UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended
December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
ACT OF 1934 (NO FEE REQUIRED) For the transition period
from ______________________ to ______________________
COMMISSION FILE NUMBER 1-7629
HOUSTON INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)
TEXAS 74-1885573
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
5 POST OAK PARK
4400 POST OAK PARKWAY
HOUSTON, TEXAS 77027 (713) 629-3000
(Address and zip code of principal (Registrant's telephone number,
executive offices) including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, without par value, New York Stock Exchange
and associated rights to purchase Chicago Stock Exchange
preference stock London Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
COMMISSION FILE NUMBER 1-3187
HOUSTON LIGHTING & POWER COMPANY
(Exact name of registrant as specified in its charter)
TEXAS 74-0694415
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
611 WALKER AVENUE
HOUSTON, TEXAS 77002 (713) 228-9211
(Address and zip code of principal Registrant's telephone number,
executive offices) including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
-------------------
Preferred stock, cumulative, no par: $4 Series; $6.72 Series; $7.52 Series;
$8.12 Series; Variable Term Cumulative Preferred Stock, Series A; Variable Term
Cumulative Preferred Stock, Series B; Variable Term Cumulative Preferred Stock,
Series C; Variable Term Cumulative Preferred Stock, Series D; $8.50 Series; and
$9.375 Series.
Indicate by check mark whether each of the registrants: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
The aggregate market value of the voting stock held by non-affiliates of
Houston Industries Incorporated was $4,963,962,077 as of March 1, 1995, using
the definition of beneficial ownership contained in Rule 13d-3 promulgated
pursuant to the Securities Exchange Act of 1934 and excluding shares held by
directors and executive officers.
As of March 1, 1995, Houston Industries Incorporated had 131,336,234 shares
of Common Stock outstanding, including 7,690,518 ESOP shares not deemed
outstanding for financial statement purposes. See Note 1 to the financial
statements in Item 8 of this Report. As of March 1, 1995, all 1,100 shares of
Houston Lighting & Power Company's common stock were held, directly or
indirectly, by Houston Industries Incorporated.
Portions of the definitive proxy statement relating to the 1995 Annual
Meeting of Shareholders of Houston Industries Incorporated, which will be filed
within 120 days of December 31, 1994, are incorporated by reference in Item 10,
Item 11, Item 12 and Item 13 of Part III of this form.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of each of the registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
<PAGE>
HOUSTON INDUSTRIES INCORPORATED AND
HOUSTON LIGHTING & POWER COMPANY
Form 10-K for the Year Ended December 31, 1994
PART I TABLE OF CONTENTS PAGE NO.
- ------ --------
Item 1. Business:
The Company and Its Subsidiaries........................................ 3
Business of HL&P........................................................ 4
Business of KBLCOM...................................................... 16
Business of HI Energy................................................... 25
Regulation of the Company............................................... 26
Executive Officers of the Company....................................... 27
Executive Officers of HL&P.............................................. 28
Item 2. Properties....................................................... 29
Item 3. Legal Proceedings................................................ 31
Item 4. Submission of Matters to a Vote of Security Holders.............. 32
PART II
- -------
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters...................................... 33
Item 6. Selected Financial Data:
The Company............................................................. 34
HL&P.................................................................... 35
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 36
Item 8. Financial Statements and Supplementary Data:
Consolidated Financial Statements....................................... 53
HL&P Financial Statements............................................... 62
Notes to Consolidated Financial Statements.............................. 70
Notes to HL&P Financial Statements...................................... 100
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 108
PART III
- --------
Item 10. Directors and Executive Officers of the Company and HL&P......... 108
Item 11. Executive Compensation........................................... 110
Item 12. Security Ownership of Certain Beneficial Owners and Management... 118
Item 13. Certain Relationships and Related Transactions................... 120
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 121
-2-
This combined Form 10-K is separately filed by Houston Industries
Incorporated (Company) and Houston Lighting & Power Company (HL&P). Information
contained herein relating to HL&P is filed by the Company and separately by HL&P
on its own behalf. HL&P makes no representation as to information relating to
the Company (except as it may relate to HL&P), KBLCOM Incorporated (KBLCOM),
Houston Industries Energy, Inc. (HI Energy) or to any other affiliate or
subsidiary of the Company.
PART I
ITEM 1. BUSINESS.
THE COMPANY AND ITS SUBSIDIARIES
The Company, incorporated in Texas in 1976, is a holding company
operating principally in two business segments, the electric utility business
and the cable television business. The Company conducts its operations primarily
through three subsidiaries: HL&P, its principal operating subsidiary, KBLCOM and
HI Energy. For a description of the Company's status under the Public Utility
Holding Company Act of 1935 (1935 Act), see "REGULATION OF THE COMPANY."
HL&P is engaged in the generation, transmission, distribution and sale
of electric energy and serves over 1.4 million customers in a 5,000 square-mile
area of the Texas Gulf Coast, including Houston. As of December 31, 1994, the
total assets and common stock equity of HL&P represented 88 percent of the
Company's consolidated assets and 114 percent of the Company's consolidated
common stock equity, respectively. For the year ended December 31, 1994, the
operations of HL&P accounted for 114 percent of the Company's consolidated net
income.
The cable television operations of the Company are conducted through
KBLCOM and its subsidiaries. This segment includes five cable television systems
located in four states and a 50 percent interest in Paragon Communications
(Paragon), a Colorado partnership which owns systems located in seven states. As
of December 31, 1994, KBLCOM's wholly-owned systems served approximately 690,000
basic cable customers and Paragon served approximately 967,000 basic cable
customers.
The Company has entered into an agreement to dispose of its cable
television operations. Under an agreement executed on January 26, 1995, KBLCOM
will become a wholly-owned subsidiary of Time Warner Inc. (Time Warner). Closing
of the transaction, which is expected to occur in the second half of 1995, is
subject to the approval of certain franchise authorities and other governmental
entities. Time Warner will issue one million shares of its common stock and 11
million shares of a newly-issued series of its convertible preferred stock to
the Company and will purchase certain intercompany debt of KBLCOM from the
Company for approximately $600 million, subject to adjustment. For a further
discussion of the transaction, see "Management's Discussion and Analysis of
Financial Condition - LIQUIDITY AND CAPITAL RESOURCES - Company - Sources of
Capital Resources and Liquidity" in Item 7 of this Report and Note 21(a) to the
Company's Consolidated Financial Statements in Item 8 of this Report.
HI Energy participates in domestic and foreign power generation
projects and invests in the privatization of foreign electric utilities.
As of December 31, 1994, the Company and its subsidiaries had 11,498
full-time employees.
For certain financial information with respect to each of the Company's
two principal business segments, see Note 16 to the Company's Consolidated
Financial Statements in Item 8 of this Report.
-3-
BUSINESS OF HL&P
HL&P, incorporated in Texas in 1906, is engaged in the generation,
transmission, distribution and sale of electric energy. Sales are made to
residential, commercial and industrial customers in a 5,000 square-mile area of
the Texas Gulf Coast, including Houston.
CERTAIN FACTORS AFFECTING HL&P'S ELECTRIC UTILITY BUSINESS
As an electric utility, HL&P has been affected, to varying degrees, by
a number of factors affecting the electric utility industry in general. These
factors include an increasingly competitive environment; slower growth in the
domestic utility industry; the high cost of compliance with environmental and
nuclear regulations; changes in the regulation of the generation and
transmission of electricity at the federal and state level; and prudence audits
and other litigation relating to the operation of the South Texas Project
Electric Generating Station (South Texas Project). HL&P is unable to predict the
future effect of these or other factors upon its operations and financial
condition. For a discussion of various regulatory changes affecting HL&P and
other electric utilities (including the impact of increased competition in the
electric utility industry), see "Competition" and "Regulatory Matters" below.
A major factor that will affect HL&P during 1995 is the resolution of
its pending rate proceeding. For information concerning the proposed settlement
of such proceeding and other contingencies relating to the South Texas Project
see Notes 1(f), and 2 through 5 to the Company's Consolidated and HL&P's
Financial Statements (Financial Statements) included in
Item 8 of this Report.
NATURE OF SERVICE AREA
Although the Houston economy slowly continues to expand and diversify
in numerous areas, such as medical, professional and engineering services,
HL&P's service area is still dependent, to a large degree, on companies engaged
in the oil, gas and chemical industries. These industries accounted for
approximately $292 million of HL&P's 1994 base (non-fuel) revenues, representing
42 percent of industrial electric base revenues and 11 percent of total electric
base revenues.
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MAXIMUM HOURLY FIRM DEMAND AND CAPABILITY
The following table sets forth, for the years indicated, information
with respect to HL&P's net capability, maximum hourly firm demand and the
resulting reserve margin:
<TABLE>
<CAPTION>
Maximum Hourly Firm Demand
---------------------------------
Installed % Change
Net Purchased Total Net From Reserve
Capability Power Capability Prior Margin
Year (MW) (MW)<F1> (MW) Date MW<F2> Year (%)
- ---- ---------- ---------- ---------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1990 13,584 945 14,529 Aug. 27 11,150 6.6 30.3
1991 13,583 945 14,528 Aug. 21 10,908 (2.2) 33.2
1992 13,583 945 14,528 Jul. 30 10,783 (1.1) 34.7
1993 13,679 945 14,624 Aug. 19 11,397 5.7 28.3
1994 13,666 720 14,386 Jun. 28 11,245 (1.3) 27.9
<FN>
<F1> Reflects firm capacity purchased. At year-end 1994, HL&P had contracts
totaling 445 megawatts (MW) of firm capacity and associated energy (net
of a 325 MW contract that expired on December 31, 1994). These
contracts expire as follows: 1998 - 125 MW and 2005 - 320 MW.
<F2> Does not include interruptible load. Including interruptible demand,
the maximum hourly demand served in 1994 was 12,009 MW compared to
12,472 MW in 1993.
</FN>
</TABLE>
HL&P currently expects maximum hourly firm demand for electricity to
grow at a compound annual rate of about 1.7 percent over the next ten years.
Assuming average weather conditions and including the net effects of HL&P's
demand-side management (DSM) programs, reserve margins are projected to decrease
from an estimated 23 percent in 1995 to an estimated 17 percent in 1999 as a
result of growth in firm demand and the expiration of a firm purchased power
contract. For long-term planning purposes, HL&P intends to maintain reserve
margins in the range of 15 to 20 percent in excess of maximum hourly firm demand
load requirements.
HL&P experiences significant seasonal variation in its sales of
electricity. Sales during the summer months are typically higher than sales
during other months of the year due, in large part, to the reliance on air
conditioning in HL&P's service territory. HL&P's 1994 maximum hourly firm demand
decreased 1.3 percent compared to 1993, a year of unusually warm summer weather.
See Note 20 to the Financial Statements in Item 8 of this Report for a
presentation of certain quarterly unaudited financial information for 1993 and
1994.
COMPETITION
HL&P and other members of the electric utility industry, like other
regulated industries, are being subjected to technological, regulatory and
economic pressures that are increasing competition and offer the possibility for
fundamental changes in the industry and its regulation. The electric utility
industry historically has been composed of vertically integrated companies which
largely have been the exclusive providers of electric service within a
governmentally- defined geographic area. Prices for that service have been set
by governmental authority under
-5-
principles that were designed to provide the utility with an opportunity to
recover its costs of providing electric service plus a reasonable return on its
invested capital.
By legislation adopted in 1978, Congress contributed to the development
of new sources of electric generation by freeing cogenerators (i.e., facilities
which produce electrical energy along with thermal energy used for industrial
processes, usually the generation of steam) from most regulatory constraints
applicable to traditional utilities, such as state and federal pricing
regulation and organizational restrictions arising under the 1935 Act. This
legislation contributed to the development of approximately 40 cogeneration
facilities in the highly industrialized Houston area, with a power generation
capability of over 5,000 MW. As a consequence, HL&P has lost some industrial
customers to self-generation (representing approximately 2,500 MW), and
additional projects continue to be considered by customers.
In 1992 Congress authorized, in the Energy Policy Act, another category
of wholesale generators, Exempt Wholesale Generators (EWGs). Like cogenerators,
these entities exist to sell electric energy at wholesale, but unlike
cogenerators, EWGs may be formed for the generation of electricity without
regard to the simultaneous production of thermal energy. Congress chose to free
EWGs from the structural constraints applicable to traditional utilities under
the 1935 Act, but Congress also authorized traditional utilities to form such
entities themselves without being burdened by those restrictions. At the same
time, Congress placed significant limitations on the ability of traditional
utilities to purchase power in their own service territories from an affiliated
EWG.
There are increasing pressures today by both cogenerators and exempt
wholesale generators for access to the electric transmission and distribution
systems of the regulated utilities in order to have greater flexibility in
moving power to other purchasers, including access for the purpose of making
retail sales to either affiliates of the unregulated generator or to other
customers of the regulated utility. In February 1995, a new entity sought
permission from the Public Utility Commission of Texas (Utility Commission) to
construct a transmission line within HL&P's service territory for the purpose of
transmitting power from a cogeneration facility owned by an industrial concern
to an affiliate of that concern. This proceeding has been docketed by the
Utility Commission, but currently is in its early stages.
Neither federal nor Texas law currently permits retail sales by
unregulated entities. However, changes to the Federal Power Act made in the
Energy Policy Act of 1992 increase the power of the Federal Energy Regulatory
Commission (FERC) to order utilities to transmit power generated by both
regulated and unregulated entities to other wholesale customers, and efforts are
underway in some states that may lead to broader authorization of transmission
access for such entities and even to retail sales by such entities. HL&P
anticipates that some of those arguments will be advanced in the current session
of the Texas legislature during the consideration of the re-enactment to the
Public Utility Regulatory Act (PURA), which governs electric regulation in
Texas.
-6-
Traditional utilities such as HL&P also face increased competition from
alternate energy sources, primarily natural gas. Gas suppliers increasingly are
seeking to supplant traditional electric loads with gas-powered equipment, such
as gas-powered chillers in air conditioning installations.
HL&P continues to maintain an aggressive approach in attempting to
preserve its existing customer base. HL&P has instituted various programs to
reduce its costs and has adopted aggressive marketing programs to identify and
respond to customer needs. One example is HL&P's development of the San Jacinto
Steam Electric Station, a rate-based cogeneration facility that will begin
service in 1995. In addition, in February 1995, the Utility Commission approved
a new tariff proposed by HL&P that will allow special pricing for industrial
customers who can demonstrate the ability to obtain electric service on terms
more favorable than HL&P's traditional tariff offerings. While such pricing may
retain such customers and minimize the prospect that HL&P would be left with
stranded investment whose costs might have to be borne by customers who have no
other alternatives, HL&P's revenues and earnings will be reduced from such
pricing tariffs.
In addition, HL&P and nine other Texas investor-owned utilities are
supporting a legislative proposal for amendment to the PURA. That proposal calls
for (i) a streamlined resource planning process, (ii) competitive bidding for
new generation capacity requirements, (iii) regulatory incentives that reward
efficiency and innovation and (iv) granting utilities pricing flexibility to
meet the changing needs of their customers. These changes, if adopted in the
form proposed by the utilities, would enhance the flexibility of regulated
entities to address competition, while also providing utility customers with the
benefits of more diverse energy supplies.
Under rules adopted by the Utility Commission and under interconnection
guidelines adopted by the Electric Reliability Council of Texas, Inc., through
which a number of utilities and unregulated suppliers are connected, HL&P and
other Texas utilities have provided for movement of power for both regulated and
unregulated power suppliers at compensatory rates. Unregulated power suppliers
continue to seek additional access and more favorable pricing provisions.
At this time it is impossible to predict what changes to the electric
utility industry will emerge as a result of any legislative changes that may be
adopted by the Texas legislature. Nor is it possible to predict what other
changes to the industry will emerge from federal regulatory and legislative
initiatives or from regulatory decisions of the Utility Commission, though, it
seems likely that such changes ultimately will increase the competition HL&P
faces in supplying electric energy to its customers.
CAPITAL PROGRAM
HL&P has a continuous program to maintain its existing production and
transmission facilities and to expand its physical plant in response to customer
needs. Currently, HL&P does not forecast a need for additional generating
capacity until the year 2000. Thereafter, HL&P intends to satisfy such needs
through the construction of combined cycle gas turbines at existing HL&P plant
sites, the development of cogeneration projects, or through other means, such as
purchased power contracts or DSM techniques.
-7-
In 1994, HL&P's capital expenditures were approximately $413 million,
excluding Allowance for Funds Used During Construction (AFUDC). HL&P's capital
program (excluding AFUDC) is currently estimated to cost approximately $364
million in 1995, $385 million in 1996 and $338 million in 1997. HL&P's capital
program for the three-year period 1995 through 1997 consists primarily of
improvements to its existing electric generating, transmission and distribution
facilities. For the three-year period 1995 through 1997, HL&P's projected
capital program consists of the following estimated principal expenditures:
Amount Percent of Total
(millions) Expenditures
---------- -----------------
Generating facilities ........................ $ 337 31%
Transmission facilities ...................... 26 2%
Distribution facilities ...................... 436 40%
Substation facilities ........................ 89 8%
General plant facilities ..................... 159 15%
Nuclear fuel ................................. 40 4%
------ ---
Total ................................... $1,087 100%
====== ===
Actual capital expenditures will vary from estimates as a result of
numerous factors, including but not limited to changes in the rate of inflation,
availability and relative cost of fuel and purchased power, changes in
environmental laws, regulatory and legislative changes, and the effect of
regulatory proceedings.
For information regarding expenditures associated with (i) HL&P's share
of nuclear fuel costs and (ii) environmental programs, see "Fuel - Nuclear Fuel
- - Supply" and "Regulatory Matters - Environmental Quality" below.
FUEL
Based upon various assumptions relating to the cost and availability of
fuels, plant operation schedules, actual in-service dates of HL&P's planned
generating facilities, load growth, load management and environmental protection
requirements, HL&P's estimate of its future energy mix is as follows:
Energy Mix (%)
-----------------------------------
Estimated
Historical -----------------------
1994 1995 1997 1999
---------- ---- ---- ----
Gas .................................... 34 39 36 40
Coal and Lignite ....................... 43 40 40 41
Nuclear ................................ 7 7 8 8
Purchased Power (cogeneration) ......... 16 14 16 11
--- --- --- ---
Total ......................... 100 100 100 100
=== === === ===
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There can be no assurance that the various assumptions upon which the
estimates set forth in the table above are based will prove to be correct.
Accordingly, HL&P's actual energy mix in future years may vary from the
percentages shown in the table.
NATURAL GAS SUPPLY. During 1994, HL&P purchased approximately 68
percent of its natural gas requirements pursuant to long-term contracts with
various suppliers. The remaining 32 percent of HL&P's natural gas requirements
was purchased on the spot market. In 1994, no individual supplier provided more
than 26 percent of HL&P's natural gas requirements. Substantially all of HL&P's
natural gas supply contracts contain pricing provisions based on fluctuating
market prices.
HL&P believes that it will be able to renew its long-term contracts as
they expire or enter into similar contractual arrangements with other natural
gas suppliers. HL&P has gas transportation arrangements with gas pipelines
connected to certain of its generating facilities. HL&P also has a long-term
contract for gas storage which provides working storage capacity of up to 3,500
billion British thermal units (BBtu) of natural gas. HL&P's average daily gas
consumption during 1994 was 611 BBtu with peak consumption of 1,297 BBtu. HL&P's
average cost of natural gas in 1994 was $1.90 per million British thermal units
(MMBtu). HL&P's average cost of natural gas in 1993 and 1992 was $2.21 and $1.92
per MMBtu, respectively.
Although natural gas has been relatively plentiful in recent years,
supplies available to HL&P and other consumers are vulnerable to disruption due
to weather conditions, transportation disruptions, price changes and other
events. As a result of this vulnerability, supplies of natural gas may become
unavailable from time to time, or prices may increase rapidly in response to
temporary supply disruptions or other factors.
COAL AND LIGNITE SUPPLY. Substantially all of the coal for HL&P's four
coal-fired units at the W. A. Parish Electric Generating Station (W. A. Parish)
is purchased under two long-term contracts from mines in the Powder River Basin
area of Wyoming. Additional coal is obtained on the spot market. The coal is
transported under terms of a long-term rail transportation contract to the W. A.
Parish coal handling facilities. A substantial portion of the coal requirements
for the projected operating lives of the four coal-fired units at W. A. Parish
is expected to be met under such contracts.
The lignite used to fuel the two units of the Limestone Electric
Generating Station (Limestone) is obtained from a mine adjacent to the plant.
HL&P owns the mining equipment, facilities and a portion of the lignite leases
at the mine, which is operated by a contract miner under a long-term agreement.
The lignite reserves currently under lease and contract are expected to provide
a substantial portion of the fuel requirements for the projected operating lives
of the Limestone units.
NUCLEAR FUEL. SUPPLY. The supply of fuel for nuclear generating
facilities involves the acquisition of uranium concentrates, conversion of such
concentrates into uranium hexafluoride, enrichment of the uranium hexafluoride
and fabrication of nuclear fuel assemblies. The South Texas Project fuel
requirements are procured in common by the South Texas Project owners. HL&P and
the other South Texas Project owners have on-hand or have contracted for the raw
-9-
materials and services they expect to need for operation of the South Texas
Project units through the years shown in the following table:
Uranium ....................................... 1996(1)
Conversion .................................... 1996(1)
Enrichment .................................... 2014(2)
Fabrication ................................... 2005
(1) The South Texas Project owners have entered into contracts for uranium
concentrates and conversion services that will provide approximately 50
percent of the uranium needed for operation of the South Texas Project
units from 1997 through 2000.
(2) The South Texas Project owners cancelled the October 2000 through
September 2002 portion of the current enrichment services contract
because the South Texas Project owners believe that other, lower-cost
options will be available.
Although HL&P and the other South Texas Project owners cannot predict
the future availability of uranium and related services, they do not currently
anticipate difficulty in obtaining requirements for the remaining years of South
Texas Project operation.
SPENT FUEL DISPOSAL. By contract, the United States Department of
Energy (DOE) has committed itself to ultimately take possession of all spent
fuel generated by the South Texas Project. HL&P has been advised that the DOE
plans to place the spent fuel in a permanent underground storage facility in an
as-yet undetermined location. The DOE contract currently requires payment of a
spent fuel disposal fee on nuclear plant-generated electricity of one mill
(one-tenth of a cent) per net kilowatt-hour (KWH) sold. This fee is subject to
adjustment to ensure full cost recovery by the DOE. Although the DOE's efforts
to arrange long-term disposal have been unsuccessful to date, the South Texas
Project is designed to have sufficient on-site storage facilities to accommodate
over 40 years of the spent fuel discharges for each unit.
ENRICHMENT DECONTAMINATION AND DECOMMISSIONING ASSESSMENT FEES. The
Energy Policy Act of 1992 includes a provision that assesses a fee upon domestic
utilities having purchased nuclear fuel enrichment services from the DOE before
October 24, 1992. This fee covers a portion of the cost to decontaminate and
decommission the enrichment facilities. The South Texas Project assessment was
approximately $2 million in 1994 and will be approximately $2 million each year
thereafter (subject to escalation for inflation), of which HL&P's share is 30.8
percent. This assessment will continue until the earlier of 15 years or when
$2.25 billion (adjusted for inflation) has been collected from domestic
utilities. HL&P has a remaining estimated liability of $7.0 million for such
assessments.
OIL SUPPLY. Fuel oil is maintained in inventory by HL&P to provide for
fuel needs in emergency situations in the event sufficient supplies of natural
gas are not available. In addition, certain of HL&P's generating plants have the
ability to use fuel oil if oil becomes a more economical fuel than incremental
gas supplies. HL&P has storage facilities for over six million barrels of oil
located at those generating plants capable of burning oil. HL&P's oil inventory
is adjusted periodically to accommodate changes in the availability of primary
fuel supplies.
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RECOVERY OF FUEL COSTS. Utility Commission rules provide for the
recovery of certain fuel and purchased power costs through an energy component
of electric rates (fixed fuel factor). The fixed fuel factor is established
during either a utility's general rate proceeding or a fuel factor proceeding
and is to be generally effective for a minimum of six months. In any event, a
reconciliation of the fuel revenues and the fuel costs is required every three
years. HL&P can request a revision to its fuel factor in April and October each
year. For information relating to the cost of fuel over the last three years,
see "Operating Statistics of HL&P" below and "RESULTS OF OPERATIONS - HL&P -
Fuel and Purchased Power Expense" in Item 7 of this Report. For information
relating to HL&P's most recent fuel reconciliation for the period April 1, 1990
through July 31, 1994 and the effect of the proposed settlement, see Note 3 to
the Financial Statements included in Item 8 of this Report.
REGULATORY MATTERS
RATES AND SERVICES. HL&P operates under a certificate of convenience
and necessity granted by the Utility Commission which covers HL&P's present
service area and facilities. In addition, HL&P holds franchises to provide
electric service within the incorporated municipalities in its service
territory. None of such franchises expires before 2007.
Under PURA, the Utility Commission has original jurisdiction over
electric rates and services in unincorporated areas of the State of Texas and in
the incorporated municipalities that have relinquished original jurisdiction.
Original jurisdiction over electric rates and services in the remaining
incorporated municipalities served by HL&P is exercised by such municipalities,
including Houston, but the Utility Commission has appellate jurisdiction over
electric rates and services within those incorporated municipalities.
In its 1995 legislative session, the Texas legislature is expected to
consider several significant proposals to amend PURA in connection with a
"Sunset Review" process of the Utility Commission. Such proposals cover issues
which include, among other items, tax issues relating to public utilities, the
organization and authority of the Utility Commission, competitive issues and
Integrated Resource Planning.
UTILITY COMMISSION RATE PROCEEDINGS. In February 1994, the Utility
Commission initiated a proceeding (Docket No. 12065) to determine whether HL&P's
existing rates are just and reasonable. The Utility Commission also initiated a
separate proceeding to review issues regarding the prudence of the operation of
the South Texas Project. For more information on these proceedings (Docket Nos.
12065 and 13126) and a proposed settlement of such proceedings, see Note 3 to
the Financial Statements in Item 8 of this Report, which note is incorporated
herein by reference.
For information concerning the Utility Commission's orders with respect
to HL&P's prior applications for general rate increases with the Utility
Commission (Docket No. 9850 for the 1991 rate case and Docket No. 8425 for the
1988 rate case) and the municipalities within HL&P's service area and the
appeals of such orders, see Notes 4(a) and 4(b) to the Financial Statements in
Item 8 of this Report, which notes are incorporated herein by reference.
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PRUDENCE REVIEW OF CONSTRUCTION OF THE SOUTH TEXAS PROJECT. For
information concerning the Utility Commission's orders with respect to a
prudence review of the planning, management and construction of the South Texas
Project (Docket No. 6668) and the appeals of such orders, see Note 4(d) to the
Financial Statements in Item 8 of this Report, which note is herein incorporated
by reference.
DEFERRED ACCOUNTING DOCKETS. For information concerning the Utility
Commission's orders allowing deferred accounting treatment for certain costs
associated with the South Texas Project (Docket Nos. 8230, 9010 and 8425), the
appeals of such orders and related proceedings, see Notes 1(f), 4(b) and 4(c) to
the Financial Statements in Item 8 of this Report, which notes are incorporated
herein by reference.
ENVIRONMENTAL QUALITY. GENERAL. HL&P is subject to a number of federal,
state and local environmental requirements that govern its discharge of
emissions into the air and water and regulate its handling of solid and
hazardous waste. HL&P has incurred substantial expenditures in the past to
comply with these requirements and anticipates that further expenditures will be
incurred in the future. Most of the environmental requirements applicable to
HL&P are implemented by the Texas Natural Resource Conservation Commission
(TNRCC), which shares regulatory jurisdiction with the United States
Environmental Protection Agency (EPA).
AIR QUALITY. Both the TNRCC and the EPA are presently implementing
sweeping amendments to the Federal Clean Air Act that were enacted in 1990. A
major provision affecting electric utilities is the Acid Rain Program, which is
designed to reduce emissions of sulfur dioxide (SO2) from electric utility
generating units. The Acid Rain Program requires that after a certain date a
utility must have been granted a regulatory "allowance" for each ton of SO2
emitted from its facilities. Allowances have been distributed to utilities by
the EPA based on the utility's historic operations. If a utility is not
allocated sufficient allowances to cover its future SO2 emissions, it must
either purchase allowances from other utilities or reduce SO2 emissions from its
units through the installation of additional controls and equipment. HL&P
believes that it has been allocated a sufficient number of emission allowances
for it to continue operating its existing facilities for the foreseeable future.
Provisions of the Clean Air Act dealing with urban air pollution
require establishing new emission limitations for nitrogen oxides (NOx) from
existing sources. Initial limitations were finalized in 1993, but the
implementation of these emission reductions has been delayed by the EPA and
TNRCC until 1997. The cost of modifications to HL&P in 1994 was $4 million. Up
to an additional $40 million may be incurred by HL&P in order to fully comply
with new NOx requirements after 1997.
Additionally, to ensure compliance with these new regulatory programs,
the Clean Air Act requires electric utilities to install continuous emission
monitoring equipment, which cost HL&P approximately $4 million in 1994 and is
expected to cost an additional $7 million in 1995. To implement these new Clean
Air Act programs, a new Operating Permit Program was established that will be
administered in Texas by the TNRCC. Among other requirements, the Operating
Permit Program is funded by fees imposed by the TNRCC. The annual cost of these
fees is approximately $1 million.
-12-
WATER QUALITY. The Federal Clean Water Act governs the discharge of any
pollutants into surface waters and is administered jointly in Texas by the TNRCC
and the EPA. HL&P has obtained permits from both the TNRCC and the EPA for all
of its facilities that require such permits and anticipates obtaining renewal of
such permits as they expire.
SOLID AND HAZARDOUS WASTE. HL&P's handling and disposal of solid waste
are also subject to regulation by the TNRCC. HL&P's cost in 1994 for commercial
disposal of industrial solid waste was approximately $4 million.
ELECTRIC AND MAGNETIC FIELDS. The issue of whether exposure to electric
and magnetic fields (EMFs) may result in adverse health effects or damage to the
environment is currently being debated. EMFs are produced by all devices which
carry or use electricity, including home appliances as well as electric
transmission and distribution lines. Results of studies concerning the effect of
EMFs have been inconclusive and EMFs are not the subject of any federal, state
or local regulations affecting HL&P. However, lawsuits have arisen in several
states against electric utilities and others alleging that the presence or use
of electric power transmission and distribution lines has an adverse effect on
health and/or property values. One such suit (BICKI, ET AL. V. HOUSTON
INDUSTRIES INCORPORATED, ET AL.), for unspecified damages, was filed against the
Company and HL&P in December 1994 in the 129th District Court of Harris County,
Texas by the families of 11 children alleged to have been diagnosed with, or to
have died from, childhood cancers caused by exposure to EMFs created by HL&P's
transmission and distribution lines and unbalanced electric circuits in the
children's homes and schools. While no prediction can be made as to the ultimate
outcome of any of the pending suits, the impact on the Company and on the
electric industry as a whole could be significant if litigation of this type is
successful.
FEDERAL REGULATION OF NUCLEAR POWER. Under the 1954 Atomic Energy Act
and the 1974 Energy Reorganization Act, operation of nuclear plants is
extensively regulated by the United States Nuclear Regulatory Commission (NRC),
which has broad power to impose licensing and safety requirements. In the event
of non-compliance, the NRC has the authority to impose fines or shut down
nuclear plants, or both, depending upon its assessment of the severity of the
situation, until compliance is achieved.
