
such action having been taken. There can be no assurance, however, that
future legislative proposals or final legislation will not affect the
ability of the Company to deduct interest on the Junior Subordinated
Debentures. If legislation were enacted limiting, in whole or in part,
the deductibility by the Company of interest on the Junior Subordinated
Debentures for United States Federal income tax purposes, such enactment
could give rise to a Tax Event. A Tax Event would permit the Company to
cause a redemption of the Preferred Securities as described more fully
under "Description of the Preferred Securities--Redemptions --
Special Event Redemption or Distribution of Junior Subordinated Debentures".
Potential Extension of Interest Payment Period and Original Issue
Discount
Under the terms of the Junior Subordinated Debentures, the Company
has the option to defer payments of interest for up to 20 consecutive
quarterly interest payment periods and to pay as a lump sum at the end
of such period all of the interest that has accrued during such period.
During any such Extension Period, Distributions on the Preferred
Securities will also be deferred. Because of this option to extend the
interest payment periods, the Junior Subordinated Debentures will be
treated as having been issued with OID for United States Federal income
tax purposes. As a result, United States Holders will be required to
accrue interest income (in the form of OID) on an economic accrual basis
even if they use the cash method of accounting. In the event of an
Extension Period, a United States Holder will be required to continue to
include OID in income notwithstanding that the Issuer will not make any
Distribution on the Preferred Securities during such Extension Period.
As a result, any United States Holder who disposes of the Preferred
Securities prior to the record date for the payment of Distributions
following such Extension Period will include interest in gross income
but will not receive any Distributions related thereto from the Issuer.
The tax basis of a Preferred Security will be increased by the amount of
any OID that is included in income, and will be decreased when and if
Distributions are subsequently received from the Issuer by such holders.
Receipt of the Junior Subordinated Debentures or Cash Upon Liquidation
of the Issuer
At any time, the Company has the right to cause the Junior
Subordinated Debentures to be distributed to holders of the Preferred
Securities in exchange for the Preferred Securities and in liquidation
of the Issuer. Under current law, for United States Federal income tax
purposes, if the Issuer is treated as a "grantor trust" at the time of
distribution, such distribution would be treated as a non-taxable event
to each United States Holder, and each United States Holder would
receive an aggregate tax basis in the Junior Subordinated Debentures
equal to such holder's aggregate tax basis in the Preferred Securities.
A United States Holder's holding period for the Junior Subordinated
Debentures received in liquidation of the Issuer would include the
period during which such holder held the Preferred Securities.
Under certain circumstances, as described under the caption
"Description of the Preferred Securities--Redemptions," the Junior
Subordinated Debentures may be redeemed for cash and the proceeds of
such redemption distributed to holders of the Preferred Securities in
redemption of the Preferred Securities. Under current law, such a
redemption would, for United States Federal income tax purposes,
constitute a taxable disposition of the Preferred Securities, and a
United States Holder would recognize gain or loss as if such holder had
sold such redeemed Preferred Securities. See "--Sale, Exchange and
Redemption of the Preferred Securities" below.
Sale, Exchange and Redemption of the Preferred Securities
Upon the sale, exchange or redemption of the Preferred Securities,
a United States Holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange or
redemption and such holder's adjusted tax basis in the Preferred
Securities. A United States Holder's adjusted tax basis will, in
general, be the issue price of the Preferred Securities, increased by
the OID previously included in income by the United States Holder and
reduced by any Distributions on the Preferred Securities. Such gain or
loss will be capital gain or loss and will be long-term capital gain or
loss if at the time of sale, exchange or redemption, the Preferred
Securities have been held for more than one year. Under current law,
net capital gains of individuals are, under certain circumstances, taxed
at lower rates than items of ordinary income. The deductibility of
capital losses is subject to limitations.
Information Reporting and Backup Withholding
Subject to the qualification discussed below, income on the
Preferred Securities will be reported to holders on Form 1099, which
should be mailed to such holders by January 31 following each calendar
year.
The Issuer will report annually to Cede & Co., as holder of record
of the Preferred Securities, the OID related to the Junior Subordinated
Debentures that accrued during the year. The Issuer currently intends
to report such information on Form 1099 prior to January 31 following
each calendar year. The Underwriters have indicated to the Issuer that,
to the extent that they hold the Preferred Securities as nominees for
beneficial holders, they currently expect to report the OID that accrued
during the calendar year on such Preferred Securities to such beneficial
holders on Form 1099 by January 31 following each calendar year. Under
current law, holders of the Preferred Securities who hold as nominees
for beneficial holders will not have any obligation to report
information regarding the beneficial holders to the Issuer. The Issuer,
moreover, will not have any obligation to report to beneficial holders
who are not also record holders. Thus, beneficial holders of the
Preferred Securities who hold their Preferred Securities through the
Underwriters will receive Forms 1099 reflecting the income on their
Preferred Securities from such Underwriters rather than from the Issuer.
Payments made in respect of, and proceeds from the sale of, the
Preferred Securities (or the Junior Subordinated Debentures distributed
to holders of the Preferred Securities) may be subject to "backup"
withholding tax of 31% unless the holder complies with certain
identification requirements or if such holder has previously failed to
report in full dividend and interest income. Any withheld amounts will
be allowed as a refund or a credit against the holder's United States
Federal income tax liability, provided the required information is
provided to the IRS.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement,
the Company and the Issuer have agreed that the Issuer will sell to each
of the Underwriters named below, and each of such Underwriters, for whom
Goldman, Sachs & Co., __________________________ and
_________________________ are acting as representatives, has severally
agreed to purchase from the Issuer the respective number of Preferred
Securities set forth opposite its name below:
Number of
Preferred
Underwriter Securities
Goldman, Sachs & Co.
Total
......................................................................
____________
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Underwriters are committed to take and pay for all such
Preferred Securities offered hereby, if any are taken, provided, that
under certain circumstances involving a default of one or more
Underwriters, less than all of the Preferred Securities may be
purchased. Default by one Underwriter would not relieve any non-
defaulting Underwriter from its several obligation, and in the event of
such a default, the non-defaulting Underwriters may be required by the
Company to purchase the Preferred Securities that it has severally
agreed to purchase and, in addition, to purchase the Preferred
Securities that the defaulting Underwriter or Underwriters shall have
failed to purchase up to an amount equal to one-ninth of the Preferred
Securities that such non-defaulting Underwriter or Underwriters have
otherwise agreed to purchase.
The Underwriters propose to offer the Preferred Securities in part
directly to the public at the initial public offering price set forth on
the cover page of this Prospectus, and in part to certain securities
dealers at such price less a concession of $_______ per Preferred
Security. The Underwriters may allow, and such dealers may reallow, a
concession not to exceed of $_______ per Preferred Security to certain
brokers and dealers. After the Preferred Securities are released for
sale to the public, the offering price and other selling terms may from
time to time be varied by the representatives.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures,
the Underwriting Agreement provides that the Company will pay as
Underwriters' Compensation for the Underwriters arranging the investment
therein of such proceeds an amount of $ _______ per Preferred Security
($____________ per Preferred Security sold to certain institutions) for
the accounts of the several Underwriters.
The Company and the Issuer have agreed that, during the period
beginning from the date of the Underwriting Agreement and continuing to
and including the earlier of (i) the termination of trading restrictions
on the Preferred Securities, as determined by the Underwriters, and (ii)
30 days after the closing date, they will not offer, sell, contract to
sell or otherwise dispose of any Preferred Securities, any other
beneficial interests in the assets of the Issuer, or any preferred
securities or any other securities of the Issuer or the Company that are
substantially similar to the Preferred Securities, including any
guarantee of such securities, or any securities convertible into or
exchangeable for or that represent the right to receive securities,
preferred securities or any such substantially similar securities of
either the Issuer or the Company, without the prior written consent of
the representatives, except for the Preferred Securities, the Common
Securities and the Guarantee.
Prior to this offering, there has been no public market for the
Preferred Securities. Application has been made to list the Preferred
Securities on the NYSE. In order to meet one of the requirements for
listing the Preferred Securities on the NYSE, the Underwriters will
undertake to sell lots of 100 or more Preferred Securities to a minimum
of 400 beneficial holders. Trading of the Preferred Securities on the
NYSE is expected to commence within a seven-day period after the initial
delivery of the Preferred Securities. The representatives of the
Underwriters have advised the Company that they intend to make a market
in the Preferred Securities prior to commencement of trading on the
NYSE, but are not obligated to do so and may discontinue market making
at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Preferred Securities.
The Company and the Issuer have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended, or to contribute to payments
that the Underwriters may be required to make in respect thereof.
Certain of the Underwriters or their affiliates have provided from
time to time, and expect to provide in the future, investment or
commercial banking services to the Company and its affiliates, for which
such Underwriters or their affiliates have received or will receive
customary fees and commissions.
EXPERTS
The Company's balance sheets as of December 31, 1995 and 1994 and
the statements of income (loss), retained earnings, and cash flows for
each of the three years in the period ended December 31, 1995, included
in this Prospectus, have been included herein in reliance on the report,
which include emphasis paragraphs related to rate-related contingencies,
legal proceedings and changes in accounting for income taxes, post
retirement benefits and unbilled revenues, of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The statements attributed to Clark, Thomas & Winters, a
Professional Corporation, as to legal conclusions with respect to the
Company's rate regulation in Texas in Note 2, "Rate and Regulatory
Matters", to the Interim Financial Statements and in Note 2, "Rate and
Regulatory Matters", to the Annual Financial Statements have been
reviewed by such firm and are included herein upon the authority of such
firm as experts.
The statements attributed to Sandlin Associates regarding the
analysis of River Bend construction costs of the Company in Note 2 "Rate
and Regulatory Matters", to the Interim Financial Statements and in Note
2, "Rate and Regulatory Matters", to the Annual Financial Statements
have been reviewed by such firm and are included herein upon the
authority of such firm as experts.
LEGAL OPINIONS
Certain matters of Delaware law relating to the validity of the
Preferred Securities, the enforceability of the Trust Agreement and the
creation of the Issuer are being passed upon by Richards, Layton &
Finger, P.A., special Delaware counsel to the Company and the Issuer.
The validity of the Guarantee and the Junior Subordinated Debentures
will be passed upon for the Company by Laurence M. Hamric, Esq., General
Attorney - Corporate and Securities of Entergy Services, Inc., and by
Reid & Priest LLP, New York counsel to the Company. Matters pertaining
to New York law will be passed upon by Reid & Priest LLP, New York
counsel to the Company, and matters pertaining to Texas law will be
passed upon by Laurence M. Hamric, Esq., General Attorney-Corporate and
Securities of Entergy Services, Inc. Certain legal matters will be
passed upon for the Underwriters by Winthrop, Stimson, Putnam & Roberts,
New York, New York. Certain matters relating to United States Federal
income tax considerations are being passed upon by Reid & Priest LLP,
special counsel to the Company and the Issuer.
<PAGE>
ENTERGY GULF STATES, INC.
(FORMERLY GULF STATES UTILITIES COMPANY)
INDEX TO THE FINANCIAL STATEMENTS
Page
Definitions F-2
Annual Financial Statements:
Report of Independent Accountants F-4
Balance Sheets as of December 31, 1995 and 1994 F-6
Statements of Income (Loss) for the years ended F-8
December 31, 1995, 1994, and 1993
Statements of Cash Flows for the years ended F-9
December 31, 1995, 1994, and 1993
Statements of Retained Earnings and Paid-In-Capital F-10
Notes to Financial Statements F-11
Interim Financial Statements:
Balance Sheets (Unaudited) as of September 30, 1996 F-37
and December 31, 1995
Statements of Income (Loss) (Unaudited) for the three F-39
and nine month periods ended September 30, 1996
and 1995
Statements of Cash Flows (Unaudited) for the nine F-40
month periods ended September 30, 1996 and 1995
Notes to the Interim Financial Statements (Unaudited) F-41
<PAGE>
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes
are defined below:
Abbreviation or Acronym Term
AFUDC Allowance for Funds Used During Construction
ALJ Administrative Law Judge
Cajun Cajun Electric Power Cooperative, Inc.
D.C. Circuit Court United States Court of Appeals for the District of
Columbia Circuit
DOE United States Department of Energy
Entergy Arkansas Entergy Arkansas, Inc., formerly Arkansas Power
& Light Company
Entergy Gulf States Entergy Gulf States, Inc., formerly Gulf States
Utilities Company
Entergy Louisiana Entergy Louisiana, Inc., formerly Louisiana Power
& Light Company
Entergy Mississippi Entergy Mississippi, Inc., formerly Mississippi
Power & Light Company
Entergy New Orleans Entergy New Orleans, Inc., formerly New Orleans
Public Service, Inc.
EPAct Energy Policy Act of 1992
EPA Environmental Protection Agency
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
KWh kilowatt-hour(s)
LPSC Louisiana Public Service Commission
Merger The combination transaction, consummated on
December 31, 1993, by which Entergy Gulf States
became a subsidiary of Entergy Corporation and
Entergy Corporation became a Delaware corporation
Nelson Unit 6 Unit No. 6 (coal) of the Nelson Steam Electric
Generating Station, owned 70% by Entergy Gulf
States
NISCO Nelson Industrial Steam Company
Operating Companies Entergy Arkansas, Entergy Gulf States, Entergy
Louisiana, Entergy Mississippi, and Entergy New
Orleans
PRP Potentially Responsible Party (a person or entity
that may be responsible for remediation of
environmental contamination)
PUCT Public Utility Commission of Texas
PUHCA Public Utility Holding Company Act of 1935, as
amended
PURPA Public Utility Regulatory Policies Act
Rate Cap The level of Entergy Gulf States' retail electric
base rates in effect at December 31, 1993, for the
Louisiana retail jurisdiction, and the level of
such rates in effect prior to the settlement
agreement with the PUCT on July 21, 1994, for the
Texas retail jurisdiction, which may not be
exceeded before December 31, 1998
River Bend River Bend Steam Electric Generating Station
(nuclear), owned 70% by Entergy Gulf States
RUS Rural Utilities Services (formerly the Rural
Electrification Administration or "REA")
SEC Securities and Exchange Commission
System Agreement Agreement, effective January 1, 1983, as
modified, among Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy Mississippi
and Entergy New Orleans, all wholly owned
subsidiaries of Entergy Corporation, relating
to the sharing of generating capacity and other
power resources
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Gulf States Utilities Company
We have audited the accompanying balance sheets of Gulf States
Utilities Company as of December 31, 1995 and 1994 and the related
statements of income (loss), retained earnings and paid-in-capital and
cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit 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 financial statements referred to above present
fairly, in all material respects, the financial position of the Company
as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the net amount
of capitalized costs for its River Bend Unit I Nuclear Generating Plant
(River Bend) exceed those costs currently being recovered through
rates. At December 31, 1995, approximately $482 million is not
currently being recovered through rates. If current regulatory and
court orders are not modified, a write-off of all or a portion of such
costs may be required. Additionally, other rate-related contingencies
exist which may result in refunds of revenues previously collected.
The extent of such write-off of capitalized River Bend costs or refunds
of revenues previously collected, if any, will not be determined until
appropriate rate proceedings and court appeals have been concluded.
Accordingly, the accompanying financial statements do not include any
adjustments or provision for write-off or refund that might result from
the outcome of these uncertainties. As also discussed in Note 2,
approximately $187 million of additional deferred River Bend operating
costs which exceed those costs currently being recovered through rates
are expected to be written-off upon the adoption of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Adoption of this Statement is required on January 1, 1996.
As discussed in Note 8 to the financial statements, civil actions
have been initiated against Gulf States Utilities Company to, among
other things, recover the co-owner's investment in River Bend and to
annul the River Bend Joint Ownership Participation and Operating
Agreement. The ultimate outcome of these proceedings cannot presently
be determined.
As discussed in Note 13 to the financial statements, the common
stock of the Company was acquired on December 31, 1993.
As discussed in Note 3 to the financial statements, in 1993, the
Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." As discussed in Note 10 to the
financial statements, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," as of January 1, 1993. As discussed in
Note 1 to the financial statements, as of January 1, 1993, the Company
began accruing revenues for energy delivered to customers but not yet
billed.
COOPERS & LYBRAND L.L.P.
