As filed with the Securities and Exchange Commission on January 15, 1997
Registration No. 333-17911 and 333-17911-01
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
AMENDMENT NO. 2
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 (Address, including zip code,
principal executive offices) and 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>
CROSS-REFERENCE SHEET
Item and Caption in Form S-2 Caption in Prospectus
1. Forepart of the Registration
Statement and Outside Front Outside Front Cover Page
Cover of Prospectus
2. Inside Front and Outside
Back Cover Pages of Inside Front Cover Page;
Prospectus 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 Description of the
be Registered 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 Experts; Legal Opinions
and Counsel
11. Information With Respect to Risk Factors; The
the Registrant 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 Not Applicable
For Securities Act Liabilities
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 15, 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 March 31, 2046 (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 January
15, 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 7 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.
________________
Initial Public Underwriting Proceeds to the
Offering Price Commission(1) Issuer (2)(3)
Per Preferred Security $ (2) $
Total $ (2) $
__________
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities 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.
(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; except, that such compensation
will be $______ per Preferred Security sold to certain
institutions. Accordingly, the maximum aggregate amount
of Underwriters' Compensation will be $______________, but
the actual 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 $269,000.________.
________________
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.
Merrill Lynch & Co.
Prudential Securities Incorporated
Smith Barney, Inc.
________________
The date of this Prospectus is January, 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.
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 "Commission"). 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".
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.
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 "Management's Financial
Discussion and Analysis -- Significant Factors and Known Trends",
for the quarterly period ended September 30, 1996 and "The
Company -- Recent Developments -- Loss of Revenues from
Industrial Customers").
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.
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 Corporation ("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.
Loss of Revenues from Industrial Customers. During 1996,
the Company entered into agreements with one of its largest
industrial customers concerning a steam generating station that
historically has been contractually dedicated to providing
electricity for that customer. Under these agreements, the
generating facility was leased to the customer. The Company will
continue to operate the facility pursuant to contracts with the
customer. It is anticipated that the customer will make major
improvements to the facility at its expense. As a result of
these arrangements, which were entered into with the expectation
that the customer otherwise would terminate its contracts with
the Company and construct its own generating facilities, the
Company's revenues from this customer are estimated to be reduced
by approximately $33 million per year beginning in August of
1997, and the Company's net income is expected to be reduced by
approximately $15 million on an annualized basis.
In November 1996, another industrial customer having an
electrical load of approximately 31 megawatts left the Company's
system due to the commencement of operations of a cogeneration
facility to serve the customer's industrial facility. This is
expected to result in a revenue loss to the Company of
approximately $5.5 million per annum, and a reduction in net
income of $3.3 million on an annualized basis.
Employment Litigation. The Company is a defendant in
approximately 177 lawsuits filed in state court in Texas by
former employees who claim that they lost their jobs as a result
of the merger between the Company and Entergy, which was
consummated at the end of 1993. The plaintiffs in these cases
have asserted various claims, including breach of contract,
fraud, misrepresentation, negligence, intentional infliction of
emotional distress, and/or discrimination on the basis of age,
race and/or sex. It has been determined that these lawsuits will
be tried separately rather than being consolidated, and the first
trial is scheduled in 1997. The Company is vigorously defending
all of these suits and denies that it is liable to the
plaintiffs. However, no assurance can be given as to the outcome
of these cases.
Significant Legal and Regulatory Proceedings
Proceedings currently pending before Texas and Louisiana
regulators, in which various parties are seeking significant
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.
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
1996 1995 1995 1994 1993 1992(1) 1991(1)
<S> <C> <C> <C> <C> <C> <C> <C>
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 148,149 148,034 199,199 203,059 209,868 247,469 259,968
(net)
Net Income
(Loss) before
extraordinary (14,152) 115,100 122,919 (82,755) 69,461 139,413 112,391
items and the
cumulative
effect of
accounting
changes
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 7,164,447 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.
<TABLE>
<CAPTION>
For the Nine Months For the Twelve Months
Ended September 30 Ended December 31
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
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 61,300 52,300 67,103 52,967 31,898 24,485 44,136
companies
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 399 2,092 2,935 1,866 - - -
companies
Non-associated 1,714 1,744 2,212 1,650 666 540 1,049
companies
Total Electric 26,200 26,259 34,769 32,279 28,159 27,554 27,358
Department
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 Operating Net Income
Revenues 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
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 136,444 3.4
sinking fund)
Preferred Stock (with 77,460 1.9
sinking fund)
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 $87.6 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
March 31, 2046. 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 revenues $32.0
Fuel cost recovery (29.6)
Sales volume/weather 35.0
Other revenue (including unbilled) 1.1
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.
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 Months Ended Nine Months Ended
Increase/(Decrease) Increase/(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 March 31,
2046. 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 January
________, 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.
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 3,400,000 Preferred Securities
those contained in this
Prospectus, and, if given or made,
such information or ENTERGY GULF STATES
representations must not be relied
upon as having been authorized. CAPITAL I
This Prospectus does not
constitute an offer to sell or a
solicitation of an offer to buy _____%
any securities other than the
securities described in this Cumulative Quarterly
Prospectus or an offer to sell or Income Preferred Securities,
the solicitation of an offer to Series A (QUIPSsm)
buy such securities in any
circumstances in which such offer fully and unconditionally
or solicitation is unlawful. guaranteed
Neither the delivery of this
Prospectus nor any sale made as set forth herein by
hereunder shall, under any
circumstances, create any ENTERGY GULF STATES, INC.
implication that there has been no
change in the affairs of the
Company since the date hereof or ____________________
that the information contained
herein is correct as of any time PROSPECTUS
subsequent to its date. ____________________
TABLE OF CONTENTS Goldman, Sachs & Co.
____________________
Available
Information ____________________
Incorporation of Certain Representatives of the
Documents by Underwriters
Reference
Risk Factors
The Company
Entergy Gulf States Capital I
Ratio of Earnings to Fixed Charges
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 20,000
expenses)
*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).
***23.01Consent of Coopers & Lybrand L.L.P.
***23.02Consent of Clarke, Winters & Thomas.
***23.03Consent of Sandlin Associates.
***23.04Consent of Lawrence M. Hamric (included in Exhibit 5.01
hereto).
***23.05Consent of Richards, Layton & Finger, P.A., (included in
Exhibit 5.02 hereto).
***23.06Consent of Reid & Priest LLP (included in Exhibit 5.03
hereto).
***24.01Powers of Attorney of certain officers and directors of
the Company (included herein at page II-5).
***25.01Statement 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.
***25.02Statement 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.
***25.03Statement 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. 2 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of
New Orleans, State of Louisiana, on the 14th 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 Board, January 14, 1997
Edwin Lupberger President, Chief
Executive Officer
and Director
(Principal Executive
Officer)
By: /s/ William J. Regan, Jr.
William J. Regan, Jr.
Attorney-in-fact
____________________ Executive Vice President January 14, 1997
Gerald D. McInvale 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 14, 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 14, 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.2 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New Orleans, State
of Louisiana, on the 14th 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