For information concerning a diagnostic evaluation that was completed
by the NRC at the South Texas Project, the removal of the South Texas Project
from the NRC watch list, and related matters, see "CURRENT ISSUES - HL&P" in
Item 7 of this Report and Note 2(b) to the Financial Statements in Item 8 of
this Report, which note is incorporated herein by reference.
LOW-LEVEL RADIOACTIVE WASTE DISPOSAL. In response to the 1980 federal
Low-Level Radioactive Waste Policy Act which assigns responsibility for
low-level waste disposal to the states, Texas has created the Texas Low-Level
Radioactive Waste Disposal Authority (Waste Disposal Authority) to build and
operate a low-level waste disposal facility. HL&P's portion of the State of
Texas assessment for the development work on this facility was approximately
$0.7 million in 1994 and will be approximately $1.3 million for 1995. Nuclear
facilities in Texas formerly had access to the low-level waste disposal facility
at Barnwell, South Carolina which was closed in June 1994 to generators of
radioactive waste located in states which are not members of the Southeast
compact.
-13-
HL&P has constructed a temporary low-level radioactive waste storage
facility at the South Texas Project which will be utilized for interim storage
of low-level radioactive waste prior to the opening of the Texas Low-Level
Radioactive Waste Site. The Waste Disposal Authority currently estimates that
the Texas site could begin receiving waste in mid-1997.
NUCLEAR INSURANCE AND NUCLEAR DECOMMISSIONING
For information concerning nuclear insurance and nuclear
decommissioning, see Notes 2(d) and 2(e) to the Financial Statements in Item 8
of this Report, which notes are incorporated herein by reference.
LABOR MATTERS
As of December 31, 1994, HL&P had 9,558 full-time employees of whom
3,724 were hourly-paid employees represented by the International Brotherhood of
Electrical Workers under a collective bargaining agreement which expires on May
25, 1995.
-14-
<PAGE>
OPERATING STATISTICS OF HL&P
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Electric Energy Generated and Purchased (MWH):
Generated - Net Station Output................... 53,894,994 52,939,551 51,065,016
Purchased........................................ 10,107,449 11,113,971 11,537,872
Net Interchange.................................. (1,018) (282) 204
----------- ----------- -----------
Total........................................... 64,001,425 64,053,240 62,603,092
Company Use, Lost and Unaccounted for Energy..... (2,678,629) (2,903,780) (2,660,704)
----------- ----------- -----------
Total Energy Sold............................... 61,322,796 61,149,460 59,942,388
=========== =========== ===========
Electric Sales (MWH):
Residential...................................... 17,194,724 16,953,667 16,375,400
Commercial....................................... 13,631,381 13,083,391 12,541,636
Industrial....................................... 24,478,490 24,686,782 24,374,284
Street Lighting - Government and Municipal....... 116,643 112,914 110,896
----------- ----------- -----------
Total Firm Retail Sales......................... 55,421,238 54,836,754 53,402,216
Other Electric Utilities......................... 167,286 223,204 243,167
----------- ----------- -----------
Total Firm Sales................................ 55,588,524 55,059,958 53,645,383
Interruptible.................................... 5,027,743 5,748,086 5,974,203
Off-System....................................... 706,529 341,416 322,802
----------- ----------- -----------
Total........................................... 61,322,796 61,149,460 59,942,388
=========== =========== ===========
Number of Customers (End of Period):
Residential...................................... 1,301,074 1,278,774 1,258,556
Commercial....................................... 170,959 168,284 165,241
Industrial (Including Interruptible)............. 1,670 1,706 1,756
Street Lighting - Government and Municipal....... 81 82 82
Other Electric Utilities (Including Off-System).. 11 12 10
----------- ----------- -----------
Total........................................... 1,473,795 1,448,858 1,425,645
=========== =========== ===========
Operating Revenue (Thousands of Dollars):
Residential...................................... $ 1,586,074 $ 1,578,175 $ 1,465,627
Commercial....................................... 1,029,104 994,461 926,157
Industrial....................................... 1,184,571 1,190,917 1,134,601
Street Lighting - Government and Municipal....... 25,902 24,258 23,148
----------- ----------- -----------
Total Electric Revenue - Firm Retail Sales...... 3,825,651 3,787,811 3,549,533
Other Electric Utilities......................... 25,669 26,154 26,834
----------- ----------- -----------
Total Electric Revenue - Firm Sales............. 3,851,320 3,813,965 3,576,367
Interruptible.................................... 108,730 135,066 127,042
Off-System....................................... 13,691 7,313 6,364
----------- ----------- -----------
Total Electric Revenue.......................... 3,973,741 3,956,344 3,709,773
Miscellaneous Electric Revenues.................. (227,656) 123,519 117,068
----------- ----------- -----------
Total........................................... $ 3,746,085 $ 4,079,863 $ 3,826,841
=========== =========== ===========
Installed Net Generating Capability (KW)
(End of Period).................................. 13,666,000 13,679,000 13,583,000
Cost of Fuel (Cents per Million Btu):
Gas ............................................. 189.8 221.4 192.3
Coal<F1>......................................... 159.0 199.6 200.3
Lignite.......................................... 110.8 122.1 132.6
Nuclear.......................................... 57.4 59.6 59.9
Average......................................... 153.6 195.2 171.0
<FN>
<F1>The cost of coal for 1994 reflects the receipt of approximately
$66.1 million related to the sale of certain railroad settlement payments.
See Note 19 to the Financial Statements in Item 8 of this Report.
</FN>
</TABLE>
-15-
BUSINESS OF KBLCOM
GENERAL
The cable television operations of the Company are conducted through
KBLCOM's subsidiaries, which own and operate five cable television systems
located in four states. KBLCOM also indirectly owns a 50 percent interest in
Paragon, which in turn owns twenty systems located in seven states. KBLCOM's 50
percent interest in Paragon is recorded in the financial statements using the
equity method of accounting. The remaining 50 percent interest in Paragon is
owned by subsidiaries of American Television and Communications (ATC), a
subsidiary of Time Warner. ATC serves as the general manager for all but one of
the Paragon systems.
On January 26, 1995, the Company entered into an Agreement and Plan of
Merger (the Merger Agreement) with KBLCOM, Time Warner and TW KBLCOM Acquisition
Corp. (Acquisition Corp.), a newly-formed, wholly-owned subsidiary of Time
Warner. Pursuant to the Merger Agreement, Acquisition Corp. will merge with
KBLCOM, and KBLCOM will become a wholly-owned subsidiary of Time Warner.
The merger is conditioned upon, among other things, (i) the parties
obtaining necessary consents of certain franchise authorities and other
governmental entities, (ii) the absence of any change that might have a material
adverse effect on KBLCOM or Time Warner, (iii) the absence of any material
litigation and (iv) the expiration or termination of the waiting period under
the Hart-Scott-Rodino Antitrust Act of 1976, as amended. See Note 21(a) to the
Financial Statements included in Item 8 of this Report with respect to the terms
of the sale and accounting therefor.
Unless otherwise indicated or the context otherwise requires, all
references in this section to "KBLCOM" mean KBLCOM and its subsidiaries and all
references to Paragon mean the Paragon partnership. All information pertaining
to Paragon has been provided to KBLCOM by Paragon's managing partner, ATC,
unless stated otherwise.
CABLE TELEVISION SERVICES
The cable television business of KBLCOM consists primarily of selling
to subscribers, for a monthly fee, television programming that is distributed
through a network of coaxial and fiber optic cables. KBLCOM offers its
subscribers both basic services and, for an extra monthly charge, premium
services. Each of the KBLCOM systems carries the programming of all three major
television networks, programming from independent and public television stations
and certain other local and distant (out-of-market) broadcast television
stations. KBLCOM also offers to its subscribers locally produced or originated
video programming, advertiser-supported cable programming (such as ESPN and
CNN), premium programming (such as HBO and Showtime) and a variety of other
types of programming services such as sports, family and children, news, weather
and home shopping programming. As is typical in the industry, KBLCOM subscribers
may terminate their cable television service on notice. KBLCOM's business is
generally not considered to be seasonal.
-16-
All of KBLCOM's systems are "addressable," allowing individual
subscribers, among other things, to electronically select pay-per-view programs.
Approximately 48 percent of KBLCOM's customers presently have converters
permitting addressability. This allows KBLCOM to offer pay-per-view services for
various movies, sports events, concerts and other entertainment programming.
OVERVIEW OF SYSTEMS AND DEVELOPMENT
The KBLCOM systems, located in San Antonio and Laredo, Texas; the
Minneapolis, Minnesota metropolitan area; Portland, Oregon; and Orange County,
California, have channel capacities ranging from 44 channels to 120 channels.
Although all of these systems are considered fully built, annual capital
expenditures are required to accommodate growth within the service areas and to
replace and upgrade existing equipment. In 1994, property additions and other
cable-related investments totaled approximately $84 million.
Paragon owns cable television systems that serve a number of cities,
towns or other areas in Texas (including El Paso), Arizona, Florida (including
the Tampa Bay area), New Hampshire, New York (including a portion of Manhattan),
Maine and southern California (areas in Los Angeles County). Paragon made
capital expenditures of approximately $60 million in 1994.
For information regarding KBLCOM's financial results and liquidity and
the financing of KBLCOM, see "RESULTS OF OPERATIONS - KBLCOM" in Item 7 of this
Report and Notes 10(b) and 14(c) to the Financial Statements in Item 8 of this
Report.
The following table summarizes certain information relating to the
cable television systems owned by KBLCOM and Paragon:
<TABLE>
<CAPTION>
KBLCOM as of December 31, Total Paragon<F1> as of December 31,
------------------------------------------- ------------------------------------------
1994<F2> 1993 1992 1994 1993 1992
------------ ------------ ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Estimated number
of homes passed
by cable<F3> .......... 1,305,000 1,198,000 1,176,000 1,605,000 1,575,000 1,544,000
Number of basic
subscribers<F4> ....... 690,000 605,000 577,000 967,000 932,000 901,000
Basic subscribers
as a percentage
of homes passed ....... 52.9% 50.5% 49.1% 60.2% 59.2% 58.4%
Number of premium
(pay) units<F5> ....... 545,000 488,000 435,000 552,000 542,000 540,000
Premium (pay) units
as a percentage of
basic subscribers ..... 79.0% 80.7% 75.4% 57.1% 58.2% 59.9%
<FN>
-17-
<F1> A KBLCOM subsidiary has a 50 percent interest in Paragon. Information
has been furnished by ATC, the general manager of Paragon.
<F2> In July 1994, KBLCOM acquired three cable companies in the Minneapolis
area which then passed approximately 89,000 homes and served
approximately 48,000 basic subscribers who subscribed to approximately
20,000 premium units.
<F3> A home is "passed by cable" if it can be connected to cable service
without extension of the distribution system.
<F4> Basic subscribers means the sum of (i) the number of homes receiving
cable services, (ii) all units in multiple dwellings which receive one
bill and (iii) each commercial establishment (hotels, hospitals, etc.)
less (iv) complimentary accounts.
<F5> Premium (or pay) units consist of the number of subscriptions to
premium programming services counting, as separate subscriptions, each
service received by a subscriber.
</FN>
</TABLE>
SOURCES OF REVENUES AND RATES TO SUBSCRIBERS
For the year ended December 31, 1994, the average monthly revenue per
subscriber for KBLCOM was approximately $32.94. Approximately 65 percent of
KBLCOM's revenue was derived from monthly fees paid by subscribers for basic
cable services, and 17 percent was derived from premium programming services.
Rates to subscribers vary from system to system and in accordance with the type
of service selected. As of December 31, 1994, the average monthly basic revenue
per subscriber for the KBLCOM systems generally ranged from $17.80 to $23.44. As
of December 31, 1994, approximately 38 percent of KBLCOM's customers subscribed
to one or more premium channels. KBLCOM's premium units and premium revenue
increased during 1994. The increases are due primarily to new packaging of
premium units and multiplexing, which is the delivery of multiple channels of a
premium service (with programs beginning at different times) with no change in
price to the subscriber.
The remainder of KBLCOM's revenues for the year ended December 31, 1994
was derived from advertising, pay-per-view services, installation fees and other
ancillary services. KBLCOM's management believes that, within its present
markets, the sale of commercial advertising, pay-per-view services and other
ancillary services offer the potential for increased revenues. Advertising
revenues for the year ended December 31, 1994 increased $1.8 million or 11.5
percent over the previous year while pay-per-view and the other ancillary
revenues increased by $4.8 million or 18.3 percent.
As of December 31, 1994, the average monthly revenue per subscriber for
the Paragon systems was approximately $30.56. Approximately 61 percent of
Paragon's revenues was derived from monthly fees for basic services, and 22
percent was derived from premium services. As of December 31, 1994, the average
monthly basic revenue per subscriber for the Paragon systems ranged from $18.01
to $24.45. As of December 31, 1994, approximately 31 percent of Paragon's
customers subscribed to one or more premium channels.
-18-
FRANCHISES
KBLCOM's cable television systems generally operate pursuant to
non-exclusive franchises or permits awarded by local governmental authorities,
and accordingly, other applicants may obtain franchises or permits in franchise
areas served by KBLCOM. See "Regulation" below. As of December 31, 1994, KBLCOM
held 70 franchises with unexpired terms ranging from under one year to
approximately 17 years. A single franchise agreement with San Antonio, which
expires in 2003, covered approximately 30 percent of KBLCOM's subscribers as of
December 31, 1994. The expiration periods and approximate percentages of
subscribers for KBLCOM's franchises are as follows:
Percent of Expiration Period
Subscribers of Remaining Franchises
----------- -----------------------
20% 1995-1998
16% 1999-2002
60% after 2002
4% No expiration date
As of December 31, 1994, Paragon held 158 franchises with unexpired
terms ranging from 1995 to 2010. The single largest franchise, which covers a
portion of Manhattan, included 20 percent of Paragon's subscribers as of
December 31, 1994. This franchise expires in 1998.
The provisions of state and local franchises are subject to federal
regulation under the Cable Communications Policy Act of 1984 (1984 Cable Act),
as amended by the Cable Television Consumer Protection and Competition Act of
1992 (1992 Cable Act). See "Regulation" below. Cable television franchises
generally can be terminated prior to their stated expiration date under certain
circumstances such as a material breach of the franchise by the cable operator.
Franchises typically contain a number of provisions dealing with, among other
things, minimum technical specifications for the systems; operational
requirements; total channel capacity; local governmental, community and
educational access; franchise fees (which range up to 5 percent of cable system
revenues) and procedures for renewal of the franchise. Sometimes conditions of
franchise renewal require improved facilities, increased channel capacity or
enhanced services. One franchise, with approximately 87,000 subscribers as of
December 31, 1994, held by an indirect subsidiary of KBLCOM, provides that the
city granting the franchise may, at any time, require the subsidiary to sell, at
fair market value, its franchise and operations in the city to another cable
television operator with a franchise for another portion of the city.
KBLCOM's franchises are also subject to renewal and generally are not
transferable without the prior approval of the franchising authority. In
addition, some franchises provide for the purchase of the franchise under
certain circumstances, such as a failure to renew the franchise. To date,
KBLCOM's franchises have generally been renewed or extended upon their stated
expirations, but there can be no assurance of renewal of franchises in the
future.
-19-
PROGRAMMING CONTRACTS
A substantial portion of KBLCOM's programming is obtained under
contracts with terms that typically extend for more than one year. KBLCOM
generally pays program suppliers a monthly fee per subscriber. Certain of these
contracts have price escalation provisions.
COMPETITION
Cable television systems experience competition from a variety of
sources, including broadcast television signals, multipoint microwave
distribution systems, direct broadcast satellite systems (satellite signals sent
directly to a subscriber's satellite dish) and satellite master antenna systems
(a satellite dish which receives signals and distributes them within a multiple
dwelling unit). The effectiveness of such competition depends, in part, upon the
quality of the signals and the variety of the programming offered over such
competitive technologies and the cost thereof as compared with cable television
systems. These competitive technologies are not generally subject to the same
form of local regulation that affects cable television. Cable television systems
also compete, to varying degrees, with other communications and entertainment
media such as motion picture theaters and video cassette rental stores, and such
competition may increase with the development and growth of new technologies.
Two national direct broadcast satellite (DBS) systems commenced
operation in 1994. These national DBS providers compete in all KBLCOM franchise
areas and are expected to constitute significant new competition to such KBLCOM
systems. As a result of the programming access requirements contained in the
1992 Cable Act, these two national DBS providers will have access to virtually
all cable television programming services. Additionally, within the next two
years, there may be significant development in the provision of video dialtone
programming over telephone company facilities. This new source of competition
will result from telephone companies leasing video capacity to independent
programmers in KBLCOM service areas. Finally, both federal legislation and
Federal Communications Commission (FCC) proceedings are currently underway which
may allow telephone companies to own and distribute their own programming over
their own facilities in direct competition with cable systems. Specifically, US
West has indicated, in an FCC filing, that it intends to upgrade facilities in
at least one KBLCOM service area in order to provide either video dialtone
service or to own and distribute its own video programming services.
Since KBLCOM's systems operate under non-exclusive franchises, other
companies may obtain permission to build cable television systems in areas where
KBLCOM presently operates. The 1992 Cable Act prohibits franchising authorities
from unreasonably refusing to grant franchises to competing cable systems and
permits franchising authorities to operate cable systems without franchises. The
legality of the franchising process and of various specific franchise
requirements is likely to be in a state of flux until there is a definitive
ruling by the U.S. Supreme Court on the scope of First Amendment protection to
which the cable television industry
-20-
is entitled. The constitutionally permissible bounds of cable franchising and
particular franchise requirements cannot be predicted at the present time, nor
can any prediction be made at this time as to whether additional franchises will
be granted to any competitors, or if granted and a cable television system is
constructed, what the impact on KBLCOM and the Company might be.
KBLCOM competes with a variety of other media in the sale of
advertising time on its cable television systems.
REGULATION
Cable television is subject to regulation at the federal, local and, in
some cases, state level.
The 1992 Cable Act, which became law in October 1992, expanded the
scope of cable industry regulation. The act mandated that the FCC establish rate
standards and procedures governing regulation of basic cable service rates.
The FCC issued rate regulation rules (Rate Rule), which became
effective September 1993, establishing "competitive benchmark" rate formulas, to
calculate a permitted "per channel/per month subscriber charge." At the time,
the FCC stated that rates charged by the average cable system were 10 percent
higher than rates charged by cable systems in markets with effective
competition. Therefore, it required cable operators to reduce rates to the
higher of (i) a level 10 percent below the level that existed as of September
30, 1992, adjusted for inflation or (ii) the applicable benchmark. In March
1994, the FCC issued revised benchmark rules (Rate Rule II) and established an
interim cost-of-service rule (Interim COS Rule). Under Rate Rule II, cable
operators were required to reduce their existing rates to the higher of (i) the
rates calculated using revised benchmark formulas (Revised Benchmarks) or (ii) a
level 17 percent below the cable operators' rates as of September 30, 1992,
adjusted for inflation and certain increases in programming costs. Cable
operators which cannot or do not wish to comply with the Revised Benchmarks may
choose to justify their existing rates under the Interim COS Rule, which
establishes a cost-of-service rate system which evaluates the rates charged by
cable systems based on their operating expenses and capital costs.
In November 1994, the FCC announced a revision to its regulations
governing the manner in which cable operators may charge subscribers for new
cable programming services. In addition to the present formula for calculating
the permissible rate for new services, the FCC instituted a three-year flat fee
mark-up plan for charges relating to new channels of cable programming services.
Commencing on January 1, 1995, operators may charge for new channels of cable
programming services added after May 14, 1994 at a rate of up to 20 cents per
channel, but may not make adjustments to monthly rates totaling more than $1.20
plus an additional 30 cents for programming license fees per subscriber over the
first two years of the three-year period for these new services. Operators may
charge an additional 20 cents in the third year only for channels added in that
year plus the costs for the programming.
-21-
The FCC also announced that it will permit operators to offer a "new
product tier" (NPT). Operators will be able to price this tier as they elect so
long as, among other conditions, such pricing is reasonable and operators do not
remove programming services from existing service tiers and offer them on the
NPT.
Regulations issued under the 1992 Cable Act are lengthy and complex.
KBLCOM has adjusted its rates for regulated services in accordance with these
rules. Due to continuing ambiguity and uncertainty in the enforcement of the
1992 Cable Act, KBLCOM's basic, tier, equipment and installation fees may be
further reduced. Any possible decline in revenue due to such rules is not
expected to have a material adverse effect on KBLCOM's financial position or
results of operations.
MUST CARRY/RETRANSMISSION CONSENT. The 1992 Cable Act specified certain rights
for mandatory carriage on cable systems for local broadcast stations, known as
must carry rights. A cable operator can be compelled to allocate up to one-third
of its channel capacity for carriage of local commercial broadcast television
stations. In addition, a cable operator can also be required to allocate up to
three additional channels to local non-commercial broadcast television stations.
Alternatively, local commercial broadcasters can elect retransmission consent
and require a cable operator to make payments as a condition to granting its
consent for the carriage of the broadcast station's signal on the cable system.
In April 1993, a special three-judge federal district court for the
District of Columbia issued a decision upholding the constitutional validity of
the must carry signal carriage requirements. This decision was vacated by the
United States Supreme Court in June 1994 and remanded to the district court for
further development of a factual record.
PROGRAMMING ACQUISITION. The 1992 Cable Act directs the FCC to
promulgate regulations regarding the sale and acquisition of cable programming
between cable operators and programming services in which the cable operator has
an attributable interest. The legislation and the subsequent FCC regulations
will preclude most exclusive programming contracts, will limit volume discounts
that can be offered to affiliated cable operators and will generally prohibit
cable programmers from providing terms and conditions to affiliated cable
operators that are more favorable than those provided to unaffiliated operators.
Furthermore, the 1992 Cable Act requires that such cable programmers make their
programming services available to competing video technologies, such as
multi-channel, microwave distribution systems and direct broadcast satellite
systems, on terms and conditions that do not discriminate against such competing
technologies.
CUSTOMER SERVICE/TECHNICAL STANDARDS. The 1992 Cable Act requires the
FCC to promulgate regulations establishing minimum standards for customer
service and technical system performance. Franchising authorities are allowed to
enforce stricter customer service requirements than the standards so promulgated
by the FCC.
The majority of the provisions of the 1984 Cable Act remain in place.
The 1984 Cable Act continues to: (a) restrict the ownership of cable systems by
prohibiting cross-ownership by a telephone company, except as noted below,
within its operating area and cross-ownership by
-22-
local television broadcast station owners; (b) require cable television systems
with 36 or more "activated" channels to reserve a percentage of such channels
for commercial use by unaffiliated third parties; (c) permit franchise
authorities to require the cable operator to provide channel capacity, equipment
and facilities for public, educational and governmental access; (d) limit the
amount of fees required to be paid by the cable operator to franchise
authorities to a maximum of 5 percent of annual gross revenues; (e) grant cable
operators access to public rights of way and utility easements; (f) establish a
federal privacy policy regulating the use of subscriber lists and subscriber
information; (g) establish civil and criminal liability for unauthorized
reception or interception of programming offered over a cable television system
or satellite delivered service; (h) authorize the FCC to preempt state
regulation of rates, terms and conditions for pole attachments unless the state
has issued effective rules; (i) require the sale or lease to subscribers of
devices enabling them to block programming considered offensive; (j) require the
FCC to prescribe rules governing horizontal and vertical concentration in the
cable television industry including rules governing the sale and distribution of
cable programming by vertically integrated operators and cable programmers; (k)
prohibit operators from requiring cable subscribers to purchase service tiers
above basic as a condition to purchasing premium programming except that cable
systems that do not have addressable technology or converters in place are given
up to ten years to comply with this provision; (l) prohibit cable operators from
selling the assets of a cable system within three years of acquisition or
construction of such cable system; and (m) contain provisions governing cable
operators' compliance with equal employment opportunity requirements.
The 1992 Cable Act, together with the 1984 Cable Act, creates a
comprehensive regulatory framework for cable television. Violation by a cable
operator of the statutory provisions or the rules and regulations of the FCC can
subject the operator to substantial monetary penalties and other significant
sanctions. While many of the specific obligations imposed on cable television
systems under the 1992 Cable Act are complex, burdensome and have increased
KBLCOM's costs of doing business, due to the evolving nature of the regulation,
it is difficult to assess the continuing impact of the 1992 Cable Act.
A federal cross-ownership restriction has historically limited entry
into the cable television business by potentially strong competitors such as
telephone companies. This restriction has generally prohibited telephone
companies from owning or operating cable television systems within their own
service areas. Several federal district courts have struck down the 1984 Cable
Act's cable/telephone cross-ownership provision as facially invalid and
inconsistent with the First Amendment. A final affirmation of these decisions
could result in additional direct competition to KBLCOM. The FCC recently
amended its rules to permit local telephone companies and long distance
telephone companies such as AT&T to offer video dialtone service for video
programmers, including channel capacity for the carriage of video programming as
well as certain non-common carrier activities such as video processing, billing
and collection and joint marketing arrangements. The FCC concluded that the 1984
Cable Act does not require a local exchange carrier (LEC), a long distance
carrier or their programmer customers to obtain a franchise to
-23-
provide video dialtone service. Because cable operators are required to bear the
costs of complying with local franchise requirements, including the payment of
franchise fees, the FCC's decision could place cable operators at a competitive
disadvantage vis-a-vis services offered on a common carrier basis over telephone
company provided facilities.
In January 1995, the FCC adopted a FOURTH FURTHER NOTICE OF PROPOSED
RULEMAKING. The FCC tentatively concluded that it should not ban telephone
companies from providing their own video programming over their video dialtone
platforms in those areas in which the cable/telephone cross-ownership rules have
been found unconstitutional. The FCC requested comments on this issue and other
issues including the establishment of structural safeguards to prevent cross-
subsidization of video dialtone and programming activities and whether an LEC
offering video dialtone service must secure a local franchise if that LEC also
engages in the provision of video programming carried on its video dialtone
platform.
A number of bills that would have permitted telephone companies to
provide cable television services in competition with cable systems were
considered during the last Congress, but none was adopted. Similar legislation
is expected to be considered by Congress during its current session. The outcome
of these FCC, legislative or court proceedings and proposals or the effect of
such outcome on cable system operations cannot be predicted.
EMPLOYEES
Excluding employees of Paragon, KBLCOM had 1,689 full-time employees as
of December 31, 1994, none of whom are represented by a union. As of December
31, 1994, Paragon had 1,756 full-time employees of whom 357 were represented by
unions.
-24-
BUSINESS OF HI ENERGY
The Company formed HI Energy in 1993 to seek investment opportunities
in domestic and foreign power generation projects and the privatization of
foreign electric utilities. Although HI Energy's investment strategy is to seek
opportunities in which the Company has the potential to earn a greater rate of
return than its regulated utility operations, the nature of these investments
entails a higher degree of risk than exists in HL&P's traditional regulated
operations, and there can be no assurance that such objectives will be achieved.
Moreover, it is anticipated that at least in the near term these investments are
likely to have only a minimal impact on the Company's earnings.
HI Energy's current investments include the following:
In January 1995, HI Energy acquired for $15.7 million a 90
percent equity interest in an electric utility operating company in the
province of Santiago del Estero, a rural province in the north central
part of Argentina. The utility system serves approximately 100,000
customers in an area of 136,000 square kilometers.
HI Energy also owns an indirect 17 percent interest in an
electric utility company and related generation company operating in La
Plata, a province adjoining Buenos Aires, Argentina. The La Plata
utility system, which serves approximately 250,000 customers, was
acquired in 1992 for a purchase price of $115 million (of which HI's
share was $37.4 million).
During 1994, HI Energy began construction of the Ford Heights
Tire-To-Energy Project, a $106 million electric generating plant south
of Chicago, Illinois. HI Energy is committed to fund $21 million
through combined equity contributions and loans as a result of its
participation in this project.
HI Energy is providing operation and maintenance services under
contract to the Shell Oil Corporation at a cogeneration facility located at
Shell's petrochemical plant (in Deer Park, Texas).
International operations are subject to certain risks that are inherent
in conducting business abroad, including possible nationalization or
expropriation, price and exchange controls, adverse regulatory action by local
governments, limitations on foreign participation in local governmental
enterprises, and other restrictive actions.
HI Energy had 57 full-time employees as of December 31, 1994, of whom
14 were represented by a union.
-25-
REGULATION OF THE COMPANY
FEDERAL
The Company is a holding company as defined in the 1935 Act; however,
based upon the intrastate operations of HL&P and the exemptions applicable to
the affiliates of HI Energy, the Company is exempt from regulation as a
"registered" holding company under the 1935 Act except with respect to the
acquisition of voting securities of other domestic public utility companies and
holding companies. The Company has no present intention of entering into any
transaction which would cause it to become a registered holding company subject
to regulation by the Securities and Exchange Commission (SEC) under the 1935
Act. In November 1994, the SEC issued a Concept Release that called for comments
on a broad range of topics relevant to regulation of both registered and exempt
companies under the 1935 Act. In calling for comments, the SEC acknowledged that
significant changes are affecting the electric utility industry, and in
responding, some utilities have argued for repeal or substantial modification of
the 1935 Act and the regulation it provides. At this time, no prediction can be
made as to what changes, if any, will result from this review by the SEC, but
repeal or significant modification to the 1935 Act may have an effect on the
electric utility industry. In addition, it is possible that changes to the 1935
Act and its interpretation would eliminate some distinctions between exempt and
registered companies in their regulation under the 1935 Act, possibly in ways
that would increase the regulatory burdens on exempt companies such as the
Company.
STATE
The Company is not subject to regulation by the Utility Commission
under PURA or by the incorporated municipalities served by HL&P. Those
regulatory bodies do, however, have authority to review accounts, records and
contracts relating to transactions by HL&P with the Company and its other
subsidiaries. The exemption for foreign utility affiliates of the Company from
regulation under the 1935 Act as "public utility companies" is dependent upon
certification by the Utility Commission to the SEC to the effect that it has the
authority to protect HL&P's ratepayers from any adverse consequences of the
Company's investment in foreign utilities and that it intends to exercise its
authority. The Utility Commission has provided such certification to the SEC
subject, however, to its being revised or withdrawn by the Utility Commission as
to any future acquisition.