New Orleans, Louisiana
February 14, 1996
<PAGE>
<TABLE>
<CAPTION>
GULF STATES UTILITIES COMPANY
BALANCE SHEETS
ASSETS
December 31,
1995 1994
(In Thousands)
<S> <C> <C>
Utility Plant:
Electric $6,942,983 $6,842,726
Natural gas 45,789 44,505
Steam products 77,551 77,307
Property under capital leases 77,918 82,914
Construction work in progress 148,043 96,176
Nuclear fuel under capital lease 69,853 80,042
---------- ----------
Total 7,362,137 7,223,670
Less - accumulated depreciation and amortization 2,664,943 2,504,826
---------- ----------
Utility plant - net 4,697,194 4,718,844
---------- ----------
Other Property and Investments:
Decommissioning trust fund 32,943 21,309
Other - at cost (less accumulated depreciation) 28,626 29,315
---------- ----------
Total 61,569 50,624
---------- ----------
Current Assets:
Cash and cash equivalents:
Cash 13,751 8,063
Temporary cash investments - at cost,
which approximates market:
Associated companies 46,336 5,085
Other 174,517 91,496
---------- ----------
Total cash and cash equivalents 234,604 104,644
Accounts receivable:
Customer (less allowance for doubtful accounts
of $1.6 million in 1995 and $0.7 million in 1994) 110,187 167,745
Associated companies 1,395 12,732
Other 15,497 20,706
Accrued unbilled revenues 73,381 39,470
Deferred fuel costs 31,154 6,314
Accumulated deferred income taxes 43,465 49,457
Fuel inventory 32,141 25,784
Materials and supplies - at average cost 91,288 90,054
Rate deferrals 97,164 100,478
Prepayments and other 15,566 13,754
---------- ----------
Total 745,842 631,138
---------- ----------
Deferred Debits and Other Assets:
Regulatory assets:
Rate deferrals 419,904 506,974
SFAS 109 regulatory asset-net 453,628 426,358
Unamortized loss on reacquired debt 61,233 63,994
Other regulatory assets 27,836 35,168
Long-term receivables 224,727 264,752
Other 169,125 145,609
---------- ----------
Total 1,356,453 1,442,855
---------- ----------
TOTAL $6,861,058 $6,843,461
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GULF STATES UTILITIES COMPANY
BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
December 31,
1995 1994
(In Thousands)
<S. <C> <C>
Capitalization:
Common stock, no par value, authorized
200,000,000 shares; issued and outstanding
100 shares in 1995 and 1994 $114,055 $114,055
Paid-in capital 1,152,505 1,152,336
Retained earnings 357,704 264,626
---------- ----------
Total common shareholder's equity 1,624,264 1,531,017
Preference stock 150,000 150,000
Preferred stock:
Without sinking fund 136,444 136,444
With sinking fund 87,654 94,934
Long-term debt 2,175,471 2,318,417
---------- ----------
Total 4,173,833 4,230,812
---------- ----------
Other Noncurrent Liabilities:
Obligations under capital leases 108,078 125,691
Other 78,245 68,753
---------- ----------
Total 186,323 194,444
---------- ----------
Current Liabilities:
Currently maturing long-term debt 145,425 50,425
Accounts payable:
Associated companies 31,349 31,722
Other 136,528 140,975
Customer deposits 21,983 22,216
Taxes accrued 37,413 12,478
Interest accrued 56,837 55,327
Nuclear refueling reserve 22,627 10,117
Obligations under capital lease 37,773 37,265
Reserve for rate refund - 56,972
Other 86,653 111,963
---------- ----------
Total 576,588 529,460
---------- ----------
Deferred Credits:
Accumulated deferred income taxes 1,177,144 1,100,396
Accumulated deferred investment tax credits 208,618 199,428
Deferred River Bend finance charges 58,047 82,406
Other 480,505 506,515
---------- ----------
Total 1,924,314 1,888,745
---------- ----------
Commitments and Contingencies (Notes 2, 8, and 9)
TOTAL $6,861,058 $6,843,461
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GULF STATES UTILITIES COMPANY
STATEMENTS OF INCOME (LOSS)
For the Years Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Operating Revenues:
Electric $1,788,964 $1,719,201 $1,747,961
Natural gas 23,715 31,605 32,466
Steam products 49,295 46,559 47,193
---------- ---------- ----------
Total 1,861,974 1,797,365 1,827,620
---------- ---------- ----------
Operating Expenses:
Operation and maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 516,812 517,177 559,416
Purchased power 169,767 192,937 123,949
Nuclear refueling outage expenses 10,607 12,684 10,706
Other operation and maintenance 432,647 505,701 469,664
Depreciation, amortization, and decommissioning 202,224 197,151 190,405
Taxes other than income taxes 102,228 98,096 95,742
Income taxes 57,235 (6,448) 46,007
Amortization of rate deferrals 66,025 66,416 61,115
---------- ---------- ----------
Total 1,557,545 1,583,714 1,557,004
---------- ---------- ----------
Operating Income 304,429 213,651 270,616
---------- ---------- ----------
Other Income (Deductions):
Allowance for equity funds used
during construction 1,125 1,334 726
Write-off of plant held for future use - (85,476) -
Miscellaneous - net 22,573 (64,843) 19,996
Income taxes (6,009) 55,638 (12,009)
---------- ---------- ----------
Total 17,689 (93,347) 8,713
---------- ---------- ----------
Interest Charges:
Interest on long-term debt 191,341 195,414 202,235
Other interest - net 8,884 8,720 8,364
Allowance for borrowed funds used
during construction (1,026) (1,075) (731)
---------- ---------- ----------
Total 199,199 203,059 209,868
---------- ---------- ----------
Income (Loss) before Extraordinary Items and
the Cumulative Effect of an Accounting Change 122,919 (82,755) 69,461
Extraordinary Items (net of income taxes) - - (1,259)
Cumulative Effect of an Accounting
Change (net of income taxes) - - 10,660
---------- ---------- ----------
Net Income (Loss) 122,919 (82,755) 78,862
Preferred and Preference Stock
Dividend Requirements and Other 29,643 29,919 35,581
---------- ---------- ----------
Earnings (Loss) Applicable to Common Stock $ 93,276 ($ 112,674) $ 43,281
========== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GULF STATES UTILITIES COMPANY
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Operating Activities:
Net income (loss) $122,919 ($82,755) $78,862
Noncash items included in net income:
Extraordinary items - - 1,259
Cumulative effect of a change in accounting principle - - (10,660)
Change in rate deferrals 66,025 96,979 61,115
Depreciation, amortization, and decommissioning 202,224 197,151 190,405
Deferred income taxes and investment tax credits 63,231 (62,171) 41,302
Allowance for equity funds used during construction (1,125) (1,334) (726)
Write-off of plant held for future use - 85,476 -
Changes in working capital:
Receivables 40,193 (72,341) 6,879
Fuel inventory (6,357) (2,336) (2,289)
Accounts payable (4,820) 60,112 11,072
Taxes accrued 24,935 (10,378) 3,764
Interest accrued 1,510 (4,189) (2,497)
Reserve for rate refund (56,972) 56,972 -
Other working capital accounts (40,919) 33,781 (9,915)
Decommissioning trust contributions (8,147) (3,202) (2,710)
Purchased power settlement - - (169,300)
Provision for estimated losses and reserves 10,119 4,181 20,349
Other (12,062) 30,413 38,525
--------- --------- ---------
Net cash flow provided by operating activities 400,754 326,359 255,435
--------- --------- ---------
Investing Activities:
Construction expenditures (185,944) (155,989) (115,481)
Allowance for equity funds used during construction 1,125 1,334 726
Nuclear fuel purchases (1,425) (31,178) (2,118)
Proceeds from sale/leaseback of nuclear fuel 542 29,386 2,118
Refund of escrow account and other property - - 5,921
--------- --------- ---------
Net cash flow used in investing activities (185,702) (156,447) (108,834)
--------- --------- ---------
Financing Activities:
Proceeds from the issuance of:
First mortgage bonds - - 338,379
Other long-term debt 2,277 101,109 21,440
Preference stock - - 146,625
Retirement of:
First mortgage bonds - - (360,199)
Other long-term debt (50,425) (102,425) (18,398)
Redemption of preferred and preference stock (7,283) (6,070) (174,841)
Dividends paid:
Common stock - (289,100) -
Preferred and preference stock (29,661) (30,131) (35,999)
--------- --------- ---------
Net cash flow used in financing activities (85,092) (326,617) (82,993)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 129,960 (156,705) 63,608
Cash and cash equivalents at beginning of period 104,644 261,349 197,741
--------- --------- ---------
Cash and cash equivalents at end of period $234,604 $104,644 $261,349
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $187,918 $191,850 $197,058
Income taxes $208 $251 $15,600
Noncash investing and financing activities:
Capital lease obligations incurred - $31,178 $17,143
Change in unrealized appreciation/depreciation of
decommissioning trust assets $2,121 ($915) -
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GULF STATES UTILITIES COMPANY
STATEMENTS OF RETAINED EARNINGS AND PAID-IN CAPITAL
For the Years Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Retained Earnings, January 1 $264,626 $666,401 $631,462
Add:
Net income (loss) 122,919 (82,755) 78,862
---------- ---------- ---------
Total 387,545 583,646 710,324
---------- ---------- ---------
Deduct:
Dividends declared:
Preferred and preference stock 29,482 29,831 35,581
Common stock - 289,100 -
Preferred and preference stock
redemption and other 359 89 8,342
---------- ---------- ---------
Total 29,841 319,020 43,923
---------- ---------- ---------
Retained Earnings, December 31 (Note 7) $357,704 $264,626 $666,401
========== ========== =========
Paid-in Capital, January 1 $1,152,336 $1,152,304 $67,316
Add:
Issuance of 100 shares of no par common
stock with a stated value of $114,055
net of the retirement of 114,055,065 shares
of no par common stock - - 1,086,868
Gain (loss) on reacquisition of
preferred and preference stock 169 32 (1,880)
---------- ---------- ----------
Paid-in Capital, December 31 $1,152,505 $1,152,336 $1,152,304
========== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
GULF STATES UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the
accounts of the Company and its direct subsidiaries Varibus
Corporation, Prudential Oil and Gas, Inc., GSG&T, and Southern Gulf
Railway Company. All significant intercompany transactions have been
eliminated. The Company and its subsidiaries maintain accounts in
accordance with FERC and other regulatory guidelines. Certain
previously reported amounts have been reclassified to conform to
current classifications with no effect on net income or shareholder's
equity. The Company became a wholly-owned subsidiary of Entergy
Corporation through the Merger which was consummated on December 31,
1993.
Use of Estimates in the Preparation of Financial Statements
The preparation of the Company and its subsidiaries' financial
statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of December 31, 1995 and 1994, and
the reported amounts of revenues and expenses during fiscal years 1995,
1994, and 1993. Adjustments to the reported amounts of assets and
liabilities may be necessary in the future to the extent that future
estimates or actual results are different from the estimates used in
1995 financial statements.
Revenues and Fuel Costs
The Company generates, transmits, and distributes electricity
primarily to retail customers in the States of Texas and Louisiana;
distributes gas at retail in the City of Baton Rouge, Louisiana, and
vicinity; and also sells steam to a large refinery complex in Baton
Rouge.
The Company accrues estimated revenues for energy delivered since
the latest billings. However, prior to January 1, 1993, the Company
recognized electric and gas revenues when billed. To provide a better
matching of revenues and expenses, effective January 1, 1993, the
Company adopted a change in accounting principle to provide for the
accrual of estimated unbilled revenues. In accordance with a LPSC rate
order, the Company recorded a deferred credit of $16.6 million for the
January 1, 1993, amount of unbilled revenues. See Note 2 herein
regarding the Company's subsequent appeals of the LPSC order regarding
deferred unbilled revenues.
The Company's Texas retail rate schedules include a fixed fuel
factor approved by the PUCT, which remains in effect until changed as
part of a general rate case, fuel reconciliation, or fixed fuel factor
filing.
Utility Plant
Utility plant is stated at original cost. The original cost of
utility plant retired or removed, plus the applicable removal costs,
less salvage, is charged to accumulated depreciation. Maintenance,
repairs, and minor replacement costs are charged to operating expenses.
Substantially all of the utility plant is subject to liens of the
Company's mortgage bond indentures.
Net electric utility plant in service, by functional category, as
of December 31, 1995 (excluding owned and leased nuclear fuel and the
plant acquisition adjustment related to the Merger), is shown below:
Production Transmission Distribution Other Total
(In Millions)
$ 3,110 $ 430 $ 725 $ 179 $4,444
Depreciation is computed on the straight-line basis at rates based
on the estimated service lives and costs of removal of the various
classes of property. The depreciation rate on average depreciable
property was 2.7% for 1995, 1994 and 1993.
AFUDC represents the approximate net composite interest cost of
borrowed funds and a reasonable return on the equity funds used for
construction. Although AFUDC increases both utility plant and
earnings, it is only realized in cash through depreciation provisions
included in rates.
Jointly-Owned Generating Stations
The Company owns undivided interests in several jointly-owned
electric generating facilities and records the investments and expenses
associated with these generating stations to the extent of its
respective ownership interests. As of December 31, 1995, the Company's
investment and accumulated depreciation in each of these generating
stations were as follows:
Total
Megawatt Accumulated
Generating Station Fuel Type Capability Ownership Investment Depreciation
(In Thousands)
River Bend Unit 1 Nuclear 936 70.00% $3,067,996 $ 670,020
Roy S. Nelson Unit 6 Coal 550 70.00% 390,036 155,997
Big Cajun 2 Unit 3 Coal 540 42.00% 219,990 80,522
Income Taxes
Entergy Corporation and its subsidiaries, including the Company,
file a consolidated federal income tax return. Income taxes are
allocated to the Company in proportion to its contribution to
consolidated taxable income. Commission regulations require that no
Entergy Corporation subsidiary pay more taxes than it would have paid
if a separate income tax return had been filed. Deferred income taxes
are recorded for all temporary differences between the book and tax
basis of assets and liabilities and for certain credits available for
carryforward.
Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion
of the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Investment tax credits are deferred and amortized based upon the
average useful life of the related property in accordance with rate
treatment. As discussed in Note 3 herein, in 1993 the Company changed
its accounting for income taxes to conform with SFAS 109, "Accounting
for Income Taxes."
Reacquired Debt
The premiums and costs associated with reacquired debt are being
amortized over the life of the related new issuances, in accordance
with ratemaking treatment.
Cash and Cash Equivalents
The Company considers all unrestricted highly liquid debt
instruments purchased with an original maturity of three months or less
to be cash equivalents.
Continued Application of SFAS 71
As a result of the EPAct, other Federal laws, and actions of
regulatory commissions, the electric utility industry is moving toward
a combination of competition and a modified regulatory environment. the
Company's financial statements currently reflect, for the most part,
assets and costs based on cost-based ratemaking regulation, in
accordance with SFAS 71, "Accounting for the Effects of Certain Types
of Regulation." Continued applicability of SFAS 71 to the Company's
financial statements requires that rates set by an independent
regulator on a cost-of-service basis (including a reasonable rate of
return on invested capital) can actually be charged to and collected
from customers.
In the event either all or a portion of a utility's operations
cease to meet those criteria for various reasons, including
deregulation, a change in the method of regulation or a change in the
competitive environment for the utility's regulated services, the
utility should discontinue application of SFAS 71 for the relevant
portion. That discontinuation would be reported by elimination from
the balance sheet of the effects of any actions of regulators recorded
as regulatory assets and liabilities.
As of December 31, 1995, and for the foreseeable future the
Company's financial statements continue to follow SFAS 71, with the
exceptions noted below.
SFAS 101
SFAS 101, "Accounting for the Discontinuation of Application of
FASB Statement No. 71," specifies how an enterprise that ceases to meet
the criteria for application of SFAS 71 to all or part of its
operations should report that event in its financial statements. The
Company discontinued regulatory accounting principles for its wholesale
jurisdiction and its steam department during 1989 and for the Louisiana
retail deregulated portion of River Bend in 1991. The results of the
Company's deregulated operations (before interest charges) for the
years ended December 31, 1995, 1994, and 1993 are as follows:
1995 1994 1993
(In Thousands)
Operating Revenues $141,171 $138,822 $141,399
Operating Expenses
Fuel, operating, and maintenance 105,733 116,386 120,177
Depreciation 31,129 27,890 28,554
Income taxes (2,914) (249) (4,411)
-------- -------- --------
Total Operating Expenses 133,948 144,027 144,320
-------- -------- --------
Net Income (Loss) from Deregulated $ 7,223 $ (5,205) $ (2,921)
Utility Operations ======== ======== ========
SFAS 121
In March 1995, the FASB issued SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" (SFAS 121), which became effective January 1, 1996. This
statement describes circumstances that may result in certain Long-Lived
assets being impaired. The statement also provides criteria for
recognition and measurement of asset impairment. Note 2 herein
describes regulatory assets of $169 million (net of tax) related to
Texas retail deferred River Bend operating and carrying costs.
These deferred costs will be required to be written off upon the
adoption of SFAS 121.
Certain other assets and operations of the Company totaling
approximately $1.7 billion (pre-tax) could be affected by SFAS 121 in
the future. Those assets include the Company's Louisiana deregulated
asset plan, and its Texas jurisdiction abeyed portion of the River Bend
plant, in addition to the wholesale jurisdiction and steam department
operations. As discussed above, the Company has previously discontinued
the application of SFAS 71 for the Louisiana deregulated asset plan,
operations under the wholesale jurisdiction, and the steam department.
The Company periodically reviews these assets and operations in
order to determine if the carrying value of such assets will be
recovered. Generally, this determination is based on the net cash
flows expected to result from such operations and assets. Projected
net cash flows depend on the future operating costs associated with the
assets, the efficiency and availability of the assets and generating
units, and the future market and price for energy over the remaining
life of the assets. Based on current estimates of future cash flows as
prescribed under SFAS 121, management anticipates that future revenues
from such assets and operations of the Company will fully recover all
related costs.
Fair Value Disclosures
The estimated fair value of financial instruments was determined
using bid prices reported by dealer markets and by nationally
recognized investment banking firms. Considerable judgment is required
in developing the estimates of fair value. Therefore, estimates are
not necessarily indicative of the amounts that the Company could
realize in a current market exchange. In addition, gains or losses
realized on financial instruments may be reflected in future rates and
not accrue to the benefit of stockholders.
The Company considers the carrying amounts of financial
instruments classified as current assets and liabilities to be a
reasonable estimate of their fair value because of the short maturity
of these instruments. In addition, the Company does not expect that
performance of its obligations will be required in connection with
certain off-balance sheet commitments and guarantees considered
financial instruments. Due to this factor, and because of the related-
party nature of these commitments and guarantees, determination of fair
value is not considered practicable. See Notes 5, 6, and 8 herein for
additional disclosure concerning fair value methodologies.