-26-
EXECUTIVE OFFICERS OF THE COMPANY<F1>
<TABLE>
<CAPTION>
Officer
Name Age<F2> Since Business Experience 1990-1994 and Positions
---- ------ ----- ------------------------------------------------------
<S> <C> <C> <C> <C>
Don D. Jordan...................... 62 1976 Chairman and Chief Executive 1993-
Officer and Director
Chairman, President and Chief 1990-1993
Executive Officer and Director
Chairman and Chief Executive 1990-
Officer and Director - HL&P
Don D. Sykora...................... 64 1977 President and Chief Operating 1993-
Officer and Director
Vice President and Director 1990-1993
President and Chief Operating 1990-1993
Officer and Director - HL&P
Hugh Rice Kelly.................... 52 1984 Senior Vice President, General 1994-
Counsel and Corporate Secretary
Vice President, General Counsel 1990-1994
and Corporate Secretary
Senior Vice President, General 1990-
Counsel and Corporate Secretary
- HL&P
Raymond J. Snokhous................ 65 1983 Senior Vice President - 1990-
Government and Regulatory Affairs
William A. Cropper................. 55 1983 Vice President and Treasurer 1990-
B. Bruce Gibson.................... 41 1994 Vice President - Governmental 1994-
Relations
President & CEO Texas Chamber of 1994
Commerce
Executive Assistant to the Texas 1992-1994
Lt. Governor
Texas State Representative 1990-1992
District 58
Lee W. Hogan....................... 50 1990 Vice President 1993-
President and Chief Operating 1993-
Officer - HI Energy
Group Vice President - 1990-1993
External Affairs - HL&P
R. Steve Letbetter................. 46 1978 Vice President 1993-
President and Chief 1993-
Operating Officer - HL&P
Group Vice President - Finance 1990-1993
and Regulatory Relations - HL&P
Stephen W. Naeve................... 47 1988 Vice President - Strategic Planning 1993-
and Administration
Vice President - Corporate Planning 1990-1993
and Treasurer - HL&P
Mary P. Ricciardello............... 39 1993 Comptroller 1993-
Assistant Corporate Secretary 1990-1993
and Assistant Treasurer - HL&P
<FN>
<F1> All of the officers have been elected to serve until the annual meeting
of the Board of Directors scheduled to occur on May 3, 1995 and until
their successors qualify.
<F2> At December 31, 1994.
</FN>
</TABLE>
-27-
<TABLE>
EXECUTIVE OFFICERS OF HL&P<F1><F2>
<CAPTION>
Officer
Name Age<F3> Since Business Experience 1990-1994 and Positions
---- ------ ----- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Don D. Jordan...................... 62 1971 Chairman and Chief Executive 1990-
Officer and Director
R. Steve Letbetter................. 46 1978 President and Chief Operating Officer 1993-
Group Vice President - Finance 1990-1993
and Regulatory Relations
William T. Cottle.................. 49 1993 Group Vice President - Nuclear 1993-
Vice President - Operations - 1990-1993
Grand Gulf Nuclear Station,
Entergy Operations, Inc.
Jack D. Greenwade.................. 55 1982 Group Vice President - Operations 1990-
Hugh Rice Kelly.................... 52 1984 Senior Vice President, General 1990-
Counsel and Corporate Secretary
David M. McClanahan................ 45 1986 Group Vice President - Finance 1993-
and Regulatory Relations
Senior Vice President and Chief 1991-1993
Financial Officer - KBLCOM
Vice President, Finance and 1991
Administration - KBLCOM
Vice President and Comptroller 1990-1991
- Company
Robert L. Waldrop.................. 47 1988 Group Vice President - External Affairs 1993-
Vice President - Public and 1992-1993
Customer Relations
Vice President - Public Affairs 1990-1992
Ken W. Nabors...................... 51 1986 Vice President and Comptroller 1993-
Comptroller - Company 1990-1993
<FN>
<F1> All of the officers have been elected to serve until the annual meeting
of the Board of Directors scheduled to occur on May 3, 1995 and until
their successors qualify.
<F2> For the purposes of the requirements of this Report, the HL&P officers
listed may also be deemed to be executive officers of the Company.
<F3> At December 31, 1994.
</FN>
</TABLE>
-28-
ITEM 2. PROPERTIES.
The Company considers its property and the property of its subsidiaries
to be well maintained, in good operating condition and suitable for their
intended purposes.
HL&P
All of HL&P's electric generating stations and all of the other
operating properties of HL&P are located in the State of Texas.
ELECTRIC GENERATING STATIONS. As of December 31, 1994, HL&P owned
eleven electric generating stations (60 generating units) with a combined
turbine nameplate rating of 13,411,368 KW, including a 30.8 percent interest in
one nuclear generating station (two units) with a combined turbine nameplate
rating of 2,623,676 KW.
SUBSTATIONS. As of December 31, 1994, HL&P owned 203 major substations
(with capacities of at least 10.0 megavolt amperes (Mva)) having a total
installed rated transformer capacity of 55,279 Mva (exclusive of spare
transformers), including a 30.8 percent interest in one major substation with an
installed rated transformer capacity of 3,080 Mva.
ELECTRIC LINES-OVERHEAD. As of December 31, 1994, HL&P operated 23,947
pole miles of overhead distribution lines and 3,626 circuit miles of overhead
transmission lines including 578 circuit miles operated at 69,000 volts, 2,011
circuit miles operated at 138,000 volts and 1,037 circuit miles operated at
345,000 volts.
ELECTRIC LINES-UNDERGROUND. As of December 31, 1994, HL&P operated
8,833 circuit miles of underground distribution lines and 12.6 circuit miles of
underground transmission lines including 8.1 circuit miles operated at 138,000
volts and 4.5 circuit miles operated at 69,000 volts.
GENERAL PROPERTIES. HL&P owns various properties including division
offices, service centers, telecommunications equipment and other facilities used
for general purposes.
TITLE. The electric generating plants and other important units of
property of HL&P are situated on lands owned in fee by HL&P. Transmission lines
and distribution systems have been constructed in part on or across privately
owned land pursuant to easements or on streets and highways and across waterways
pursuant to authority granted by municipal and county permits, and by permits
issued by state and federal governmental authorities. Under the laws of the
State of Texas, HL&P has the right of eminent domain pursuant to which it may
secure or perfect rights-of-way over private property, if necessary.
The major properties of HL&P are subject to liens securing long-term
debt, and titles to some of its properties are subject to minor encumbrances and
defects, none of which impairs the use of such properties in the operation of
its business.
-29-
KBLCOM
The principal tangible assets (other than real estate) relating to
KBLCOM's cable television operations consist of operating plant and equipment
for each of its cable television systems. These include signal receiving
apparatus, headend facilities, coaxial and fiber optic cable or wire and related
electronic equipment over which programming and data are distributed, and
decoding converters attached to subscribers' television receivers. The signal
receiving apparatus typically includes a tower, antennae, ancillary electronic
equipment and earth stations for reception of video, audio and data signals
transmitted by satellite. Headend facilities, which consist of associated
electronic equipment necessary for the reception, amplification, switching and
modulation of signals, are located near the signal receiving apparatus and
control the programming and data signals distributed on the cable system. For
certain information with respect to property owned directly or indirectly by
KBLCOM, see "BUSINESS OF KBLCOM" in Item 1 of this Report.
OTHER SUBSIDIARIES
For certain information with respect to property owned directly or
indirectly by HI Energy, see "BUSINESS OF HI ENERGY" in Item 1 of this Report.
-30-
ITEM 3. LEGAL PROCEEDINGS.
For a description of certain legal and regulatory proceedings affecting
the Company and its subsidiaries (including (i) HL&P's rate cases, (ii) certain
environmental matters and (iii) litigation related to the South Texas Project),
see "Business - Regulatory Matters - Environmental Quality" in Item 1 of this
Report, "LIQUIDITY AND CAPITAL RESOURCES - HL&P - Environmental Expenditures" in
Item 7 of this Report and Notes 1(f) and 2 through 5 to the Financial Statements
in Item 8 of this Report, which sections and notes are incorporated herein by
reference.
HL&P is a defendant in litigation arising out of the environmental
remediation of a site in Corpus Christi, Texas. The site in question was
operated as a metals reclaiming operation for a number of years, and, though
HL&P neither operated nor had any ownership interest in the site, some
transformers and other equipment that HL&P sold as surplus allegedly were
delivered to that site, where the site operators subsequently disposed of the
materials in ways that caused environmental damage. In one case, DUMES, ET AL.
V. HL&P, ET AL., pending in the U.S. District Court for the Southern District of
Texas, Corpus Christi Division, a group of approximately 70 landowners near the
site are seeking damages primarily for lead contamination to their property.
They have pled damages of approximately $1 million each and also seek punitive
damages totaling $51 million. The Plaintiffs seek to impose responsibility on
HL&P and the other utility that undertook to clean up the property, neither of
which contributed more than an insignificant amount of lead to the site, on the
theory that lead was deposited on their properties during the site remediation
itself. In addition, Gulf States Utilities Company (Gulf States) filed suit
(GULF STATES UTILITIES CO. V. HOUSTON LIGHTING & POWER CO., ET AL.) in the
United States District Court for the Southern District of Texas, Houston
Division, against HL&P and two other utilities concerning a site in Houston,
Texas, which allegedly has been contaminated by polychlorinated biphenyls and
which Gulf States has undertaken to remediate pursuant to an EPA order. HL&P
does not believe, based on its records, that it contributed material to that
site and in October 1994, Gulf States dismissed its claims against HL&P. HL&P
remains in the case on cross-claims asserted by two co-defendants. The ultimate
outcome of these pending cases cannot be predicted at this time. Based on
information currently available, the Company and HL&P believe that none of these
cases will result in a material adverse effect on the Company's or HL&P's
financial condition or results of operations.
HL&P and the other owners of the South Texas Project filed suit in 1990
against Westinghouse Electric Corporation (Westinghouse) in the 23rd District
Court for Matagorda County, Texas (Cause No. 90-S-0684-C), alleging breach of
warranty and misrepresentation in connection with the steam generators supplied
by Westinghouse for the South Texas Project. In recent years, other utilities
have encountered stress corrosion cracking in steam generator tubes in
Westinghouse units similar to those supplied for the South Texas Project.
Failure of such tubes can result in a reduction of plant efficiency, and, in
some cases, utilities have replaced their steam generators. During an inspection
concluded in the fall of 1993, evidence was found of stress corrosion cracking
consistent with that encountered with Westinghouse steam generators at other
facilities, and a small number of tubes were found to require plugging. To date,
stress corrosion cracking has not had a significant impact on operation of
either unit; however, the owners of the South Texas Project have approved
remedial operating
-31-
plans and have undertaken expenditures to minimize and delay further corrosion.
The litigation, which is in discovery, seeks appropriate damages and other
relief from Westinghouse and is currently scheduled for trial in July 1995. No
prediction can be made as to the ultimate outcome of this litigation.
In April 1994, two former employees of HL&P filed a class action and
shareholder derivative suit on behalf of all shareholders of the Company. This
lawsuit (PACE AND FUENTEZ V. HOUSTON INDUSTRIES INCORPORATED) alleges various
acts of mismanagement against certain officers and directors of the Company and
HL&P and, seeks unspecified actual and punitive damages for the benefit of
shareholders of the Company. The Company and HL&P believe that the suit is
without merit. The lawsuit is pending in the 122nd Judicial District of
Galveston County, Texas.
In June 1994, a former employee of HL&P filed a lawsuit (PACE,
INDIVIDUALLY AND AS A REPRESENTATIVE OF ALL OTHERS SIMILARLY SITUATED V. HOUSTON
LIGHTING & POWER COMPANY) in the 56th Judicial District Court of Galveston
County, Texas alleging that HL&P has been overcharging ratepayers and owes a
refund of more than $500 million. The claim was based on the argument that the
Utility Commission failed to allocate to ratepayers alleged tax benefits
accruing to the Company and HL&P because HL&P's federal income taxes are paid as
part of a consolidated group. The court has granted HL&P's motion for summary
judgment, which has now become final.
In July 1990, the Company paid approximately $104.5 million to the
Internal Revenue Service (IRS) in connection with an IRS audit of the Company's
1983 and 1984 federal income tax returns. In November 1991, the Company filed a
refund suit in the U.S. Court of Federal Claims seeking the return of $52.1
million of tax, $36.3 million of accrued interest, plus interest on both of
those amounts accruing after July 1990. The major contested issue in the refund
case involved the IRS's allegation that certain amounts related to the
over-recovery of fuel costs should have been included as taxable income in 1983
and 1984 even though HL&P had an obligation to refund the over-recoveries to its
ratepayers. In October 1994, the Court granted the Company's Motion for Partial
Summary Judgment on the fuel cost over-recovery issue. On February 21, 1995, the
Court entered partial judgment in favor of the Company for this issue. The U.S.
Government (Government) must file its notice of appeal on or before April 24,
1995. If the Government does not appeal or if the Government appeals but does
not prevail, the Company would be entitled to a refund of overpaid tax, interest
paid on the overpaid tax in July 1990 and interest on both of those amounts from
July 1990. Although, the Company would not be entitled to a refund until all
appeals are decided in its favor, the amount owed to the Company will continue
to accrue interest. If the Government appeals and prevails, the Company's
ultimate financial exposure should be immaterial because of offsetting tax
deductions to which the Company is entitled in the year the over-recovery was
refunded to ratepayers (and which the IRS has conceded).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders of the
Company or HL&P during the fourth quarter of 1994.
-32-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock, which at February 1, 1995 was held of
record by approximately 66,663 shareholders, is listed on the New York, Chicago
(formerly Midwest) and London Stock Exchanges (symbol: HOU). All of HL&P's
common equity is directly or indirectly held by the Company. The following table
sets forth the high and low sales prices of the Company's Common Stock on the
composite tape during the periods indicated, as reported by THE WALL STREET
JOURNAL, and the dividends declared for such periods. Third quarter 1993
includes two quarterly dividends of $.75 per share due to a change in the timing
of the Company's Board of Directors' declaration of dividends. Dividend payout
was $3.00 per share for 1994 and 1993. The dividend declared during the fourth
quarter of 1994 is payable in March 1995.
Market Price Dividend
------------------- Declared
High Low Per Share
------ ------ ---------
1994
First Quarter ................... $ 0.75
January 3 ................. $47 3/4
March 31 .................. $34 3/4
Second Quarter .................. $ 0.75
April 21 .................. $37 1/4
May 10 .................... $30
Third Quarter ................... $ 0.75
July 1 .................... $32 1/2
August 2 .................. $36 5/8
Fourth Quarter .................. $ 0.75
November 23 ............... $32
December 15 ............... $36 1/2
1993
First Quarter ................... $ 0.75
January 8 ................. $44 3/4
February 4 ................ $48 3/4
Second Quarter .................. $ 0.75
April 15 .................. $48 3/8
June 22 ................... $42 1/2
Third Quarter ................... $ 1.50
July 6 .................... $43 3/8
August 31 ................. $47 1/8
Fourth Quarter .................. $ 0.75
November 2 ................ $49 3/4
November 30 ............... $44 3/4
On December 31, 1994, the consolidated book value of the Company's
common stock was $27.28 per share, and the closing market price was $35.63 per
share.
There are no contractual limitations on the payment of dividends on the
Company's Common Stock or on the common stock of the Company's subsidiaries
other than KBL Cable, Inc. (KBL Cable), the principal operating subsidiary of
KBLCOM. Restrictions on distributions and other financial covenants in KBL
Cable's credit agreements and other debt instruments affecting KBL Cable will
effectively prevent the payment of common stock dividends by KBL Cable for the
foreseeable future. For a discussion of the Company's agreement to dispose of
its cable television operations, see Note 21(a) to the Company's Consolidated
Financial Statements in Item 8 of this Report.
-33-
ITEM 6. SELECTED FINANCIAL DATA OF THE COMPANY.
The following table sets forth selected financial data with respect to the
Company's consolidated financial condition and results of consolidated
operations and should be read in conjunction with the Company's Consolidated and
HL&P's Financial Statements and the related notes in Item 8 of this Report.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- --------
(Thousands of Dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues .......................... $ 4,001,857 $ 4,323,930 $ 4,062,099 $ 3,898,454 $ 3,668,575
----------- ----------- ----------- ----------- -----------
Income before cumulative effect of
change in accounting<F1>........ $ 407,461 $ 416,036 $ 340,487 $ 416,754 $ 342,789
Cumulative effect of change in
accounting<F2>.................. (8,200) 94,180 (219,718)
----------- ----------- ----------- ----------- -----------
Net income<F1>..................... $ 399,261 $ 416,036 $ 434,667 $ 416,754 $ 123,071
=========== =========== =========== =========== ===========
Earnings per common share before
cumulative effect of change in
accounting<F1>.................. $ 3.32 $ 3.20 $ 2.63 $ 3.24 $ 2.70
Cumulative effect of change in
accounting<F2>.................. (.07) .73 (1.73)
----------- ----------- ----------- ----------- -----------
Earnings per common share<F1>...... $ 3.25 $ 3.20 $ 3.36 $ 3.24 $ .97
=========== =========== =========== =========== ===========
Cash dividends declared per common
share<F3>....................... $ 3.00 $ 3.75 $ 2.98 $ 2.96 $ 2.96
Return on average common equity.... 11.9% 12.8% 13.4% 12.7% 3.6%
Ratio of earnings to fixed charges
before cumulative effect of
change in accounting............ 2.47 2.44 1.99 2.11 1.91
- ---------------------------------------------------------------------------------------------------------------
At year-end:
Book value per common share<F1>. $ 27.28 $ 25.06 $ 25.36 $ 24.96 $ 26.76
Market price per common share... $ 35.63 $ 47.63 $ 45.88 $ 44.25 $ 36.75
Market price as a percent of
book value<F1>................ 131% 190% 181% 177% 137%
- ---------------------------------------------------------------------------------------------------------------
At year-end:
Total assets.................... $12,294,147 $12,230,177 $12,421,667 $12,171,677 $12,047,506
Long-term obligations including
current maturities<F4>........ $ 4,410,098 $ 4,465,540 $ 4,984,530 $ 5,302,564 $ 4,972,675
Capitalization:
Common stock equity........... 42% 40% 38% 37% 39%
Cumulative preferred stock of
HL&P (including current
maturities)................. 6% 7% 7% 5% 7%
Long-term debt (including
current maturities)......... 52% 53% 55% 58% 54%
- ---------------------------------------------------------------------------------------------------------------
Capital Expenditures:
Electric capital and nuclear
fuel expenditures
(excluding AFUDC)............. $ 412,899 $ 329,016 $ 337,082 $ 365,486 $ 355,285
Cable television additions and
other cable-related
investments.................... 84,166 60,385 44,306 26,624 31,186
Corporate headquarters
expenditures (excluding
capitalized interest).......... 44,250 26,034
Non-regulated electric power
project expenditures.......... 454 35,796 1,625
- ---------------------------------------------------------------------------------------------------------------
<FN>
<F1> The Company adopted Statement of Position 93-6 (SOP 93-6), "Employers'
Accounting for Employee Stock Ownership Plans," effective January 1, 1994,
which had the effect of reducing net income while increasing earnings per
share. See also Notes 1(i) and 12(b) to the Financial Statements in Item 8
of this Report. SOP 93-6 is effective only with respect to financial
statements for periods after January 1, 1994, and no restatement was
permitted for prior periods.
<F2> The 1994 cumulative effect relates to the change in accounting for
postemployment benefits. See also Note 12(d) to the Financial Statements
in Item 8 of this Report. The 1992 cumulative effect relates to the change
in accounting for revenues. See also Note 6 to the Financial Statements in
Item 8 of this Report. The 1990 cumulative effect reflects the effects for
years prior to 1990 of the adoption of SFAS No. 109, "Accounting for
Income Taxes."
<F3> Year ended December 31, 1993 includes five quarterly dividends of $.75 per
share due to a change in the timing of the Company's Board of Directors
declaration of dividends. Dividend payout was $3.00 per share for 1993.
See also Note 8(a) to the Financial Statements in Item 8 of this Report.
<F4> Includes Cumulative Preferred Stock subject to mandatory redemption.
NOTE: On January 26, 1995, the Company entered into an agreement to dispose of
its cable television operations. For a discussion of the proforma
presentation of the Company's 1994 Statement of Consolidated Income to
reflect KBLCOM on a discontinued operations basis for the entire year, see
Note 21(a) to the Financial Statements in Item 8 of this Report.
</FN>
</TABLE>
-34-
ITEM 6. SELECTED FINANCIAL DATA OF HL&P.
The following table sets forth selected financial data with respect to
HL&P's financial condition and results of operations and should be read in
conjunction with the Financial Statements and the related notes in Item 8 of
this Report.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Revenues ........................... $ 3,746,085 $ 4,079,863 $ 3,826,841 $ 3,674,543 $ 3,468,682
------------ ------------ ------------ ------------ ------------
Income after preferred dividends but
before cumulative effect of
change in accounting ............ $ 461,381 $ 449,750 $ 375,955 $ 472,712 $ 429,209
Cumulative effect of change in
accounting <F1> ................. (8,200) 94,180
------------ ------------ ------------ ------------ ------------
Income after preferred dividends ... $ 453,181 $ 449,750 $ 470,135 $ 472,712 $ 429,209
============ ============ ============ ============ ============
Return on average common
equity .......................... 12.0% 12.3% 13.3% 13.8% 12.8%
Ratio of earnings to fixed charges
before cumulative effect of
change in accounting ............ 3.80 3.40 2.73 2.97 2.85
Ratio of earnings to fixed charges
and preferred dividend
requirements before cumulative
effect of change in accounting .. 3.20 2.90 2.34 2.53 2.40
- ----------------------------------------------------------------------------------------------------------------------------
At year-end:
Total assets .................... $ 10,850,981 $ 10,753,616 $ 10,790,052 $ 10,620,642 $ 10,475,774
Long-term obligations including
current maturities <F2> ....... $ 3,356,789 $ 3,402,032 $ 3,796,719 $ 4,150,454 $ 4,065,853
Capitalization:
Common stock equity ........... 51% 50% 47% 44% 43%
Cumulative preferred stock
(including current
maturities) ................. 7% 7% 7% 6% 8%
Long-term debt (including
current maturities) ......... 42% 43% 46% 50% 49%
- ----------------------------------------------------------------------------------------------------------------------------
Capital and nuclear fuel
expenditures (excluding AFUDC) .. $ 412,899 $ 329,016 $ 337,082 $ 365,486 $ 355,285
Percent of capital expenditures
financed internally from
operations ...................... 216% 158% 137% 126% 60%
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> The 1994 cumulative effect relates to the change in accounting for
postemployment benefits. See also Note 12(d) to the Financial Statements in
Item 8 of this Report. The 1992 cumulative effect relates to the change in
accounting for revenues. See Note 6 to the Financial Statements in Item 8
of this Report.
<F2> Includes Cumulative Preferred Stock subject to mandatory redemption.
</FN>
</TABLE>
-35-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CURRENT ISSUES
HOUSTON LIGHTING & POWER COMPANY (HL&P)
RATE REVIEW, FUEL RECONCILIATION AND OTHER PROCEEDINGS. In February 1994, the
Public Utility Commission of Texas (Utility Commission) initiated a proceeding
(Docket No. 12065) to determine whether HL&P's existing rates are just and
reasonable. Subsequently, the scope of the docket was expanded to include a
reconciliation of HL&P's fuel costs from April 1, 1990 to July 31, 1994. The
Utility Commission also initiated a separate proceeding (Docket No. 13126) to
review issues regarding the prudence of operation of the South Texas Project
Electric Generating Station (South Texas Project) from the date of commercial
operation through the present. That review would encompass the outage at the
South Texas Project during 1993 through 1994.
In February 1995, all major parties to these proceedings signed a settlement
agreement resolving the issues with respect to HL&P, including the prudence
issues related to operation of the South Texas Project (Proposed Settlement).
Approval of that settlement by the Utility Commission will be required. To that
end, the parties have established procedural dates for a hearing on issues
raised by the parties who are opposed to the Proposed Settlement. A decision by
the Utility Commission on the Proposed Settlement is not anticipated before
early summer.
Under the Proposed Settlement, HL&P's base rates would be reduced by
approximately $62 million per year, effective retroactively to January 1, 1995,
and rates would be frozen for three years, subject to certain conditions. Under
the Proposed Settlement, HL&P would amortize its remaining investment of $218
million in the cancelled Malakoff Electric Generating Station (Malakoff) plant,
over a period not to exceed seven years. HL&P also would increase its
decommissioning expense for the South Texas Project by $9 million per year.
Under the Proposed Settlement, approximately $70 million of fuel expenditures
and related interest incurred by HL&P during the fuel reconciliation period
would not be recoverable from ratepayers. This $70 million was recorded as a
one-time, pre-tax charge to reconcilable fuel revenues to reflect the
anticipation of approval of the Proposed Settlement. HL&P would also establish a
new fuel factor approximately 17 percent below that currently in effect and
would refund to customers the balance in its over-recovery account, estimated to
be approximately $180 million after giving effect to the amounts not recoverable
from ratepayers. For additional information regarding HL&P's rate proceeding,
see Note 3 to Houston Industries Incorporated's (Company) Consolidated and
HL&P's Financial Statements (Financial Statements) in Item 8 of this Report.
UNITED STATES NUCLEAR REGULATORY COMMISSION (NRC) DIAGNOSTIC EVALUATION OF THE
SOUTH TEXAS PROJECT. In June 1993, the NRC added the South Texas Project to its
"watch list" of plants with weaknesses that warranted increased NRC attention.
The decision to place the South Texas Project on the "watch list" followed the
issuance of a report by a Diagnostic Evaluation Team which conducted a review of
the South Texas Project operations. At a meeting on February 3,
-36-
1995, the NRC removed the South Texas Project from the "watch list". For a
further discussion of the NRC diagnostic evaluation of the South Texas Project,
see Note 2(b) to the Financial Statements in Item 8 of this Report.
COMPETITION. HL&P and other members of the electric utility industry, like other
regulated industries, are being subjected to technological, regulatory and
economic pressures that are increasing competition and offer the possibility for
fundamental changes in the industry and its regulation. The electric utility
industry historically has been composed of vertically integrated companies which
largely have been the exclusive providers of electric service within a
governmentally-defined geographic area. Prices for that service have been set by
governmental authority under principles that were designed to provide the
utility with an opportunity to recover its costs of providing electric service
plus a reasonable return on its invested capital.
By legislation adopted in 1978, Congress contributed to the development of new
sources of electric generation by freeing cogenerators (i.e., facilities which
produce electrical energy along with thermal energy used for industrial
processes, usually the generation of steam) from most regulatory constraints
applicable to traditional utilities, such as state and federal pricing
regulation and organizational restrictions arising under the Public Utility
Holding Company Act of 1935 (1935 Act). This legislation contributed to the
development of approximately 40 cogeneration facilities in the highly
industrialized Houston area, with a power generation capability of over 5,000
megawatts (MW). As a consequence, HL&P has lost some industrial customers to
self-generation (representing approximately 2,500 MW), and additional projects
continue to be considered by customers.
In 1992 Congress authorized, in the Energy Policy Act, another category of
wholesale generators, Exempt Wholesale Generators (EWGs). Like cogenerators,
these entities exist to sell electric energy at wholesale, but unlike
cogenerators, EWGs may be formed for the generation of electricity without
regard to the simultaneous production of thermal energy. Congress chose to free
EWGs from the structural constraints applicable to traditional utilities under
the 1935 Act, but Congress also authorized traditional utilities to form such
entities themselves without being burdened by those restrictions. At the same
time, Congress placed significant limitations on the ability of traditional
utilities to purchase power in their own service territories from an affiliated
EWG.
There are increasing pressures today by both cogenerators and exempt wholesale
generators for access to the electric transmission and distribution systems of
the regulated utilities in order to have greater flexibility in moving power to
other purchasers, including access for the purpose of making retail sales to
either affiliates of the unregulated generator or to other customers of the
regulated utility. In February 1995, a new entity sought permission from the
Utility Commission to construct a transmission line within HL&P's service
territory for the purpose of transmitting power from a cogeneration facility
owned by an industrial concern to an affiliate of that concern. This proceeding
has been docketed by the Utility Commission, but currently is in its early
stages.
Neither federal nor Texas law currently permits retail sales by unregulated
entities. However, changes to the Federal Power Act made in the Energy Policy
Act of 1992 increase the power of the Federal Energy Regulatory Commission to
order utilities to transmit power generated by both
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regulated and unregulated entities to other wholesale customers, and efforts are
underway in some states that may lead to broader authorization of transmission
access for such entities and even to retail sales by such entities. HL&P
anticipates that some of those arguments will be advanced in the current session
of the Texas legislature during the consideration of the re-enactment to the
Public Utility Regulatory Act, which governs electric regulation in Texas.
At this time it is impossible to predict what changes to the electric utility
industry will emerge as a result of any legislative changes that may be adopted
by the Texas legislature. Nor is it possible to predict what other changes to
the industry will emerge from federal regulatory and legislative initiatives or
from regulatory decisions of the Utility Commission, though, it seems likely
that such changes ultimately will increase the competition HL&P faces in
supplying electric energy to its customers.
KBLCOM INCORPORATED (KBLCOM)
PENDING DISPOSITION OF CABLE OPERATIONS. On January 26, 1995, Time Warner Inc.
(Time Warner) and the Company reached an agreement in which Time Warner would
acquire KBLCOM in a tax-deferred, stock-for-stock merger with a subsidiary of
Time Warner. For a discussion of the transaction, see "LIQUIDITY AND CAPITAL
RESOURCES - COMPANY" below and Note 21(a) to the Financial Statements in Item 8
of this Report.
CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992 (1992 CABLE
ACT). KBLCOM continues to adapt to changes mandated by the 1992 Cable Act. The
1992 Cable Act directed the Federal Communications Commission (FCC) to set
guidelines for retail prices on basic cable and cable programming services
(other than premium, pay-per-view and a la carte services) which are then
regulated by local governments and the FCC, respectively. It also required cable
programmers to license their services on a fair basis to cable competitors and
to refrain from practices which would restrain the ability of cable competitors
to compete fairly. In addition, at the option of the broadcasters, cable
operators are required to obtain the permission of, and potentially pay a charge
to, broadcast television stations to retransmit their programming to cable
customers.
During 1994, KBLCOM faced further changes in rate regulations when the FCC
announced its revised benchmark rules (Rate Rule II) and its interim
cost-of-service rule (Interim COS Rule). Rate Rule II revised the "benchmark
formulas" established by the FCC in May 1993 and was applied prospectively from
May 1994. Rate Rule II required cable operators to reduce existing rates to the
higher of (i) the rates calculated using the revised benchmark formulas or (ii)
a level 17 percent below such cable operators' rates as of September 30, 1992,
adjusted for inflation and certain increases in programming costs. Cable
operators which cannot or do not wish to comply with Rate Rule II may choose to
justify their existing rates under the Interim COS Rule. This rule established a
cost-of-service rate system which evaluates the rates charged by cable systems
based on their operating expenses and capital costs. Both Rate Rule II and the
Interim COS Rule are lengthy and complex. KBLCOM has complied with these rules
by further adjusting rates for regulated services. Due to continuing ambiguity
and uncertainty in the enforcement of the 1992 Cable Act, KBLCOM's basic, tier,
equipment and installation fees may be further reduced.
-38-
Any possible decline in revenue due to such rules is not expected to have a
material adverse effect on KBLCOM's financial position or results of operations.
RESULTS OF OPERATIONS
COMPANY
Summary of selected financial data for the Company and its subsidiaries is set
forth below:
Year Ended December 31,
-------------------------- Percent
1994 1993 Change
------------ ------------ -------
(Thousands of Dollars)
Revenues ........................ $4,001,857 $4,323,930 (7)
Operating Expenses............... 2,990,032 3,301,513 (9)
Operating Income................. 1,011,825 1,022,417 (1)
Interest and Other Charges....... 396,949 423,145 (6)
Income Taxes..................... 218,613 231,118 (5)
Net Income....................... 399,261 416,036 (4)
Year Ended December 31,
-------------------------- Percent
1993 1992 Change
------------ ------------ -------
(Thousands of Dollars)
Revenues ........................ $4,323,930 $4,062,099 6
Operating Expenses............... 3,301,513 3,120,231 6
Operating Income................. 1,022,417 941,868 9
Interest and Other Charges....... 423,145 480,561 (12)
Income Taxes..................... 231,118 164,609 40
Net Income....................... 416,036 434,667 (4)
GENERAL
1994 COMPARED TO 1993. Consolidated earnings per share were $3.25 for 1994,
compared to $3.20 per share in 1993. The Company adopted Statement of Position
93-6 (SOP 93-6), "Employers' Accounting for Employee Stock Ownership Plans,"
effective January 1, 1994, which had the effect of reducing 1994 net income by
$12.8 million at the time of adoption while increasing earnings per common share
by $.10. Earnings per common share increased as a result of the weighted average
common shares outstanding for the period ended December 31, 1994 being reduced
by 7,770,313 shares not yet allocated to participants in the Company's Employee
Stock Ownership Plan. For a further discussion of the effects of the adoption of
SOP 93-6, see Notes 1(i) and 12(b) to the Financial Statements in Item 8 of this
Report.