NOTE 2. RATE AND REGULATORY MATTERS
Merger-Related Rate Agreements
In 1993, the LPSC and the PUCT approved separate regulatory
proposals for the Company that include the following elements: (1) a
five-year Rate Cap on the Company's retail electric base rates in the
respective states, except for force major (defined to include, among
other things, war, natural catastrophes, and high inflation); (2) a
provision for passing through to retail customers the jurisdictional
portion of the fuel savings created by the Merger; and (3) a mechanism
for tracking nonfuel operation and maintenance savings created by the
Merger. The LPSC regulatory plan provides that such nonfuel savings
will be shared 60% by shareholders and 40% by ratepayers during the
eight years following the Merger. The LPSC plan requires annual
regulatory filings by the end of May through the year 2001. The PUCT
regulatory plan provides that such savings will be shared equally by
shareholders and ratepayers, except that the shareholders' portion will
be reduced by $2.6 million per year on a total company basis in years
four through eight. The PUCT plan also requires a series of future
regulatory filings in November 1996, 1998, and 2001 to ensure that the
ratepayers' share of such savings be reflected in rates on a timely
basis. In addition, the plan requires Entergy Corporation to hold the
Company's Texas retail customers harmless from the effects of the
removal by FERC of a 40% cap on the amount of fuel savings the Company
may be required to transfer to other subsidiaries of Entergy
Corporation under the FERC tracking mechanism (see below). On January
14, 1994, Entergy Corporation filed a petition for review before the
D.C. Circuit Court seeking review of FERC's deletion of the 40% cap
provision in the fuel cost protection mechanism. The matter is
currently being held in abeyance.
FERC approved the Company's inclusion in the System Agreement.
Commitments were adopted to provide reasonable assurance that the
ratepayers of the Operating Companies will not be allocated higher
costs including, among other things, (1) a tracking mechanism to
protect the Operating Companies from certain unexpected increases in
fuel costs, (2) the distribution of profits from power sales contracts
entered into prior to the Merger, (3) a methodology to estimate the
cost of capital in future FERC proceedings, and (4) a stipulation that
the Operating Companies will be insulated from certain direct effects
on capacity equalization payments if the Company were to acquire
Cajun's 30% share in River Bend. The Operating Companies' regulatory
authorities can elect to "opt out" of the fuel tracker, but are not
required to make such an election until FERC has approved the
respective Operating Company's compliance filing. The City of New
Orleans and the Mississippi Public Service Commission have made such
an election.
River Bend
In May 1988, the PUCT granted the Company a permanent increase in
annual revenues of $59.9 million resulting from the inclusion in rate
base of approximately $1.6 billion of company-wide River Bend plant
investment and approximately $182 million of related Texas retail
jurisdiction deferred River Bend costs (Allowed Deferrals). In
addition, the PUCT disallowed as imprudent $63.5 million of company-
wide River Bend plant costs and placed in abeyance, with no finding of
prudence, approximately $1.4 billion of company-wide River Bend plant
investment and approximately $157 million of Texas retail jurisdiction
deferred River Bend operating and carrying costs. The PUCT affirmed
that the rate treatment of such amounts would be subject to future
demonstration of the prudence of such costs. The Company and
intervening parties appealed this order (Rate Appeal) and the Company
filed a separate rate case asking, among other things, that the abeyed
River Bend plant costs be found prudent (Separate Rate Case).
Intervening parties filed suit in a Texas district court to prohibit
the Separate Rate Case and prevailed. The district court's decision in
favor of the intervenors was ultimately appealed to the Texas Supreme
Court, which ruled in 1990 that the prudence of the purported abeyed
costs could not be relitigated in a separate rate proceeding. The
Texas Supreme Court's decision stated that all issues relating to the
merits of the original PUCT order, including the prudence of all River
Bend-related costs, should be addressed in the Rate Appeal.
In October 1991, the Texas district court in the Rate Appeal
issued an order holding that, while it was clear the PUCT made an error
in assuming it could set aside $1.4 billion of the total costs of River
Bend and consider them in a later proceeding, the PUCT, nevertheless,
found that the Company had not met its burden of proof related to the
amounts placed in abeyance. The court also ruled that the Allowed
Deferrals should not be included in rate base. The court further
stated that the PUCT had erred in reducing the Company's deferred costs
by $1.50 for each $1.00 of revenue collected under the interim rate
increases authorized in 1987 and 1988. The court remanded the case to
the PUCT with instructions as to the proper handling of the Allowed
Deferrals. The Company's motion for rehearing was denied and, in
December 1991, the Company filed an appeal of the October 1991 district
court order. The PUCT also appealed the October 1991 district court
order, which served to supersede the district court's judgment,
rendering it unenforceable under Texas law.
In August 1994, the Texas Third District Court of Appeals (the
Appellate Court) affirmed the district court's decision that there was
substantial evidence to support the PUCT's 1988 decision not to include
the abeyed construction costs in the Company's rate base. While
acknowledging that the PUCT had exceeded its authority in attempting to
defer a decision on the inclusion of those costs in rate base in order
to allow the Company a further opportunity to demonstrate the prudence
of those costs in a subsequent proceeding, the Appellate Court found
that the Company had suffered no harm or lack of due process as a
result of the PUCT's error. Accordingly, the Appellate Court held that
the PUCT's action had the effect of disallowing the company-wide $1.4
billion of River Bend construction costs for ratemaking purposes. In
its August 1994 opinion, the Appellate Court also held that the
Company's deferred operating and maintenance costs associated with the
allowed portion of River Bend, as well as the Company's deferred River
Bend carrying costs included in the Allowed Deferrals, should be
included in rate base. The Appellate Court's August 1994 opinion
affirmed the PUCT's original order in this case.
The Appellate Court's August 1994 opinion was entered by two
judges, with a third judge dissenting. The dissenting opinion stated
that the result of the majority opinion was, among other things, to
deprive the Company of due process at the PUCT because the PUCT never
reached a finding on the $1.4 billion of construction costs.
In October 1994, the Appellate Court denied the Company's motion
for rehearing on the August 1994 opinion as to the $1.4 billion in
River Bend construction costs and other matters. The Company appealed
the Appellate Court's decision to the Texas Supreme Court. On February
9, 1996, the Texas Supreme Court agreed to hear the appeal. Oral
arguments are scheduled for March 19, 1996.
As of December 31, 1995, the River Bend plant costs disallowed for
retail ratemaking purposes in Texas, the River Bend plant costs held in
abeyance, and the related operating and carrying cost deferrals totaled
(net of taxes) approximately $13 million, $276 million (both net of
depreciation), and $169 million, respectively. Allowed Deferrals were
approximately $83 million, net of taxes and amortization, as of
December 31, 1995. The Company estimates it has collected
approximately $182 million of revenues as of December 31, 1995, as a
result of the originally ordered rate treatment by the PUCT of these
deferred costs. If recovery of the Allowed Deferrals is not upheld,
future revenues based upon those allowed deferrals could also be lost,
and no assurance can be given as to whether or not refunds to customers
of revenue received based upon such deferred costs will be required.
No assurance can be given as to the timing or outcome of the
remands or appeals described above. Pending further developments in
these cases, the Company has made no write-offs or reserves for the
River Bend-related costs. See below for a discussion of the write-off
of deferred operating and carrying cost required under SFAS 121 in
1996. Based on advice from Clark, Thomas & Winters, A Professional
Corporation, legal counsel of record in the Rate Appeal, management
believes that it is reasonably possible that the case will be remanded
to the PUCT, and the PUCT will be allowed to rule on the prudence of
the abeyed River Bend plant costs. At this time, management and legal
counsel are unable to predict the amount, if any, of the abeyed and
previously disallowed River Bend plant costs that ultimately may be
disallowed by the PUCT. A net of tax write-off as of December 31,
1995, of up to $289 million could be required based on an ultimate
adverse ruling by the PUCT on the abeyed and disallowed costs.
In prior proceedings, the PUCT has held that the original cost of
nuclear power plants will be included in rates to the extent those
costs were prudently incurred. Based upon the PUCT's prior decisions,
management believes that River Bend construction costs were prudently
incurred and that it is reasonably possible that it will recover in
rate base, or otherwise through means such as a deregulated asset plan,
all or substantially all of the abeyed River Bend plant costs.
However, management also recognizes that it is reasonably possible that
not all of the abeyed River Bend plant costs may ultimately be
recovered.
As part of its direct case in the Separate Rate Case, the Company
filed a cost reconciliation study prepared by Sandlin Associates,
management consultants with expertise in the cost analysis of nuclear
power plants, which supports the reasonableness of the River Bend costs
held in abeyance by the PUCT. This reconciliation study determined
that approximately 82% of the River Bend cost increase above the amount
included by the PUCT in rate base was a result of changes in federal
nuclear safety requirements, and provided other support for the
remainder of the abeyed amounts.
There have been four other rate proceedings in Texas involving
nuclear power plants. Disallowed investment in the plants ranged from
0% to 15%. Each case was unique, and the disallowances in each were
made for different reasons. Appeals of two of these PUCT decisions are
currently pending.
The following factors support management's position that a loss
contingency requiring accrual has not occurred, and its belief that
all, or substantially all, of the abeyed plant costs will ultimately be
recovered:
1. The $1.4 billion of abeyed River Bend plant costs have never
been ruled imprudent and disallowed by the PUCT;
2. Analysis by Sandlin Associates, which supports the prudence of
substantially all of the abeyed construction costs;
3. Historical inclusion by the PUCT of prudent construction costs
in rate base; and
4. The analysis of the Company's legal staff, which has
considerable experience in Texas rate case litigation.
Based on advice from Clark, Thomas & Winters, A Professional
Corporation, legal counsel of record in the Rate Appeal, management
believes that it is reasonably possible that the Allowed Deferrals will
continue to be recovered in rates, and that it is reasonably possible
that the deferred costs related to the $1.4 billion of abeyed River
Bend plant costs will be recovered in rates to the extent that the $1.4
billion of abeyed River Bend plant is recovered.
The adoption of SFAS 121 became effective January 1, 1996. SFAS
121 changes the standard for continued recognition of regulatory assets
and, as a result the Company will be required to write-off $169 million
of rate deferrals in 1996. The standard also describes circumstances
that may result in assets being impaired and provides criteria for
recognition and measurement of asset impairment. See Note 1 herein for
further information regarding SFAS 121.
Filings with the PUCT and Texas Cities
In March 1994, the Texas Office of Public Utility Counsel and
certain cities served by the Company instituted an investigation of the
reasonableness of the Company's rates. On March 20, 1995, the PUCT
ordered a $72.9 million annual base rate reduction for the period March
31, 1994, through September 1, 1994, decreasing to an annual base rate
reduction of $52.9 million after September 1, 1994. In accordance with
the Merger agreement, the rate reduction was applied retroactively to
March 31, 1994.
On May 26, 1995, the PUCT amended its previously issued March 20,
1995 rate order, reducing the $52.9 million annual base rate reduction
to an annual level of $36.5 million. The PUCT's action was based, in
part, upon a Texas Supreme Court decision not to require a utility to
use the prospective tax benefits generated by disallowed expenses to
reduce rates. The PUCT's May 26, 1995, amended order no longer
required the Company to pass such prospective tax benefits onto its
customers. The rate refund, retroactive to March 31, 1994, was
approximately $61.8 million (including interest) and was refunded to
customers in September, October, and November 1995.
The Company and other parties have appealed the PUCT order, but no
assurance can be given as to the timing or outcome of the appeal.
Filings with the LPSC
In May 1994, the Company filed a required earnings analysis with
the LPSC for the test year preceding the Merger (1993). On December
14, 1994, the LPSC ordered a $12.7 million annual rate reduction for
the Company, effective January 1995. The Company received a
preliminary injunction from the District Court regarding $8.3 million
of the reduction relating to the earnings effect of a 1994 change in
accounting for unbilled revenues. On January 1, 1995, the Company
reduced rates by $4.4 million. The Company filed an appeal of the
entire $12.7 million rate reduction with the District Court, which
denied the appeal in July 1995. The Company has appealed the order to
the Louisiana Supreme Court. The preliminary injunction relating to
$8.3 million of the reduction will remain in effect during the appeal.
On May 31, 1995, the Company filed its second required post-Merger
earnings analysis with the LPSC. Hearings on this review were held and
a decision is expected in mid-1996.
LPSC Fuel Cost Review
In November 1993, the LPSC ordered a review of the Company's fuel
costs for the period October 1988 through September 1991 (Phase 1)
based on the number of outages at River Bend and the findings in the
June 1993 PUCT fuel reconciliation case. In July 1994, the LPSC ruled
in the Phase 1 fuel review case and ordered the Company to refund
approximately $27 million to its customers. Under the order, a refund
of $13.1 million was made through a billing credit on August 1994
bills. In August 1994, the Company appealed the remaining $13.9
million of the LPSC-ordered refund to the district court. The Company
has made no reserve for the remaining portion, pending outcome of the
district court appeal, and no assurance can be given as to the timing
or outcome of the appeal.
The LPSC is currently conducting the second phase of its review of
the Company's fuel costs for the period October 1991 through December
1994. On June 30, 1995, the LPSC consultants filed testimony
recommending a disallowance of $38.7 million of fuel costs. Hearings
began in December 1995 and are expected to be completed in early March
1996.
Deregulated Asset Plan
A deregulated asset plan representing an unregulated portion
(approximately 24%) of River Bend (plant costs, generation, revenues,
and expenses) was established pursuant to a January 1992 LPSC order.
The plan allows the Company to sell such generation to Louisiana retail
customers at 4.6 cents per KWh or off-system at higher prices, with
certain sharing provisions for sharing such incremental revenue above
4.6 cents per KWh between ratepayers and shareholders.
River Bend Cost Deferrals
The Company deferred approximately $369 million of River Bend
operating and purchased power costs, and accrued carrying charges,
pursuant to a 1986 PUCT accounting order. Approximately $182 million
of these costs are being amortized over a 20-year period, and the
remaining $187 million are not being amortized pending the outcome of
the Rate Appeal. As of December 31, 1995, the unamortized balance of
these costs was $312 million. The Company deferred approximately
$400.4 million of similar costs pursuant to a 1986 LPSC accounting
order, of which approximately $83 million were unamortized as of
December 31, 1995, and are being amortized over a 10-year period ending
in 1998.
In accordance with a phase-in plan approved by the LPSC, the
Company deferred $294 million of its River Bend costs related to the
period February 1988 through February 1991. The Company has amortized
$172 million through December 31, 1995. The remainder of $122 million
will be recovered over approximately 2.2 years.
NOTE 3. INCOME TAXES
The Company's income tax expense consists of the following:
For the Years Ended December 31,
1995 1994 1993
(In Thousands)
Current:
Federal $ 13 $ 71 $ 16,714
State - 14 -
-------- -------- --------
Total 13 85 16,714
Deferred -- net 67,703 (57,911) 46,477
Investment tax credit adjustments--net (4,472) (4,260) 1,093
-------- -------- --------
Recorded income tax expense $ 63,244 $(62,086) $ 64,284
======== ======== ========
Charged to operations $ 57,235 $ (6,448) $ 46,007
Charged (credited) to other income 6,009 (55,638) 12,009
Charged to extraordinary items - - (671)
Charged to cumulative effect - - 6,939
-------- -------- --------
Total income taxes $ 63,244 $(62,086) $ 64,284
======== ======== ========
The Company's total income taxes differ from the amounts computed
by applying the statutory Federal income tax rate to income before
taxes. The reasons for the differences are:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1994 1993
% of % of % of
Pre-tax Pre-tax Pre-tax
Amount Income Amount Income Amount Income
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Computed at statutory rate $65,157 35.0 ($50,694) (35.0) $50,101 35.0
Increases (reductions) in tax
resulting from:
State income taxes net of
federal income tax effect 8,375 4.5 (6,571) (4.5) 1,332 0.9
Rate deferrals - net 6,240 3.4 6,551 4.5 6,193 4.3
Depreciation (13,073) (7.0) (8,188) (5.7) (11,343) (7.9)
Impact of change in tax rate - - - - 5,179 3.6
Book expenses not deducted
for tax - - 151 0.1 15,134 10.6
Amortization of investment
tax credits (4,475) (2.4) (4,472) (3.1) (4,435) (3.1)
Other--net 1,020 0.5 1,137 0.8 2,123 1.5
------- ---- -------- ----- ------- ----
Total income taxes $63,244 34.0 ($62,086) (42.9) $64,284 44.9
======= ==== ======== ===== ======= ====
</TABLE>
Significant components of the Company's net deferred tax
liabilities as of December 31, 1995 and 1994, are as follows:
1995 1994
(In Thousands)
Deferred Tax Liabilities:
Net regulatory assets/(liabilities) $ (512,281) $ (494,443)
Plant related basis differences (1,060,241) (1,065,053)
Rate deferrals (104,695) (132,213)
Other (1,814) (23,163)
----------- -----------
Total $(1,679,031) $(1,714,872)
=========== ===========
Deferred Tax Assets:
Net operating loss carryforwards $ 151,141 $ 251,000
Investment tax credit carryforward 167,713 173,852
Valuation allowance - investment tax
credit carryforward (44,597) (64,407)
Accumulated deferred investment tax
credit 58,653 69,269
Alternative minimum tax credit 39,709 39,743
Other 172,733 194,476
----------- -----------
Total $ 545,352 $ 663,933
=========== ===========
Net deferred tax liability $(1,133,679) $(1,050,939)
=========== ===========
As of December 31, 1995, the Company had investment tax credit
(ITC) carryforwards of $167.7 million, federal net operating loss (NOL)
carryforwards of $384.6 million and state NOL carryforwards of $355.0
million. The ITC carryforwards include the 35% reduction required by
the Tax Reform Act of 1986 and may be applied against federal income
tax liability of the Company and, if not utilized, will expire between
1996 and 2002. It is currently anticipated that approximately $44.6
million of ITC carryforward will expire unutilized. A valuation
allowance has been provided for deferred tax assets relating to that
amount. The alternative minimum tax (AMT) credit carryforward as of
December 31, 1995, was $39.7 million. This AMT credit can be carried
forward indefinitely and will reduce the Company's federal income tax
liability in the future.
In 1993, the Company adopted SFAS 109. SFAS 109 required that
deferred income taxes be recorded for all carryforwards and temporary
differences between the book and tax basis of assets and liabilities,
and that deferred tax balances be based on enacted tax laws at tax
rates that are expected to be in effect when the temporary differences
reverse. SFAS 109 required that regulated enterprises recognize
adjustments resulting from implementation as regulatory assets or
liabilities if it is probable that such amounts will be recovered from
or returned to customers in future rates. The Company recorded the
adoption of SFAS 109 by restating 1990, 1991, and 1992 financial
statements and including a charge of $96.5 million for the cumulative
effect of the adoption of SFAS 109 in 1990 primarily for that portion
of the operations on which the Company has discontinued regulatory
accounting principles.
NOTE 4. LINES OF CREDIT AND RELATED BORROWINGS
The Commission has authorized the Company to effect short-term
borrowings up to $125 million. This limit may be increased to as much
as $395 million after further Commission approval. This authorization
is effective through November 30, 1996. The Company did not have any
outstanding borrowings as of December 31, 1995.
NOTE 5. PREFERRED, PREFERENCE, AND COMMON STOCK
The number of shares, authorized and outstanding, and dollar value
of preferred and preference stock for the Company as of December 31,
1995, and 1994 were:
<TABLE>
<CAPTION>
Shares Call Price Per
Authorized Total Share as of
and Outstanding Dollar Value December 31,
1995 1994 1995 1994 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
GSU Preferred and Preference Stock
Preference Stock
Cumulative, without par value
7% Series (a) (b) 6,000,000 6,000,000 $150,000 $150,000
========= ========= ======== ========
Preferred Stock
Authorized 6,000,000, $100 par
value, cumulative
Without sinking fund:
4.40% Series 51,173 51,173 $5,117 $5,117 $108.00
4.50% Series 5,830 5,830 583 583 $105.00
4.40%-1949 Series 1,655 1,655 166 166 $103.00
4.20% Series 9,745 9,745 975 975 $102.82
4.44% Series 14,804 14,804 1,480 1,480 $103.75
5.00% Series 10,993 10,993 1,099 1,099 $104.25
5.08% Series 26,845 26,845 2,685 2,685 $104.63
4.52% Series 10,564 10,564 1,056 1,056 $103.57
6.08% Series 32,829 32,829 3,283 3,283 $103.34
7.56% Series 350,000 350,000 35,000 35,000 $101.80
8.52% Series 500,000 500,000 50,000 50,000 $102.43
9.96% Series 350,000 350,000 35,000 35,000 $102.64
--------- --------- -------- --------
Total without sinking fund 1,364,438 1,364,438 $136,444 $136,444
========= ========= ======== ========
With sinking fund:
8.80% Series 204,495 226,807 $20,450 $22,680 $100.00
9.75% Series 19,543 21,565 1,954 2,154 $100.00
8.64% Series 168,000 182,000 16,800 18,200 $101.00
Adjustable Rate - A, 7.00% (c) 192,000 204,000 19,200 20,400 $100.00
Adjustable Rate - B, 7.00% (c) 292,500 315,000 29,250 31,500 $100.00
--------- --------- -------- --------
Total with sinking fund 876,538 949,372 $87,654 $94,934
========= ========= ======== ========
Fair Value of Preference Stock and
Preferred Stock with sinking fund (d) $219,191 $227,800
======== ========
</TABLE>
(a) The total dollar value represents the involuntary liquidation
value of $25 per share.
(b) These series are not redeemable as of December 31, 1995.
(c) Rates are as of December 31, 1995.
(d) Fair values were determined using bid prices reported by dealer
markets and by nationally recognized investment banking firms.
See Note 1 herein for additional disclosure of fair value of
financial instruments.
Changes in the preferred stock, with and without sinking fund,
preference stock, and common stock for the Company during the last
three years were:
Number of Shares
1995 1994 1993
Preferred stock retirements
$100 par value (72,834) (60,667) (1,683,834)
Preference stock issuances - - 6,000,000
Common stock issuances - - 100
Common stock retirements - - (114,055,065)
Cash sinking fund requirements for the next five years for
preferred stock, outstanding as of December 31, 1995 are:
(In Thousands)
1996 $6,067
1997 6,067
1998 6,067
1999 6,067
2000 156,067
The Company has the annual noncumulative option to redeem, at par,
additional amounts of certain series of their outstanding preferred
stock.
Employees of the Company are eligible to participate in the
Entergy Corporation Employee Stock Investment Plan (ESIP). ESIP is
authorized to issue or acquire, through March 31, 1997, up to 2,000,000
shares of its common stock to be held as treasury shares and reissued
to meet the requirements of the ESIP. Under the ESIP, employees may be
granted the opportunity to purchase (for up to 10% of their regular
annual salary, but not more than $25,000) common stock at 85% of the
market value on the first or last business day of the plan year,
whichever is lower. Through this program, employees purchased 329,863
shares for the 1994 plan year. The 1995 plan year runs from April 1,
1995, to March 31, 1996.
NOTE 6. LONG - TERM DEBT
The long-term debt of the Company as of December 31, 1995, was:
Maturities Interest Rates
From To From To
First Mortgage Bonds
1996 1999 5% 10.5% $445,000
2000 2004 6% 9.75% 670,000
2005 2009 6.25% 11.375% 120,000
2020 2024 7% 10.375% 450,000
Governmental Obligations (a)
1996 2008 5.9% 10% 46,300
2009 2023 5.95% 12.50% 435,735
Debentures
1996 2008 9.72% 150,000
Other Long-Term Debt 9,156
Unamortized Premium and Discount - Net (5,295)
----------
Total Long-Term Debt 2,320,896
Less Amount Due Within One Year 145,425
----------
Long-Term Debt Excluding Amount Due $2,175,471
Within One Year ==========
Fair Value of Long-Term Debt (b) $2,416,932
==========
The long-term debt of the Company as of December 31, 1994, was:
Maturities Interest Rates
From To From To
First Mortgage Bonds
1995 1999 4.625% 14% $445,000
2000 2004 6% 9.75% 670,000
2005 2009 6.25% 11.375% 120,000
2020 2024 7% 10.375% 450,000
Governmental Obligations (a)
1995 2008 5.9% 10% 46,725
2009 2023 5.95% 12.50% 435,735
Debentures - Due 1998, 9.72% 200,000
Other Long-Term Debt 6,879
Unamortized Premium and Discount - Net (5,497)
----------
Total Long-Term Debt 2,368,842
Less Amount Due Within One Year 50,425
----------
Long-Term Debt Excluding Amount due $2,318,417
Within One Year ==========
Fair Value of Long-Term Debt (b) $2,277,300
==========
(a) Consists of pollution control bonds, certain series of which are
secured by non-interest bearing first mortgage bonds.
(b) The fair value excludes lease obligations and other long-term debt
and was determined using bid prices reported by dealer markets and
by nationally recognized investment banking firms. See Note 1
herein for additional information on disclosure of fair value of
financial instruments.
The annual long-term debt maturities (excluding lease obligations)
and annual cash sinking fund requirements for the next five years are
as follows:
Year In Thousands
1996 $145,425
1997 160,865
1998 190,890
1999 100,915
2000 945
Not included are other sinking fund requirements of approximately
$13.8 million annually which may be satisfied by cash or by
certification of property additions at the rate of 167% of such
requirements.
The Company has two outstanding series of pollution control bonds
collateralized by irrevocable letters of credit, which are scheduled to
expire before the scheduled maturity of the bonds. The letter of
credit collateralizing the $28.4 million variable rate series, due
December 1, 2015, expires in September 1996 and the letter of credit
collateralizing the $20 million variable rate series, due April 1,
2016, expires in April 1996. The Company plans to refinance these
series or renew the letters of credit.
NOTE 7. DIVIDEND RESTRICTIONS
Provisions within the Articles of Incorporation or pertinent
Indentures and various other agreements related to the long-term debt
and preferred stock of Entergy Corporation's subsidiaries restrict the
payment of cash dividends or other distributions on their common and
preferred stock. Additionally, PUHCA prohibits Entergy Corporation's
subsidiaries from making loans or advances to Entergy Corporation.
Approximately $1,266.5 million of restricted common equity was
unavailable for distribution to Entergy Corporation by the Company as
of December 31, 1995.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Cajun - River Bend Litigation
The Company has significant business relationships with Cajun,
including co-ownership of River Bend (operated by the Company) and Big
Cajun 2, Unit 3 (operated by Cajun). The Company and Cajun,
respectively, own 70% and 30% undivided interests in River Bend and 42%
and 58% undivided interests in Big Cajun 2, Unit 3.
In June 1989, Cajun filed a civil action against the Company in
the United States District Court for the Middle District of Louisiana
(District Court). Cajun's complaint seeks to annul, rescind,
terminate, and/or dissolve the Joint Ownership Participation and
Operating Agreement (Operating Agreement) entered into on August 28,
1979, relating to River Bend. Cajun alleges fraud and error by the
Company, breach of its fiduciary duties owed to Cajun, and/or the
Company's repudiation, renunciation, abandonment, or dissolution of its
core obligations under the Operating Agreement, as well as the lack or
failure of cause and/or consideration for Cajun's performance under the
Operating Agreement. The suit also seeks to recover Cajun's alleged
$1.6 billion investment in the unit as damages, plus attorneys' fees,
interest, and costs. Two member cooperatives of Cajun have brought an
independent action to declare the Operating Agreement void, based upon
failure to get prior LPSC approval alleged to be necessary. The
Company believes the suits are without merit and is contesting them
vigorously.
A trial on the portion of the suit by Cajun to rescind the
Operating Agreement began in April 1994 and was completed in March
1995. On October 24, 1995, the District Court issued a memorandum
opinion ruling in favor of the Company. The District Court found that
Cajun did not prove that the Company fraudulently induced it to execute
the Operating Agreement and that Cajun failed to timely assert its
claim. A final judgment on this portion of the suit will not be
entered until all claims asserted by Cajun have been heard. The second
portion of the suit is scheduled to begin on July 2, 1996. If the
Company is ultimately unsuccessful in this litigation and is required
to pay substantial damages, the Company would probably be unable to
make such payments and could be forced to seek relief from its
creditors under the United States Bankruptcy Code. If the Company
prevails in this litigation, there can be no assurance that the United
States Bankruptcy Court will allow funding of all required costs of
Cajun's ownership in River Bend.
Cajun has not paid its full share of capital costs, operating and
maintenance expenses, or other costs for repairs and improvements to
River Bend since 1992. In addition, certain costs and expenses paid by
Cajun were paid under protest. These actions were taken by Cajun based
on its contention, with which the Company disagrees, that River Bend's
operating and maintenance expenses were excessive. Cajun's unpaid
portion of River Bend operating and maintenance expenses (including
nuclear fuel) and capital costs for 1995 was approximately $58.7
million. Cajun continues to pay its share of decommissioning costs for
River Bend.
During the period in which Cajun is not paying its share of River
Bend costs, the Company intends to fund all costs necessary for the
safe, continuing operation of the unit. The responsibilities of
Entergy Operations, Inc. as the licensed operator of River Bend, for
safely operating and maintaining the unit, are not affected by Cajun's
actions.
In view of Cajun's failure to fund its share of River Bend-related
operating, maintenance, and capital costs, the Company has (i) credited
the Company's share of expenses for Big Cajun 2, Unit 3 against amounts
due from Cajun to the Company, and (ii) sought to market Cajun's share
of the power from River Bend and apply the proceeds to the amounts due
from Cajun to the Company. As a result, on November 2, 1994, Cajun
discontinued supplying the Company with its share of power from Big
Cajun 2, Unit 3. The Company requested an order from the District Court
requiring Cajun to supply the Company with this energy and allowing the
Company to credit amounts due to Cajun for Big Cajun 2, Unit 3 energy
against amounts Cajun owed to the Company for River Bend. In December
1994, by means of a preliminary injunction, the District Court ordered
Cajun to supply the Company with its share of energy from Big Cajun 2,
Unit 3 and ordered the Company to make payments for its share of Big
Cajun 2, Unit 3 expenses to the registry of the District Court. In
October 1995, the Fifth Circuit affirmed the District Court's
preliminary injunction. As of December 31, 1995, $38 million had been
paid by the Company into the registry of the District Court.
On December 21, 1994, Cajun filed a petition in the United States
Bankruptcy Court for the Middle District of Louisiana seeking
bankruptcy relief under Chapter 11 of the Bankruptcy Code. Cajun's
bankruptcy could have a material adverse effect on the Company.
However, the Company is taking appropriate steps to protect its
interests and its claims against Cajun arising from the co-ownership in
River Bend and Big Cajun 2, Unit 3. On December 31, 1994, the District
Court issued an order lifting an automatic stay as to certain
proceedings, with the result that the preliminary injunction granted by
the Court in December 1994 remains in effect. Cajun filed a Notice of
Appeal on January 18, 1995, to the Fifth Circuit seeking a reversal of
the District Court's grant of the preliminary injunction. No hearing
date has been set on Cajun's appeal.
In the bankruptcy proceedings, Cajun filed on January 10, 1995, a
motion to reject the Operating Agreement as a burdensome executory
contract. The Company responded on January 10, 1995, with a memorandum
opposing Cajun's motion. Should the court grant Cajun's motion to
reject the Operating Agreement, Cajun would be relieved of its
financial obligations under the contract, while the Company would
likely have a substantial damage claim arising from any such rejection.
Although the Company believes that Cajun's motion to reject the
Operating Agreement is without merit, it is not possible to predict the
outcome or ultimate impact of these proceedings.
The cumulative cost (excluding nuclear fuel) to the Company
resulting from Cajun's failure to pay its full share of River Bend-
related costs, reduced by the proceeds from the sale by the Company of
Cajun's share of River Bend power and payments for the Company's
portion of expenses for Big Cajun 2, Unit 3 into the registry of the
District Court, was $31.1 million as of December 31, 1995. These
amounts are reflected in long-term receivables with an offsetting
reserve in other deferred credits. Cajun's bankruptcy may affect the
ultimate collectibility of the amounts owed to the Company, including
any amounts that may be awarded in litigation.
Cajun - Transmission Service
The Company and Cajun are parties to FERC proceedings relating to
transmission service charge disputes. In April 1992, FERC issued a
final order in these disputes. In May 1992, the Company and Cajun
filed motions for rehearings on certain portions of the order, which
are still pending at FERC. In June 1992, the Company filed a petition
for review in the United States Court of Appeals regarding certain of
the other issues decided by FERC. In August 1993, the United States
Court of Appeals rendered an opinion reversing FERC's order regarding
the portion of such disputes relating to the calculations of certain
credits and equalization charges under the Company's service schedules
with Cajun. The opinion remanded the issues to FERC for further
proceedings consistent with its opinion. In February 1995, FERC
eliminated an issue from the remand that the Company believes the Court
of Appeals directed FERC to reconsider. In orders issued on August 3,
1995, and October 2, 1995, FERC affirmed an April 1995 ruling by an ALJ
in the remanded portion of the Company's and Cajun's ongoing
transmission service charge disputes before FERC. Both the Company and
Cajun have petitioned for appeal. No hearing dates have been set in
the appeals.
Under the Company's interpretation of the 1992 FERC order, as
modified by its August 3, 1995, and October 2, 1995, orders, Cajun
would owe the Company approximately $64.9 million as of December 31,
1995. The Company further estimates that if it were to prevail in its
May 1992 motion for rehearing and on certain other issues decided
adversely to the Company in the February 1995, August 1995, and October
1995 FERC orders, which the Company has appealed, Cajun would owe the
Company approximately $143.5 million, as of December 31, 1995. If
Cajun were to prevail in its May 1992 motion for rehearing to FERC, and
if the Company were not to prevail in its May 1992 motion for rehearing
to FERC, and if Cajun were to prevail in appealing FERC's August and
October 1995 orders, the Company estimates it would owe Cajun
approximately $96.4 million as of December 31, 1995. The above amounts
are exclusive of a $7.3 million payment by Cajun on December 31, 1990,
which the parties agreed to apply to the disputed transmission service
charges. Pending FERC's ruling on the May 1992 motions for rehearing,
the Company has continued to bill Cajun, utilizing the historical
billing methodology, and has recorded underpaid transmission charges,
including interest, in the amount of $137.2 million as of December 31,
1995. This amount is reflected in long-term receivables, with an
offsetting reserve in other deferred credits. Cajun's bankruptcy may
affect the Company's collection of the above amounts. FERC has
determined that the collection of the pre-petition debt of Cajun is an
issue properly decided in the bankruptcy proceeding.
Capital Requirements and Financing
Construction expenditures (excluding nuclear fuel) for the years
1996, 1997, and 1998 are estimated to total $155 million, $127 million,
and $131 million, respectively. The Company will also require $515
million during the period 1996-1998 to meet long-term debt and
preferred stock maturities and cash sinking fund requirements. The
Company plans to meet the above requirements primarily with internally
generated funds and cash on hand, supplemented by the issuance of debt
and preferred stock. The Company may also continue with the
acquisition or refinancing of all or a portion of certain outstanding
series of preferred stock and long-term debt. See Notes 5 and 6 herein
for further information.
Fuel Purchase Agreements
The Company has a contract for a supply of low-sulfur Wyoming coal
for Nelson Unit 6, which should be sufficient to satisfy the fuel
requirements at Nelson Unit 6 through 2004. Cajun has advised the
Company that it has contracts that should provide an adequate supply of
coal until 1999 for the operation of Big Cajun 2, Unit 3.
The Company has long-term gas contracts, which will satisfy
approximately 75% of its annual requirements. Such contracts generally
require the Company to purchase in the range of 40% of expected total
gas needs. Additional gas requirements are satisfied under less
expensive short-term contracts. The Company has a transportation
service agreement with a gas supplier that provides flexible natural
gas service to the Sabine and Lewis Creek generating stations. This
service is provided by the supplier's pipeline and salt dome gas
storage facility, which has a present capacity of 5.3 billion cubic
feet of natural gas.
Power Purchases/Sales Agreements
In 1988, the Company entered into a joint venture with a primary
term of 20 years with Conoco, Inc., Citgo Petroleum Corporation, and
Vista Chemical Company (Industrial Participants) whereby the Company's
Nelson Units 1 and 2 were sold to a partnership (NISCO) consisting of
the Industrial Participants and the Company. The Industrial
Participants supply the fuel for the units, while the Company operates
the units at the discretion of the Industrial Participants and
purchases the electricity produced by the units. The Company is
continuing to sell electricity to the Industrial Participants. For the
years ended December 31, 1995, 1994, and 1993, the purchases by the
Company of electricity from the joint venture totaled $59.7 million,
$58.3 million, and $62.6 million, respectively.