HL&P, the Company's electric utility subsidiary, contributed $3.69 to the 1994
consolidated earnings per share on income of $453.2 million after preferred
dividends. KBLCOM, the Company's cable television subsidiary, posted income
before long-term financing cost with parent
-39-
of $117,000. The remaining loss of $.44 per share resulted from financing and
corporate costs of the Company and a combined loss of the Company's other
subsidiaries, partially offset by the effects of the adoption of SOP 93-6, as
discussed above. For business segment information, see Note 16 to the Financial
Statements in Item 8 of this Report.
1993 COMPARED TO 1992. Consolidated earnings per share were $3.20 for 1993,
compared to $3.36 per share in 1992. However, the Company's 1992 earnings were
increased by nonrecurring items at HL&P, as discussed below. Without these
items, the Company's earnings for the year ended 1992 would have been $397.5
million, or $3.07 per share.
HL&P contributed $3.46 to the 1993 consolidated earnings per share on income of
$449.8 million after preferred dividends. KBLCOM posted a loss before long-term
financing cost with parent of $13.0 million, or $.10 per share, as discussed
below. The remaining loss of $.16 per share resulted from financing and
corporate costs of the Company and a combined loss of the Company's other
subsidiaries.
As a result of the 1 percent general corporate income tax rate increase imposed
by the Omnibus Budget Reconciliation Act of 1993 (OBRA), the Company's 1993
results were reduced by $14.3 million. For additional information regarding the
effect of OBRA on the Company, see Note 13 to the Financial Statements in Item 8
of this Report.
HL&P
Summary of selected financial data for HL&P is set forth below:
Year Ended December 31,
------------------------- Percent
1994 1993 Change
------------ ------------ -------
(Thousands of Dollars)
Revenues............................ $3,746,085 $4,079,863 (8)
Operating Expenses.................. 3,003,203 3,313,577 (9)
Operating Income.................... 742,882 766,286 (3)
Interest Charges.................... 249,472 284,585 (12)
Income After Preferred Dividends.... 453,181 449,750 1
Year Ended December 31,
------------------------- Percent
1993 1992 Change
------------ ------------ -------
(Thousands of Dollars)
Revenues............................ $4,079,863 $3,826,841 7
Operating Expenses.................. 3,313,577 3,077,771 8
Operating Income.................... 766,286 749,070 2
Interest Charges.................... 284,585 324,565 (12)
Income After Preferred Dividends.... 449,750 470,135 (4)
-40-
GENERAL
1994 COMPARED TO 1993. The increase in earnings in 1994 compared to 1993
primarily resulted from (i) higher residential and commercial kilowatt-hour
(KWH) sales, which rose 1 percent and 4 percent, respectively, from the previous
year, (ii) lower operating costs associated with reductions in production plant
maintenance and employee benefits, and (iii) lower interest expenses. This
increase in earnings was partially offset by the recording of a one-time,
pre-tax charge to reconcilable fuel revenues of $70 million to reflect the
anticipation of approval of the Proposed Settlement. Additionally, earnings in
1994 reflected the recognition of postemployment benefit costs as required by
the adoption, beginning in January 1994, of Statement of Financial Accounting
Standards (SFAS) No. 112, "Employer's Accounting for Postemployment Benefits."
Earnings for 1993 included approximately $33 million in franchise tax refunds.
For information regarding HL&P's current regulatory proceedings and the Proposed
Settlement, and SFAS No. 112, see "CURRENT ISSUES - HL&P - Rate Review, Fuel
Reconciliation and Other Proceedings" above and Notes 3 and 12(d), respectively,
to the Financial Statements in Item 8 of this Report.
1993 COMPARED TO 1992. The decline in earnings in 1993 compared to 1992 was
primarily due to nonrecurring items recorded during 1992 of (i) $142.7 million
of pre-tax income associated with the adoption of a change in accounting
principle related to the timing of recognition of revenue from electricity sales
and (ii) a one-time, pre-tax charge of $86.4 million related to HL&P's
restructuring of operations. For additional information regarding the
restructuring of operations, see Note 17 to the Financial Statements in Item 8
of this Report. Excluding these two nonrecurring items, earnings for 1992 would
have been $433.0 million. Earnings for 1993 were positively affected by an
increase in KWH sales due to warmer weather compared to 1992 and the addition of
approximately 23,000 customers during the year.
As a result of the 1 percent general corporate income tax rate increase imposed
by OBRA, HL&P's 1993 results were negatively impacted by $8.0 million. For
additional information regarding the effects of OBRA on HL&P, see Note 13 to
HL&P's Financial Statements in Item 8 of this Report.
OPERATING REVENUE AND SALES
1994 COMPARED TO 1993. Electric operating revenue for 1994 decreased 8.2 percent
primarily due to a decrease in reconcilable fuel revenues and the one-time,
pre-tax charge of $70 million discussed above. These decreases were partially
offset by increased residential and commercial KWH sales. Residential and
commercial KWH sales increased 1.4 percent and 4.2 percent, respectively,
primarily due to a 1.7 percent increase in the number of customers. Firm
industrial sales remained relatively flat. Firm industrial sales exclude
electricity sold at a reduced rate under agreements which allow HL&P to
interrupt service under some circumstances. As a result of these increased
sales, base (non-fuel) revenues were $49.7 million higher in 1994 compared to
the previous year.
1993 COMPARED TO 1992. Electric operating revenue for 1993 increased 6.6 percent
primarily due to increased KWH sales in all three major customer categories.
Residential and commercial KWH
-41-
sales increased 3.5 percent and 4.3 percent, respectively, due to warmer weather
and a 1.7 percent increase in the number of customers. Firm industrial sales
increased 1.3 percent. As a result of these increased sales, base revenues were
$70 million higher in 1993 compared to the previous year.
FUEL AND PURCHASED POWER EXPENSE
1994 COMPARED TO 1993. Fuel expense was $860.9 million in 1994, 19.0 percent
lower than in 1993, primarily due to decreases in both the use and unit cost of
gas, and decreases in the unit cost of all other fuels used in 1994. The average
cost of fuel used by HL&P during 1994 was $1.54 per million British Thermal Unit
(MMBtu) compared to $1.95 per MMBtu in 1993. Purchased power expense decreased
$106.5 million in 1994, a 20.7 percent reduction from 1993, due to lower fuel
costs and the expiration of a purchased power agreement. For information
regarding reconcilable fuel revenues and HL&P's fuel reconciliation proceeding,
see Note 3 to the Financial Statements in Item 8 of this Report.
1993 COMPARED TO 1992. Fuel expense was $1.1 billion in 1993, 16.2 percent
higher than in 1992, primarily due to increases in both the use and unit cost of
gas, partially offset by decreases in the unit cost of all other fuels used in
1993. The average cost of fuel used by HL&P during 1993 was $1.95 per MMBtu
compared to $1.71 per MMBtu in 1992. Purchased power expense increased $29.1
million due to higher fuel costs and escalating capacity charges paid to
cogenerators. The increased fuel costs reflect in part the use of non-nuclear
sources of fuel during the outage of Unit Nos. 1 and 2 of the South Texas
Project. The outage covered substantially all of 1993. For information regarding
the outage of Unit Nos. 1 and 2 of the South Texas Project, see Note 2(b) to the
Financial Statements in Item 8 of this Report.
OPERATION AND MAINTENANCE EXPENSES, DEPRECIATION AND AMORTIZATION, OTHER TAXES
AND INTEREST
1994 COMPARED TO 1993. Electric operation and maintenance expenses decreased
$28.0 million and $41.8 million, respectively, in 1994. These decreases were due
primarily to reduced employee benefits expenses and lower production plant
maintenance costs.
Depreciation and amortization expense in 1994 was $12.4 million higher than in
1993 primarily due to an increase in depreciable property and the additional
amortization, beginning in January 1994, of demand side management expenditures.
Other taxes increased $40.1 million in 1994, primarily due to the effect of $33
million in franchise tax refunds received in 1993 and increased property taxes
in 1994.
Interest on long-term debt was $29.5 million lower in 1994 than in 1993 because
of previous refinancing activities and the reduction of long-term debt.
Reductions of intercompany borrowings, partially offset by interest on fuel cost
over-recoveries, resulted in a $3.8 million decrease in other interest expense
in 1994.
-42-
1993 COMPARED TO 1992. Electric operation and maintenance expenses increased
$55.1 million and $33.1 million, respectively, in 1993. These increases were due
primarily to the recognition of postretirement benefit costs (resulting from the
adoption of SFAS No. 106 on January 1, 1993), costs related to the sale of
receivables, and higher production plant operation and maintenance costs.
Depreciation and amortization expense in 1993 was $14.1 million higher than in
1992 primarily due to an increase in depreciable property and the additional
amortization, beginning in January 1993, of project costs related to Malakoff.
For information regarding Malakoff, see Note 5 to the Financial Statements in
Item 8 of this Report. These increases were partially offset by the cessation of
property loss amortization in 1993.
Other taxes decreased $22.1 million in 1993 primarily due to state franchise tax
refunds totaling approximately $33 million, partially offset by increased
property taxes due to increased tax rates.
Interest on long-term debt was $35.2 million lower in 1993 than in 1992 because
of refinancing activities and the reduction of long-term debt. Reductions of
intercompany borrowings and fuel cost under-recoveries resulted in a $7.2
million decrease in other interest expense in 1993.
KBLCOM
Summary of selected financial data for KBLCOM is set forth below:
Year Ended December 31,
------------------------- Percent
1994 1993 Change
----------- ----------- -------
(Thousands of Dollars)
Revenues................................. $ 255,772 $ 244,067 5
Operating Expenses (1)................... 156,084 148,325 5
Gross Operating Margin (1)............... 99,688 95,742 4
Depreciation, Amortization, Interest and
Other................................ 102,422 100,318 2
Income Taxes (Benefit)................... (2,851) 8,436 -
Income (Loss) Before Long-Term
Financing Cost with Parent........... 117 (13,012) -
--------------
Basic Subscribers (000).................. 690 605 14
-43-
Year Ended December 31,
------------------------- Percent
1993 1992 Change
----------- ----------- -------
(Thousands of Dollars)
Revenues................................. $ 244,067 $ 235,258 4
Operating Expenses (1)................... 148,325 140,242 6
Gross Operating Margin (1)............... 95,742 95,016 1
Depreciation, Amortization, Interest
and Other............................ 100,318 124,466 (19)
Income Taxes (Benefit)................... 8,436 (8,201) -
Loss Before Long-Term Financing Cost
with Parent.......................... (13,012) (21,249) 39
--------------
Basic Subscribers (000).................. 605 577 5
(1) Exclusive of depreciation and amortization.
GENERAL
1994 COMPARED TO 1993. KBLCOM's results of operations for 1994 improved from
1993 due to higher revenues resulting from the addition of approximately 85,000
customers, including 51,000 served at year end by three cable companies acquired
by KBLCOM in July 1994 (Acquisition). For a discussion of the Acquisition, see
Note 18 to the Financial Statements in Item 8 of this Report. KBLCOM's operating
margin for 1994 was 39.0 percent, compared to 39.2 percent for 1993.
In 1994, KBLCOM's income tax benefit of $2.8 million was primarily due to a $7.5
million reduction of deferred state income tax liabilities.
KBLCOM's future earnings outlook is dependent, to a large degree, on the success
of its marketing programs to increase basic subscribers and premium programming
services, its success in marketing other services, such as advertising and
pay-per-view, and the general economic conditions in the areas it serves. In
addition, the cable television industry in general, including KBLCOM, is faced
with various uncertainties, including the impact of recent regulation of basic
service rates by municipalities, the potential entry of telephone companies into
the cable business and increased competition from other entities. Recent changes
to the legislative and regulatory environment in which the cable television
industry operates could limit KBLCOM's ability to increase prices charged for
cable television services in the future. See "CURRENT ISSUES - KBLCOM - 1992
Cable Act."
1993 COMPARED TO 1992. KBLCOM's net loss per share declined due to increased
revenues, reduced interest expense and increased earnings from the Paragon
Communications (Paragon) partnership, which is discussed below. KBLCOM's
operating margin for 1993 was 39.2 percent, compared to 40.4 percent for 1992.
The 1 percent general corporate income tax rate increase imposed by OBRA
negatively impacted KBLCOM's 1993 results by $6.8 million.
-44-
The following discussions of operating revenues and sales and depreciation and
interest expense relate to KBLCOM and its wholly-owned subsidiaries, excluding
the investment in Paragon, which is not included because it is accounted for
under the equity method of accounting.
OPERATING REVENUES AND SALES
1994 COMPARED TO 1993. In 1994, cable television revenues were favorably
impacted by the addition of approximately 34,000 basic subscribers, excluding
the Acquisition, an increase of 5.6 percent and 85,000 basic subscribers,
including the Acquisition, an increase of 14.1 percent. Excluding the
Acquisition, basic service revenues decreased $3.2 million or 2.0 percent in
1994 as compared to 1993 primarily because revenues from additional outlets
declined by $7.1 million. However, including the Acquisition, basic service
revenues increased $1.7 million or 1.1 percent. Basic service revenue increases
are due primarily to additional customers and the Acquisition partially offset
by lower rates for basic service, including additional outlets, mandated by the
1992 Cable Act, which were placed in effect in September 1993 and July 1994. See
"CURRENT ISSUES - KBLCOM - 1992 Cable Act."
Ancillary service revenues from sources, such as advertising and installation
fees, increased $6.9 million, or 22.3 percent, in 1994 from the prior year. This
increase was due primarily to increased advertising sales and telephony-related
and premium fees. Pay-per-view revenues declined 3.1 percent in 1994 from 1993
primarily due to the lack of major feature movies and local pay-per-view
sporting events in 1994. Premium revenues increased $3.4 million, or 8.8 percent
due primarily to new packaging of premium units and multiplexing, which is the
delivery of multiple channels of premium service with no change in price to the
subscriber. The Acquisition did not have a material impact on these revenue
categories.
1993 COMPARED TO 1992. Basic service revenues increased $5.4 million, or 3.4
percent, primarily due to the addition of 28,000 basic subscribers. However, the
revenue increase related to the additional subscribers was partially offset by a
reduction in basic rates effective on September 1, 1993 implemented as a result
of the 1992 Cable Act. A large portion of this reduction resulted from the loss
of revenues from additional outlets.
Ancillary service revenues from sources, such as advertising and installation
fees, increased $3.2 million, or 11.8 percent, in 1993 from the prior year. This
increase was due primarily to increased advertising sales and higher
installation and other related transaction fees. Pay-per-view revenues were
approximately the same in 1993 as in 1992. Premium revenues were approximately
the same in 1993 as in 1992, ending a long decline in this revenue category.
DEPRECIATION AND INTEREST EXPENSE
1994 COMPARED TO 1993. Excluding the Acquisition, depreciation and amortization
increased $4.2 million or 5.5 percent in 1994 compared to 1993 due primarily to
asset additions. Including the Acquisition, such costs increased $6.8 million or
8.7 percent in 1994. In 1994, interest expense increased $1.0 million, or 2.0
percent, due to an increase in interest rates.
-45-
1993 COMPARED TO 1992. Depreciation and amortization increased $2.3 million, or
3.0 percent, in 1993 due primarily to asset additions. In 1993, interest expense
decreased $18.7 million, or 26.8 percent, due to reduced interest rates and
lower debt balances. The Company recapitalized KBLCOM to reduce the amount of
debt in its capital structure. As part of this recapitalization, the Company
contributed $177.3 million of equity which was used to reduce KBLCOM's
indebtedness. This recapitalization increased KBLCOM's equity, reduced the
financial risks associated with indebtedness and increased KBLCOM's financial
flexibility.
PARAGON PARTNERSHIP
1994 COMPARED TO 1993. A subsidiary of KBLCOM owns a 50 percent interest in
Paragon, a Colorado partnership, which, in turn, owns cable television systems
which served approximately 967,000 basic cable customers in seven states as of
December 31, 1994. Paragon's revenues were favorably impacted in 1994 by the
addition of approximately 35,000 basic subscribers, an increase of 3.8 percent
from 1993. KBLCOM's 1994 equity interest in the pre-tax earnings of Paragon was
$33.5 million, compared to $32.2 million in 1993. The increase was due to
increased revenue and reduced interest expense at Paragon, partially offset by
the impact of the 1992 Cable Act.
1993 COMPARED TO 1992. Paragon served approximately 932,000 basic cable
customers in seven states as of December 31, 1993. Paragon's revenues were
favorably impacted in 1993 by the addition of approximately 31,000 subscribers,
an increase of 3.4 percent. KBLCOM's 1993 equity interest in the pre-tax
earnings of Paragon was $32.2 million, compared to $24.9 million in 1992. The
increase was due to increased revenue, improved operating margins and reduced
interest expense at Paragon, partially offset by the impact of the 1992 Cable
Act.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
The Company's cash requirements stem primarily from operating expenses, capital
expenditures, payment of common stock dividends, payment of preferred stock
dividends, and interest and principal payments on debt. Net cash provided by
operating activities totaled $1.2 billion in 1994.
Net cash used in investing activities in 1994 totaled $561.8 million, primarily
due to electric capital expenditures of $418.5 million (including Allowance for
Borrowed Funds Used During Construction (AFUDC)), and cable television additions
and investments of approximately $84.2 million.
Financing activities for 1994 resulted in a net cash outflow of $639.7 million.
The Company's primary financing activities were the payment of dividends,
repayment of short-term borrowings, redemption of preferred stock and payment of
long-term debt.
-46-
The liquidity and capital requirements of the Company and its subsidiaries are
affected primarily by capital programs and debt service requirements. The
capital requirements for 1994, and as estimated for 1995 through 1997, are as
follows:
Millions of Dollars
------------------------------
1994 1995 1996 1997
---- ---- ---- ----
Electric capital and nuclear fuel (excluding
AFUDC)........................................ $413 $364 $385 $338
Cable television additions and other
cable-related investments (1).............. 84 91
Cable acquisitions............................. 80
Corporate headquarters expenditures (excluding
capitalized interest) (2).................. 44 79 6
Non-regulated electric power project
expenditures(3)............................ 35
Maturities of long-term debt, preferred stock
and minimum capital lease payments......... 55 65 476 384
---- ---- ---- ----
Total.......................................... $676 $634 $867 $722
===== ==== ==== ====
- --------------
(1) Due to the pending disposition of KBLCOM, capital requirements after 1995
have not been presented.
(2) In December 1993, a subsidiary of the Company acquired a new headquarters
building in downtown Houston. Structural improvements and various
renovations have been ongoing to accommodate the Company's business
requirements.
(3) Additional capital expenditures are dependent upon the nature and extent
of future project commitments entered into by Houston Industries Energy,
Inc. (HI Energy).
For a discussion of the Company's commitments for capital expenditures, see Note
14 to the Financial Statements in Item 8 of this Report.
COMPANY
SOURCES OF CAPITAL RESOURCES AND LIQUIDITY
The Company has consolidated its financing activities in order to provide a
coordinated, cost-effective method of meeting short and long-term capital
requirements. As part of the consolidated financing program, the Company has
established a "money fund" through which its subsidiaries can borrow or invest
on a short-term basis. The funding requirements of individual subsidiaries are
aggregated and borrowing or investing is conducted by the Company based on the
net cash position. In 1994, net funding requirements were met with borrowings
under the Company's commercial paper program, except that HL&P's borrowing
requirements were generally met with HL&P's commercial paper program. In 1995,
net funding requirements of the Company and HL&P are expected to be met with a
combination of commercial paper and bank borrowings. As of December 31, 1994,
the Company had a bank credit facility of $600 million (exclusive of bank credit
facilities of subsidiaries), which was used to support its commercial paper
program. At December 31, 1994, the Company had approximately $423 million of
commercial paper
-47-
outstanding. Rates paid by the Company on its short-term borrowings are
generally lower than the prime rate. In March 1995, the Company's bank credit
facility was increased to $800 million.
On January 26, 1995, the Company entered into an agreement with Time Warner to
sell all of its cable television operations. In exchange for KBLCOM's common
stock, Time Warner will issue to the Company one million shares of its common
stock and 11 million shares of a newly-issued series of its convertible
preferred stock (with a liquidation value of $100 per share). The preferred
stock will be convertible into approximately 22.9 million shares of Time Warner
common stock. After four years, Time Warner will have the right to exchange the
preferred stock for common stock at the stated conversion rate, unless the
Company elects to convert the shares before such time. In addition, Time Warner
will purchase KBLCOM's intercompany debt for an estimated $600 million in cash.
Approximately $685 million of KBLCOM's third party debt and other liabilities
will be assumed by Time Warner upon the closing of the sale. Closing of the
transaction, which is expected to occur in the second half of 1995, is subject
to the approval of certain franchise authorities and other governmental
entities.
Based on a Time Warner common stock price of $35.50 and assuming the closing
occurs on September 30, 1995, the Company estimates that it will recognize an
after-tax gain of approximately $650 million. The Company anticipates that it
will record a portion of this gain (estimated to be approximately $100 million)
in the first quarter of 1995 in recognition of the deferred tax asset arising
from the Company's excess tax basis in KBLCOM stock. The remainder of the gain
will be recognized at closing. The Company believes that the transaction will
improve its liquidity by exchanging the Company's investment in KBLCOM for cash
and marketable securities. In addition, the terms of the preferred stock to be
issued by Time Warner provide for the payment of an annual cash dividend of
$3.75 per share for four years. Assuming Time Warner common stock were to
continue to pay its current dividend of $.36 per share, the Company would expect
to receive after-tax dividend payments on the Time Warner common and preferred
stock of approximately $37 million per year.
It is anticipated that the $600 million proceeds to be received in connection
with the sale of KBLCOM's intercompany debt would be used for general corporate
purposes, including but not limited to the redemption of or retirement of
indebtedness of the Company, the advance or contribution of funds to one or more
subsidiaries to be used for their general corporate purposes or (depending on
market and other conditions) the possible repurchase of certain outstanding
shares of the Company's common stock. For additional information regarding the
proforma presentation of the Company's 1994 Statement of Consolidated Income to
reflect KBLCOM on a discontinued operations basis for the entire year, see Note
21(a) to the Financial Statements in Item 8 of this Report.
The Company has registered with the Securities and Exchange Commission (SEC)
$250 million principal amount of debt securities which remain unissued. Proceeds
from any sales of these debt securities are expected to be used for general
corporate purposes, including investments in and loans to subsidiaries.
The Company also has registered with the SEC five million shares of its common
stock. Proceeds from the sale of these securities will be used for general
corporate purposes, including,
-48-
but not limited to, the redemption, repayment or retirement of outstanding
indebtedness of the Company or the advance or contribution of funds to one or
more of the Company's subsidiaries to be used for their general corporate
purposes, including, without limitation, the redemption, repayment or retirement
of indebtedness or preferred stock.
HL&P
HL&P's cash requirements stem primarily from operating expenses, capital
expenditures, payment of common stock dividends, payment of preferred stock
dividends, and interest and principal payments on debt. HL&P's net cash provided
by operating activities for 1994 totaled approximately $1.2 billion. Net cash
used in HL&P's investing activities for 1994 totaled $434.3 million including
AFUDC.
In July 1994, HL&P contributed as equity its rights to receive certain railroad
settlement payments to HL&P Receivables, Inc., a wholly-owned subsidiary of
HL&P. Following the transfer of such receivables to a trust, HL&P received $66.1
million, which was recorded as a reduction to its reconcilable fuel expense in
July 1994. The reduction to reconcilable fuel expense had no effect on earnings.
For a further discussion of this transaction, see Note 19 to the Financial
Statements in Item 8 of this Report.
HL&P's financing activities for 1994 resulted in a net cash outflow of $569.2
million. Included in these activities were the payment of dividends, repayment
of short-term borrowings, the redemption of preferred stock, and the repayment
of matured long-term debt. For information with respect to these matters, see
Notes 9 and 10(a) to the Financial Statements in Item 8 of this Report.
CAPITAL PROGRAM
HL&P's capital and nuclear fuel expenditures (excluding AFUDC) for 1994 totaled
$413 million, which was below the authorized budgeted level of $478 million.
Estimated expenditures for 1995, 1996 and 1997 are $364 million, $385 million
and $338 million, respectively. Maturities of long-term debt, preferred stock
subject to mandatory redemption, and capital leases for this same period include
$49 million in 1995, $200 million in 1996 and $254 million in 1997.
HL&P's capital program for the next three years is expected to relate to costs
for production, transmission, distribution, and general plant. HL&P began
construction of the San Jacinto Steam Electric Station (San Jacinto Station),
formerly the E. I. du Pont de Nemours Company (DuPont) project, in 1993 in order
to provide generating capacity in 1995. The San Jacinto Station is being
constructed pursuant to an agreement between HL&P and DuPont, whereby HL&P will
construct, own, and operate two 80 megawatt gas turbine units located at
DuPont's La Porte, Texas facility. The project will supply DuPont with process
steam while all electrical energy will be used in the HL&P system. HL&P's
capital program is subject to periodic review and portions may be revised from
time to time due to changes in load forecasts, changing regulatory and
environmental standards and other factors.
-49-
SOURCES OF CAPITAL RESOURCES AND LIQUIDITY
HL&P expects to finance its 1995 through 1997 capital program with funds
generated internally from operations.
HL&P has registered with the SEC $230 million aggregate liquidation value of its
preferred stock and $580 million aggregate principal amount of its debt
securities that may be issued as first mortgage bonds and/or as debt securities
collateralized by first mortgage bonds. Proceeds from any sale of these
securities are expected to be used for general corporate purposes including the
purchase, redemption (to the extent permitted by the terms of the outstanding
securities), repayment or retirement of outstanding indebtedness or preferred
stock of HL&P.
In 1994, HL&P's interim financing requirements were met with commercial paper.
In 1995, HL&P's interim financing requirements are expected to be met with a
combination of commercial paper and bank borrowings. At December 31, 1994, HL&P
had approximately $236 million in short-term investments and no commercial paper
borrowings. HL&P's commercial paper program is supported by a bank credit
facility of $400 million.
HL&P's capitalization at December 31, 1994 was 42 percent long-term debt, 7
percent preferred stock and 51 percent common stock equity.
ENVIRONMENTAL EXPENDITURES
The new requirements of the Clean Air Act will require HL&P to increase its
environmental expenditures. Modifying its existing facilities to reduce
emissions of nitrogen oxides (NOx) cost $4 million in 1994. The date for
additional compliance has been delayed by the United States Environmental
Protection Agency (EPA) and the Texas Natural Resource Conservation Commission
until it becomes certain that additional expenditures for NOx emission
reductions will be required under the provisions of the Clean Air Act. Up to an
additional $40 million may be incurred by HL&P in order to fully comply with new
NOx requirements after 1997. In addition, it is anticipated that $7 million in
1995 will be expended to install continuous emission monitoring equipment;
approximately $4 million was incurred for this equipment in 1994.
The EPA identified HL&P as a potentially responsible party under the
Comprehensive Environmental Response, Compensation, and Liability Act for the
costs of cleaning up a site located adjacent to one of HL&P's transmission
lines. In October 1992, the EPA issued an Administrative Order to HL&P and
several other companies purporting to require them to manage the remediation of
the site. Because of various defenses it believes are available to it, HL&P has
not complied with this Order. To date, neither the EPA nor any other potentially
responsible party has instituted a claim against HL&P for cleanup costs;
however, under current law, potentially responsible parties could be determined
to be jointly and severally liable for such costs. The cleanup of the entire
site may cost $80 million. If, despite its defenses, HL&P were ultimately held
to be responsible for the site, it may be subject to substantial fines and
damages. Although no prediction can be made at this time as to the ultimate
outcome of this matter, in light of all the circumstances involved, the Company
and HL&P do not believe any costs that HL&P will incur
-50-
in this matter will have a material adverse effect on the Company's or HL&P's
financial condition or results of operation.
KBLCOM
KBLCOM's cash requirements stem primarily from operating expenses, capital
expenditures, and interest and principal payments on debt. KBLCOM's net cash
provided by operating activities was $48.7 million in 1994.
Net cash used in KBLCOM's investing activities for 1994 totaled $88.1 million,
primarily due to property additions and other cable-related investments of
approximately $84.2 million. These amounts were financed principally through
internally generated funds and intercompany advances. A substantial portion of
KBLCOM's 1995 capital requirements is expected to be met through internally
generated funds. It is expected that any shortfall will be met through
intercompany borrowings. For a discussion of the pending disposition of KBLCOM,
see Note 21(a) to the Financial Statements in Item 8 of this Report.
KBLCOM's financing activities for 1994 resulted in a net cash inflow of $39.5
million. Included in these activities was the reduction of third party debt
through scheduled principal payments and repayments of debt assumed in the
Acquisition.
FINANCING ACTIVITIES
In the first quarter of 1994 and 1995, KBLCOM made mandatory repayments of $10.4
million and $15.8 million, respectively, principal amount of its senior notes
and senior subordinated notes. In January 1994, KBLCOM's letter of credit and
term loan facility was terminated. As of December 31, 1993, the facility was
utilized in the form of letters of credit aggregating approximately $89.3
million which supported debt service obligations on senior subordinated notes.
In July 1994, KBLCOM acquired the stock of three cable companies then serving
approximately 48,000 customers in the Minneapolis area in exchange for 587,646
shares of common stock of the Company. The total purchase price of approximately
$80 million included the assumption of approximately $60 million in liabilities.
Notes were repaid in connection with the Acquisition in the amount of $57.7
million.
SOURCES OF CAPITAL RESOURCES AND LIQUIDITY
Additional borrowing under a KBLCOM bank credit facility is subject to certain
covenants which relate primarily to the maintenance of certain financial ratios,
principally debt to cash flow and interest coverages. KBLCOM presently is in
compliance with such covenants. At December 31, 1994, KBLCOM had $76 million
available for borrowing under its credit facility. The facility has scheduled
reductions in March of each year until it is terminated in March 1999.
-51-
HI ENERGY
The Company formed HI Energy in 1993 to seek investment opportunities in
domestic and foreign power generation projects and the privatization of foreign
electric utilities. The international market for private power development has
recently emerged and is currently where HI Energy is concentrating most of its
resources.
During 1994, HI Energy began construction of the Ford Heights Tire-To-Energy
Project, a $106 million electric generating plant south of Chicago, Illinois. HI
Energy is committed to fund $21 million through combined equity contributions
and loans as a result of its participation in this project.
In January 1995, HI Energy acquired for $15.7 million a 90 percent equity
interest in an electric utility operating company in the province of Santiago
del Estero, a rural province in the north central part of Argentina. The utility
system serves approximately 100,000 customers in an area of 136,000 square
kilometers.