Nuclear Insurance
The Price-Anderson Act limits public liability for a single
nuclear incident to approximately $8.92 billion. Through Entergy
Corporation, the Company has protection for this liability through a
combination of private insurance (currently $200 million) and an
industry assessment program. Under the assessment program, the maximum
payment requirement for each nuclear incident would be $79.3 million
per reactor, payable at a rate of $10 million per licensed reactor per
incident per year. With respect to River Bend, any assessments
pertaining to this program are allocated in accordance with the
respective ownership interests of the Company and Cajun. In addition,
the Company participates through Entergy Corporation in a private
insurance program which provides coverage for worker tort claims filed
for bodily injury caused by radiation exposure. The program provides
for a maximum assessment of approximately $16 million for Entergy's
five nuclear units in the event losses exceed accumulated reserve
funds.
The Company is also a member of certain insurance programs that
provide coverage for property damage, including decontamination and
premature decommissioning expense, to members' nuclear generating
plants. As of December 31, 1995, the Company was insured against such
losses up to $2.75 billion. In addition, the Company is a member of an
insurance program that covers certain replacement power and business
interruption costs incurred due to prolonged nuclear unit outages.
Under the property damage and replacement power/business interruption
insurance programs, the Company could be subject to assessments if
losses exceed the accumulated funds available to the insurers. As of
December 31, 1995, the maximum amounts of such possible assessments
were $22.0 million. Cajun shares approximately $4.6 million of the
Company's obligation.
The Company is insured for property losses through Entergy. The
amount of property insurance presently carried by Entergy exceeds the
NRC's minimum requirement for nuclear power plant licensees of $1.06
billion per site. NRC regulations provide that the proceeds of this
insurance must be used, first, to place and maintain the reactor in a
safe and stable condition and, second, to complete decontamination
operations. Only after proceeds are dedicated for such use and
regulatory approval is secured would any remaining proceeds be made
available for the benefit of plant owners or their creditors.
Spent Nuclear Fuel and Decommissioning Costs
The Company provides for estimated future disposal costs for spent
nuclear fuel in accordance with the Nuclear Waste Policy Act of 1982.
The Company entered into a contract with the DOE, whereby the DOE will
furnish disposal service at a cost of one mill per net KWh generated
and sold after April 7, 1983, plus a onetime fee for generation prior
to that date. The Company considers all costs incurred or to be
incurred, except accrued interest, for the disposal of spent nuclear
fuel to be proper components of nuclear fuel expense, and provisions to
recover such costs have been or will be made in applications to
regulatory authorities.
Delays have occurred in the DOE's program for the acceptance and
disposal of spent nuclear fuel at a permanent repository. In a
statement released February 17, 1993, the DOE asserted that it does not
have a legal obligation to accept spent nuclear fuel without an
operational repository for which it has not yet arranged. Currently,
the DOE projects it will begin to accept spent fuel no earlier than
2015. In the meantime, the Company is responsible for spent fuel
storage. Current on-site spent fuel storage capacity at River Bend is
estimated to be sufficient until 2003. Thereafter, the Company will
provide additional storage. The initial cost of providing the
additional on-site spent fuel storage capability required at River Bend
is expected to be approximately $5 million to $10 million. In
addition, about $3 million to $5 million will be required every four to
five years subsequent to 2003 for River Bend until the DOE's repository
begins accepting the unit's spent fuel.
Total decommissioning costs for River Bend (based on a 1991 cost
study reflecting 1990 dollars) have been estimated at $268 million as
of December 31, 1995.
In the Texas retail jurisdiction, the Company is recovering in
rates decommissioning costs (based on the 1991 cost study) that, with
adjustments, total $204.9 million. In the Louisiana retail
jurisdiction, the Company is currently recovering in rates
decommissioning costs (based on a 1985 cost study) which total $141
million. The Company included decommissioning costs (based on the 1991
study) in the LPSC rate review filed in May 1995 which has not yet been
concluded. The Company periodically reviews and updates estimated
decommissioning costs and applications are periodically made to the
appropriate regulatory authorities to reflect in rates any future
change in projected decommissioning costs. The amounts recovered in
rates are deposited in trust funds and reported at market value as
quoted on nationally traded markets. These trust fund assets largely
offset the accumulated decommissioning liability that is recorded as
accumulated depreciation for the Company. The cumulative liability as
of December 31, 1994, the 1995 trust earnings, the 1995 decommissioning
expenses and the cumulative liability as of December 31, 1995 for River
Bend were $22.2 million, $1.4 million, $8.1 million and $31.7 million,
respectively.
River Bend's decommissioning expense was $3.0 million in 1994.
The actual decommissioning costs may vary from the estimates because of
regulatory requirements, changes in technology, and increased costs of
labor, materials, and equipment. Management believes that actual
decommissioning costs are likely to be higher than the estimated
amounts presented above.
The staff of the Commission has questioned certain of the
financial accounting practices of the electric utility industry
regarding the recognition, measurement, and classification of
decommissioning costs for nuclear generating stations in the financial
statements of electric utilities. In response to these questions, the
FASB has been reviewing the accounting for decommissioning and has
expanded the scope of its review to include liabilities related to the
closure and removal of all long-lived assets. An exposure draft of the
proposed SFAS issued in February 1996 would be effective in 1997. The
proposed SFAS would require measurement of the liability for closure
and removal of long-lived assets (including decommissioning) based on
discounted future cash flows. Those future cash flows should be
determined by estimating current costs and adjusting for inflation,
efficiencies that may be gained from experience with similar
activities, and consideration of reasonable future advances in
technology. It also would require that changes in the
decommissioning/closure cost liability resulting from changes in
assumptions should be recognized with a corresponding adjustment to the
plant asset, and depreciation should be revised prospectively. The
proposed SFAS stated that the initial recognition of the
decommissioning/closure cost liability would result in an asset that
should be presented with other plant costs on the financial statements
because the cost of decommissioning/closing the plant is recognized as
part of the total cost of the plant asset. In addition there would be
a regulatory asset recognized on the financial statements to the extent
the initial decommissioning/closure liability has increased due to the
passage of time, and such costs are probable of future recovery.
If current electric utility industry accounting practices with
respect to nuclear decommissioning and other closure costs are changed,
annual provisions for such costs could increase, the estimated cost for
decommissioning/closure could be recorded as a liability rather than as
accumulated depreciation, and trust fund income from decommissioning
trusts could be reported as investment income rather than as a
reduction to decommissioning expense.
The EPAct has a provision that assesses domestic nuclear utilities
with fees for the decontamination and decommissioning of the DOE's past
uranium enrichment operations. The decontamination and decommissioning
assessments will be used to set up a fund into which contributions from
utilities and the federal government will be placed. The Company's
annual assessments, which will be adjusted annually for inflation, are
approximately $0.9 million (in 1995 dollars) for approximately 15
years. At December 31, 1995 the Company had recorded a liability of
$6.0 million for decontamination and decommissioning fees in other
current liabilities and other noncurrent liabilities, and these
liabilities were offset in the consolidated financial statements by
regulatory assets. FERC requires that utilities treat these
assessments as costs of fuel as they are amortized and are recovered
through rates in the same manner as other fuel costs.
Environmental Issues
The Company has been designated as a PRP for the clean-up of
certain hazardous waste disposal sites. The Company is currently
negotiating with the EPA and state authorities regarding the clean-up
of these sites. Several class action and other suits have been filed
in state and federal courts seeking relief from the Company and others
for damages caused by the disposal of hazardous waste and for asbestos-
related disease allegedly resulting from exposure on Company premises.
While the amounts at issue in the clean-up efforts and suits may be
substantial, the Company believes that its results of operations and
financial condition will not be materially adversely affected by the
outcome of the suits. Through December 31, 1995, $7.9 million has been
expended on the clean-up. As of December 31, 1995, a remaining
recorded liability of $21.7 million existed relating to the clean-up of
five sites at which the Company has been designated a PRP.
NOTE 9. LEASES
General
As of December 31, 1995, the Company had capital leases and
noncancelable operating leases for equipment, buildings, vehicles, and
fuel storage facilities (excluding nuclear fuel leases and the sale and
leaseback transactions) with minimum lease payments as follows:
Capital Operating
Leases Leases
Year (In Thousands)
1996 $ 12,475 $ 12,871
1997 12,475 12,566
1998 12,475 16,499
1999 12,475 16,499
2000 12,049 16,326
Years thereafter 69,331 60,518
-------- --------
Minimum lease payments 131,280 135,279
Less: Amount
representing interest 47,921
Present value of net --------
minimum lease payments $ 83,359
========
Rental expense for leases (excluding nuclear fuel leases and the
sale and leaseback transactions) was approximately $15.1 million, $15.3
million, and $31.9 million, in 1995, 1994 and 1993, respectively.
Nuclear Fuel Leases
The Company has arrangements to lease nuclear fuel in an aggregate
amount up to $85 million as of December 31, 1995. The lessors finance
the acquisition and ownership of nuclear fuel through credit agreements
and the issuance of notes. These agreements are subject to annual
renewal with the consent of the lenders. The credit agreements for the
Company have been extended and now have termination dates of December
1998. The debt securities issued pursuant to these fuel lease
arrangements have varying maturities through January 31, 1999. It is
expected that the credit agreements will be extended or alternative
financing will be secured by each lessor upon the maturity of the
current arrangements. If extensions or alternative financing cannot be
arranged, the lessee in each case must purchase sufficient nuclear fuel
to allow the lessor to retire such borrowings.
Lease payments are based on nuclear fuel use. Nuclear fuel lease
expense charged to operations was $41.4 million, $37.2 million, and
$43.6 million (including interest of $6.0 million, $8.7 million, and
$10.2 million), in 1995, 1994 and 1993, respectively.
NOTE 10. POSTRETIREMENT BENEFITS
Company employees participate in plans sponsored by Entergy
Corporation and its subsidiaries which have various postretirement
benefit plans covering substantially all of their employees. The
pension plans are noncontributory and provide pension benefits that are
based on employees' credited service and compensation during the final
years before retirement. Entergy Corporation and its subsidiaries fund
pension costs in accordance with contribution guidelines established by
the Employee Retirement Income Security Act of 1974, as amended, and
the Internal Revenue Code of 1986, as amended. The assets of the plans
include common and preferred stocks, fixed income securities, interest
in a money market fund, and insurance contracts. Prior to January 1,
1995, Entergy Corporations' non-bargaining employees were generally
included in a plan sponsored by the individual subsidiary company where
they were employed. Effective January 1, 1995, these employees became
participants in a new plan with provisions substantially identical to
their previous plan.
Total 1995, 1994, and 1993 pension cost of the Company, including
amounts capitalized, included the following components (in thousands):
1995 1994 1993
Service cost - benefits earned $ 6,686 $ 9,497 $ 10,417
during the period
Interest cost on projected 21,098 21,335 17,643
benefit obligation
Actual return on plan assets (82,624) 6,785 (43,400)
Net amortization and deferral 53,921 (39,405) 14,863
Other - 17,963 -
-------- -------- ---------
Net pension cost $ (919) $ 16,175 $ (477)
======== ======== =========
The funded status of the Company's various pension plans as of
December 31, 1995 and 1994 was (in thousands):
1995 1994
Actuarial present value of
accumulated pension
plan obligation:
Vested $256,173 $273,509
Nonvested 792 1,502
-------- --------
Accumulated benefit obligation 256,965 275,011
-------- --------
Plan assets at fair value 374,010 313,035
Projected benefit obligation 289,666 290,802
-------- --------
Plan assets in excess of 84,344 22,233
(less than) projected benefit
obligation
Unrecognized prior service cost 12,021 13,720
Unrecognized transition asset (11,937) (14,324)
Unrecognized net loss (gain) (135,303) (73,423)
-------- --------
Accrued pension asset (liability) ($50,875) ($51,794)
======== ========
The significant actuarial assumptions used in computing the
information above for 1995, 1994, and 1993 were as follows: weighted
average discount rate, 7.5% for 1995, 8.5% for 1994, and 7.5% for 1993,
weighted average rate of increase in future compensation levels, 4.6%
for 1995, 5.1% for 1994 and 5% for 1993; and expected long-term rate of
return on plan assets, 8.5% . Transition assets of the Company are
being amortized over the greater of the remaining service period of
active participants or 15 years.
In 1994, the Company recorded an $18.0 million charge related to
early retirement programs in connection with the Merger, of which $15.2
million was expensed.
Other Postretirement Benefits
The Company also provides certain health care and life insurance
benefits for retired employees. Substantially all employees may become
eligible for these benefits if they reach retirement age while still
working for the Company.
Effective January 1, 1993, the Company adopted SFAS 106. The new
standard required a change from a cash method to an accrual method of
accounting for postretirement benefits other than pensions. The
Company continues to fund these benefits on a pay-as-you-go basis. At
January 1, 1993, the actuarially determined accumulated postretirement
benefit obligation (APBO) earned by retirees and active employees was
estimated to be approximately $128 million. Such obligation is being
amortized over a 20-year period beginning in 1993.
The Company has sought approval, in its respective regulatory
jurisdictions, to implement the appropriate accounting requirements
related to SFAS 106 for ratemaking purposes. The LPSC ordered the
Company to continue the use of the pay-as-you-go method for ratemaking
purposes for postretirement benefits other than pensions, but the LPSC
retains the flexibility to examine the individual company's accounting
for postretirement benefits to determine if special exceptions to this
order are warranted. Pursuant to the PUCT's May 26, 1995, amended
order, the Company is currently collecting its SFAS 106 costs in rates.
Total 1995, 1994 and 1993 postretirement benefit cost of the
Company including amounts capitalized and deferred, included the
following components (in thousands):
1995 1994 1993
Service cost - benefits earned $1,864 $ 2,169 $ 5,467
during the period
Interest cost on APBO 8,526 6,449 9,976
Actual return on plan assets - - -
Net amortization and deferral 4,477 2,832 6,402
------- ------- -------
Net postretirement benefit cost $14,867 $11,450 $21,845
======= ======= =======
The funded status of the Company's postretirement plans as of
December 31, 1995 and 1994, was (in thousands):
1995 1994
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $101,698 $39,695
Other fully eligible participants 17,334 26,069
Other active participants 15,980 13,445
-------- -------
Accumulated benefit obligation 135,012 79,209
Plan assets at fair value - -
-------- -------
Plan assets less than APBO (135,012) (79,209)
Unrecognized transition obligation 107,975 115,232
Unrecognized net loss (gain)/other (617) (57,410)
-------- --------
Accrued postretirement benefit liability ($27,654) ($21,387)
======== ========
The assumed health care cost trend rate used in measuring the APBO
of the Company was 8.4% for 1996, gradually decreasing each successive
year until it reaches 5.0% in 2005. A one percentage-point increase in
the assumed health care cost trend rate for each year would have
increased the APBO of the Company, as of December 31, 1995, by 10.4%,
and the sum of the service cost and interest cost by approximately
12.8%. The assumed discount rate and rate of increase in future
compensation used in determining the APBO were 7.5% for 1995, 8.5% for
1994 and 7.5% for 1993, and 4.6% for 1995, 5.1% for 1994 and 5% for
1993, respectively. The expected long-term rate of return on plan
assets was 8.5% for 1995.
NOTE 11. RESTRUCTURING COSTS
The restructuring programs announced by Entergy Corporation and
its subsidiaries, including the Company, in 1994 and 1995 included
anticipated reductions in the number of employees and the consolidation
of offices and facilities. The programs are designed to reduce costs,
improve operating efficiencies, and increase shareholder value in order
to enable Entergy and its subsidiaries to become low-cost producers.
The balances as of December 31, 1994, and 1995, for restructuring
liabilities associated with these programs are shown below along with
the actual termination benefits paid under the programs.
Restructuring Restructuring
Liability as of Additional Payments Liability as of
December 31, 1994 1995 Charges Made in 1995 December 31, 1994
(In Millions)
$ 6.5 $ 13.1 $(14.2) $ 5.4
The restructuring charges shown above primarily included employee
severance costs related to the expected termination of approximately
649 employees in various groups. As of December 31, 1995, 497
employees had either been terminated or accepted voluntary separation
packages under the restructuring plan.
Additionally, the Company recorded $23.8 million for remaining
severance and augmented retirement benefits related to the Merger.
Actual termination benefits paid under the program during 1995 amounted
to $11.6 million. At December 31, 1995, the total remaining liability
for expected future Merger-related outlays was $2.3 million.
NOTE 12. TRANSACTIONS WITH AFFILIATES
The various subsidiaries of Entergy Corporation, including the
Company, purchase electricity from and/or sell electricity to each
other under rate schedules filed with FERC. In addition, the Company
purchases fuel from System Fuels, Inc. receives technical, advisory,
and administrative services from Entergy Services, Inc. and receives
management and operating services from Entergy Operations, Inc., all of
which are wholly-owned subsidiaries of Entergy Corporation. The
Company recorded $62.7 million and $44.4 million of intercompany
revenues and $266.5 million, $296.9 million and $25.5 million of
intercompany operating expenses in 1995, 1994, and 1993, respectively.
In addition, the Company recorded $129.1 million and $210.2 million in
1995 and 1994, respectively, for operating expenses paid or reimbursed
to Entergy Operations, Inc.
NOTE 13. ENTERGY CORPORATION-GULF STATES UTILITIES COMPANY MERGER
On December 31, 1993, Entergy Corporation and the Company
consummated the Merger. The Company became a wholly owned subsidiary
of Entergy Corporation and continues to operate as an electric utility
corporation under the regulation of FERC, the Commission, the PUCT, and
the LPSC. As consideration to the Company's shareholders, Entergy
Corporation paid $250 million and issued 56,695,724 shares of its
common stock in exchange for the 114,055,065 outstanding shares of the
Company's common stock. In addition, $33.5 million of transaction
costs were capitalized in connection with the Merger.
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The business of the Company is subject to seasonal fluctuations
with the peak period occurring during the third quarter. Operating
results for the four quarters of 1995 and 1994 were:
Operating Operating Net Income
Revenues Income (a)(b) (Loss)(a)(b)
(a) (In Thousands)
1995:
First Quarter $399,346 $ 47,371 $ 3,635
Second Quarter 479,609 88,778 43,353
Third Quarter 540,287 113,531 68,112
Fourth Quarter 442,732 54,749 7,819
1994:
First Quarter 429,658 58,561 11,043
Second Quarter 456,855 83,357 33,084
Third Quarter 545,531 64,853 (31,662)
Fourth Quarter 365,321 6,880 (95,220)
(a) See Note 2 herein for information regarding the recording of a
reserve for rate refund in December 1994.
(b) See Note 11 herein for information regarding the recording of
certain restructuring costs in 1994 and 1995.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
BALANCE SHEETS
September 30, 1996 and December 31, 1995
(Unaudited)
1996 1995
(In Thousands)
ASSETS
<S> <C> <C>
Utility Plant:
Electric $7,037,184 $6,942,983
Natural gas 45,435 45,789
Steam products 79,701 77,551
Property under capital leases 74,384 77,918
Construction work in progress 166,053 148,043
Nuclear fuel under capital lease 53,737 69,853
---------- ----------
Total 7,456,494 7,362,137
Less - accumulated depreciation and 2,802,750 2,664,943
amortization
---------- ----------
Utility plant - net 4,653,744 4,697,194
---------- ----------
Other Property and Investments:
Decommissioning trust fund 37,753 32,943
Other - at cost (less accumulated depreciation 26,804 28,626
---------- ----------
Total 64,557 61,569
---------- ----------
Current Assets:
Cash and cash equivalents:
Cash 22,504 13,751
Temporary cash investments - at cost,
which approximates market:
Associated companies 47,980 46,336
Other 148,121 174,517
---------- ----------
Total cash and cash equivalents 218,605 234,604
Accounts receivable:
Customer (less allowance for doubtful accounts
of $1.6 million in 1996 and 1995) 121,376 110,187
Associated companies 1,158 1,395
Other 21,442 15,497
Accrued unbilled revenues 80,836 73,381
Deferred fuel costs 84,692 31,154
Accumulated deferred income taxes 58,324 43,465
Fuel inventory - at average cost 43,875 32,141
Materials and supplies - at average cost 90,117 91,288
Rate deferrals 103,498 97,164
Prepayments and other 23,215 15,566
---------- ----------
Total 847,138 745,842
---------- ----------
Deferred Debits and Other Assets:
Regulatory assets:
Rate deferrals 146,522 419,904
SFAS 109 regulatory asset - net 378,843 453,628
Unamortized loss on reacquired debt 55,570 61,233
Other regulatory assets 23,072 27,836
Long-term receivables 218,246 224,727
Other 180,883 169,125
---------- ----------
Total 1,003,136 1,356,453
---------- ----------
TOTAL $6,568,575 $6,861,058
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
BALANCE SHEETS
September 30, 1996 and December 31, 1995
(Unaudited)
1996 1995
(In Thousands)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
Capitalization:
Common stock, no par value, authorized
200,000,000 shares; issued and outstanding
100 shares $114,055 $114,055
Paid-in capital 1,152,689 1,152,505
Retained earnings 322,054 357,704
---------- ----------
Total common shareholder's equity 1,588,798 1,624,264
Preference stock 150,000 150,000
Preferred stock:
Without sinking fund 136,444 136,444
With sinking fund 77,460 87,654
Long-term debt 2,030,294 2,175,471
---------- ----------
Total 3,982,996 4,173,833
---------- ----------
Other Noncurrent Liabilities:
Obligations under capital leases 88,778 108,078
Other 75,904 78,245
---------- ----------
Total 164,682 186,323
---------- ----------
Current Liabilities:
Currently maturing long-term debt 160,865 145,425
Accounts payable:
Associated companies 39,146 31,349
Other 92,823 136,528
Customer deposits 24,479 21,983
Taxes accrued 50,077 37,413
Interest accrued 60,428 56,837
Nuclear refueling reserve 8,544 22,627
Obligations under capital leases 39,343 37,773
Other 34,660 86,653
---------- ----------
Total 510,365 576,588
---------- ----------
Deferred Credits:
Accumulated deferred income taxes 1,207,996 1,177,144
Accumulated deferred investment tax credits 204,612 208,618
Deferred River Bend finance charges 39,778 58,047
Other 458,146 480,505
---------- ----------
Total 1,910,532 1,924,314
---------- ----------
Commitments and Contingencies (Notes 1 and 2)
TOTAL $6,568,575 $6,861,058
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
STATEMENTS OF INCOME (LOSS)
For the Three and Nine Months Ended September 30, 1996 and 1995
(Unaudited)
Three Months Ended Nine Months Ended
1996 1995 1996 1995
(In Thousands)
<S> <C> <C> <C> <C>
Operating Revenues:
Electric $572,040 $524,982 $1,501,707 $1,366,070
Natural gas 4,946 3,210 26,685 17,654
Steam products 15,144 12,095 45,936 35,518
-------- -------- ---------- ----------
Total 592,130 540,287 1,574,328 1,419,242
-------- -------- ---------- ----------
Operating Expenses:
Operation and maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 171,451 149,535 413,917 391,364
Purchased power 68,619 44,798 223,213 123,273
Nuclear refueling outage expenses 1,132 2,580 6,064 8,354
Other operation and maintenance 102,333 95,042 296,805 304,918
Depreciation, amortization, and decommissioning 51,417 50,606 154,172 151,337
Taxes other than income taxes 26,837 26,951 78,376 77,082
Income taxes 44,582 40,737 85,435 63,715
Amortization of rate deferrals 18,319 16,507 54,281 49,519
-------- -------- ---------- ----------
Total 484,690 426,756 1,312,263 1,169,562
-------- -------- ---------- ----------
Operating Income 107,440 113,531 262,065 249,680
-------- -------- ---------- ----------
Other Income (Deductions):
Allowance for equity funds used
during construction 705 253 1,937 770
Write-off of River Bend rate deferrals - - (194,498) -
Miscellaneous - net 55,140 6,213 65,770 17,823
Income taxes (17,988) (2,110) (1,277) (5,139)
-------- -------- ---------- ----------
Total 37,857 4,356 (128,068) 13,454
-------- -------- ---------- ----------
Interest Charges:
Interest on long-term debt 44,583 47,426 137,547 144,053
Other interest - net 10,349 2,588 12,258 4,681
Allowance for borrowed funds used
during construction (600) (239) (1,656) (700)
-------- -------- ---------- ----------
Total 54,332 49,775 148,149 148,034
-------- -------- ---------- ----------
Net Income (Loss) 90,965 68,112 (14,152) 115,100
Preferred and Preference Stock
Dividend Requirements and Other 7,212 7,341 21,497 22,357
-------- -------- ---------- ----------
Earnings (Loss) Applicable to Common Stock $83,753 $60,771 ($35,649) $92,743
======== ======== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
1996 1995
(In Thousands)
<S> <C> <C>
Net income (loss) ($14,152) $115,100
Noncash items included in net income (loss):
Write-off of River Bend rate deferrals 194,498 -
Change in rate deferrals 54,281 49,519
Depreciation, amortization, and decommissioning 154,172 151,337
Deferred income taxes and investment tax credits 86,063 69,060
Allowance for equity funds used during construction (1,937) (770)
Changes in working capital:
Receivables (24,352) 41,808
Fuel inventory (11,734) (3,598)
Accounts payable (35,908) (21,476)
Taxes accrued 12,664 35,701
Interest accrued 3,591 4,254
Reserve for rate refund - (51,268)
Other working capital accounts (123,596) (53,032)
Decommissioning trust contributions (4,442) (2,959)
Provision for estimated losses and reserves (3,085) 7,417
Other (22,663) 3,174
-------- --------
Net cash flow provided by operating activities 263,400 344,267
-------- --------
Investing Activities:
Construction expenditures (122,349) (112,237)
Allowance for equity funds used during construction 1,937 770
Nuclear fuel purchases (22,193) -
Proceeds from sale/leaseback of nuclear fuel 23,592 -
-------- --------
Net cash flow used in investing activities (119,013) (111,467)
-------- --------
Financing Activities:
Proceeds from the issuance of long-term debt 780 2,277
Retirement of:
First mortgage bonds (79,234) -
Other long-term debt (50,425) (50,425)
Redemption of preferred and preference stock (10,179) (4,850)
Dividends paid on preferred and preference stock (21,328) (22,208)
-------- --------
Net cash flow used in financing activities (160,386) (75,206)
-------- --------
Net increase (decrease) in cash and cash equivalents (15,999) 157,594
Cash and cash equivalents at beginning of period 234,604 104,644
-------- --------
Cash and cash equivalents at end of period $218,605 $262,238
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $128,496 $136,526
Income taxes $80 $288
Noncash investing and financing activities:
Change in unrealized appreciation (depreciation) of
decommissioning trust assets ($765) $1,738
See Notes to Financial Statements.
</TABLE>
ENTERGY GULF STATES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. COMMITMENTS AND CONTINGENCIES
Cajun - River Bend
The Company and Cajun, respectively, own 70% and 30% undivided
interests in River Bend (operated by the Company), and 42% and 58%
undivided interests in Big Cajun 2, Unit 3 (operated by Cajun).
These relationships have spawned a number of long-standing disputes
and claims between the parties. An agreement setting forth terms for
the resolution of all such disputes has been reached by the Company,
the Cajun bankruptcy trustee, and the RUS ,and approved by the United
States District Court for the Middle District of Louisiana (District
Court) on August 26, 1996 (Cajun Settlement). On September 6, 1996,
the Committee of Unsecured Creditors in the Cajun bankruptcy
proceeding filed a Notice of Appeal to the United States Court of
Appeals for the Fifth Circuit (Fifth Circuit), objecting that the
order approving the settlement was separate from the approval of a
plan of reorganization and therefore, improper. The Cajun Settlement
is subject to this appeal and approvals by the appropriate regulatory
agencies. Management believes that it is probable that the Cajun
Settlement will ultimately be approved and consummated.
The Cajun Settlement resolved Cajun's civil action against the
Company in which Cajun sought to rescind or terminate the Joint
Ownership Participation and Operating Agreement (Operating Agreement)
entered into on August 28, 1979, relating to River Bend. In that
suit, Cajun also sought to recover its alleged $1.6 billion
investment in the unit plus attorneys' fees, interest, and costs. A
trial on the portion of the suit by Cajun to rescind the Operating
Agreement was completed in March 1995. On October 24, 1995, the
District Court issued a memorandum opinion rejecting Cajun's fraud
claims and denying rescission. An appeal to the Fifth Circuit by the
Cajun bankruptcy trustee was stayed pending the Court's trial of the
breach of contract phase of the case. The Cajun Settlement resolves
both the issues on appeal and the breach of contract claims which
have not been tried.
In 1992, two member cooperatives of Cajun brought an additional
independent action to declare the Operating Agreement null and void,
based upon the Company's failure to get prior LPSC approval alleged
to be necessary. Prior to the bankruptcy proceedings, Cajun
intervened as a plaintiff in this action. The nullity claim of Cajun
in this action is encompassed in the Cajun Settlement. The Company
believes the suits are without merit and believes these cases are
resolved by the Cajun Settlement.
The Cajun Settlement, agreed to in principle on April 26, 1996,
by the Company, the Cajun bankruptcy trustee, and the RUS, Cajun's
largest creditor, was approved by the District Court on August 26,
1996. The terms include, but are not limited to, the following: (i)
Cajun's interest in River Bend will be turned over to the RUS, which
will have the option to retain the interest, sell it to a third
party, or transfer it to the Company at no cost; (ii) Cajun will set
aside a total of $125 million for its share of the decommissioning
costs of River Bend; (iii) Cajun will transfer certain transmission
assets to the Company; (iv) Cajun will settle transmission disputes
and be released from claims for payment under transmission
arrangements with the Company as discussed under "Cajun -
Transmission Service" below; (v) all funds paid by the Company into
the registry of the District Court will be returned to the Company;
(vi) Cajun will be released from its unpaid past, present, and future
liability for River Bend costs and expenses; and (vii) all litigation
between Cajun and the Company will be dismissed. Based on the
District Court's approval of the Cajun Settlement, the litigation
accrual established in 1994 for possible losses associated with the
Cajun-River Bend litigation was reversed in September 1996.
Cajun has not paid its full share of capital costs, operating
and maintenance expenses, and other costs for repairs and
improvements to River Bend since 1992. Cajun's unpaid portion of
River Bend operating and maintenance expenses (including nuclear
fuel) and capital costs for the nine months ended September 30, 1996,
was approximately $42.9 million. The cumulative cost to the Company
resulting from Cajun's failure to pay its full share of River Bend-
related costs, reduced by the proceeds from the sale by the Company
of Cajun's share of River Bend power, and payments into the registry
of the District Court for the Company's portion of expenses for Big
Cajun 2, Unit 3, was $17.0 million as of September 30, 1996, compared
with $31.1 million as of December 31, 1995. Cajun's unpaid portion
of the River Bend related costs is reflected in long-term receivables
with an offsetting reserve in other deferred credits. As discussed
above, the Cajun Settlement will conclude all disputes regarding the
non-payment by Cajun operating and maintenance expenses. Cajun
continues to pay its share of decommissioning costs for River Bend.
In its bankruptcy proceedings, Cajun filed a motion on January
10, 1995, to reject the Operating Agreement as a burdensome executory
contract. The Company responded on January 10, 1995, with a
memorandum opposing Cajun's motion. As discussed above, this matter
will be ended as a result of the Cajun Settlement.
On March 8, 1996, Southwestern Electric Power Company (SWEPCO),
the Company, and certain member cooperatives of Cajun filed with the
Bankruptcy Court a joint proposal to bring an end to the Cajun
bankruptcy proceeding. The proposal was submitted in response to a
bid procedure established by the Cajun bankruptcy trustee. On April
19, 1996, SWEPCO, the Company, and certain Cajun member cooperatives
filed a separate plan of reorganization with the court based upon
their earlier proposal. On April 22, 1996, the Cajun bankruptcy
trustee filed a plan of reorganization with the Bankruptcy Court
based on the proposal of two non-affiliated companies to take over
the non-nuclear operations of Cajun. All of the plans of
reorganization submitted to the Bankruptcy Court have incorporated
the Cajun Settlement as an integral condition to the effectiveness of
their plan. The timing and completion of the reorganization plan
depends on Bankruptcy Court approval and any required regulatory
approvals.
See Note 8 in the Annual Financial Statements for additional
information regarding the Cajun litigation, Cajun's bankruptcy
proceedings, and related filings.
Cajun - Transmission Service
The Company and Cajun are parties to FERC proceedings relating
to transmission service charge disputes. As discussed above, these
disputes will end upon the implementation of the Cajun Settlement.
See Note 8 in the Annual Financial Statements for additional
information regarding these FERC proceedings and FERC orders issued
as a result of such proceedings.
Under the Company's interpretation of a 1992 FERC order, as
modified by FERC's orders issued on August 3, 1995, and October 2,
1995, and as agreed to by the Cajun bankruptcy trustee, Cajun would
owe the Company approximately $68.8 million as of September 30, 1996.
The Company further estimates that if it were to prevail in its May
1992 motion for rehearing and on certain other issues decided
adversely to the Company in the February 1995, August 1995, and
October 1995 FERC orders, which the Company has appealed, Cajun would
owe the Company approximately $154.1 million as of September 30,
1996. If Cajun were to prevail in its May 1992 motion for rehearing
to FERC, and if the Company were not to prevail in its May 1992
motion for rehearing to FERC, and if Cajun were to prevail in
appealing FERC's August and October 1995 orders, the Company
estimates it would owe Cajun approximately $107.6 million as of
September 30, 1996. The above amounts are exclusive of a $7.3
million payment by Cajun on December 31, 1990, which the parties
agreed to apply to the disputed transmission service charges.
Pending FERC's ruling on the May 1992 motions for rehearing, the
Company has continued to bill Cajun utilizing the historical billing
methodology and has recorded underpaid transmission charges,
including interest, in the amount of $142.3 million as of September
30, 1996. This amount is reflected in long-term receivables with an
offsetting reserve in other deferred credits. FERC has determined
that the collection of the pre-petition debt of Cajun is an issue
properly decided in the bankruptcy proceeding. Refer to "Cajun -
River Bend" above for a discussion of the Cajun Settlement.
Capital Requirements and Financing
See Note 8 in the Annual Financial Statements for information
on the Company's construction expenditures (excluding nuclear fuel),
and long-term debt & preferred stock maturities and cash sinking fund
requirements for the period 1996-1998.
Nuclear Insurance, Spent Nuclear Fuel, and Decommissioning Costs
See Note 8 in the Annual Financial Statements for information
on nuclear liability, property and replacement power insurance,
related NRC regulations, the disposal of spent nuclear fuel, other
high-level radioactive waste, and decommissioning costs associated
with River Bend.
The Commission has questioned certain of the financial
accounting practices of the electric utility industry regarding the
recognition, measurement, and classification of decommissioning costs
for nuclear plants in the financial statements of electric utilities.