Additional capital expenditures are dependent upon the nature and extent of
future project commitments entered into by HI Energy.
NEW ACCOUNTING ISSUES
The staff of the SEC has questioned certain of the current accounting practices
of the electric utility industry regarding the recognition, measurement and
classification of decommissioning costs for nuclear generating facilities
recorded on the financial statements of electric utilities. In response to these
questions, the Financial Accounting Standards Board has agreed to review the
accounting for removal costs, including decommissioning. If the current electric
utility industry accounting practices for such decommissioning are changed: (i)
annual provisions for decommissioning could increase, (ii) the estimated cost
for decommissioning could be recorded as a liability rather than as accumulated
depreciation, and (iii) trust fund income from the external decommissioning
trusts could be reported as investment income rather than as a reduction of
decommissioning expense.
-52-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Electric....................................... $ 3,746,085 $ 4,079,863 $ 3,826,841
Cable television............................... 255,772 244,067 235,258
----------- ----------- -----------
Total.................................... 4,001,857 4,323,930 4,062,099
----------- ----------- -----------
EXPENSES:
Electric:
Fuel........................................ 860,936 1,063,050 914,732
Purchased power............................. 408,963 515,502 486,414
Operation and maintenance................... 828,748 898,535 810,379
Taxes other than income taxes............... 251,421 211,295 233,439
Restructuring............................... 86,431
Cable television operating expenses............ 156,084 148,325 140,242
Depreciation and amortization.................. 483,880 464,806 448,594
----------- ----------- -----------
Total.................................... 2,990,032 3,301,513 3,120,231
----------- ----------- -----------
OPERATING INCOME.................................. 1,011,825 1,022,417 941,868
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Allowance for other funds used during
construction................................ 4,115 3,512 6,169
Equity in income of cable television
partnerships................................ 33,313 31,979 24,871
Interest income................................ 5,656 33,357 34,361
Other - net.................................... (31,886) (20,966) (21,612)
----------- ----------- -----------
Total.................................... 11,198 47,882 43,789
----------- ----------- -----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt..................... 343,844 377,308 424,102
Other interest................................. 25,076 15,145 23,323
Allowance for borrowed funds used during
construction................................ (5,554) (3,781) (6,191)
Preferred dividends of subsidiary.............. 33,583 34,473 39,327
----------- ----------- -----------
Total.................................... 396,949 423,145 480,561
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING................. 626,074 647,154 505,096
INCOME TAXES...................................... 218,613 231,118 164,609
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING.................................. 407,461 416,036 340,487
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
REVENUES (NET OF INCOME TAXES OF $48,517)...... 94,180
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS (NET OF INCOME
TAXES OF $4,415)............................... (8,200)
----------- ----------- -----------
NET INCOME........................................ $ 399,261 $ 416,036 $ 434,667
=========== =========== ===========
-53-
EARNINGS PER COMMON SHARE:
EARNINGS PER COMMON SHARE BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING.............. $ 3.32 $ 3.20 $ 2.63
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR REVENUES................................ .73
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR POSTEMPLOYMENT BENEFITS................. (.07)
----------- ----------- -----------
EARNINGS PER COMMON SHARE......................... $ 3.25 $ 3.20 $ 3.36
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (000).............................. 122,853 130,004 129,514
</TABLE>
See Notes to Consolidated Financial Statements.
-54-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Balance at Beginning of Year..................... $ 1,191,230 $ 1,254,584 $ 1,202,125
Add - Net Income................................. 399,261 416,036 434,667
----------- ----------- -----------
Total...................................... 1,590,491 1,670,620 1,636,792
Common Stock Dividends:
1994, $3.00; 1993, $3.75; 1992, $2.98;
(per share)................................... (369,270) (487,927) (385,952)
Tax Benefit of ESOP Dividends.................... 8,939 8,944
Redemption of HL&P Preferred Stock............... (402) (5,200)
----------- ----------- -----------
Balance at End of Year........................... $ 1,221,221 $ 1,191,230 $ 1,254,584
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-55-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1994 1993
----------- -----------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Production................................................... $ 7,221,142 $ 7,165,811
Transmission................................................. 876,159 840,736
Distribution................................................. 2,628,450 2,503,964
General...................................................... 1,017,319 969,733
Construction work in progress................................ 333,180 242,661
Nuclear fuel................................................. 212,795 211,785
Plant held for future use.................................... 201,741 196,330
Electric plant acquisition adjustments......................... 3,166 3,166
Cable television property...................................... 438,026 372,178
Other property................................................. 85,529 47,494
----------- -----------
Total...................................................... 13,017,507 12,553,858
Less accumulated depreciation and amortization................. 3,689,000 3,355,616
----------- -----------
Property, plant and equipment - net........................ 9,328,507 9,198,242
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents...................................... 10,443 14,884
Special deposits............................................... 10 11,834
Accounts receivable:
Customers (less allowance for doubtful accounts of $1,545
and $1,682 at December 31, 1994 and 1993, respectively).... 6,903 4,985
Others....................................................... 29,488 11,153
Accrued unbilled revenues...................................... 38,372 29,322
Fuel stock, at lifo cost....................................... 56,711 58,585
Materials and supplies, at average cost........................ 157,959 166,477
Prepayments.................................................... 17,864 20,432
----------- -----------
Total current assets....................................... 317,750 317,672
----------- -----------
OTHER ASSETS:
Cable television franchises and intangible assets (less
accumulated amortization of $223,494 and $184,057 at
December 31, 1994 and 1993, respectively).................... 1,029,440 984,032
Deferred plant costs - net..................................... 638,917 664,699
Deferred debits................................................ 287,419 371,773
Unamortized debt expense and premium on reacquired debt........ 161,885 169,465
Equity investment in cable television partnerships............. 160,363 122,531
Equity investment in foreign electric utility.................. 35,449 36,984
Regulatory asset - net......................................... 235,463 246,763
Recoverable project costs - net................................ 98,954 118,016
----------- -----------
Total other assets......................................... 2,647,890 2,714,263
----------- -----------
Total.................................................... $12,294,147 $12,230,177
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-56-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
December 31,
-----------------------
1994 1993
----------- -----------
<S> <C> <C>
CAPITALIZATION (STATEMENTS ON FOLLOWING PAGES):
Common stock equity............................................ $ 3,369,248 $ 3,273,997
----------- -----------
Preference stock, no par; authorized, 10,000,000 shares;
none outstanding
Cumulative preferred stock of subsidiary:
Not subject to mandatory redemption.......................... 351,345 351,354
Subject to mandatory redemption.............................. 121,910 167,236
----------- -----------
Total cumulative preferred stock........................... 473,255 518,590
----------- -----------
Long-term debt................................................. 4,222,916 4,243,195
----------- -----------
Total capitalization..................................... 8,065,419 8,035,782
----------- -----------
CURRENT LIABILITIES:
Notes payable.................................................. 423,291 591,385
Accounts payable............................................... 332,855 239,814
Taxes accrued.................................................. 48,858 187,503
Interest accrued............................................... 82,317 84,178
Dividends accrued.............................................. 105,185 105,207
Accrued liabilities to municipalities.......................... 21,307 22,589
Customer deposits.............................................. 64,905 65,604
Current portion of long-term debt and preferred stock.......... 65,272 55,109
Other.......................................................... 60,089 62,688
----------- -----------
Total current liabilities................................ 1,204,079 1,414,077
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes.............................. 2,079,471 1,987,336
Unamortized investment tax credit.............................. 414,776 434,597
Fuel-related credits........................................... 242,912 77,533
Other.......................................................... 287,490 280,852
----------- -----------
Total deferred credits................................... 3,024,649 2,780,318
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total................................................. $12,294,147 $12,230,177
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-57-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
December 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
COMMON STOCK EQUITY:
Common stock, no par; authorized, 400,000,000 shares;
issued, 131,296,663 and 130,658,755 shares at
December 31, 1994 and 1993, respectively...................... $ 2,437,638 $ 2,415,256
Unearned ESOP shares, 7,770,313 shares......................... (289,611)
Note receivable from ESOP...................................... (332,489)
Retained earnings.............................................. 1,221,221 1,191,230
----------- -----------
Total common stock equity............................. 3,369,248 3,273,997
----------- -----------
CUMULATIVE PREFERRED STOCK, no par; authorized, 10,000,000
shares; outstanding, 5,232,397 and 5,432,397 shares at
December 31, 1994 and 1993, respectively (entitled
upon involuntary liquidation to $100 per share):
Houston Lighting & Power Company:
Not subject to mandatory redemption:
$4.00 series, 97,397 shares........................... 9,740 9,740
$6.72 series, 250,000 shares........................... 25,115 25,115
$7.52 series, 500,000 shares........................... 50,226 50,226
$8.12 series, 500,000 shares........................... 50,098 50,098
Series A - 1992, 500,000 shares........................... 49,094 49,098
Series B - 1992, 500,000 shares........................... 49,104 49,109
Series C - 1992, 600,000 shares........................... 58,984 58,984
Series D - 1992, 600,000 shares........................... 58,984 58,984
----------- -----------
Total................................................. 351,345 351,354
----------- -----------
Subject to mandatory redemption:
$8.50 series, 400,000 and 600,000 shares
at December 31, 1994 and 1993, respectively................ 39,799 59,597
$9.375 series, 1,285,000 shares........................... 127,811 127,639
Current redemptions........................................ (45,700) (20,000)
----------- -----------
Total................................................. 121,910 167,236
----------- -----------
Total cumulative preferred stock.................... 473,255 518,590
----------- -----------
LONG-TERM DEBT:
Debentures:
7 1/4% series, due 1996.................................... 200,000 200,000
9 3/8% series, due 2001.................................... 250,000 250,000
7 7/8% series, due 2002.................................... 100,000 100,000
Unamortized discount....................................... (1,271) (1,456)
----------- -----------
Total debentures......................................... 548,729 548,544
----------- -----------
Houston Lighting & Power Company:
First mortgage bonds:
5 1/4% series, due 1996.................................... 40,000 40,000
5 1/4% series, due 1997.................................... 40,000 40,000
6 3/4% series, due 1997.................................... 35,000 35,000
7 5/8% series, due 1997.................................... 150,000 150,000
6 3/4% series, due 1998.................................... 35,000 35,000
7 1/4% series, due 2001.................................... 50,000 50,000
9.15 % series, due 2021.................................... 160,000 160,000
8 3/4% series, due 2022.................................... 100,000 100,000
7 3/4% series, due 2023.................................... 250,000 250,000
7 1/2% series, due 2023.................................... 200,000 200,000
-58-
4.90 % pollution control series, due 2003.................. $ 16,600 $ 16,600
7 % pollution control series, due 2008.................. 19,200 19,200
6 3/8% pollution control series, due 2012.................. 33,470 33,470
6 3/8% pollution control series, due 2012.................. 12,100 12,100
7 3/4% pollution control series, due 2015.................. 68,700 68,700
8 1/4% pollution control series, due 2015.................. 90,000 90,000
7 7/8% pollution control series, due 2016.................. 68,000 68,000
6.70 % pollution control series, due 2017.................. 43,820 43,820
5.60 % pollution control series, due 2017.................. 83,565 83,565
7 7/8% pollution control series, due 2018.................. 50,000 50,000
7.20 % pollution control series, due 2018.................. 175,000 175,000
8 1/4% pollution control series, due 2019.................. 100,000 100,000
8.10 % pollution control series, due 2019.................. 100,000 100,000
7 7/8% pollution control series, due 2019.................. 29,685 29,685
7.60 % pollution control series, due 2019.................. 70,315 70,315
7.70 % pollution control series, due 2019.................. 75,000 75,000
7 1/8% pollution control series, due 2019.................. 100,000 100,000
7 5/8% pollution control series, due 2019.................. 100,000 100,000
6.70 % pollution control series, due 2027.................. 56,095 56,095
Medium-term notes series A, 9.80%-9.85%, due 1996-1999....... 180,500 200,000
Medium-term notes series B, 8 5/8%, due 1996................. 100,000 100,000
Medium-term notes series C, 6.10%, due 2000.................. 150,000 150,000
Medium-term notes series B, 8.15%, due 2002.................. 100,000 100,000
Medium-term notes series C, 6.50%, due 2003.................. 150,000 150,000
----------- -----------
Total first mortgage bonds............................... 3,032,050 3,051,550
----------- -----------
Pollution control revenue bonds:
Gulf Coast 1980-T series, floating rate, due 1998............ 5,000 5,000
Brazos River 1985 A2 series, 9 3/4%, due 2005................ 4,265 4,265
Brazos River 1985 A1 series, 9 7/8%, due 2015................ 87,680 87,680
Matagorda County 1985 series, 10%, due 2015.................. 58,905 58,905
----------- -----------
Total pollution control revenue bonds.................... 155,850 155,850
----------- -----------
Unamortized premium (discount) - net........................... (12,253) (12,839)
Capitalized lease obligations, discount rates of
5.2%-11.7%, due 1995-2018.................................... 12,403 17,825
Notes payable.................................................. 1,129 2,410
----------- ---------
Subtotal................................................. 1,279 7,396
----------- -----------
Total................................................. 3,189,179 3,214,796
----------- -----------
KBLCOM Incorporated and subsidiaries:
Senior bank debt............................................. 364,000 364,000
Senior notes................................................. 62,480 67,095
Senior subordinated notes.................................... 78,100 83,869
----------- -----------
Total................................................. 504,580 514,964
----------- -----------
Total............................................... 4,242,488 4,278,304
Current maturities.................................. (19,572) (35,109)
----------- -----------
Total long-term debt................................ 4,222,916 4,243,195
----------- -----------
Total capitalization.............................. $ 8,065,419 $ 8,035,782
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-59-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 399,261 $ 416,036 $ 434,667
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 483,880 464,806 448,594
Amortization of nuclear fuel.................... 21,561 2,101 29,237
Deferred income taxes........................... 62,713 197,516 61,670
Investment tax credit........................... (19,821) (20,185) (19,950)
Allowance for other funds used during
construction................................. (4,115) (3,512) (6,169)
Payment of disputed income taxes and
related interest............................. (52,817)
Fuel cost (refund) and over/(under)
recovery - net............................... 277,940 (91,863) (84,072)
Restructuring................................... 86,431
Cumulative effect of change in accounting
for revenues................................. (94,180)
Cumulative effect of change in accounting
for postemployment benefits.................. 8,200
Regulatory asset - net.......................... 11,300 (69,337) (12,180)
Equity in income of cable television
partnerships................................. (33,313) (31,979) (24,871)
Changes in other assets and liabilities:
Accounts receivable - net.................... (29,303) 302,215 10,357
Inventory.................................... 10,392 10,940 9,350
Other current assets......................... 14,392 (15,430) 2,885
Accounts payable............................. 93,041 (9,583) 10,990
Interest and taxes accrued................... (136,506) (18,952) (20,693)
Other current liabilities.................... (5,082) 28,088 (53,520)
Other - net.................................. 42,564 46,789 68,083
----------- ----------- ----------
Net cash provided by operating activities.... 1,197,104 1,207,650 793,812
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Electric capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction)....................... (418,453) (332,797) (343,273)
Cable television additions and other cable-
related investments............................. (84,166) (60,385) (44,306)
Non-regulated electric power project
expenditures.................................... (454) (35,796) (1,625)
Corporate headquarters expenditures (including
capitalized interest)........................... (46,829) (26,034)
Other - net........................................ (11,932) (5,376) (10,608)
----------- ----------- ----------
Net cash used in investing activities........ (561,834) (460,388) (399,812)
----------- ----------- ----------
-60-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock......................... $ 52,638
Proceeds from preferred stock...................... $ 216,700
Proceeds from first mortgage bonds................. 840,427 488,760
Proceeds from senior bank debt..................... 20,000
Proceeds from debentures........................... 99,216
Purchase of senior and subordinated notes.......... (71,419)
Payment of matured first mortgage bonds............ $ (19,500) (136,000) (157,000)
Payment of senior bank debt........................ (238,349) (5,000)
Payment of senior and subordinated notes........... (10,384) (6,390)
Payment of other notes............................. (57,673)
Payment of common stock dividends.................. (368,790) (389,933) (385,952)
Redemption of preferred stock...................... (20,000) (40,000) (103,000)
Increase (decrease) in notes payable............... (168,094) 27,136 233,955
Extinguishment of long-term debt................... (995,751) (717,912)
Other - net........................................ 4,730 64,527 49,300
----------- ----------- ----------
Net cash used in financing activities........... (639,711) (801,695) (352,352)
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ (4,441) (54,433) 41,648
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........ 14,884 69,317 27,669
----------- ----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.............. $ 10,443 $ 14,884 $ 69,317
=========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized).............. $ 366,548 $ 397,911 $ 474,655
Income taxes....................................... 174,657 123,975 172,053
</TABLE>
See Notes to Consolidated Financial Statements.
-61-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES................................ $ 3,746,085 $ 4,079,863 $ 3,826,841
----------- ----------- -----------
OPERATING EXPENSES:
Fuel........................................... 860,936 1,063,050 914,732
Purchased power................................ 408,963 515,502 486,414
Operation...................................... 580,892 608,912 553,847
Maintenance.................................... 247,856 289,623 256,532
Depreciation and amortization.................. 398,142 385,731 371,645
Income taxes................................... 254,993 239,464 174,731
Other taxes.................................... 251,421 211,295 233,439
Restructuring.................................. 86,431
----------- ----------- -----------
Total.................................... 3,003,203 3,313,577 3,077,771
----------- ----------- -----------
OPERATING INCOME.................................. 742,882 766,286 749,070
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Allowance for other funds used during
construction................................ 4,115 3,512 6,169
Interest income................................ 10,000 3,296 2,447
Other - net.................................... (12,561) (4,286) (17,839)
----------- ----------- -----------
Total.................................... 1,554 2,522 (9,223)
----------- ----------- -----------
INCOME BEFORE INTEREST CHARGES.................... 744,436 768,808 739,847
----------- ----------- -----------
INTEREST CHARGES:
Interest on long-term debt..................... 246,533 276,049 311,208
Other interest................................. 8,493 12,317 19,548
Allowance for borrowed funds used during
construction................................ (5,554) (3,781) (6,191)
----------- ----------- -----------
Total.................................... 249,472 284,585 324,565
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING.................................. 494,964 484,223 415,282
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
REVENUES (NET OF INCOME TAXES OF $48,517)...... 94,180
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS (NET OF INCOME
TAXES OF $4,415)............................... (8,200)
----------- ----------- -----------
NET INCOME ...................................... 486,764 484,223 509,462
DIVIDENDS ON PREFERRED STOCK...................... 33,583 34,473 39,327
----------- ----------- -----------
INCOME AFTER PREFERRED DIVIDENDS.................. $ 453,181 $ 449,750 $ 470,135
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
-62-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Balance at Beginning of Year..................... $ 2,028,924 $ 1,922,558 $ 1,803,371
Add - Net Income................................. 486,764 484,223 509,462
Redemption of Preferred Stock.................... (402) (5,200)
----------- ----------- -----------
Total...................................... 2,515,688 2,406,379 2,307,633
----------- ----------- -----------
Deduct - Cash Dividends:
Preferred:
$4.00 Series............................... 390 390 390
$6.72 Series............................... 1,680 1,680 1,680
$7.52 Series............................... 3,760 3,760 3,760
$8.12 Series............................... 4,060 4,060 4,060
Series A - 1984............................ 2,720
Series B - 1985............................ 2,625
Series A - 1992............................ 1,740 1,366 1,425
Series B - 1992............................ 1,683 1,366 1,405
Series C - 1992............................ 2,040 1,672 356
Series D - 1992............................ 2,075 1,615 359
$8.50 Series............................... 4,108 6,517 8,500
$9.375 Series.............................. 12,047 12,047 12,047
Common........................................ 328,996 342,982 345,748
----------- ----------- -----------
Total...................................... 362,579 377,455 385,075
----------- ----------- -----------
Balance at End of Year........................... $ 2,153,109 $ 2,028,924 $ 1,922,558
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
-63-
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1993
----------- ----------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Production................................................... $ 7,221,142 $ 7,165,811
Transmission................................................. 876,159 840,736
Distribution................................................. 2,628,450 2,503,964
General...................................................... 1,017,319 969,733
Construction work in progress................................ 333,180 242,661
Nuclear fuel................................................. 212,795 211,785
Plant held for future use.................................... 201,741 196,330
Electric plant acquisition adjustments......................... 3,166 3,166
----------- -----------
Total...................................................... 12,493,952 12,134,186
Less accumulated depreciation and amortization................. 3,517,923 3,194,127
----------- -----------
Property, plant and equipment - net........................ 8,976,029 8,940,059
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents...................................... 235,867 12,413
Special deposits............................................... 10 11,834
Accounts receivable:
Affiliated companies......................................... 4,213 1,792
Others ...................................................... 8,896 2,540
Accrued unbilled revenues...................................... 38,372 29,322
Fuel stock, at lifo cost ...................................... 56,711 58,585
Materials and supplies, at average cost........................ 147,922 160,371
Prepayments.................................................... 9,665 9,234
----------- -----------
Total current assets....................................... 501,656 286,091
----------- -----------
OTHER ASSETS:
Deferred plant costs - net..................................... 638,917 664,699
Deferred debits................................................ 241,611 333,620
Unamortized debt expense and premium on reacquired debt........ 158,351 164,368
Regulatory asset - net......................................... 235,463 246,763
Recoverable project costs - net................................ 98,954 118,016
----------- -----------
Total other assets......................................... 1,373,296 1,527,466
----------- -----------
Total.................................................... $10,850,981 $10,753,616
=========== ===========
</TABLE>
See Notes to Financial Statements.
-64-
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
December 31,
-----------------------
1994 1993
----------- -----------
<S> <C> <C>
CAPITALIZATION (STATEMENTS ON FOLLOWING PAGES):
Common stock equity............................................ $ 3,829,036 $ 3,704,851
Cumulative preferred stock:
Not subject to mandatory redemption.......................... 351,345 351,354
Subject to mandatory redemption.............................. 121,910 167,236
Long-term debt................................................. 3,185,404 3,190,071
----------- -----------
Total capitalization..................................... 7,487,695 7,413,512
----------- -----------
CURRENT LIABILITIES:
Notes payable.................................................. 171,100
Accounts payable............................................... 268,874 190,583
Accounts payable to affiliated companies....................... 10,936 8,449
Taxes accrued.................................................. 60,211 187,517
Interest and dividends accrued................................. 64,732 65,238
Accrued liabilities to municipalities.......................... 21,307 22,589
Customer deposits.............................................. 64,905 65,604
Current portion of long-term debt and preferred stock.......... 49,475 44,725
Other.......................................................... 59,912 63,607
----------- -----------
Total current liabilities................................ 600,352 819,412
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes.............................. 1,876,300 1,798,976
Unamortized investment tax credit.............................. 411,580 430,996
Fuel-related credits........................................... 242,912 77,533
Other.......................................................... 232,142 213,187
----------- -----------
Total deferred credits................................... 2,762,934 2,520,692
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total................................................. $10,850,981 $10,753,616
=========== ===========
</TABLE>
See Notes to Financial Statements.
-65-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
December 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
COMMON STOCK EQUITY:
Common stock, Class A; no par; authorized and outstanding,
1,000 shares voting.......................................... $ 1,524,949 $ 1,524,949
Common stock, Class B; no par; authorized and outstanding,
100 shares, non-voting....................................... 150,978 150,978
Retained earnings.............................................. 2,153,109 2,028,924
----------- -----------
Total common stock equity............................. 3,829,036 3,704,851
----------- -----------
CUMULATIVE PREFERRED STOCK, no par; authorized,
10,000,000 shares; outstanding, 5,232,397 and 5,432,397 shares
at December 31, 1994 and 1993, respectively (entitled upon
involuntary liquidation to $100 per share):
Not subject to mandatory redemption:
$4.00 series, 97,397 shares........................... 9,740 9,740
$6.72 series, 250,000 shares........................... 25,115 25,115
$7.52 series, 500,000 shares........................... 50,226 50,226
$8.12 series, 500,000 shares........................... 50,098 50,098
Series A - 1992, 500,000 shares........................... 49,094 49,098
Series B - 1992, 500,000 shares........................... 49,104 49,109
Series C - 1992, 600,000 shares........................... 58,984 58,984
Series D - 1992, 600,000 shares........................... 58,984 58,984
----------- -----------
Total................................................. 351,345 351,354
----------- -----------
Subject to mandatory redemption:
$8.50 series, 400,000 shares and 600,000 shares
at December 31, 1994 and 1993, respectively.............. 39,799 59,597
$9.375 series, 1,285,000 shares........................... 127,811 127,639
Current redemptions........................................ (45,700) (20,000)
----------- -----------
Total................................................. 121,910 167,236
----------- -----------
Total cumulative preferred stock.................... 473,255 518,590
----------- -----------
LONG-TERM DEBT:
First mortgage bonds:
5 1/4% series, due 1996.................................... 40,000 40,000
5 1/4% series, due 1997.................................... 40,000 40,000
6 3/4% series, due 1997.................................... 35,000 35,000
7 5/8% series, due 1997.................................... 150,000 150,000
6 3/4% series, due 1998.................................... 35,000 35,000
7 1/4% series, due 2001.................................... 50,000 50,000
9.15 % series, due 2021.................................... 160,000 160,000
8 3/4% series, due 2022.................................... 100,000 100,000
7 3/4% series, due 2023.................................... 250,000 250,000
7 1/2% series, due 2023.................................... 200,000 200,000
4.90 % pollution control series, due 2003.................. 16,600 16,600
7 % pollution control series, due 2008.................. 19,200 19,200
6 3/8% pollution control series, due 2012.................. 33,470 33,470
6 3/8% pollution control series, due 2012.................. 12,100 12,100
7 3/4% pollution control series, due 2015.................. 68,700 68,700
8 1/4% pollution control series, due 2015.................. 90,000 90,000
7 7/8% pollution control series, due 2016.................. 68,000 68,000
6.70 % pollution control series, due 2017.................. 43,820 43,820
5.60 % pollution control series, due 2017.................. 83,565 83,565
7 7/8% pollution control series, due 2018.................. 50,000 50,000
7.20 % pollution control series, due 2018.................. 175,000 175,000
8 1/4% pollution control series, due 2019.................. 100,000 100,000
8.10 % pollution control series, due 2019.................. 100,000 100,000
-66-
7 7/8% pollution control series, due 2019................ $ 29,685 $ 29,685
7.60 % pollution control series, due 2019................ 70,315 70,315
7.70 % pollution control series, due 2019................ 75,000 75,000
7 1/8% pollution control series, due 2019................ 100,000 100,000
7 5/8% pollution control series, due 2019................ 100,000 100,000
6.70 % pollution control series, due 2027................ 56,095 56,095
Medium-term notes series A, 9.80%-9.85%, due 1996-1999..... 180,500 200,000
Medium-term notes series B, 8 5/8%, due 1996............... 100,000 100,000
Medium-term notes series C, 6.10%, due 2000................ 150,000 150,000
Medium-term notes series B, 8.15%, due 2002................ 100,000 100,000
Medium-term notes series C, 6.50%, due 2003................ 150,000 150,000
----------- -----------
Total first mortgage bonds............................ 3,032,050 3,051,550
----------- -----------
Pollution control revenue bonds:
Gulf Coast 1980-T series, floating rate, due 1998.......... 5,000 5,000
Brazos River 1985 A2 series, 9 3/4%, due 2005.............. 4,265 4,265
Brazos River 1985 A1 series, 9 7/8%, due 2015.............. 87,680 87,680
Matagorda County 1985 series, 10%, due 2015................ 58,905 58,905
----------- -----------
Total pollution control revenue bonds................. 155,850 155,850
----------- -----------
Unamortized premium (discount) - net........................... (12,253) (12,839)
Capitalized lease obligations, discount rates of
5.2%-11.7%, due 1995-2018.................................... 12,403 17,825
Notes payable.................................................. 1,129 2,410
----------- -----------
Subtotal.............................................. 1,279 7,396
----------- -----------
Total............................................... 3,189,179 3,214,796
Current maturities.................................. (3,775) (24,725)
----------- -----------
Total long-term debt................................ 3,185,404 3,190,071
----------- -----------
Total capitalization.............................. $ 7,487,695 $ 7,413,512
=========== ===========
</TABLE>
See Notes to Financial Statements.
-67-
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1994 1993 1992
------------ ------------ ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................... $ 486,764 $ 484,223 $ 509,462
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .............. 398,142 385,731 371,645
Amortization of nuclear fuel ............... 21,561 2,101 29,237
Deferred income taxes ...................... 81,739 214,369 73,943
Investment tax credit ...................... (19,416) (19,797) (19,926)
Allowance for other funds used during
construction ............................ (4,115) (3,512) (6,169)
Fuel cost (refund) and over/(under)
recovery - net ......................... 277,940 (91,863) (84,072)
Cumulative effect of change in accounting
for revenues ............................ (94,180)
Cumulative effect of change in accounting
for postemployment benefits ............. 8,200
Restructuring .............................. 86,431
Regulatory asset - net ..................... 11,300 (69,337) (12,180)
Changes in other assets and liabilities:
Accounts receivable - net ............... (17,827) 170,784 14,633
Materials and supplies .................. 12,449 3,850 10,791
Fuel stock .............................. 1,874 9,979 (1,542)
Accounts payable ........................ 80,778 (11,854) 13,235
Interest and taxes accrued .............. (127,812) (20,035) (24,610)
Other current liabilities ............... (4,936) 18,040 (54,694)
Other - net ............................. 20,270 63,721 41,382
------------ ------------ ---------
Net cash provided by operating activities 1,226,911 1,136,400 853,386
------------ ------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) .................. (418,453) (332,797) (343,273)
Other - net ................................... (15,822) (13,067) (10,668)
------------ ------------ ---------
Net cash used in investing activities ...... (434,275) (345,864) (353,941)
------------ ------------ ---------
-68-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from preferred stock ................. $ 216,700
Proceeds from first mortgage bonds ............ $ 840,427 488,760
Payment of matured bonds ...................... $ (19,500) (136,000) (157,000)
Payment of dividends .......................... (363,083) (378,528) (386,049)
Increase (decrease) in notes payable .......... (171,100) 31,660 139,440
Increase (decrease) in notes payable to
affiliated company ......................... (120,001) 19,000
Redemption of preferred stock ................. (20,000) (40,000) (103,000)
Extinguishment of long-term debt .............. (995,751) (717,912)
Other - net ................................... 4,501 15,817 (5,997)
------------ ------------ ---------
Net cash used in financing activities ...... (569,182) (782,376) (506,058)
------------ ------------ ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .............................. 223,454 8,160 (6,613)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ... 12,413 4,253 10,866
------------ ------------ ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......... $ 235,867 $ 12,413 $ 4,253
============ ============ =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized) ......... $ 251,245 $ 296,201 $ 341,921
Income taxes .................................. 196,655 127,713 153,010
</TABLE>
See Notes to Financial Statements.
-69-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) SYSTEM OF ACCOUNTS AND EFFECTS OF REGULATION. The accounting records of
Houston Lighting & Power Company (HL&P), the principal subsidiary of
Houston Industries Incorporated (Company), are maintained in accordance
with the Federal Energy Regulatory Commission's (FERC) Uniform System of
Accounts. HL&P's accounting practices are subject to regulation by the
Public Utility Commission of Texas (Utility Commission), which has
adopted the FERC system of accounts.