In response to these questions, the FASB has been reviewing the
accounting for decommissioning and has expanded the scope of its
review to include liabilities related to the closure and removal of
all long-lived assets. An exposure draft of the proposed SFAS (which
proposed a 1997 effective date) was issued in February 1996. The
proposed SFAS would require measurement of the liability for closure
and removal of long-lived assets (including decommissioning) based on
discounted future cash flows. Those future cash flows should be
determined by estimating current costs and adjusting for inflation,
efficiencies that may be gained from experience with similar
activities, and consideration of reasonable future advances in
technology. It would also require that changes in the
decommissioning/closure cost liability resulting from changes in
assumptions be recognized with a corresponding adjustment to the
plant asset, and depreciation should be revised prospectively. The
proposed SFAS states that the initial recognition of the
decommissioning/closure cost liability would result in an asset that
should be presented with other plant costs on the financial
statements because the cost of decommissioning/closing the plant
would be recognized as part of the total cost of the plant asset. In
addition, there would be a regulatory asset recognized on the
financial statements to the extent the initial
decommissioning/closure liability has increased due to the passage of
time, and such costs are probable of future recovery.
After receiving comments on the exposure draft, the FASB has
decided that the effective date for the proposed SFAS will be later
than 1997, although a final effective date has not yet been
announced. If current electric utility industry accounting practices
with respect to nuclear decommissioning and other closure costs are
changed, annual provisions for such costs could increase, the
estimated cost for decommissioning/closure could be recorded as a
liability rather than as accumulated depreciation, and trust fund
income from decommissioning trusts could be reported as investment
income rather than as a reduction to decommissioning expense.
Environmental Issues
The Company has been designated as a potentially responsible
party for the clean-up of certain hazardous waste disposal sites. The
Company is currently negotiating with the EPA and state authorities
regarding the clean-up of certain of these sites.
Through September 30, 1996, $8.2 million has been expended on the
clean-up. As of September 30, 1996, a remaining recorded liability
of $21.5 million existed relating to the clean-up of the sites at
which the Company has been designated a potentially responsible
party.
NOTE 2. RATE AND REGULATORY MATTERS
River Bend
In May 1988, the PUCT granted the Company a permanent increase
in annual revenues of $59.9 million resulting from the inclusion in
rate base of approximately $1.6 billion of company-wide River Bend
plant investment and approximately $182 million of related Texas
retail jurisdiction deferred River Bend costs (Allowed Deferrals).
In addition, the PUCT disallowed as imprudent $63.5 million of
company-wide River Bend plant costs and placed in abeyance, with no
finding as to prudence, approximately $1.4 billion of company-wide
River Bend plant investment and approximately $157 million of Texas
retail jurisdiction deferred River Bend operating and carrying costs
(Abeyed Deferrals).
As discussed in Note 2 in the Annual Financial Statements ,
various appeals of the PUCT's order have been filed (Rate Appeal).
The Company filed an appeal with the Texas Supreme Court and, on
February 9, 1996, the Texas Supreme Court agreed to hear the appeal.
Oral arguments were held on March 19, 1996. The timing of a decision
by the Texas Supreme Court is not certain.
As of September 30, 1996, the River Bend plant costs disallowed
for retail ratemaking purposes in Texas and the River Bend plant
costs held in abeyance totaled (net of taxes and depreciation)
approximately $12 million and $268 million, respectively. Allowed
Deferrals were approximately $78 million, net of taxes and
amortization, as of September 30, 1996. The Company estimates it has
collected approximately $199 million of revenues as of September 30,
1996, as a result of the originally ordered rate treatment by the
PUCT of these deferred costs. If recovery of the Allowed Deferrals
is not upheld, future revenues based thereon could be lost, and no
assurance can be given as to whether or not refunds to customers of
revenue received based upon such deferred costs would be required.
During the first quarter of 1996, the Company wrote off Abeyed
Deferrals of $169 million, net of tax, in accordance with SFAS 121,
which became effective January 1, 1996, but it has made no write-offs
or reserves for the River Bend plant-related costs. A general remand
by the Texas Supreme Court in the Rate Appeal would enable the
Company to seek recovery of the Abeyed Deferrals. Based on advice
from Clark, Thomas & Winters, A Professional Corporation, legal
counsel of record in the Rate Appeal, management believes that it is
reasonably possible that the case will be remanded to the PUCT and
that the PUCT will be allowed to rule on the prudence of the abeyed
River Bend plant costs. Management and legal counsel are unable to
predict the amount, if any, of abeyed and previously disallowed River
Bend plant costs that ultimately might be disallowed by the PUCT. As
of September 30, 1996, a net of tax write-off of up to $280 million
could be required if the PUCT ultimately issues an adverse ruling on
the abeyed and disallowed plant costs.
The following factors support management's position that a loss
contingency requiring accrual has not occurred, and its belief that
all, or substantially all, of the abeyed plant costs will ultimately
be recovered:
1. The $1.4 billion of abeyed River Bend plant costs have never
been ruled imprudent and disallowed by the PUCT;
2. Analysis by Sandlin Associates, which supports the prudence
of substantially all of the abeyed construction costs;
3. Historical inclusion by the PUCT of prudent construction
costs in rate base; and
4. The analysis of the Company's internal legal staff, which
has considerable experience in Texas rate case litigation.
Additionally, based on advice from Clark, Thomas & Winters,
management believes that it is reasonably possible that the Allowed
Deferrals will continue to be recovered in rates, and that it is
reasonably possible that the Abeyed Deferrals will be recovered in
rates to the extent that the $1.4 billion of abeyed River Bend plant
is recovered.
Filings with the LPSC
See Note 2 in the Annual Financial Statements for a discussion
of the Company's required earnings analysis filing with the LPSC for
the test year preceding the Merger (1993). The Company appealed to
the Louisiana Supreme Court the 1994 LPSC order for an annual rate
reduction of $12.7 million. During the appeal, the Company's
preliminary injunction from the appropriate state District Court,
relating to the $8.3 million earnings effect of a 1994 change in
accounting for unbilled revenues, remained in effect. On July 2,
1996, the Louisiana Supreme Court ruled on the appeal. The Court
found that the LPSC ruled incorrectly on the treatment of the initial
balance of unbilled revenues and the revenue annualization
adjustment. As a result, the Company will not be required to refund
the $8.3 million. The case, which included other disputed matters,
was remanded to the LPSC for further proceedings.
On May 31, 1995, the Company filed its second required post-
Merger earnings analysis with the LPSC. Hearings on this review were
held in December 1995. On October 4, 1996, the LPSC issued an order
requiring a $33.3 million annual base rate reduction and a $9.6
million refund. One component of the rate reduction removes from
base rates approximately $13.4 million annually of costs that will be
recovered in the future through the fuel adjustment clause. On
October 23, 1996, the Company obtained an injunction to stay this
order, except insofar as the order requires the $13.4 million
reduction, which the Company has agreed to implement. The Company
plans to appeal the order to the appropriate state District Court.
In addition, the LPSC order provides for the recovery of $6.8 million
annually related to certain gas transportation and storage facilities
costs (see "LPSC Fuel Cost Review" below).
On May 31, 1996, the Company filed its third required post-
Merger earnings analysis with the LPSC. Based on this earnings
filing, on June 1, 1996, a $5.3 million annual rate reduction went
into effect. Hearings on this filing are scheduled for December
1996.
Filings with the PUCT
On December 6, 1995, the Company filed a petition with the PUCT
for reconciliation of fuel and purchased power expenses for the
period January 1, 1994, through June 30, 1995. The Company believes
that there was an under-recovered fuel balance, including interest,
of $22.4 million as of June 1995. Hearings began in September 1996,
and a final action by the PUCT is not expected until January 1997.
Management is unable to predict the final outcome of this proceeding.
In accordance with the Merger agreement, the Company is required
to file a rate proceeding with the PUCT in November 1996. However,
in April 1996, certain cities served by the Company (Cities)
instituted investigations of the reasonableness of the Company's
rates. In May 1996, the Cities agreed to forego their investigation
based on the assurance that any rate decrease ordered in the November
1996 filing will be retroactive to June 1, 1996, and accrue interest
until refunded. The agreement further provides that no base rate
increase will be retroactive.
LPSC Fuel Cost Review
See Note 2 in the Annual Financial Statements for a discussion
of the LPSC's review of the Company's fuel costs for the period
October 1988 through September 1991 (Phase I) and the Company's
subsequent appeal of $13.9 million of fuel costs disallowed by the
LPSC. On April 15, 1996, the appropriate state District Court
affirmed the LPSC decision. The Company has appealed this decision
to the Louisiana Supreme Court. The Company has reached a settlement
with the LPSC on one of the components of the disallowed fuel costs.
See "October 1996 LPSC Settlement" below.
In September 1996, the LPSC completed the second phase of their
review of the Company's fuel costs, which review covered the period
October 1991 through December 1994 (Phase II). On October 7, 1996,
the LPSC issued an order requiring a $34.2 million refund. The
ordered refund includes a disallowance of $14.3 million of capital
costs (including interest) related to certain gas transportation and
storage facilities, which were recovered through the fuel clause.
However, the LPSC order provides that the Company may recover these
costs in the future through base rates by establishing a regulatory
asset. As discussed above, the LPSC order in the second post-Merger
earnings analysis provides for the recovery of $6.8 million annually
related to gas transportation and storage facilities costs through
base rates. On October 23, 1996, the Company received an injunction
to stay this order, except insofar as the order requires the $14.3
million refund, and plans to appeal the order to the appropriate
state District Court. See "October 1996 LPSC Settlement" below.
October 1996 LPSC Settlement
In October 1996, the Company and the LPSC reached an agreement
whereby the Company agreed to (i) refund certain capital costs
related to gas transportation and storage facilities that were at
issue in the Phase I and Phase II fuel cost reviews and (ii) refund
similar costs recovered subsequent to the Phase II fuel cost review.
This will result in a total refund to customers of approximately
$32.1 million including interest. In the future, the Company will be
permitted to recover through base rates the capital costs related to
such gas transportation and storage facilities. As a part of the
settlement, which covered post-Phase II costs of such facilities in
addition to the costs addressed by the LPSC's order for the second
post-Merger earnings analysis, the Company will be permitted to
recover through base rates $1.3 million annually in addition to the
$6.8 million annual recovery discussed above for a total annual
recovery of $8.1 million. The settlement provides that this amount
will be applied as an offset against a refund, if any, required by a
final judgment in the Company's appeal of the second post-Merger
earnings review order.
NOTE 3. LONG-TERM DEBT
On November 1, 1996, the Company retired $75 million of its
6.67% Series First Mortgage Bonds upon maturity.
NOTE 4. RESTRUCTURING COSTS
In 1994 and 1995, Entergy Corporation and its subsidiaries,
including the Company, implemented various restructuring programs to
reduce the number of employees and consolidate offices and
facilities. The programs were designed to reduce costs and improve
operating efficiencies in order to enable Entergy and its
subsidiaries to become low-cost producers. The liability as of
December 31, 1995, the adjustments made in 1996, the payments made in
1996 and the liability as of September 30, 1996, were $5.4 million,
$.8 million, $5.2 million and $1.0 million, respectively
The restructuring charges shown above primarily include employee
severance costs related to the expected termination of approximately
625 employees in various groups. As of September 30, 1996,
approximately 650 employees had either been terminated or accepted
voluntary separation packages under the restructuring plan.
NOTE 5. ACCOUNTING ISSUES
New Accounting Standard - In March 1995, the FASB issued SFAS
121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of", which became effective January 1,
1996. This statement describes circumstances which may result in
assets being impaired, in addition to providing criteria for
recognition and measurement of asset impairment. In the first
quarter of 1996, the Company's regulatory assets of $169 million (net
of tax) related to Texas retail deferred River Bend operating and
carrying costs and $5 million (net of tax) related to Louisiana
retail deferred River Bend operating costs were written off under the
provisions of SFAS 121. See Note 1 in the Annual Financial
Statements for additional details regarding other assets and
operations potentially impacted in the future by the requirements of
SFAS 121 and the process for periodically reviewing those assets and
operations for impairment.
In the opinion of the Company the accompanying unaudited
condensed financial statements contain all adjustments (consisting
primarily of normal recurring accruals and reclassifying previously
reported amounts to conform to current classifications) necessary for
a fair statement of the results for the interim periods presented.
However, the business of the Company is subject to seasonal
fluctuations, with the peak period occurring during the summer
months. The results for the interim periods presented should not be
used as a basis for estimating results of operations for a full year.
<PAGE>
No person has been authorized to
give any information or to make any
representations other than those 3,400,000 Preferred Securities
contained in this Prospectus, and,
if given or made, such information
or representations must not be ENTERGY GULF STATES
relied upon as having been
authorized. This Prospectus does CAPITAL I
not constitute an offer to sell or a
solicitation of an offer to buy any
securities other than the securities _____%
described in this Prospectus or an
offer to sell or the solicitation of Cumulative Quarterly
an offer to buy such securities in Income Preferred Securities,
any circumstances in which such Series A (QUIPSsm)
offer or solicitation is unlawful.
Neither the delivery of this fully and unconditionally
Prospectus nor any sale made guaranteed
hereunder shall, under any
circumstances, create any as set forth herein by
implication that there has been no
change in the affairs of the Company ENTERGY GULF STATES, INC.
since the date hereof or that the
information contained herein is
correct as of any time subsequent to ____________________
its date.
PROSPECTUS
TABLE OF CONTENTS ____________________
Available Information............ Goldman, Sachs & Co.
Incorporation of Certain Documents ____________________
by Reference....................
Risk Factors..................... ____________________
The Company......................
Entergy Gulf States Capital I.... Representatives of the
Ratio of Earnings to Fixed Charges Underwriters
Selected Financial Data...........
Capitalization......................
Management's Financial Discussion
and Analysis.............
Accounting Treatment..............
Use of Proceeds...................
Description of the Preferred
Securities......................
Description of the
Guarantee...........................
Description of the Junior
Subordinated Debentures.........
Relationship Among the Preferred
Securities, the Junior..........
Subordinated Debentures and the
Guarantee.......................
Certain United States Federal
Income Tax Considerations.......
Underwriting......................
Experts...........................
Legal Opinions....................
Index to the Financial Statements.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Filing Fees-Securities and Exchange Commission:
Registration Statement $ 25,758
*Rating Agencies' fees 25,000
*Trustees' fees 6,000
*Fees of Company's Counsel:
Richards, Layton & Finger, P.A........ 35,000
Reid & Priest LLP 50,000
*Fees of Entergy Services, Inc. 35,000
*Accounting fees 12,000
*Printing and engraving costs 60,000
*Miscellaneous expenses (including Blue-Sky expenses) 20,000
--------
*Total Expenses $268,758
========
___________________
*Estimated
Item 15. Indemnification of Directors and Officers.
The Company has insurance covering its expenditures which might
arise in connection with its lawful indemnification of its directors and
officers for certain of their liabilities and expenses. Directors and
officers of the Company also have insurance which insures them against
certain other liabilities and expenses. The corporation laws of Texas
permit indemnification of directors and officers in a variety of
circumstances, which may include liabilities under the Securities Act of
1933, as amended (the "Securities Act"), and under the Company's
Restated Articles of Incorporation, its officers and directors may
generally be indemnified to the full extent of such laws.
Item 16. Exhibits.
***1.01 Form of Underwriting Agreement relating to
Preferred Securities.
**4.01 Restated Articles of Incorporation of the Company
and amendments thereto through April 22, 1996
(filed as Exhibit 3(b) to the Form 10-Q of the
company for the quarter ended March 31, 1996 in 1-
2703).
**4.02 By-Laws of the Company as amended effective May 5,
1994, and as presently in effect (filed as Exhibit
A-12 in 70-8059).
***4.03 Form of Indenture for Unsecured Subordinated Debt
Securities relating to Trust Securities.
***4.04 Certificate of Trust of Entergy Gulf States Capital
I.
***4.05 Trust Agreement of Entergy Gulf States Capital I.
***4.06 Form of Amended and Restated Trust Agreement of
Entergy Gulf States Capital I.
***4.07 Form of Preferred Security Certificate of Entergy
Gulf States Capital I (included as Exhibit D of
Exhibit 4.06 hereto).
***4.08 Form of Guarantee Agreement in respect of Entergy
Gulf States Capital I.
***4.09 Form of Officer's Certificate establishing terms of
Junior Subordinated Debentures (including form of
Junior Subordinated Debenture)
***4.10 Form of Expense Agreement in respect of Entergy
Gulf States Capital I (included as Exhibit C of
Exhibit 4.06 hereto).
***5.01 Opinion of Laurence M. Hamric, General Attorney -
Corporate and Securities of Entergy Services, Inc.,
relating to the validity of the Junior Subordinated
Debentures and the Guarantee.
***5.02 Opinion of Richards, Layton & Finger, P.A., special
Delaware counsel, relating to the validity of the
Preferred Securities of Entergy Gulf States Capital
I.
***5.03 Opinion of Reid & Priest LLP, relating to the
validity of the Junior Subordinated Debentures and
the Guarantees.
***8.01 Opinion of Reid & Priest LLP, as to United States
tax matters (included in Exhibit 5.03 hereto).
**10.01 Guaranty Agreement, dated July 1, 1976, between GSU
and American Bank and Trust Company (C and D to
Form 8-K, dated August 6, 1976 in 1-2703).
**10.02 Lease of Railroad Equipment, dated as of December
1, 1981, between The Connecticut Bank and Trust
Company as Lessor and GSU as Lessee and First
Supplement, dated as of December 31, 1981, relating
to 605 One Hundred-Ton Unit Train Steel Coal Porter
Cars (4-12 to Form 10-K for the year ended December
31, 1981 in 1-2703).
**10.03 Guaranty Agreement, dated August 1, 1992, between
GSU and Hibernia National Bank, relating to
Pollution Control Revenue Refunding Bonds of the
Industrial Development Board of the Parish of
Calcasieu, Inc. (Louisiana) (10-1 to Form 10-K for
the year ended December 31, 1992 in 1-2703).
**10.04 Guaranty Agreement, dated January 1, 1993, between
GSU and Hancock Bank of Louisiana, relating to
Pollution Control Revenue Refunding Bonds of the
Parish of Pointe Coupee (Louisiana) (10-2 to Form
10-K for the year ended December 31, 1992 in 1-
2703).