As a result of Utility Commission regulation, HL&P follows the
accounting set forth in Statement of Financial Accounting Standards
(SFAS) No. 71 "Accounting for the Effects of Certain Types of
Regulation". This statement requires a rate-regulated entity to reflect
the effects of regulatory decisions in its financial statements. In
accordance with the statement, the Company has deferred certain costs
pursuant to rate actions of the Utility Commission and is recovering or
expects to recover such costs in electric rates charged to customers.
The regulatory assets are included in plant held for future use and
other assets on the Company's Consolidated and HL&P's Balance Sheets.
The regulatory liabilities are included in deferred credits on the
Company's Consolidated and HL&P's Balance Sheets. In the event the
Company is no longer able to apply SFAS No. 71 due to future changes in
regulation or competition, the Company's ability to recover these assets
and/or liabilities may not be assured.
Following are significant regulatory assets and liabilities:
December 31, 1994
---------------------
(Millions of Dollars)
Deferred plant costs - net............................ $ 639
Malakoff Electric Generating Station (Malakoff)
investment.......................................... 252
Regulatory tax asset - net............................ 235
Unamortized loss on reacquired debt................... 117
Deferred debits....................................... 105
Unamortized investment tax credit..................... (412)
Accumulated deferred income taxes - regulatory tax
asset.............................................. (82)
(b) PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany transactions and balances are eliminated in
consolidation except for, prior to 1993, sales of accounts receivable to
Houston Industries Finance, Inc. (Houston
-70-
Industries Finance), a former subsidiary of the Company, which were not
eliminated because of the distinction for regulatory purposes between
utility and non-utility operations. In January 1993, Houston Industries
Finance sold the receivables back to the respective subsidiaries and
ceased operations. HL&P is now selling its accounts receivable and most
of its accrued unbilled revenues to a third party.
Investments in affiliates in which the Company has a 20 percent to 50
percent interest, or a lesser percent in which the Company has
management influence, which include the investments in Paragon
Communications (Paragon) and Empresa Distribuidora La Plata S.A.
(EDELAP), are recorded using the equity method of accounting. See
Note 7.
(c) ELECTRIC PLANT. Additions to electric plant, betterments to existing
property and replacements of units of property are capitalized at cost.
Cost includes the original cost of contracted services, direct labor and
material, indirect charges for engineering supervision and similar
overhead items and an Allowance for Funds Used During Construction
(AFUDC). Customer payments for construction reduce additions to electric
plant.
HL&P computes depreciation using the straight-line method. The
depreciation provision as a percentage of the depreciable cost of plant
was 3.2 percent for 1994, 3.1 percent for 1993 and 3.2 percent for 1992.
(d) CABLE TELEVISION PROPERTY. KBLCOM Incorporated (KBLCOM), the Company's
cable television subsidiary, records additions to property at cost,
which include amounts for material, labor, overhead and interest.
Depreciation is computed using the straight-line method. Depreciation as
a percentage of the depreciable cost of property was 11.3 percent for
1994 and 1993, and 12.1 percent for 1992. Expenditures for maintenance
and repairs are expensed as incurred. In January 1995, Time Warner Inc.
(Time Warner) and the Company reached an agreement under which Time
Warner will acquire KBLCOM. For a discussion of the agreement, see Note
21(a).
(e) CABLE TELEVISION FRANCHISES AND INTANGIBLE ASSETS. The acquisition cost
in excess of the fair market value of the tangible assets and
liabilities is recorded on KBLCOM's and the Company's Consolidated
Balance Sheets as cable television franchises and intangible assets.
Such amounts are amortized over periods ranging from 8 to 40 years on a
straight-line basis. KBLCOM periodically reviews the carrying value of
cable television franchises and intangible assets in relation to current
and expected operating results of the business in order to assess
whether there has been a permanent impairment of such amounts.
(f) DEFERRED PLANT COSTS. The Utility Commission authorized deferred
accounting treatment for certain costs related to the South Texas
Project Electric Generating Station (South Texas Project) in two
contexts. The first was "deferred accounting" where HL&P was permitted
to continue to accrue carrying costs in the form of AFUDC and defer and
capitalize depreciation and other operating costs on its investment in
the South Texas Project until such costs were reflected in rates. The
second was the "qualified phase-in plan" where HL&P was permitted to
capitalize as deferred charges allowable costs, including return,
deferred for future recovery under the approved plan. The accumulated
deferrals for "deferred accounting" and "qualified
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phase-in plan" are being recovered over the estimated depreciable life
of the South Texas Project and within the ten year phase-in period,
respectively. The amortization of these deferrals totaled $25.8 million
for each of the years 1994, 1993, and 1992 and is included on the
Company's Statements of Consolidated Income and HL&P's Statements of
Income in depreciation and amortization expense. Under the terms of the
settlement agreement regarding the issues raised in Docket Nos. 12065
and 13126 (Proposed Settlement), see Note 3, the South Texas Project
deferrals will continue to be amortized using the schedules discussed
above.
(g) REVENUES. HL&P records electricity sales under the full accrual method,
whereby unbilled electricity sales are estimated and recorded each month
in order to better match revenues with expenses. Prior to January 1,
1992, electric revenues were recognized as bills were rendered (see
Note 6).
Cable television revenues are recognized as the services are provided to
subscribers, and advertising revenues are recorded when earned.
(h) INCOME TAXES. The Company follows a policy of comprehensive interperiod
income tax allocation. Investment tax credits are deferred and amortized
over the estimated lives of the related property.
(i) EARNINGS PER COMMON SHARE. Earnings per common share for the Company are
computed by dividing net income by the weighted average number of shares
outstanding during the respective period.
In the third quarter of 1994, the Company adopted the American Institute
of Certified Public Accountants Statement of Position 93-6 (SOP 93-6),
"Employers' Accounting for Employee Stock Ownership Plans," effective
January 1, 1994. Pursuant to the adoption of SOP 93-6, the number of
weighted average common shares outstanding reflects a reduction for
Employee Stock Ownership Plan (ESOP) shares not yet committed for
release to savings plan participants (unallocated shares). In accordance
with SOP 93-6, earnings per common share for periods prior to January 1,
1994 have not been restated. The unallocated shares as of December 31,
1994 and 1993, were 7,770,313 and 8,317,649, respectively. See also Note
12(b).
(j) STATEMENTS OF CONSOLIDATED CASH FLOWS. For purposes of reporting cash
flows, cash equivalents are considered to be short-term, highly liquid
investments readily convertible to cash.
(k) RECLASSIFICATION. Certain amounts from the previous years have been
reclassified to conform to the 1994 presentation of financial
statements. Such reclassifications do not affect earnings.
(2) JOINTLY-OWNED NUCLEAR PLANT
(a) HL&P INVESTMENT. HL&P is the project manager (and one of four co-owners)
of the South Texas Project, which consists of two 1,250 megawatt nuclear
generating units. HL&P has a 30.8 percent interest in the project and
bears a corresponding share of capital and operating
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costs associated with the project. As of December 31, 1994, HL&P's
investments (net of accumulated depreciation and amortization) in the
South Texas Project and in nuclear fuel, including AFUDC, were $2.1
billion and $99 million, respectively.
(b) UNITED STATES NUCLEAR REGULATORY COMMISSION (NRC) INSPECTIONS AND
OPERATIONS. Both generating units at the South Texas Project were out of
service from February 1993 to February 1994, when Unit No. 1 was
returned to service. Unit No. 2 was returned to service in May 1994.
HL&P removed the units from service in February 1993 when a problem was
encountered with certain of the units' auxiliary feedwater pumps.
In February 1995, the NRC removed the South Texas Project from its
"watch list" of plants with weaknesses that warranted increased NRC
attention. The NRC placed the South Texas Project on the "watch list" in
June 1993, following the issuance of a report by an NRC Diagnostic
Evaluation Team (DET) which conducted a review of the South Texas
Project operations.
Certain current and former employees of HL&P or contractors of HL&P have
asserted claims that their employment was terminated or disrupted in
retaliation for their having made safety-related complaints to the NRC.
Civil proceedings by the complaining personnel and administrative
proceedings by the Department of Labor remain pending against HL&P, and
the NRC has jurisdiction to take enforcement action against HL&P and/or
individual employees with respect to these matters. Based on its own
internal investigation, in October 1994 the NRC issued a notice of
violation and proposed a $100,000 civil penalty against HL&P in one such
case in which HL&P had terminated the site access of a former contractor
employee. In that action, the NRC also requested information relating to
possible further enforcement action in this matter against two HL&P
managers involved in such termination. HL&P strongly disagrees with the
NRC's conclusions, and has requested the NRC to give further
consideration of its notice. In February 1995, the NRC conducted an
enforcement conference with respect to that matter, but no result has
been received.
HL&P has provided documents and other assistance to a subcommittee of
the U. S. House of Representatives (Subcommittee) that is conducting an
inquiry related to the South Texas Project. Although the precise focus
and timing of the inquiry has not been identified by the Subcommittee,
it is anticipated that the Subcommittee will inquire into matters
related to HL&P's handling of employee concerns and to issues related to
the NRC's 1993 DET review of the South Texas Project. In connection with
that inquiry, HL&P has been advised that the U. S. General Accounting
Office (GAO) is conducting a review of the NRC's inspection process as
it relates to the South Texas Project and other plants, and HL&P is
cooperating with the GAO in its investigation and with the NRC in a
similar review it has initiated. While no prediction can be made at this
time as to the ultimate outcome of these matters, the Company and HL&P
do not believe that they will have a material adverse effect on the
Company's or HL&P's financial condition or results of operations.
(c) LITIGATION WITH CO-OWNERS OF THE SOUTH TEXAS PROJECT. In February 1994,
the City of Austin (Austin), one of the four co-owners of the South
Texas Project, filed suit (Austin II Litigation) against HL&P. That suit
is pending in the 152nd District Court for Harris County, Texas, which
has set a trial date for October 1995. Austin alleges that the outages
at the South Texas
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Project from early 1993 to early 1994 were due to HL&P's failure to
perform obligations it owed to Austin under the Participation Agreement
among the four co-owners of the South Texas Project (Participation
Agreement). Austin also asserts that HL&P breached certain undertakings
voluntarily assumed by HL&P under the terms and conditions of the
Operating Licenses and Technical Specifications relating to the South
Texas Project. Austin claims that such failures have caused Austin
damages of at least $125 million due to the incurrence of increased
operating and maintenance costs, the cost of replacement power and lost
profits on wholesale transactions that did not occur. In May 1994, the
City of San Antonio (San Antonio), another co-owner of the South Texas
Project, intervened in the litigation filed by Austin against HL&P and
asserted claims similar to those asserted by Austin. San Antonio has not
identified the amount of damages it intends to seek from HL&P. HL&P is
contesting San Antonio's intervention and has called for arbitration of
San Antonio's claim under the arbitration provisions of the
Participation Agreement. The trial court has denied HL&P's requests, but
review of these decisions is currently pending before the 1st Court of
Appeals in Houston.
In a previous lawsuit (Austin I Litigation) filed in 1983 against the
Company and HL&P, Austin alleged that it had been fraudulently induced
to participate in the South Texas Project and that HL&P had failed to
perform properly its duties as project manager. In May 1993, the courts
entered a judgement in favor of the Company and HL&P, concluding, among
other things, that the Participation Agreement did not impose on HL&P a
duty to exercise reasonable skill and care as project manager. During
the course of the Austin I Litigation, San Antonio and Central Power and
Light Company (CPL), a subsidiary of Central and South West Corporation,
two of the co-owners in the South Texas Project, also asserted claims
for unspecified damages against HL&P as project manager of the South
Texas Project, alleging HL&P breached its duties and obligations. San
Antonio and CPL requested arbitration of their claims under the
Participation Agreement. In 1992, the Company and HL&P entered into a
settlement agreement with CPL (CPL Settlement) providing for CPL's
withdrawal of its demand for arbitration. San Antonio's claims for
arbitration remain pending. Under the Participation Agreement, San
Antonio's arbitration claims will be heard by a panel of five
arbitrators consisting of four arbitrators named by each co-owner and a
fifth arbitrator selected by the four appointed arbitrators.
Although the CPL Settlement did not directly affect San Antonio's
pending demand for arbitration, HL&P and CPL reached certain
understandings in such agreement which contemplated that: (i) CPL's
previously appointed arbitrator would be replaced by CPL; (ii)
arbitrators approved by CPL or HL&P in any future arbitrations would be
mutually acceptable to HL&P and CPL; and (iii) HL&P and CPL would
resolve any future disputes between them concerning the South Texas
Project without resorting to the arbitration provision of the
Participation Agreement. Austin and San Antonio have asserted in the
pending Austin II Litigation that such understandings have rendered the
arbitration provisions of the Participation Agreement void and that
neither Austin nor San Antonio should be required to participate in or
be bound by such proceedings.
Although HL&P and the Company do not believe there is merit to either
Austin's or San Antonio's claims and have opposed San Antonio's
intervention in the Austin II Litigation, there can be no assurance as
to the ultimate outcome of these matters.
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(d) NUCLEAR INSURANCE. HL&P and the other owners of the South Texas Project
maintain nuclear property and nuclear liability insurance coverage as
required by law and periodically review available limits and coverage
for additional protection. The owners of the South Texas Project
currently maintain the maximum amount of property damage insurance
currently available through the insurance industry, consisting of $500
million in primary property damage insurance and excess property
insurance in the amount of $2.25 billion. Under the excess property
insurance which became effective on March 1, 1995 and under portions of
the excess property insurance coverage in effect prior to March 1, 1995,
HL&P and the other owners of the South Texas Project are subject to
assessments, the maximum aggregate assessment under current policies
being $26.9 million during any one policy year. The application of the
proceeds of such property insurance is subject to the priorities
established by the NRC regulations relating to the safety of licensed
reactors and decontamination operations.
Pursuant to the Price Anderson Act (Act), the maximum liability to the
public for owners of nuclear power plants, such as the South Texas
Project, was decreased from $9.0 billion to $8.92 billion effective in
November 1994. Owners are required under the Act to insure their
liability for nuclear incidents and protective evacuations by
maintaining the maximum amount of financial protection available from
private sources and by maintaining secondary financial protection
through an industry retrospective rating plan. The assessment of
deferred premiums provided by the plan for each nuclear incident is up
to $75.5 million per reactor subject to indexing for inflation, a
possible 5 percent surcharge (but no more than $10 million per reactor
per incident in any one year) and a 3 percent state premium tax. HL&P
and the other owners of the South Texas Project currently maintain the
required nuclear liability insurance and participate in the industry
retrospective rating plan.
There can be no assurance that all potential losses or liabilities will
be insurable, or that the amount of insurance will be sufficient to
cover them. Any substantial losses not covered by insurance would have a
material effect on HL&P's and the Company's financial condition.
(e) NUCLEAR DECOMMISSIONING. HL&P and the other co-owners of the South Texas
Project are required by the NRC to meet minimum decommissioning funding
requirements to pay the costs of decommissioning the South Texas
Project. Pursuant to the terms of the order of the Utility Commission in
Docket No. 9850, HL&P is currently funding decommissioning costs for the
South Texas Project with an independent trustee at an annual amount of
$6 million, which is recorded in depreciation and amortization expense.
HL&P's funding level is estimated to provide approximately $146 million,
in 1989 dollars, an amount which exceeds the current NRC minimum.
The Company adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective January 1, 1994. At December 31,
1994, the securities held in the Company's nuclear decommissioning trust
totaling $25.1 million (reflected on the Company's Consolidated and
HL&P's Balance Sheets in deferred debits and deferred credits) are
classified as available for sale. Such securities are reported on the
balance sheets at fair value, which at December 31, 1994 approximates
cost, and any unrealized gains or losses will be reported as a separate
component of common stock equity. Earnings, net of taxes and
administrative costs, are reinvested in the funds.
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In May 1994, an outside consultant estimated HL&P's portion of
decommissioning costs to be approximately $318 million, in 1994 dollars.
The consultant's calculation of decommissioning costs for financial
planning purposes used the DECON methodology (prompt
removal/dismantling), one of the three alternatives acceptable to the
NRC, and assumed deactivation of Unit Nos. 1 and 2 upon the expiration
of their 40 year operating licenses. Under the terms of the Proposed
Settlement, HL&P would increase funding of decommissioning costs to an
annual amount of approximately $14.8 million consistent with such study.
While the current and projected funding levels presently exceed minimum
NRC requirements, no assurance can be given that the amounts held in
trust will be adequate to cover the actual decommissioning costs of the
South Texas Project or the assumptions used in estimating
decommissioning costs will ultimately prove to be correct.
(3) RATE REVIEW, FUEL RECONCILIATION AND OTHER PROCEEDINGS
In February 1994, the Utility Commission initiated a proceeding (Docket
No. 12065) to determine whether HL&P's existing rates are just and
reasonable. Subsequently, the scope of the docket was expanded to
include reconciliation of HL&P's fuel costs from April 1, 1990 to July
31, 1994. The Utility Commission also initiated a separate proceeding
(Docket No. 13126) to review issues regarding the prudence of operation
of the South Texas Project from the date of commercial operation through
the present. That review would encompass the outage at the South Texas
Project during 1993 through 1994.
Hearings began in Docket No. 12065 in January 1995, and the Utility
Commission has retained a consultant to review the South Texas Project
for the purpose of providing testimony in Docket No. 13126 regarding the
prudence of HL&P's management of operation of the South Texas Project.
In February 1995, all major parties to these proceedings signed the
Proposed Settlement resolving the issues with respect to HL&P, including
the prudence issues related to operation of the South Texas Project.
Approval of the Proposed Settlement by the Utility Commission will be
required. To that end, the parties have established procedural dates for
a hearing on issues raised by the parties who are opposed to the
Proposed Settlement. A decision by the Utility Commission on the
Proposed Settlement is not anticipated before early summer.
Under the Proposed Settlement, HL&P's base rates would be reduced by
approximately $62 million per year, effective retroactively to January
1, 1995, and rates would be frozen for three years, subject to certain
conditions. Under the Proposed Settlement, HL&P would amortize its
remaining investment of $218 million in the cancelled Malakoff plant
over a period not to exceed seven years. HL&P also would increase its
decommissioning expense for the South Texas Project by $9 million per
year.
Under the Proposed Settlement, approximately $70 million of fuel
expenditures and related interest incurred by HL&P during the fuel
reconciliation period would not be recoverable from ratepayers. This $70
million was recorded as a one-time, pre-tax charge to reconcilable fuel
revenues to reflect the anticipation of approval of the Proposed
Settlement. HL&P also would establish a new fuel factor approximately 17
percent below that currently in effect and would
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refund to customers the balance in its fuel over-recovery account,
estimated to be approximately $180 million after giving effect to the
amounts not recoverable from ratepayers.
HL&P recovers fuel costs incurred in electric generation through a fixed
fuel factor that is set by the Utility Commission. The difference
between fuel revenues billed pursuant to such factor and fuel expense
incurred is recorded as an addition to or a reduction of revenue, with a
corresponding entry to under- or over-recovered fuel, as appropriate.
Amounts collected pursuant to the fixed fuel factor must be reconciled
periodically against actual, reasonable costs as determined by the
Utility Commission. Currently, HL&P has an over-recovery fuel account
balance that will be refunded pursuant to the Proposed Settlement.
In the event that the Proposed Settlement is not approved by the Utility
Commission, including issues related to the South Texas Project, Docket
No. 12065 will be remanded to an Administrative Law Judge (ALJ) to
resume detailed hearings in this docket. Prior to reaching agreement on
the terms of the Proposed Settlement, HL&P argued that its existing
rates were just and reasonable and should not be reduced. Other parties
argued that rate decreases in annual amounts ranging from $26 million to
$173 million were required and that additional decreases might be
justified following an examination of the prudence of the management of
the South Texas Project and the costs incurred in connection with the
outages at the South Texas Project. Testimony filed by the Utility
Commission staff included a recommendation to remove from rate base $515
million of HL&P's investment in the South Texas Project to reflect the
staff's view that such investment was not fully "used and useful" in
providing service, a position HL&P vigorously disputes.
In the event the Proposed Settlement is not approved by the Utility
Commission, the fuel reconciliation issues in Docket Nos. 12065 and
13126 would be remanded to an ALJ for additional proceedings. A major
issue in Docket No. 13126 will be whether the incremental fuel costs
incurred as a result of outages at the South Texas Project represent
reasonable costs. HL&P filed testimony in Docket No. 13126, which
testimony concluded that the outages at the South Texas Project did not
result from imprudent management. HL&P also filed testimony analyzing
the extent to which regulatory issues extended the outages. In that
testimony an outside consultant retained by HL&P concluded that the
duration of the outages was controlled by both the resolution of NRC
regulatory issues as well as necessary equipment repairs unrelated to
NRC regulatory issues and that the incremental effect of NRC regulatory
issues on the duration of the outages was only 39 days per unit.
Estimates as to the cost of replacement power may vary significantly
based on a number of factors, including the capacity factor at which the
South Texas Project might be assumed to have operated had it not been
out of service due to the outages. However, HL&P believes that applying
a reasonable range of assumptions would result in replacement fuel costs
of less than $10 million for the 39 day periods identified by HL&P's
consultant and less than $100 million for the entire length of the
outages. Any fuel costs determined to have been unreasonably incurred
would not be recoverable from customers and would be charged against the
Company's earnings.
Although the Company and HL&P believe that the Proposed Settlement is in
the best interest of HL&P, its ratepayers, and the Company and its
shareholders, no assurance can be given that (i) the Utility Commission
ultimately will approve the terms of the Proposed Settlement or
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(ii) in the event the Proposed Settlement is not approved and
proceedings against HL&P resumed, that the outcome of such proceedings
would be favorable to HL&P.
(4) APPEALS OF PRIOR UTILITY COMMISSION RATE ORDERS
Pursuant to a series of applications filed by HL&P in recent years, the
Utility Commission has granted HL&P rate increases to reflect in
electric rates HL&P's substantial investment in new plant construction,
including the South Texas Project. Although Utility Commission action on
those applications has been completed, judicial review of a number of
the Utility Commission orders is pending. In Texas, Utility Commission
orders may be appealed to a District Court in Travis County, and from
that Court's decision an appeal may be taken to the Court of Appeals for
the 3rd District at Austin (Austin Court of Appeals). Discretionary
review by the Supreme Court of Texas may be sought from decisions of the
Austin Court of Appeals. The pending appeals from the Utility Commission
orders are in various stages. In the event the courts ultimately reverse
actions of the Utility Commission in any of these proceedings, such
matters would be remanded to the Utility Commission for action in light
of the courts' orders. Because of the number of variables which can
affect the ultimate resolution of such matters on remand, the Company
and HL&P generally are not in a position at this time to predict the
outcome of the matters on appeal or the ultimate effect that adverse
action by the courts could have on the Company and HL&P. On remand, the
Utility Commission's action could range from granting rate relief
substantially equal to the rates previously approved to a reduction in
the revenues to which HL&P was entitled during the time the applicable
rates were in effect, which could require a refund to customers of
amounts collected pursuant to such rates. Judicial review has been
concluded or currently is pending on the final orders of the Utility
Commission described below.
(a) 1991 RATE CASE. In HL&P's 1991 rate case (Docket No. 9850), the Utility
Commission approved a non-unanimous settlement agreement providing for a
$313 million increase in HL&P's base rates, termination of deferrals
granted with respect to Unit No. 2 of the South Texas Project and of the
qualified phase-in plan deferrals granted with respect to Unit No. 1 of
the South Texas Project, and recovery of deferred plant costs. The
settlement authorized a 12.55 percent return on common equity for HL&P.
Rates contemplated by the settlement agreement were implemented in May
1991 and remain in effect (subject to the outcome of the current rate
proceeding described in Note 3).
The Utility Commission's order in Docket No. 9850 was affirmed on review
by a District Court, and the Austin Court of Appeals affirmed that
decision on procedural grounds due to the failure of the appellant to
file the record with the court in a timely manner. On review, the Texas
Supreme Court has remanded the case to the Austin Court of Appeals for
consideration of the appellant's challenges to the Utility Commission's
order, which include issues regarding deferred accounting, the treatment
of federal income tax expense and certain other matters. As to federal
tax issues, a recent decision of the Austin Court of Appeals, in an
appeal involving GTE-SW (and to which HL&P was not a party), held that
when a utility pays federal income taxes as part of a consolidated
group, the utility's ratepayers are entitled to a fair share of the tax
savings actually realized, which can include savings resulting from
unregulated activities. The
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Texas Supreme Court has agreed to hear an appeal of that decision, but
on points not involving the federal income tax issues, though tax issues
could be decided in such opinion.
Because the Utility Commission's order in Docket No. 9850 found that
HL&P would have been entitled to rate relief greater than the $313
million agreed to in the settlement, HL&P believes that any disallowance
that might be required if the court's ruling in the GTE decision were
applied in Docket No. 9850 would be offset by that greater amount.
However, that amount may not be sufficient if the Austin Court of
Appeals also concludes that the Utility Commission's inclusion of
deferred accounting costs in the settlement was improper. For a
discussion of the Texas Supreme Court's decision on deferred accounting
treatment, see Note 4(c). Although HL&P believes that it could
demonstrate entitlement to rate relief equal to that agreed to in the
stipulation in Docket No. 9850, HL&P cannot rule out the possibility
that a remand and reopening of that settlement would be required if
decisions unfavorable to HL&P are rendered on both the deferred
accounting treatment and the calculation of tax expense for rate making
purposes.
The parties to the Proposed Settlement have agreed to withdraw their
appeals of the Utility Commission's orders in such docket, subject to
HL&P's dismissing its appeal in Docket No. 6668.
(b) 1988 RATE CASE. In HL&P's 1988 rate case (Docket No. 8425), the Utility
Commission granted HL&P a $227 million increase in base revenues,
allowed a 12.92 percent return on common equity, authorized a qualified
phase-in plan for Unit No. 1 of the South Texas Project (including
approximately 72 percent of HL&P's investment in Unit No. 1 of the South
Texas Project in rate base) and authorized HL&P to use deferred
accounting for Unit No. 2 of the South Texas Project. Rates
substantially corresponding to the increase granted were implemented by
HL&P in June 1989 and remained in effect until May 1991.
In August 1994, the Austin Court of Appeals affirmed the Utility
Commission's order in Docket No. 8425 on all matters other than the
Utility Commission's treatment of tax savings associated with deductions
taken for expenses disallowed in cost of service. The court held that
the Utility Commission had failed to require that such tax savings be
passed on to ratepayers, and ordered that the case be remanded to the
Utility Commission with instructions to adjust HL&P's cost of service
accordingly. Discretionary review is being sought from the Texas Supreme
Court by all parties to the proceeding.
The parties to the Proposed Settlement have agreed to dismiss their
respective appeals of Docket No. 8425, subject to HL&P's dismissing its
appeal in Docket No. 6668. A separate party to this appeal, however, has
not agreed to dismiss its appeal.
(c) DEFERRED ACCOUNTING. Deferred accounting treatment for certain costs
associated with Unit No. 1 of the South Texas Project was authorized by
the Utility Commission in Docket No. 8230 and was extended in Docket No.
9010. Similar deferred accounting treatment with respect to Unit No. 2
of the South Texas Project was authorized in Docket No. 8425. For a
discussion of the deferred accounting treatment granted, see Note 1(f).
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In June 1994, the Texas Supreme Court decided the appeal of Docket Nos.
8230 and 9010, as well as all other pending deferred accounting cases
involving other utilities, upholding deferred accounting treatment for
both carrying costs and operation and maintenance expenses as within the
Utility Commission's statutory authority and reversed the Austin Court
of Appeals decision to the extent that the Austin Court of Appeals had
rejected deferred accounting treatment for carrying charges. Because the
lower appellate court had upheld deferred accounting only as to
operation and maintenance expenses, the Texas Supreme Court remanded
Docket Nos. 8230 and 9010 to the Austin Court of Appeals to consider the
points of error challenging the granting of deferred accounting for
carrying costs which it had not reached in its earlier consideration of
the case. The Texas Supreme Court opinion did state, however, that when
deferred costs are considered for addition to the utility's rate base in
an ensuing rate case, the Utility Commission must then determine to what
extent inclusion of the deferred costs is necessary to preserve the
utility's financial integrity. Under the terms of the Proposed
Settlement, South Texas Project deferrals will continue to be amortized
under the schedule previously established.
The Office of the Public Utility Counsel (OPUC) has agreed, pursuant to
the Proposed Settlement, to withdraw and dismiss its appeal if the
Proposed Settlement becomes effective and on the condition that HL&P
dismisses its appeal in Docket No. 6668. However, the appeal of the
State of Texas remains pending.
(d) PRUDENCE REVIEW OF THE CONSTRUCTION OF THE SOUTH TEXAS PROJECT. In June
1990, the Utility Commission ruled in a separate docket (Docket No.
6668) that had been created to review the prudence of HL&P's planning
and construction of the South Texas Project that $375.5 million out of
HL&P's $2.8 billion investment in the two units of the South Texas
Project had been imprudently incurred. That ruling was incorporated into
HL&P's 1988 and 1991 rate cases and resulted in HL&P's recording an
after-tax charge of $15 million in 1990. Several parties appealed the
Utility Commission's decision, but a District Court dismissed these
appeals on procedural grounds. The Austin Court of Appeals reversed and
directed consideration of the appeals, and the Texas Supreme Court
denied discretionary review in 1994. At this time, no action has been
taken by the appellants to proceed with the appeals. Unless the order in
Docket No. 6668 is modified or reversed on appeal, the amount found
imprudent by the Utility Commission will be sustained.
Under the Proposed Settlement, OPUC, HL&P and the City of Houston each
has agreed to dismiss its respective appeals of Docket No. 6668. A
separate party to this appeal, however, has not agreed to dismiss its
appeal. If this party does not elect to dismiss its appeal, HL&P may
elect to maintain its appeal, whereupon OPUC and City of Houston shall
also be entitled to maintain their appeals.
(5) MALAKOFF
The scheduled in-service dates for the Malakoff units were postponed
during the 1980's as expectations of continued strong load growth were
tempered. In 1987, all developmental work was stopped and AFUDC accruals
ceased. These units have been cancelled due to the availability of other
cost effective resource options.
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In Docket No. 8425, the Utility Commission allowed recovery of certain
costs associated with the cancelled Malakoff units by amortizing those
costs over ten years for rate making purposes. Such recoverable costs
were not included in rate base and, as a result, no return on investment
is being earned during the recovery period. The remaining balance at
December 31, 1994 is $34 million with a recovery period of 66 months.
Also as a result of the final order in Docket No. 8425, the costs
associated with the engineering design work for the Malakoff units were
included in rate base and are earning a return. Subsequently, in
December 1992, HL&P determined that such costs would have no future
value and reclassified $84.1 million from plant held for future use to
recoverable project costs. In 1993, an additional $7 million was
reclassified to recoverable project costs. Amortization of these amounts
began in 1993. The balance at December 31, 1994 was $65 million with a
remaining recovery period of 60 months. The amortization amount is
approximately equal to the amount currently earning a cash return in
rates. The Utility Commission's decision to allow treatment of these
costs as plant held for future use has been challenged in the pending
appeal of the Docket No. 8425 final order. See Note 4(b) for a
discussion of this proceeding.
In June 1990, HL&P purchased from its then fuel supply affiliate,
Utility Fuels, Inc. (Utility Fuels), all of Utility Fuels' interest in
the lignite reserves and lignite handling facilities for Malakoff. The
purchase price was $138.2 million, which represented the net book value
of Utility Fuels' investment in such reserves and facilities. As part of
the June 1990 rate order (Docket No. 8425), the Utility Commission
ordered that issues related to the prudence of the amounts invested in
the lignite reserves be considered in HL&P's next general rate case
which was filed in November 1990 (Docket No. 9850). However, under the
October 1991 Utility Commission order in Docket No. 9850, this
determination was postponed to a subsequent docket.
HL&P's remaining investment in Malakoff lignite reserves as of December
31, 1994 of $153 million is included on the Company's Consolidated and
HL&P's Balance Sheets in plant held for future use. HL&P anticipates
that an additional $8 million of expenditures relating to lignite
reserves will be incurred in 1995 and 1996.
In Docket No. 12065, HL&P filed testimony in support of the amortization
of substantially all of its remaining investment in Malakoff, including
the portion of the engineering design costs for which amortization had
not previously been authorized and the amount attributable to related
lignite reserves which had not previously been addressed by the Utility
Commission. Under the Proposed Settlement of Docket No. 12065, HL&P
would amortize its investment in Malakoff over a period not to exceed
seven years such that the entire investment will be written off no later
than December 31, 2002. See Note 3. In the event that the Utility
Commission does not approve the Proposed Settlement, and if appropriate
rate treatment of these amounts is not ultimately received, HL&P could
be required to write off any unrecoverable portions of its Malakoff
investment.
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(6) CHANGE IN ACCOUNTING METHOD FOR REVENUES
During the fourth quarter of 1992, HL&P adopted a change in accounting
method for revenues from a cycle billing to a full accrual method,
effective January 1, 1992. Unbilled revenues represent the estimated
amount customers will be charged for service received, but not yet
billed, as of the end of each month. The accrual of unbilled revenues
results in a better matching of revenues and expenses. The cumulative
effect of this accounting change, less income taxes of $48.5 million,
amounted to $94.2 million, and was included in 1992 income.
(7) INVESTMENTS
(a) CABLE TELEVISION PARTNERSHIP. A KBLCOM subsidiary owns a 50 percent
interest in Paragon, a Colorado partnership that owns cable television
systems. The remaining interest in the partnership is owned by American
Television and Communications Corporation (ATC), a subsidiary of Time
Warner. The partnership agreement provides that at any time after
December 31, 1993 either partner may elect to divide the assets of the
partnership under certain pre-defined procedures set forth in the
agreement. Paragon is party to a $225 million revolving credit agreement
with a group of banks. Paragon also has outstanding $50 million
principal amount of 9.56% senior notes, due 1995. In each case,
borrowings are non-recourse to the Company and to ATC. For a discussion
of the pending disposition of KBLCOM, see Note 21(a).
(b) FOREIGN ELECTRIC UTILITY. Houston Argentina S.A. (Houston Argentina), an
indirect subsidiary of the Company, owns a 32.5 percent interest in
Compania de Inversiones en Electricidad S. A. (COINELEC), an Argentine
holding company which acquired, in December 1992, a 51 percent interest
in EDELAP, an electric utility company operating in La Plata, Argentina
and surrounding regions. Houston Argentina's share of the purchase price
was approximately $37.4 million. Subsequent to the acquisition, the
generating assets of EDELAP were transferred to Central Dique S. A., an
Argentine Corporation, 51 percent of the stock of which is owned by
COINELEC. See Note 21(b) for discussion of an additional investment in
Argentina in January 1995.
(8) COMMON STOCK
(a) DIVIDENDS. In 1993, the timing of the Company's Board of Directors
declaration of dividends changed resulting in five quarterly dividend
declarations in 1993. The Company paid four regular quarterly dividends
in 1993 aggregating $3.00 per share on its common stock pursuant to
dividend declarations made in 1993. In December 1993, the Company
declared its regular quarterly dividend of $.75 per share to be paid in
March 1994. All dividends declared in 1993 have been included in 1993
common stock dividends on the Company's Statements of Consolidated
Retained Earnings and, with respect to the dividends declared in
December 1993, in dividends accrued at December 31, 1993 on the
Company's Consolidated Balance Sheets.
(b) LONG-TERM INCENTIVE COMPENSATION PLANS (LICP). In May 1989, the Company
adopted, with shareholder approval, an LICP (1989 LICP Plan), which
provided for the issuance of certain stock incentives (including
performance-based restricted shares and stock options). A maximum
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of 500,000 shares of common stock may be issued under the 1989 LICP
Plan. Beginning one year after the grant date, the options become
exercisable in one-third increments each year. The options expire ten
years from the grant date.
In May 1993, the Company adopted, with shareholder approval, a new LICP
(1994 LICP Plan), providing for the issuance of certain stock incentives
(including performance-based restricted shares and stock options) of the
general nature provided by the 1989 LICP Plan. A maximum of 2,000,000
shares of common stock may be issued under the 1994 LICP Plan. Beginning
one year after the grant date, the options will become exercisable in
one-third increments each year. The options expire ten years from the
grant date.
Performance-based restricted shares issued were 50,262, 73,282 and 790
for 1994, 1993 and 1992, respectively. Stock option activity for the
years 1992 through 1994 is summarized below:
Option Price at
Number Date of Grant
of Shares or Exercise
--------- ---------------
Non-statutory stock options:
Outstanding at December 31, 1991.............
Options Granted............................. 67,984 $43.50
Options Exercised...........................
Options Cancelled........................... (2,113)
Outstanding at December 31, 1992............. 65,871
Options Granted ............................ 65,776 $46.25
Options Exercised........................... (662) $43.50
Options Cancelled........................... (5,036)
Outstanding at December 31, 1993............. 125,949
Options Granted............................. 65,726 $46.50
Options Exercised...........................
Options Cancelled........................... (40,386)
Outstanding at December 31, 1994............. 151,289
Exercisable at:
December 31, 1994........................... 53,836 $43.50-$46.25
December 31, 1993........................... 21,430 $43.50
(c) SHAREHOLDER RIGHTS PLAN. In July 1990, the Company adopted a shareholder
rights plan and declared a dividend of one right for each outstanding
share of the Company's common stock. The rights, which under certain
circumstances entitle their holders to purchase one one-hundredth of a
share of Series A Preference Stock for an exercise price of $85, will
expire on July 11, 2000. The rights will become exercisable only if a
person or entity acquires 20 percent or more of the Company's
outstanding common stock or if a person or entity commences a tender
offer or exchange offer for 20 percent or more of the outstanding common
stock. At any
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time after the occurrence of such events, the Company may exchange
unexercised rights at an exchange ratio of one share of common stock, or
equity securities of the Company of equivalent value, per right. The
rights are redeemable by the Company for $.01 per right at any time
prior to the date the rights become exercisable.
When the rights become exercisable, each right will entitle the holder
to receive, in lieu of the right to purchase Series A Preference Stock,
upon the exercise of such right, a number of shares of the Company's
common stock (or under certain circumstances cash, property, other
equity securities or debt of the Company) having a current market price
(as defined in the plan) equal to twice the exercise price of the right,
except pursuant to an offer for all outstanding shares of common stock
which a majority of the independent directors of the Company determines
to be a price which is in the best interests of the Company and its
shareholders (Permitted Offer).
In the event that the Company is a party to a merger or other business
combination (other than a merger that follows a Permitted Offer), rights
holders will be entitled to receive, upon the exercise of a right, a
number of shares of common stock of the acquiring company having a
current market price (as defined in the plan) equal to twice the
exercise price of the right.
(d) ESOP. In October 1990, the Company amended its savings plan to add an
ESOP component. The ESOP component of the plan allows the Company to
satisfy a portion of its obligation to make matching contributions under
the plan. For additional information with respect to the ESOP component
of the plan, see Note 12(b).
(e) INVESTOR'S CHOICE PLAN. Effective December 1994, the Company registered
with the Securities and Exchange Commission four million shares of its
common stock for purchase through the new Investor's Choice Plan, which
is an amendment to the existing dividend reinvestment plan.
(9) PREFERRED STOCK OF HL&P
At December 31, 1994, HL&P's cumulative preferred stock could be
redeemed at the following per share prices, plus any unpaid accrued
dividends to the date of redemption:
Redemption
Series Price Per Share
------ ---------------
Not Subject to Mandatory Redemption:
$4.00........................................... $105.00
$6.72........................................... 102.51
$7.52........................................... 102.35
$8.12........................................... 102.25
Variable Term Preferred A (a)................... 100.00
Variable Term Preferred B (a)................... 100.00
Variable Term Preferred C (a)................... 100.00
Variable Term Preferred D (a)................... 100.00
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Subject to Mandatory Redemption:
$8.50 (b)....................................... $100.00
$9.375 (c)...................................... ---
(a) Rates for Variable Term Preferred stock as of December 31, 1994
were as follows:
Series Rate
------------------------- -----
Variable Term Preferred A 4.69%
Variable Term Preferred B 4.62%
Variable Term Preferred C 5.15%
Variable Term Preferred D 4.58%
(b) HL&P is required to redeem 200,000 shares of this series
annually beginning June 1, 1994.
(c) HL&P is required to redeem 257,000 shares annually beginning
April 1, 1995. This series is redeemable at the option of HL&P
at $100 per share beginning April 1, 1997.
In June 1994 and June 1993, HL&P redeemed 200,000 and 400,000 shares,
respectively, of its $8.50 cumulative preferred stock at $100 per share
pursuant to sinking fund provisions. Annual mandatory redemptions of
HL&P's preferred stock are $45.7 million in 1995 and 1996, and $25.7
million for 1997, 1998 and 1999.
(10) LONG-TERM DEBT
(a) HL&P. Sinking or improvement fund requirements of HL&P's first mortgage
bonds outstanding will be approximately $36 million for each of the
years 1995 through 1999. Of such requirements, approximately $34 million
for each of the years 1995 through 1999 may be satisfied by
certification of property additions at 100 percent of the requirements,
and the remainder through certification of such property additions at
166 2/3 percent of the requirements. Sinking or improvement fund
requirements for 1994 and prior years have been satisfied by
certification of property additions.
HL&P has agreed to expend an amount each year for replacements and
improvements in respect of its depreciable mortgaged utility property
equal to $1,450,000 plus 2 1/2 percent of net additions to such
mortgaged property made after March 31, 1948 and before July 1 of the
preceding year. Such requirement may be met with cash, first mortgage
bonds, gross property additions or expenditures for repairs or
replacements, or by taking credit for property additions at 100 percent
of the requirements. At the option of HL&P, but only with respect to
first mortgage bonds of a series subject to special redemption,
deposited cash may be used to redeem first mortgage bonds of such series
at the applicable special redemption price. The replacement fund
requirement to be satisfied in 1995 is approximately $288 million.
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The amount of HL&P's first mortgage bonds is unlimited as to issuance,
but limited by property, earnings, and other provisions of the Mortgage
and Deed of Trust dated as of November 1, 1944, between HL&P and South
Texas Commercial National Bank of Houston (Texas Commerce Bank National
Association, as Successor Trustee) and the supplemental indentures
thereto. Substantially all properties of HL&P are subject to liens
securing HL&P's long-term debt under the mortgage.
In January 1994, HL&P repaid at maturity $19.5 million principal amount
of Series A collateralized medium-term notes. HL&P's annual maturities
of long-term debt and minimum capital lease payments are approximately
$4 million in 1995, $154 million in 1996, $228 million in 1997, $40
million in 1998, and $171 million in 1999.
(b) KBLCOM AND SUBSIDIARIES. KBL Cable, Inc. (KBL Cable), a subsidiary of
KBLCOM, is a party to a $475.2 million revolving credit and letter of
credit facility agreement with annual mandatory commitment reductions
(which may require principal payments). At December 31, 1994, KBL Cable
had $76 million available under such credit facility. The credit
facility has scheduled reductions in March of each year until it is
terminated in March 1999. Loans have generally borne interest at an
interest rate of London Interbank Offered Rate plus an applicable
margin. The margin was .75% and .625% at December 31, 1994 and 1993,
respectively. The credit facility includes restrictions on dividends,
sales of assets and limitations on total indebtedness. The amount of
indebtedness outstanding at December 31, 1994 and 1993 was $364 million.
Commitment fees are required on the unused capacity of the credit
facility.
In October 1989, KBL Cable entered into interest rate swaps to
effectively fix the interest rate on $375 million of loans under the
bank credit facility. The objective of the swaps was to reduce the
financial exposure to increases in interest rates. Interest rate swaps
aggregating $75 million and $150 million terminated in October 1992 and
October 1994, respectively. As of December 31, 1994, KBL Cable had one
remaining interest rate swap terminating in 1996 which effectively fixes
the rate on $50 million of debt under the bank credit facility at 8.88%
plus the applicable margin. As of December 31, 1994 and 1993, the
effective interest rate on such debt was approximately 9.63%. The
differential to be paid or received under the swaps is accrued and is
recognized as interest expense or income over the term of the swap. KBL
Cable is exposed to risk of nonperformance by the other party to the
swap. However, KBL Cable does not anticipate nonperformance by the other
party.
As of December 31, 1994, KBL Cable had outstanding $62.5 million of
10.95% senior notes and $78.1 million of 11.30% senior subordinated
notes. Both series mature in 1999 with annual principal payments which
began in 1992. The agreement under which the notes were issued contains
restrictions and covenants similar to those contained in the KBL Cable
credit facility.
For a discussion of the pending disposition of KBLCOM, see Note 21(a).
(c) COMPANY. Consolidated annual maturities of long-term debt and minimum
capital lease payments for the Company are approximately $20 million in
1995, $430 million in 1996, $358 million in 1997, $181 million in 1998
and $313 million in 1999.
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(11) SHORT-TERM FINANCING
The interim financing requirements of the Company's operating
subsidiaries are met through short-term bank loans, the issuance of
commercial paper and short-term advances from the Company. The Company
and its subsidiaries had bank credit facilities aggregating $1 billion
at December 31, 1994 and $750 million at December 31, 1993, under which
borrowings are classified as short-term indebtedness. In March 1995, the
facilities aggregated $1.2 billion as a result of a $200 million
increase in the Company's bank credit facility. These bank facilities
limit total short-term borrowings and provide for interest at rates
generally less than the prime rate. The Company's weighted average
short-term borrowing rates for commercial paper for the year ended
December 31, 1994 and 1993 were 4.35% and 3.45%, respectively.
Outstanding commercial paper was $423 million at December 31, 1994 and
$591 million at December 31, 1993. Facility fees are required on the
credit facilities. For a description of the bank credit facility of KBL
Cable, borrowings under which are classified as long-term debt or
current maturities of long-term debt, see Note 10(b).
(12) RETIREMENT PLANS
(a) PENSION. The Company has noncontributory retirement plans covering
substantially all employees. The plans provide retirement benefits based
on years of service and compensation. The Company's funding policy is to
contribute amounts annually in accordance with applicable regulations in
order to achieve adequate funding of projected benefit obligations. The
assets of the plans consist principally of common stocks and high
quality, interest-bearing obligations.
Net pension cost for the Company includes the following components:
Year Ended December 31,
----------------------------------
1994 1993 1992
--------- -------- ---------
(Thousands of Dollars)
Service cost - benefits earned
during the period ...................... $ 22,715 $ 25,932 $ 24,282
Interest cost on projected benefit
obligation ............................. 46,416 51,343 45,585
Actual (return) loss on plan assets ...... 5,402 (39,477) (26,934)
Net amortization and deferrals ........... (51,846) (557) (11,749)
--------- -------- ---------
Net pension cost ......................... $ 22,687 $ 37,241 $ 31,184
========= ======== =========
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The funded status of the Company's retirement plans was as follows:
December 31,
-------------------------
1994 1993
---------- ----------
(Thousands of Dollars)
Actuarial present value of:
Vested benefit obligation ....................... $ 443,200 $ 446,825
========== ==========
Accumulated benefit obligation .................. $ 476,347 $ 506,567
========== ==========
Plan assets at fair value ........................ $ 499,940 $ 491,759
Projected benefit obligation ..................... 638,312 655,593
---------- ----------
Assets less than projected benefit obligation .... (138,372) (163,834)
Unrecognized transitional asset .................. (15,340) (17,260)
Unrecognized prior service cost .................. 21,456 23,380
Unrecognized net loss ............................ 72,286 81,826
---------- ----------
Accrued pension cost ............................. $ (59,970) $ (75,888)
========== ==========
The projected benefit obligation was determined using an assumed
discount rate of 8.0 percent in 1994 and 7.25 percent in 1993. A
long-term rate of compensation increase ranging from 4.5 percent to 6.5
percent was assumed for 1994 and ranging from 3.9 percent to 6 percent
was assumed for 1993. The assumed long-term rate of return on plan
assets was 9.5 percent in 1994 and 1993. The transitional asset at
January 1, 1986, is being recognized over approximately 17 years, and
the prior service cost is being recognized over approximately 15 years.
(b) SAVINGS PLAN. The Company has an employee savings plan that qualifies as
cash or deferred arrangements under Section 401(k) of the Internal
Revenue Code of 1986, as amended (IRC). Under the plan, participating
employees may contribute a portion of their compensation, pre-tax or
after-tax, up to a maximum of 16 percent of compensation limited by an
annual deferral limit ($9,240 for calendar year 1994) prescribed by IRC
Section 402(g) and the IRC Section 415 annual additions limits. The
Company matches 70 percent of the first 6 percent of each employee's
compensation contributed, subject to a vesting schedule which entitles
the employee to a percentage of the matching contributions depending on
years of service. Substantially all of the Company's match is invested
in the Company's common stock.
In October 1990, the Company amended its savings plan to add a leveraged
ESOP component. The Company may use ESOP shares to satisfy its
obligation to make matching contributions under the savings plan. Debt
service on the ESOP loan is paid using all dividends on shares in the
ESOP, interest earnings on funds held in the ESOP and cash contributions
by the Company. Shares of the Company's common stock are released from
encumbrance of the ESOP loan based on the proportion of debt service
paid during the period.
In the third quarter of 1994, the Company adopted SOP 93-6 which
requires that the Company recognize benefit expense for the ESOP equal
to fair value of the ESOP shares committed to be released. Following the
adoption of SOP 93-6, the Company no longer reports the ESOP
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loan as a note receivable from the ESOP or recognizes interest income on
such receivable. The Company was instead required to establish a new
contra-equity account (unearned ESOP shares) which reflects shares not
yet committed for release at their original purchase price. As shares
are committed to be released, they are credited to the unearned ESOP
shares account based on the original purchase price of the shares. The
difference between the fair value of the shares at the time such shares
are committed for release and the original purchase price is charged or
credited to common stock. Dividends on allocated ESOP shares are
recorded as a reduction to retained earnings; dividends on unallocated
ESOP shares are recorded as a reduction of debt or accrued interest on
the ESOP loan. SOP 93-6 is effective only with respect to financial
statements for periods after January 1, 1994 and no restatement was
permitted for prior periods. At the time of adoption of SOP 93-6 in the
third quarter of 1994, earnings were reduced by $12.8 million. For a
discussion of the impact of SOP 93-6 on the earnings per common share
calculation, see Note 1(i).
The Company's savings plan benefit expense was $18.3 million, $17.3
million and $20.0 million in 1994, 1993 and 1992, respectively. HL&P's
portion of the savings plan expense was $16.5 million, $15.9 million and
$15.4 million in 1994, 1993 and 1992, respectively. The ESOP shares were
as follows:
December 31,
------------------------
1994 1993
--------- ---------
Allocated Shares......................... 1,575,543 1,031,187
Unallocated Shares....................... 7,770,313 8,317,649
--------- ---------
Total ESOP Shares.................... 9,345,856 9,348,836
========= =========
Fair value of unallocated ESOP shares ... $276,817,401 $396,128,034
(c) POSTRETIREMENT BENEFITS. The Company and HL&P adopted SFAS No. 106,
"Employer's Accounting for Postretirement Benefits Other Than Pensions,"
effective January 1, 1993. SFAS No. 106 requires companies to recognize
the liability for postretirement benefit plans other than pensions,
primarily health care. The Company and HL&P previously expensed the cost
of these benefits as claims were incurred. SFAS No. 106 allows
recognition of the transition obligation (liability for prior years'
service) in the year of adoption or to be amortized over the plan
participants' future service period. The Company and HL&P have elected
to amortize the estimated transition obligation of approximately $213
million (including $211 million for HL&P) over 22 years. In March 1993,
the Utility Commission adopted a rule governing the rate making
treatment of postretirement benefits other than pensions. This rule
provides for recovery in rate making proceedings (which, in HL&P's case,
has not occurred) of the cost of postretirement benefits calculated in
accordance with SFAS No. 106 including amortization of the transition
obligation. The Proposed Settlement of HL&P's pending rate proceeding
would require HL&P to fund during each year in an irrevocable external
trust the amount of postretirement benefit costs included in rates, a
total of approximately $22 million.
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The net postretirement benefit cost for the Company includes the
following components:
Year Ended December 31,
---------------------
1994 1993
------- -------
(Thousands of Dollars)
Service cost - benefits earned during
the period .............................. $ 9,131 $ 9,453
Interest cost on projected benefit
obligation .............................. 10,265 18,354
Actual return on plan assets ............. -- --
Net amortization and deferrals ........... 7,868 9,773
------- -------
Net postretirement benefit cost .......... $27,264 $37,580
======= =======
The funded status of the Company's postretirement benefit costs was as
follows:
December 31,
------------------------
1994 1993
--------- ----------
(Thousands of Dollars)
Accumulated benefit obligation:
Retirees ................................. $ (98,828) $ (130,336)
Fully eligible active plan participants .. (22,251) (22,913)
Other active plan participants ........... (23,378) (20,810)
--------- ----------
Total ................................... (144,457) (174,059)
Plan assets at fair value ................... -- --
--------- ----------
Assets less than accumulated benefit
obligation ................................. (144,457) (174,059)
Unrecognized transitional obligation ........ 193,500 203,273
Unrecognized net gain ....................... (91,477) (55,682)
--------- ----------
Accrued postretirement benefit cost ......... $ (42,434) $ (26,468)
========= ==========
For 1992, the Company recognized postretirement benefit costs other than
pensions on a "pay-as-you-go" basis. The Company made postretirement
benefit payments in 1992 of $8.6 million.
The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation in 1994 are as follows:
Medical - under 65 9.0%
Medical - 65 and over 10.0%
Dental 9.0%
The assumed health care rates gradually decline to 5.4 percent for both
medical categories and 3.7 percent for dental by the year 2001. The
accumulated postretirement benefit obligation was determined using an
assumed discount rate of 8.0 percent for 1994 and 7.25 percent for 1993.
If the health care cost trend rate assumptions were increased by 1
percent, the accumulated postretirement benefit obligation as of
December 31, 1994 would be increased by approximately 8 percent. The
annual effect of the 1 percent increase on the total of the service and
interest costs would be an increase of approximately 11 percent.
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(d) POSTEMPLOYMENT BENEFITS FOR THE COMPANY AND HL&P. The Company and HL&P
adopted SFAS No. 112, "Employer's Accounting for Postemployment
Benefits," effective January 1, 1994. SFAS No. 112 requires the
recognition of a liability for benefits, not previously accounted for on
the accrual basis, provided to former or inactive employees, their
beneficiaries and covered dependents, after employment but before
retirement. In the Company's and HL&P's case, this liability is
principally health care and life insurance benefits for participants in
the long-term disability plan. As required by SFAS No. 112, the Company
and HL&P expensed the transition obligation (liability from prior years)
upon adoption, and recorded a one-time, after-tax charge to income of
$8.2 million in the first quarter of 1994. Ongoing 1994 charges to
income were not material.
(13) INCOME TAXES
The Company and HL&P record income taxes under SFAS No. 109, which among
other things, (i) requires the liability method be used in computing
deferred taxes on all temporary differences between book and tax bases
of assets other than nondeductible goodwill; (ii) requires that deferred
tax liabilities and assets be adjusted for an enacted change in tax laws
or rates; and (iii) prohibits net-of-tax accounting and reporting. SFAS
No. 109 requires that regulated enterprises recognize such adjustments
as regulatory assets or liabilities if it is probable that such amounts
will be recovered from or returned to customers in future rates. KBLCOM
has significant temporary differences related to its 1986 and 1989
acquisitions of cable television systems, the tax effects of which were
recognized when SFAS No. 109 was adopted.
During 1993, federal tax legislation was enacted that changed the income
tax consequences for the Company and HL&P. The principal provision of
the new law which affected the Company and HL&P was the change in the
corporate income tax rate from 34 percent to 35 percent. A net
regulatory asset and the related deferred federal income tax liability
of $71.3 million were recorded by HL&P in 1993. The effect of the new
law, which decreased the Company's net income by $14.3 million, was
recognized as a component of income tax expense in 1993. The effect on
the Company's deferred taxes as a result of the change in the new law
was $10.9 million in 1993.
The Company's current and deferred components of income tax expense are
as follows:
Year Ended December 31,
------------------------------
1994 1993 1992
-------- -------- --------
(Thousands of Dollars)
Current................................ $150,493 $113,534 $130,360
Deferred............................... 68,120 117,584 34,249
-------- -------- --------
Income taxes before cumulative effect
of change in accounting.............. $218,613 $231,118 $164,609
======== ======== ========
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The Company's effective income tax rates are lower than statutory
corporate rates for each year as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1994 1993 1992
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Income before income taxes and cumulative
effect of change in accounting........... $626,074 $647,154 $505,096
Preferred dividends of subsidiary......... 33,583 34,473 39,327
-------- -------- --------
Total............................... 659,657 681,627 544,423
Statutory rate............................ 35% 35% 34%
-------- -------- --------
Income taxes at statutory rate............ 230,880 238,569 185,104
-------- -------- --------
Net reduction in taxes resulting from:
AFUDC - other included in income....... 1,440 1,229 2,097
Amortization of investment tax credit.. 19,821 20,185 19,950
Amortization of intangible assets...... (4,487) (4,389) (4,264)
Excess deferred taxes.................. 3,537 9,625 17,403
Difference between book and tax
depreciation for which deferred
taxes have not been normalized...... (15,455) (12,976) (13,466)
Other - net............................ 7,411 (6,223) (1,225)
-------- -------- --------
Total............................... 12,267 7,451 20,495
-------- -------- --------
Income taxes before cumulative effect of
change in accounting..................... $218,613 $231,118 $164,609
======== ======== ========
Effective rate............................ 33.1% 33.9% 30.2%
</TABLE>
-92-
Following are the Company's tax effects of temporary differences
resulting in deferred tax assets and liabilities:
December 31,
------------------------
1994 1993
---------- ----------
(Thousands of Dollars)
Deferred Tax Assets:
Alternative minimum tax .................. $ 60,932 $ 120,576
IRS audit assessment ..................... 74,966 74,966
Disallowed plant cost - net .............. 23,496 24,304
Loss and ITC carryforwards ............... 56,080 55,822
Other .................................... 83,740 68,503
---------- ----------
Total deferred tax assets .............. 299,214 344,171
Less valuation allowance ................. 57,919 57,661
---------- ----------
Total deferred tax assets - net ....... 241,295 286,510
---------- ----------
Deferred Tax Liabilities:
Depreciation ............................. 1,404,290 1,271,153
Identifiable intangibles ................. 244,636 236,476
Deferred plant costs - net ............... 207,746 215,472
Regulatory assets - net .................. 235,463 246,763
Capitalized taxes, employee benefits
and removal costs ....................... 110,476 110,252
Other .................................... 118,155 193,730
---------- ----------
Total deferred tax liabilities ........ 2,320,766 2,273,846
---------- ----------
Accumulated deferred income
taxes - net ........................ $2,079,471 $1,987,336
========== ==========
At December 31, 1994 pursuant to the acquisition of cable systems,
KBLCOM has unutilized Separate Return Limitation Year (SRLY) net
operating loss tax benefits of approximately $22.1 million and
unutilized SRLY investment tax credits of approximately $14.0 million
which expire in the years 1995 through 2008, and 1995 through 2003,
respectively. In addition, KBLCOM has unutilized restricted state loss
tax benefits of $20.0 million, which expire in the years 1995 through
2009, and unutilized minimum tax credits of $1.8 million. The Company
does not anticipate full utilization of these losses and tax credits
and, therefore, has established a valuation allowance. Utilization of
preacquisition carryforwards in the future would not affect income of
the Company and KBLCOM, but would be applied to reduce the carrying
value of cable television franchises and intangible assets.
(14) COMMITMENTS AND CONTINGENCIES
(a) HL&P. HL&P has various commitments for capital expenditures, fuel,
purchased power, cooling water and operating leases. Commitments in
connection with HL&P's capital program are generally revocable by HL&P
subject to reimbursement to manufacturers for expenditures incurred or
other cancellation penalties. HL&P's other commitments have various
quantity requirements and durations. However, if these requirements
could not be met, various alternatives are available to mitigate the
cost associated with the contracts' commitments.
-93-
HL&P has entered into several long-term coal, lignite and natural gas
contracts which have various quantity requirements and durations.
Minimum obligations for coal and transportation agreements are
approximately $169 million in 1995, $174 million in 1996 and $177
million in 1997. In addition, the minimum obligations under the lignite
mining and lease agreements will be approximately $19 million in 1995
and 1996 and $16 million in 1997. HL&P has entered into several gas
purchase agreements containing contract terms in excess of one year
which provide for specified purchase and delivery obligations. Minimum
obligations for natural gas purchase and natural gas storage contracts
are approximately $55.0 million in 1995, $56.6 million in 1996 and $38.2
million in 1997. Collectively, the gas supply contracts included in
these figures could amount to 11 percent of HL&P's annual natural gas
requirements. The Utility Commission's rules provide for recovery of the
coal, lignite and natural gas costs described above through the energy
component of HL&P's electric rates. Nuclear fuel costs are also included
in the energy component of HL&P's electric rates based on the cost of
nuclear fuel consumed in the reactor.
HL&P has commitments to purchase firm capacity from cogenerators of
approximately $32 million in 1995, and $22 million in 1996 and 1997. The
Utility Commission's rules allow recovery of these costs through HL&P's
base rates for electric service and additionally authorize HL&P to
charge or credit customers for any variation in actual purchased power
cost from the cost utilized to determine its base rates. In the event
that the Utility Commission, at some future date, does not allow
recovery through rates of any amount of purchased power payments, the
two principal firm capacity contracts contain provisions allowing HL&P
to suspend or reduce payments and seek repayment for amounts disallowed.
HL&P's service area is heavily dependent on oil, gas, refined products,
petrochemicals and related business. Significant adverse events
affecting these industries would negatively impact the revenues of the
Company and HL&P.
(b) KBLCOM COMMITMENTS AND OBLIGATIONS UNDER CABLE FRANCHISE AGREEMENTS.
KBLCOM and its subsidiaries presently have certain cable franchises
containing provisions for construction of cable plant and service to
customers within the franchise area. In connection with certain
obligations under existing franchise agreements, KBLCOM and its
subsidiaries obtain surety bonds and letters of credit guaranteeing
performance to municipalities and public utilities. Payment is required
only in the event of non-performance. KBLCOM and its subsidiaries have
fulfilled all of their obligations such that no payments have been
required.