**10.05 Deposit Agreement, dated as of December 1, 1983
between GSU, Morgan Guaranty Trust Co. as
Depository and the Holders of Despository Receipts,
relating to the Issue of 900,000 Depositary
Preferred Shares, each representing 1/2 share of
Adjustable Rate Cumulative Preferred Stock, Series
E-$100 Par Value (4-17 to Form 10-K for the year
ended December 31, 1983 in 1-2703).
**10.06 Letter of Credit and Reimbursement Agreement, dated
December 27, 1985, between GSU and Westpac Banking
Corporation relating to Variable Rate Demand
Pollution Control Revenue Bonds of the Parish of
West Feliciana, State of Louisiana, Series 1985-D
(4-26 to Form 10-K for the year ended December 31,
1985 in 1-2703) and Letter Agreement amending same
dated October 20, 1992 (10-3 to Form 10-K for the
year ended December 31, 1992 in 1-2703).
**10.07 Reimbursement and Loan Agreement, dated as of April
23, 1986, by and between GSU and The Long-Term
Credit Bank of Japan, Ltd., relating to Multiple
Rate Demand Pollution Control Revenue Bonds of the
Parish of West Feliciana, State of Louisiana,
Series 1985 (4-26 to Form 10-K, for the year ended
December 31, 1986 in 1-2703) and Letter Agreement
amending same, dated February 19, 1993 (10 to Form
10-K for the year ended December 31, 1992 in 1-
2703).
**10.08 Agreement effective February 1, 1964, between
Sabine River Authority, State of Louisiana, and
Sabine River Authority of Texas, and GSU, Central
Louisiana Electric Company, Inc., and Louisiana
Power & Light Company, as supplemented (B to Form 8-
K, dated May 6, 1964, A to Form 8-K, dated October
5, 1967, A to Form 8-K, dated May 5, 1969, and A to
Form 8-K, dated December 1, 1969, in 1-2708).
**10.09 Joint Ownership Participation and Operating
Agreement regarding River Bend Unit 1 Nuclear
Plant, dated August 20, 1979, between GSU, Cajun,
and SRG&T; Power Interconnection Agreement with
Cajun, dated June 26, 1978, and approved by the REA
on August 16, 1979, between GSU and Cajun; and
Letter Agreement regarding CEPCO buybacks, dated
August 28, 1979, between GSU and Cajun (2, 3, and
4, respectively, to Form 8-K, dated September 7,
1979, in 1-2703).
**10.10 Ground Lease, dated August 15, 1980, between
Statmont Associates Limited Partnership (Statmont)
and GSU, as amended (3 to Form 8-K, dated August
19, 1980, and A-3-b to Form 10-Q for the quarter
ended September 30, 1983 in 1-2703).
**10.11 Lease and Sublease Agreement, dated August 15,
1980, between Statmont and GSU, as amended (4 to
Form 8-K, dated August 19, 1980, and A-3-c to Form
10-Q for the quarter ended September 30, 1983 in 1-
2703).
**10.12 Lease Agreement, dated September 18, 1980, between
BLC Corporation and GSU (1 to Form 8-K, dated
October 6, 1980 in 1-2703).
**10.13 Joint Ownership Participation and Operating
Agreement for Big Cajun, between GSU, Cajun
Electric Power Cooperative, Inc., and Sam Rayburn
G&T, Inc, dated November 14, 1980 (6 to Form 8-K,
dated January 29, 1981 in 1-2703); Amendment No. 1,
dated December 12, 1980 (7 to Form 8-K, dated
January 29, 1981 in 1-2703); Amendment No. 2, dated
December 29, 1980 (8 to Form 8-K, dated January 29,
1981 in 1-2703).
**10.14 Agreement of Joint Ownership Participation between
SRMPA, SRG&T and GSU, dated June 6, 1980, for
Nelson Station, Coal Unit #6, as amended (8 to Form
8-K, dated June 11, 1980, A-2-b to Form 10-Q For
the quarter ended June 30, 1982; and 10-1 to Form 8-
K, dated February 19, 1988 in 1-2703).
**10.15 Agreements between Southern Company and GSU, dated
February 25, 1982, which cover the construction of
a 140-mile transmission line to connect the two
systems, purchase of power and use of transmission
facilities (10-31 to Form 10-K, for the year ended
December 31, 1981 in 1-2703).
**10.16 Executive Income Security Plan, effective October
1, 1980, as amended, continued and completely
restated effective as of March 1, 1991 (10-2 to
Form 10-K for the year ended December 31, 1991 in 1-
2703).
**10.17 Transmission Facilities Agreement between GSU and
Mississippi Power Company, dated February 28, 1982,
and Amendment, dated May 12, 1982 (A-2-c to Form 10-
Q for the quarter ended March 31, 1982 in 1-2703)
and Amendment, dated December 6, 1983 (10-43 to
Form 10-K, for the year ended December 31, 1983 in
1-2703).
**10.18 Lease Agreement dated as of June 29, 1983, between
GSU and City National Bank of Baton Rouge, as Owner
Trustee, in connection with the leasing of a
Simulator and Training Center for River Bend Unit 1
(A-2-a to Form 10-Q for the quarter ended June 30,
1983 in 1-2703) and Amendment, dated December 14,
1984 (10-55 to Form 10-K, for the year ended
December 31, 1984 in 1-2703).
**10.19 Participation Agreement, dated as of June 29, 1983,
among GSU, City National Bank of Baton Rouge,
PruFunding, Inc. Bank of the Southwest National
Association, Houston and Bankers Life Company, in
connection with the leasing of a Simulator and
Training Center of River Bend Unit 1 (A-2-b to Form
10-Q for the quarter ended June 30, 1983 in 1-
2703).
**10.20 Tax Indemnity Agreement, dated as of June 29, 1983,
between GSU and PruFunding, Inc., in connection
with the leasing of a Simulator and Training Center
for River Bend Unit I (A-2-c to Form 10-Q for the
quarter ended June 30, 1993 in 1-2703).
**10.21 Agreement to Lease, dated as of August 28, 1985,
among GSU, City National Bank of Baton Rouge, as
Owner Trustee, and Prudential Interfunding Corp.,
as Trustor, in connection with the leasing of
improvement to a Simulator and Training Facility
for River Bend Unit I (10-69 to Form 10-K, for the
year ended December 31, 1985 in 1-2703).
**10.22 First Amended Power Sales Agreement, dated December
1, 1985 between Sabine River Authority, State of
Louisiana, and Sabine River Authority, State of
Texas, and GSU, Central Louisiana Electric Co.,
Inc., and Louisiana Power and Light Company (10-72
to Form 10-K for the year ended December 31, 1985
in 1-2703).
**10.23 Deferred Compensation Plan for Directors of GSU and
Varibus Corporation, as amended January 8, 1987,
and effective January 1, 1987 (10-77 to Form 10-K
for the year ended December 31, 1986 in 1-2703).
Amendment dated December 4, 1991 (10-3 to Amendment
No. 8 in Registration No. 2-76551).
**10.24 Trust Agreement for Deferred Payments to be made by
GSU pursuant to the Executive Income Security Plan,
by and between GSU and Bankers Trust Company,
effective November 1, 1986 (10-78 to Form 10-K for
the year ended December 31, 1986 in 1-2703).
**10.25 Trust Agreement for Deferred Installments under
GSU's Management Incentive Compensation Plan and
Administrative Guidelines by and between GSU and
Bankers Trust Company, effective June 1, 1986 (10-
79 to Form 10-K for the year ended December 31,
1986 in 1-2703).
**10.26 Nonqualified Deferred Compensation Plan for
Officers, Nonemployee Directors and Designated Key
Employees, effective December 1, 1985, as amended,
continued and completely restated effective as of
March 1, 1991 (10-3 to Amendment No. 8 in
Registration No. 2-76551).
**10.27 Trust Agreement for GSU's Nonqualified Directors
and Designated Key Employees by and between GSU and
First City Bank, Texas-Beaumont, N.A. (now Texas
Commerce Bank), effective July 1, 1991 (10-4 to
Form 10-K for the year ended December 31, 1992 in 1-
2703).
**10.28 Lease Agreement, dated as of June 29, 1987, among
GSG&T, Inc., and GSU related to the leaseback of
the Lewis Creek generating station (10-83 to Form
10-K for the year ended December 31, 1988 in 1-
2703).
**10.29 Nuclear Fuel Lease Agreement between GSU and River
Bend Fuel Services, Inc. to lease the fuel for
River Bend Unit 1, dated February 7, 1989 (10-64 to
Form 10-K for the year ended December 31, 1988 in 1-
2703).
**10.30 Trust and Investment Management Agreement between
GSU and Morgan Guaranty and Trust Company of New
York (the "Decommissioning Trust Agreement) with
respect to decommissioning funds authorized to be
collected by GSU, dated March 15, 1989 (10-66 to
Form 10-K for the year ended December 31, 1988 in 1-
2703).
**10.31 Amendment No. 2 dated November 1, 1995 between GSU
and Mellon Bank to Decommissioning Trust Agreement.
**10.32 Credit Agreement, dated as of December 29, 1993,
among River Bend Fuel Services, Inc. and Certain
Commercial Lending Institutions and CIBC Inc. as
Agent for the Lenders ((d) 34 to Form 10-K for year
ended December 31, 1994).
**10.33 Amendment No. 1 dated as of January 31, to Credit
Agreement, dated as of December 31, 1993, among
River Bend Fuel Services, Inc. and certain
commercial lending institutions and CIBC Inc. as
agent for Lenders.
**10.34 Partnership Agreement by and among Conoco Inc., and
GSU, CITGO Petroleum Corporation and Vista Chemical
Company, dated April 28, 1988 (10-67 to Form 10-K
for the year ended December 31, 1988 in 1-2703).
**10.35 Gulf States Utilities Company Executive Continuity
Plan, dated January 18, 1991 (10-6 to Form 10-K for
the year ended December 31, 1990 in 1-2703).
**10.36 Trust Agreement for GSU's Executive Continuity
Plan, by and between GSU and First City Bank, Texas-
Beaumont, N.A. (now Texas Commerce Bank), effective
May 20, 1991 (10-5 to Form 10-K for the year ended
December 31, 1992 in 1-2703).
**10.37 Gulf States Utilities Board of Directors'
Retirement Plan, dated February 15, 1991 (10-8 to
Form 10-K for the year ended December 31, 1990 in 1-
2703).
**10.38 Gulf States Utilities Company Employees' Trustee
Retirement Plan effective July 1, 1955 as amended,
continued and completely restated effective January
1, 1989; and Amendment No.1 effective January 1,
1993 (10-6 to Form 10-K for the year ended December
31, 1992 in 1-2703).
**10.39 Agreement and Plan of Reorganization, dated June 5,
1992, between GSU and Entergy Corporation (2 to
Form 8-K, dated June 8, 1992 in 1-2703).
**10.40 Gulf States Utilities Company Employee Stock
Ownership Plan, as amended, continued, and
completely restated effective January 1, 1984, and
January 1, 1985 (A to Form 11-K, dated December 31,
1985 in 1-2703).
**10.41 Trust Agreement under the Gulf States Utilities
Company Employee Stock Ownership Plan, dated
December 30, 1976, between GSU and the Louisiana
National Bank, as Trustee (2-A to Registration No.
2-62395).
**10.42 Letter Agreement dated September 7, 1977 between
GSU and the Trustee, delegating certain of the
Trustee's functions to the ESOP Committee (2-B to
Registration Statement No. 2-62395).
**10.43 Gulf States Utilities Company Employees Thrift Plan
as amended, continued and completely restated
effective as of January 1, 1992 (28-1 to Amendment
No. 8 to Registration No. 2-76551).
**10.44 Restatement of Trust Agreement under the Gulf
States Utilities Company Employees Thrift Plan,
reflecting changes made through January 1, 1989,
between GSU and First City Bank, Texas-Beaumont,
N.A., (now Texas Commerce Bank ), as Trustee (2-A
to Form 8-K dated October 20, 1989 in 1-2703).
**10.45 Operating Agreement between Entergy Operations and
GSU, dated as of December 31, 1993 (B-2(f) to Rule
24 Certificate in 70-8059).
**10.46 Guarantee Agreement between Entergy Corporation and
GSU, dated as of December 31, 1993 (B-5(a) to Rule
24 Certificate in 70-8059).
**10.47 Service Agreement with Entergy Services, dated as
of December 31, 1993 (B-6(c) to Rule 24 Certificate
in 70-8059).
**10.48 Amendment to Employment Agreement between J. L.
Donnelly and GSU, dated December 22, 1993 (10(d) 57
to Form 10-K for the year ended December 31, 1993
in 1-2703).
**10.49 Assignment, Assumption and Amendment Agreement to
Letter of Credit and Reimbursement Agreement
between GSU, Canadian Imperial Bank of Commerce and
Westpac Banking Corporation (10(d) 58 to Form 10-K
for the year ended December 31, 1993 in 1-2703).
**10.50 Third Amendment, dated January 1, 1994, to Entergy
Corporation and Subsidiary Companies Intercompany
Income Tax Allocation Agreement (D-3(a) to Form U5S
for the year ended December 31, 1993).
**10.51 Refunding Agreement between GSU and West Feliciana
Parish (dated December 20, 1994 (B-12(a) to Rule 24
Certificate dated December 30, 1994 in 70-8375).
**12.01 Statement Re: Computation of Ratio of Earnings to
Fixed Charges (filed as Exhibit 99(b) to the Form
10-Q for the quarter ended September 30, 1996 in 1-
2703).
***23.01 Consent of Coopers & Lybrand L.L.P.
***23.02 Consent of Clarke, Winters & Thomas.
***23.03 Consent of Sandlin Associates.
***23.04 Consent of Lawrence M. Hamric (included in Exhibit
5.01 hereto).
***23.05 Consent of Richards, Layton & Finger, P.A.,
(included in Exhibit 5.02 hereto).
***23.06 Consent of Reid & Priest LLP (included in Exhibit
5.03 hereto).
***24.01 Powers of Attorney of certain officers and
directors of the Company (included herein at page
II-5).
***25.01 Statement of Eligibility under the Trust Indenture
Act of The Bank of New York, as Trustee for the
Indenture for Unsecured Subordinated Debt
Securities relating to Trust Securities.
***25.02 Statement of Eligibility under the Trust Indenture
Act of The Bank of New York, as Property Trustee
for the Amended and Restated Trust Agreement of
Entergy Gulf States Capital I.
***25.03 Statement of Eligibility under the Trust Indenture
Act of The Bank of New York, as Guarantee Trustee
for the Guarantee Agreement in respect of Entergy
Gulf States Capital I.
**99.01 Opinion of Clark, Thomas & Winters, A Professional
Corporation, dated September 30, 1992, regarding
the effect of the October 1, 1991, judgment in
Entergy Gulf States v. PUCT in the District Court
of Travis County, Texas (filed as Exhibit 99-1 in
Registration No. 33-48889).
**99.02 Opinion of Clark, Thomas & Winters, A Professional
Corporation, dated August 8, 1994, regarding
recovery of costs deferred pursuant to PUCT order
in Docket 6525 (filed as Exhibit 99 (j) to the
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, in File No. 1-2703).
**99.03 Opinion of Clark, Thomas & Winters, A Professional
Corporation, confirming its opinions dated
September 30, 1992, and August 8, 1994 (filed as
Exhibit 99(l) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, in File 1-
2703).
__________
**Incorporated by reference herein
***Previously filed
Item 17. Undertakings.
The undersigned registrants hereby undertake:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrants
pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time
it was declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To provide to the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and
registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
(4) That, insofar as indemnification for liabilities arising under
the Securities Act of 1933, may be permitted to directors, officers and
controlling persons of the registrants pursuant to the foregoing
provisions, or otherwise, the registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of
expenses incurred or paid by a director, officer or controlling person
of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrants
will, unless in the opinion of their counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by them is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
<PAGE>
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature
appears below hereby appoints Gerald D. McInvale, William J. Regan, Jr.,
Laurence M. Hamric and Denise C. Redmann, and each of them severally, as
his attorney-in-fact to sign in his name and behalf, in any and all
capacities stated below, and to file with the Securities and Exchange
Commission, any and all amendments, including post-effective amendments,
to this registration statement, and the registrants hereby also appoint
each such named person as their attorney-in-fact with like authority to
sign and file any such amendments in their name and behalf.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has duly caused this
Amendment No. 1 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New Orleans, State of
Louisiana, on the 8th day of January, 1997.
ENTERGY GULF STATES, INC.
By /s/ William J. Regan, Jr.
William J. Regan, Jr.
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
-------------- ----------- -----------
_________________________ Chairman of the January 8, 1997
Edwin Lupberger Board,
President, Chief
Executive Officer
and Director
(Principal
Executive Officer)
By:/s/William J. Regan, Jr.
William J. Regan, Jr.
Attorney-in-fact
_______________________ Executive Vice January 8, 1997
Gerald D. McInvale President
Chief Financial
Officer,
and Director
(Principal
Financial Officer)
By:/s/William J. Regan, Jr.
William J. Regan, Jr.
Attorney-in-fact
________________________ Vice President and January 8, 1997
Louis E. Buck, Jr. Chief Accounting
Officer
(Principal
Accounting
Officer)
By:/s/William J. Regan, Jr.
William J. Regan, Jr.
Attorney in-fact
Michael B. Bemis )
Jerry L. Maulden )
Donald C. Hintz ) Directors January 8, 1997
Jerry D. Jackson )
John J. Cordaro )
By:/s/William J. Regan, Jr.
William J. Regan, Jr.
Attorney-in-fact
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, the registrant, Entergy Gulf States Capital I, certifies
that it has duly caused this Amendment No.1 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New
Orleans, State of Louisiana, on the 8th day of January, 1997.
Entergy Gulf States Capital I
By: Entergy Gulf States, Inc., as depositor
By: /s/William J. Regan, Jr.
Name: William J. Regan, Jr.
Title: Vice President and Treasurer