-94-
<PAGE>
(15) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1994 1993
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments ..... $ 10,443 $ 10,443 $ 14,884 $ 14,884
Note receivable from ESOP<F1> ....... 332,489 421,468
Financial liabilities:
Short-term notes payable ............ 423,291 423,291 591,385 591,385
Cumulative preferred stock
(subject to mandatory redemption) .. 167,610 173,355 187,236 207,489
Debentures .......................... 548,729 549,532 548,544 616,672
Long-term debt of subsidiaries:
Electric:
First mortgage bonds .......... 3,020,400 2,980,028 3,039,343 3,360,442
Pollution control revenue bonds 155,247 163,736 155,218 174,094
Other notes payable ........... 1,129 1,129 2,410 2,410
Cable television:
Senior bank debt .............. 364,000 364,000 364,000 364,000
Senior and senior
subordinated notes .......... 140,580 154,654 150,964 180,890
Unrecognized financial instruments:
Interest rate swaps:
Net payable position ............. 1,019 13,604
<FN>
<F1> As a result of the Company adopting SOP 93-6 in 1994, a new contra-
equity account (unearned ESOP shares) has replaced the note receivable
from ESOP. See Note 12(b).
</FN>
</TABLE>
The fair values of cash and short-term investments, short-term and other
notes payable and bank debt are estimated to be equivalent to the
carrying amounts.
The fair values of the ESOP loan, the Company's debentures, HL&P's
cumulative preferred stock subject to mandatory redemption, HL&P's first
mortgage bonds, pollution control revenue bonds issued on behalf of HL&P
and KBL Cable senior and senior subordinated notes are estimated using
rates currently available for securities with similar terms and
remaining maturities.
-95-
<PAGE>
The fair value of interest rate swaps is the estimated amount that the
swap counterparties would receive or pay to terminate the swap
agreements, taking into account current interest rates and the current
creditworthiness of the swap counterparties.
(16) BUSINESS SEGMENT INFORMATION
The Company operates principally in two business segments: electric
utility and cable television. Financial information by business segment
is summarized as follows:
Year Ended December 31,
---------------------------------------------
1994 1993 1992
------------- ------------ ------------
(Thousands of Dollars)
Revenues:
Electric utility ............. $ 3,746,085 $ 4,079,863 $ 3,826,841
Cable television (a) ......... 255,772 244,067 235,258
------------- ------------ ------------
Total revenues ............ $ 4,001,857 $ 4,323,930 $ 4,062,099
============= ============ ============
Operating Income (Expense):
Electric utility (b) ......... $ 997,875 $ 1,005,750 $ 923,801
Cable television (a) ......... 15,007 17,830 19,394
Other operations ............. (1,057) (1,163) (1,327)
------------- ------------ ------------
Total operating income ..... 1,011,825 1,022,417 941,868
Other income ................. 11,198 47,882 43,789
Interest and other charges ... (396,949) (423,145) (480,561)
------------- ------------ ------------
Income before income taxes
and cumulative effect of
change in accounting .... $ 626,074 $ 647,154 $ 505,096
============= ============ ============
Depreciation and Amortization:
Electric utility ............. $ 398,142 $ 385,731 $ 371,645
Cable television (a) ......... 84,681 77,912 75,622
Other operations ............. 1,057 1,163 1,327
------------- ------------ ------------
Total depreciation and
amortization ............ $ 483,880 $ 464,806 $ 448,594
============= ============ ============
Identifiable Assets
(end of period):
Electric utility ............. $ 10,850,981 $ 10,753,616 $ 10,790,052
Cable television (a) ......... 1,510,052 1,372,595 1,345,770
Other operations ............. 189,225 141,542 328,231
Adjustments and eliminations . (256,111) (37,576) (42,386)
------------- ------------ ------------
Total assets .............. $ 12,294,147 $ 12,230,177 $ 12,421,667
============= ============ ============
Capital Expenditures:
Electric utility (excluding
AFUDC) ...................... $ 412,899 $ 329,016 $ 337,082
Cable television (a) ......... 84,166 60,385 44,306
Other (excluding capitalized
interest) ................... 44,704 61,830 1,625
------------- ------------ ------------
Total capital expenditures $ 541,769 $ 451,231 $ 383,013
============= ============ ============
-96-
(a) Amounts do not include amounts attributable to Paragon, which is
accounted for under the equity method, except identifiable assets
which includes net equity investment in Paragon.
(b) 1992 amount includes the effect of a charge of $86.4 million which
relates to HL&P's restructuring of operations as a result of the
implementation of the Success Through Excellence in Performance
(STEP) program (see Note 17 below).
(17) RESTRUCTURING
HL&P recorded a one-time, pre-tax charge of $86.4 million in the first
quarter of 1992 to reflect the implementation of the STEP program, a
restructuring of its operations. This charge includes $42 million
related to the acceptance of an early retirement plan by 468 employees
of HL&P, $31 million for severance benefits related to the elimination
of an additional 1,100 positions and $13 million in other costs
associated with the restructuring.
(18) CABLE TELEVISION ACQUISITION
In July 1994, KBLCOM acquired the stock of three cable companies then
serving approximately 48,000 customers in the Minneapolis area in
exchange for 587,646 shares of common stock of the Company valued at
approximately $20.1 million. The total purchase price of approximately
$80 million included the assumption of approximately $60 million in
liabilities. Notes were repaid in connection with the acquisition in
the amount of $57.7 million.
(19) RAILROAD SETTLEMENT PAYMENTS
In July 1994, HL&P contributed as equity its rights to receive certain
railroad settlement payments to HL&P Receivables, Inc. (HLPR), a
wholly-owned subsidiary of HL&P. HLPR transferred the receivables to a
trust. A bank purchased certificates evidencing a senior interest in
the trust and HLPR holds a certificate evidencing a subordinate
interest in the trust. HL&P received as a dividend from HLPR
approximately $66.1 million, an amount equal to HLPR's proceeds from
the sale. Consistent with the manner in which HL&P recorded receipts of
the settlement payments, HL&P recorded the transaction as a $66.1
million reduction to reconcilable fuel expense in July 1994. The
reduction to reconcilable fuel expense had no effect on earnings.
(20) UNAUDITED QUARTERLY INFORMATION
The following unaudited quarterly financial information includes, in
the opinion of management, all adjustments (which comprise only normal
recurring accruals) necessary for a fair presentation. Quarterly
results are not necessarily indicative of a full year's operations
because of seasonality and other factors, including rate increases and
variations in operating expense patterns.
-97-
Earnings
per
Operating Net Common
Quarter Ended Revenues Income Income Share (a)
------------- ---------- --------- -------- ---------
(Thousands of Dollars)
1993
----
March 31 ............... $ 865,959 $127,981 $ 27,055 $ 0.21
June 30 ................ 1,067,753 247,686 100,209 0.77
September 30 ........... 1,416,332 513,860 260,409 2.00
December 31 ............ 973,886 132,890 28,363 0.22
1994
----
March 31 ............... $ 882,101 $150,673 $ 25,898 $ 0.21
June 30 ................ 1,066,660 300,797 126,725 1.03
September 30 ........... 1,215,980 464,038 235,968 1.92
December 31 ............ 837,116 96,317 10,670 0.09
(a) Quarterly earnings per common share are based on the weighted
average number of shares outstanding during the quarter, and the
sum of the quarters may not equal annual earnings per common share.
(21) SUBSEQUENT EVENTS
(a) KBLCOM. On January 26, 1995, Time Warner and the Company reached an
agreement in which Time Warner would acquire KBLCOM in a tax-deferred,
stock-for-stock merger with a subsidiary of Time Warner for a sales
price of approximately $2.2 billion, subject to closing adjustments.
Time Warner will issue one million shares of Time Warner common stock
and 11 million shares of a newly-issued series of its convertible
preferred stock, which will have a liquidation value of $100 per share,
to the Company. The preferred stock will be convertible into
approximately 22.9 million shares of Time Warner common stock and,
until the earlier of conversion or the fourth anniversary of its
issuance, pays an annual dividend of $3.75 per share. After four years,
Time Warner will have the right to exchange the Time Warner preferred
stock for Time Warner common stock at the stated conversion rate. In
addition, at the closing Time Warner will purchase for cash certain
intercompany debt of KBLCOM from the Company for approximately $600
million subject to adjustment for changes in or levels of specified
indebtedness and liabilities, working capital, capital expenditures and
related items. Closing of this transaction, which is subject to, among
other things, (i) the parties obtaining necessary consents of certain
franchise authorities and other governmental entities, (ii) the absence
of any change that might have a material adverse effect on KBLCOM or
Time Warner, (iii) the absence of any material litigation and (iv) the
expiration or termination of the waiting period under the Hart-Scott-
Rodino Antitrust Improvement Act of 1976, as amended, is expected to
take place in the second half of 1995.
-98-
The consolidated balance sheet of the Company includes KBLCOM assets of
approximately $1.5 billion and liabilities of approximately $841
million at December 31, 1994. Revenues from KBLCOM totaled
approximately $256 million for 1994. Proforma presentation of the
Company's 1994 Statement of Consolidated Income to reflect KBLCOM on a
discontinued operations basis for the entire year would result in
summarized operations as follows:
Year Ended
December 31, 1994
(Thousands
of Dollars)
except per
share amounts)
Income Before Income Taxes, Discontinued Operations
and Cumulative Effect of Change in Accounting....... $ 654,409
Income Taxes.......................................... 230,424
---------
Income Before Discontinued Operations and Cumulative
Effect of Change in Accounting...................... 423,985
Loss from Discontinued Operations of KBLCOM (net of
income tax benefit of $11,811)...................... (16,524)
---------
Income Before Cumulative Effect of Change in
Accounting.......................................... 407,461
Cumulative Effect of Change in Accounting for
Postemployment Benefits (net of income taxes
of $4,415).......................................... (8,200)
---------
Net Income............................................ $ 399,261
=========
Earnings Per Common Share:
Earnings Per Common Share Before Discontinued
Operations and Cumulative Effect of Change in
Accounting.......................................... $ 3.45
Discontinued Operations............................... (.13)
Cumulative Effect of Change in Accounting for
Postemployment Benefits............................. (.07)
---------
Earnings Per Common Share............................. $ 3.25
=========
Loss from discontinued operations of KBLCOM excludes the effects of
corporate overhead charges and includes interest expense relating to
the amount of intercompany debt that Time Warner is purchasing from the
Company.
Based on a Time Warner common stock price of $35.50 and assuming the
closing occurs on September 30, 1995, the Company estimates that it
will recognize an after-tax gain of approximately $650 million. The
Company anticipates that it will record a portion of this gain
(estimated to be approximately $100 million) in the first quarter of
1995 in recognition of the deferred tax asset arising from the
Company's excess tax basis in KBLCOM stock. The remainder of the gain
will be recognized at closing.
(b) HOUSTON INDUSTRIES ENERGY, INC. (HI ENERGY). In January 1995, HI
Energy, a subsidiary of the Company, acquired for $15.7 million a 90
percent equity interest in an electric utility operating company in the
province of Santiago del Estero, a rural province in the north central
part of Argentina. The utility system serves approximately 100,000
customers in an area of 136,000 square kilometers.
-99-
HOUSTON LIGHTING & POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Except as modified below, the Notes to the Company's Consolidated Financial
Statements are incorporated herein by reference insofar as they relate to HL&P:
(1) Summary of Significant Accounting Policies, (2) Jointly-Owned Nuclear
Plant, (3) Pending Rate Proceedings, (4) Appeals of Prior Utility Commission
Rate Orders, (5) Malakoff, (6) Change in Accounting Method for Revenues, (9)
Preferred Stock of HL&P, (10) Long-Term Debt, (12) Retirement Plans, (13) Income
Taxes, (14) Commitments and Contingencies, (15) Estimated Fair Value of
Financial Instruments, (17) Restructuring, and (19) Railroad Settlement
Payments.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(i) EARNINGS PER COMMON SHARE. All issued and outstanding Class A voting
common stock of HL&P is held by the Company and all issued and
outstanding Class B non-voting common stock of HL&P is held by Houston
Industries (Delaware) Incorporated, a wholly owned subsidiary of the
Company. Accordingly, earnings per share is not computed.
(j) STATEMENTS OF CASH FLOWS. At December 31, 1994, HL&P had affiliate
investments (considered to be cash equivalents) of $227.6 million. At
December 31, 1993, HL&P did not have any investments with affiliated
companies. At December 31, 1992, HL&P had affiliate investments of $2.1
million.
(11) SHORT-TERM FINANCING
In 1993 and 1994, the interim financing requirements of HL&P were
primarily met through the issuance of commercial paper. HL&P had bank
credit facilities of $400 million and $250 million at December 31, 1994
and 1993, respectively, which limited total short-term borrowings and
provided for interest at rates generally less than the prime rate.
HL&P's weighted average short-term borrowing rates for commercial paper
for the year ended December 31, 1994 and 1993 were 3.71% and 3.31%,
respectively. HL&P had no commercial paper outstanding at December 31,
1994, and had approximately $171 million outstanding at December 31,
1993. Facility fees are required on HL&P's bank credit facility.
-100-
(12) RETIREMENT PLANS
(a) PENSION. Net pension cost for HL&P includes the following components:
Year Ended December 31,
1994 1993 1992
-------- -------- --------
(Thousands of Dollars)
Service cost - benefits earned during
the period ................................ $ 21,335 $ 24,640 $ 23,211
Interest cost on projected benefit
obligation ................................ 45,064 49,950 44,580
Actual (return) loss on plan assets ........ 4,737 (38,668) (26,334)
Net amortization and deferrals ............. (50,012) (683) (11,605)
-------- -------- --------
Net pension cost ........................... $ 21,124 $ 35,239 $ 29,852
======== ======== ========
The funded status of HL&P's retirement plan was as follows:
December 31,
-------------------------
1994 1993
---------- ----------
(Thousands of Dollars)
Actuarial present value of:
Vested benefit obligation ..................... $ 429,279 $ 434,797
========== ==========
Accumulated benefit obligation ................ $ 460,760 $ 492,301
========== ==========
Plan assets at fair value ........................ $ 486,100 $ 478,515
Projected benefit obligation ..................... 617,690 636,724
---------- ----------
Assets less than projected benefit obligation .... (131,590) (158,209)
Unrecognized transitional asset .................. (15,157) (17,062)
Unrecognized prior service cost .................. 21,275 23,183
Unrecognized net loss ............................ 67,093 77,937
---------- ----------
Accrued pension cost ............................. $ (58,379) $ (74,151)
========== ==========
(c) POSTRETIREMENT BENEFITS. The net postretirement benefit cost for HL&P
includes the following components:
Year Ended December 31,
-----------------------
1994 1993
------- -------
(Thousands of Dollars)
Service cost - benefits earned during the period .... $ 8,904 $ 9,297
Interest cost on projected benefit obligation ....... 9,946 18,134
Actual return on plan assets ........................ -- --
Net amortization and deferrals ...................... 7,757 9,658
------- -------
Net postretirement benefit cost ..................... $26,607 $37,089
======= =======
-101-
The funded status of HL&P's postretirement benefit costs was as follows:
December 31,
-----------------------
1994 1993
--------- ---------
(Thousands of Dollars)
Accumulated benefit obligation:
Retirees ......................................... $ (97,200) $(128,122)
Fully eligible active plan participants .......... (20,126) (22,691)
Other active plan participants ................... (22,706) (20,576)
--------- ---------
Total ........................................ (140,032) (171,389)
Plan assets at fair value .......................... -- --
--------- ---------
Assets less than accumulated benefit obligation .... (140,032) (171,389)
Unrecognized transitional obligation ............... 191,225 200,883
Unrecognized net gain .............................. (92,786) (55,577)
--------- ---------
Accrued postretirement benefit cost ................ $ (41,593) $ (26,083)
========= =========
For 1992, HL&P recognized postretirement benefit costs on a
"pay-as-you-go" basis and made payments of $8.6 million.
(13) INCOME TAXES
HL&P records income taxes under SFAS No. 109. During 1993, federal tax
legislation was enacted that changed the income tax consequences for
HL&P. The principal provision of the new law which affected HL&P was
the change in the corporate income tax rate from 34 percent to 35
percent. A net regulatory asset and the related deferred income tax
liability of $71.3 million were recorded by HL&P in 1993. The effect of
the new law, which decreased HL&P's net income by $8.0 million, was
recognized as a component of income tax expense in 1993. The effect on
HL&P's deferred taxes as a result of the change in the new law was $4.5
million in 1993.
HL&P's current and deferred components of income tax expense are as
follows:
Year Ended December 31,
-------------------------------------
1994 1993 1992
--------- --------- ---------
(Thousands of Dollars)
Current .............................. $ 184,669 $ 115,745 $ 134,514
Deferred ............................. 70,324 123,719 40,217
--------- --------- ---------
Federal income tax expense ........... 254,993 239,464 174,731
Federal income taxes charged to
other income ........................ (836) (2,993) (1,062)
--------- --------- ---------
Income taxes before cumulative
effect of change in accounting ...... $ 254,157 $ 236,471 $ 173,669
========= ========= =========
-102-
HL&P's effective income tax rates are lower than statutory corporate
rates for each year as follows:
Year Ended December 31,
---------------------------------------
1994 1993 1992
--------- --------- ---------
(Thousands of Dollars)
Income before income taxes, preferred
dividends and cumulative effect of
change in accounting ............... $ 749,121 $ 720,694 $ 588,951
Statutory rate ....................... 35% 35% 34%
--------- --------- ---------
Income taxes at statutory rate ....... 262,192 252,243 200,243
--------- --------- ---------
Net reduction in taxes resulting from:
AFUDC - other included in income ... 1,440 1,229 2,097
Amortization of investment tax
credit ........................... 19,416 19,797 19,926
Difference between book and tax
depreciation for which deferred
taxes have not been normalized ... (15,455) (12,976) (13,466)
Excess deferred taxes .............. 3,537 9,625 17,403
Other - net ........................ (903) (1,903) 614
--------- --------- ---------
Total ............................ 8,035 15,772 26,574
--------- --------- ---------
Income taxes before cumulative
effect of change in accounting .... $ 254,157 $ 236,471 $ 173,669
========= ========= =========
Effective rate ....................... 33.9% 32.8% 29.5%
Following are HL&P's tax effects of temporary differences resulting in
deferred tax assets and liabilities:
December 31,
-----------------------------
1994 1993
------------ ------------
(Thousands of Dollars)
Deferred Tax Assets:
Alternative minimum tax ..................... $ 51,506
IRS audit assessment ........................ $ 48,513 48,513
Disallowed plant cost - net ................. 23,496 24,304
Other ....................................... 60,174 47,906
------------ ------------
Total deferred tax assets ................. 132,183 172,229
------------ ------------
Deferred Tax Liabilities:
Depreciation ................................ 1,335,265 1,210,410
Regulatory assets - net ..................... 235,463 246,763
Deferred plant costs - net .................. 207,746 215,472
Capitalized taxes, employee benefits,
and removal costs .......................... 111,681 111,333
Other ....................................... 118,328 187,227
------------ ------------
Total deferred tax liabilities ........... 2,008,483 1,971,205
------------ ------------
Accumulated deferred income taxes - net ..... $ 1,876,300 $ 1,798,976
============ ============
-103-
(15) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of additional HL&P
financial instruments are as follows:
December 31,
---------------------------------------
1994 1993
------------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- ------- -------
(Thousands of Dollars)
Financial assets:
Cash and short-term investments .... $235,867 $235,867 $12,413 $12,413
Financial liabilities:
Short-term notes payable ........... 171,100 171,100
(20) UNAUDITED QUARTERLY INFORMATION
The following unaudited quarterly financial information includes, in the
opinion of management, all adjustments (which comprise only normal
recurring accruals) necessary for a fair presentation. Quarterly results
are not necessarily indicative of a full year's operations because of
seasonality and other factors, including rate increases and variations
in operating expense patterns.
Income After
Operating Preferred
Quarter Ended Revenues Income Dividends
------------- ---------- -------- ---------
(Thousands of Dollars)
1993
- ----
March 31 .................. $ 805,685 $113,160 $ 31,574
June 30 ................... 1,005,149 189,066 105,765
September 30 .............. 1,355,339 355,221 271,594
December 31 ............... 913,690 108,839 40,817
1994
- ----
March 31 .................. $ 821,581 $122,879 $ 41,686
June 30 ................... 1,004,906 216,842 142,478
September 30 .............. 1,150,946 320,859 251,092
December 31 ............... 768,652 82,302 17,925
-104-
22) PRINCIPAL AFFILIATE TRANSACTIONS
Year Ended December 31,
Affiliated ---------------------------------
Company Description 1994 1993 1992
---------- -------------------------- --------- --------- ---------
(Thousands of Dollars)
Houston Dividends................. $ 328,996 $ 342,982 $ 345,748
Industries Service Fees (a).......... 26,913 21,864 18,215
Money Fund Income (b)..... 6,025 2,748 930
Houston
Industries
Finance Discount Expenses (a) 21,053
(a) Included in Operating Expenses
(b) Included in Other Income (Expense)
During 1992, Houston Industries Finance purchased accounts receivable
of HL&P. In January 1993, Houston Industries Finance sold the
receivables back to HL&P and ceased operations. HL&P is now selling its
accounts receivable and most of its accrued unbilled revenues to an
unaffiliated third party.
-105-
INDEPENDENT AUDITORS' REPORT
Houston Industries Incorporated:
We have audited the accompanying consolidated balance sheets and the
consolidated statements of capitalization of Houston Industries Incorporated and
its subsidiaries as of December 31, 1994 and 1993, and the related statements of
consolidated income, consolidated retained earnings and consolidated cash flows
for each of the three years in the period ended December 31, 1994. Our audits
also included the Company's financial statement schedule listed in Item
14(a)(2). These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule 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, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company and its
subsidiaries at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As discussed in Notes 6, 12(b), and 12(d), respectively, to the
consolidated financial statements, the Company changed its method of accounting
for (i) revenues in 1992, (ii) the Employee Stock Ownership Plan to conform with
AICPA Statement of Position 93-6 in 1994, and (iii) postemployment benefits to
conform with Statement of Financial Accounting Standards No.
112 in 1994.
DELOITTE & TOUCHE LLP
Houston, Texas
February 23, 1995
-106-
INDEPENDENT AUDITORS' REPORT
Houston Lighting & Power Company:
We have audited the accompanying balance sheets and the statements of
capitalization of Houston Lighting & Power Company (HL&P) as of December 31,
1994 and 1993, and the related statements of income, retained earnings and cash
flows for each of the three years in the period ended December 31, 1994. Our
audits also included the financial statement schedule of HL&P listed in Item
14(a)(2). These financial statements and financial statement schedule are the
responsibility of HL&P's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule 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, such financial statements present fairly, in all
material respects, the financial position of HL&P at December 31, 1994 and 1993,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Notes 6 and 12(d), respectively, to the financial
statements, HL&P changed its method of accounting for (i) revenues in 1992, and
(ii) postemployment benefits to conform with Statement of Financial Accounting
Standards No. 112 in 1994.
DELOITTE & TOUCHE LLP
Houston, Texas
February 23, 1995
-107-
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND HL&P.
(a) The Company
The information called for by Item 10, to the extent not set forth under
Item 1 "Business- EXECUTIVE OFFICERS OF THE COMPANY", is or will be set forth in
the definitive proxy statement relating to the Company's 1995 annual meeting of
shareholders pursuant to the Commission's Regulation 14A. Such definitive proxy
statement relates to a meeting of shareholders involving the election of
directors and the portions thereof called for by Item 10 are incorporated herein
by reference pursuant to Instruction G to Form 10-K.
(b) HL&P
The information set forth under Item 1. "Business - EXECUTIVE OFFICERS OF
HL&P" is incorporated herein by reference.
Each member of the board of directors of HL&P is also a member of the
board of directors of the Company. Each member of the board of directors of HL&P
is elected annually for a one-year term. The HL&P annual shareholder's meeting,
at which the Company elects members to the HL&P board of directors, is expected
to occur on May 3, 1995. Information is set forth below with respect to the
business experience for the last five years of each person who currently serves
as a member of the board of directors of HL&P, certain other directorships held
by each such person and certain other information. Unless otherwise indicated,
each person has had the same principal occupation for at least five years.
MILTON CARROLL, age 44, has been a director since 1992. Mr. Carroll is Chairman,
President and Chief Executive Officer of Instrument Products Inc., an oil field
supply manufacturing company, in Houston, Texas. He is a director of Panhandle
Eastern Corporation and the Federal Reserve Bank of Dallas.
JOHN T. CATER, age 59, has been a director since 1983. Mr. Cater is Chairman,
Chief Executive Officer and a director of River Oaks Trust Company in Houston,
Texas. He also serves as President and a director of Compass Bank-Houston. Until
his retirement in 1990, Mr. Cater served as President, Chief Operating Officer
and a director of MCorp, a Texas bank holding company. He served as a director
of MCorp until July 1994.
-108-
ROBERT J. CRUIKSHANK, age 64, has been a director since 1993. Mr. Cruikshank is
primarily engaged in managing his personal investments in Houston, Texas. Prior
to his retirement in 1993, he was a Senior Partner in the accounting firm of
Deloitte & Touche. Mr. Cruikshank is Vice-Chairman of the Board of Regents of
the University of Texas System and serves as a director of MAXXAM Inc., Kaiser
Aluminum Corporation, Compass Bank and Texas Biotechnology Corporation.
LINNET F. DEILY, age 49, has been a director since 1993. Ms. Deily is Chairman,
Chief Executive Officer and President of First Interstate Bank of Texas, N.A.
She has served as Chairman since 1992, Chief Executive Officer since 1991 and
President since 1988. (1)
JOSEPH M. HENDRIE, Ph.D., age 69, has been a director since 1985. Dr. Hendrie is
a Consulting Engineer in Bellport, New York, and a Senior Scientist at the
Brookhaven National Laboratory in Upton, New York, having previously served as
Chairman and Commissioner of the U.S. Nuclear Regulatory Commission and as
President of the American Nuclear Society. He is also a director of Entergy
Operations, Inc. of Jackson, Mississippi.
HOWARD W. HORNE, age 68, has been a director since 1978. Mr. Horne is
Vice-Chairman of Cushman & Wakefield of Texas, Inc., a subsidiary of a national
real estate brokerage firm. Until 1990, he was Chairman of the Board of The
Horne Company, a Houston realty firm.
DON D. JORDAN, age 62, has been a director of the Company since 1977 and of HL&P
since 1974. Mr. Jordan is Chairman and Chief Executive Officer of the Company
and Chairman and Chief Executive Officer of HL&P. He also serves as a director
of Texas Commerce Bancshares, Inc. and BJ Services Company, Inc.
ALEXANDER F. SCHILT, Ph.D., age 54, has been a director since 1992. Dr. Schilt
is Chancellor of the University of Houston System. Prior to 1990, he was
President of Eastern Washington University in Cheney and Spokane, Washington.
KENNETH L. SCHNITZER, SR., age 65, has been a director since 1983. Mr. Schnitzer
is Chairman of the Board of Schnitzer Enterprises Inc., a Houston commercial
real estate development company, having previously served as a director of
American Building Maintenance Industries Incorporated and Weingarten Realty,
Inc. (2)
DON D. SYKORA, age 64, has been a director since 1982. Mr. Sykora is President
and Chief Operating Officer of the Company. He also serves as a director of
Powell Industries, Inc., Pool Energy Services Co., Inc. and TransTexas Gas
Corporation. (3)
JACK T. TROTTER, age 68, has been a director since 1985. Mr. Trotter is
primarily engaged in managing his personal investments in Houston, Texas. He
also serves as a director of First Interstate Bank of Texas, N.A., Howell
Corporation and Weingarten Realty Investors.
BERTRAM WOLFE, Ph.D., age 67, has been a director since 1993. Dr. Wolfe is on
the Nuclear Advisory Committee of Pennsylvania Power and Light and is a member
of the International
-109-
Advisory Committee of Concord Industries. Prior to his
retirement in 1992, he was Vice President and General Manager of General
Electric Company's nuclear energy business in San Jose, California.
- -------------------
(1) First Interstate and certain of its affiliates participate in various
credit facilities with HL&P, the Company and certain of HL&P's affiliates
and other entities in which the Company has an ownership interest. Under
these agreements, First Interstate and certain of its affiliates have
maximum aggregate loans and loan commitments of approximately $79.3
million, as of December 31, 1994.
(2) HL&P and certain of its affiliates currently lease office space in
buildings owned or controlled by affiliates of Mr. Schnitzer. HL&P and
certain of its affiliates paid a total of approximately $5.6 million to
affiliates of Mr. Schnitzer during 1994, and it is expected that
approximately $3.7 million will be paid in 1995. HL&P believes such
payments are comparable to those that would have been made to other
non-affiliated firms for comparable facilities and services. During 1994,
Mr. Schnitzer consented to the entry of an order by the Office of Thrift
Supervision (OTS) whereunder he may not hold office in, or participate in
the conduct of the affairs of, any federally regulated depository
institution without the prior approval of the OTS and, if applicable, any
other appropriate federal banking agency. The order arose out of Mr.
Schnitzer's prior service as a director of BancPLUS Savings and Loan
Association, a Houston, Texas-based thrift that was taken over by federal
regulators in 1989. Mr. Schnitzer consented to the order to avoid the time
and expense of defending an OTS administrative proceeding, without
admitting whether there were any grounds for such a proceeding.
(3) Mr. Sykora will not seek reelection to the Company's Board of Directors in
1995 and will retire as a director of the Company and HL&P at the May 3,
1995 annual shareholders' meetings.
ITEM 11. EXECUTIVE COMPENSATION.
(a) The Company
The information called for by Item 11, with respect to the Company, is or
will be set forth in the definitive proxy statement relating to the Company's
1995 annual meeting of shareholders pursuant to the Commission's Regulation 14A.
Such definitive proxy statement relates to a meeting of shareholders involving
the election of directors and the portions thereof called for by Item 11
(excluding any information required by paragraphs (i), (k) and (l) of Item 402
of Regulation S-K) are incorporated herein by reference pursuant to Instruction
G to Form 10-K.
-110-
(b) HL&P
SUMMARY COMPENSATION TABLE. The following table shows, for the years ended
December 31, 1992, 1993 and 1994, the annual, long-term and certain other
compensation of the chief executive officer and the other four most highly
compensated executive officers of HL&P (Named Officers).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
---------------------
Awards Payouts
Annual Compensation ---------- --------
----------------------- Securities
Name and Other Annual Underlying LTIP All Other
Principal Position Year Salary<F1> Bonus<F1> Compensation Options(#) Payouts<F2> Compensation<F3>
- --------------------------- ---- ------- ------ ----------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Don D. Jordan.............. 1994 $859,500 $ 734,873 $ 114,648 13,863 $ 550,567 $717,261
Chairman and............... 1993 829,500 386,775 0 12,965 762,962 647,491
Chief Executive Officer.... 1992 785,125 531,268 0 13,190 32,000 543,204
of the Company and HL&P
R. Steve Letbetter......... 1994 321,000 246,525 31,133 3,183 117,607 43,818
President and Chief........ 1993 271,000 109,335 0 2,128 212,362 42,562
Operating Officer of ...... 1992 241,417 125,952 0 2,161 10,125 44,813
HL&P; Vice President of the
Company
Hugh Rice Kelly............ 1994 323,500 190,820 42,147 2,735 145,107 50,546
Senior Vice President,..... 1993 310,500 94,446 0 2,621 285,078 58,218
General Counsel and 1992 297,583 155,439 0 2,667 13,188 65,266
Corporate Secretary of the
Company and HL&P
William T. Cottle<F4>...... 1994 241,000 129,675 337 2,022 0 13,126
Group Vice President....... 1993 174,470 60,000 0 0 0 0
- - Nuclear of HL&P.......... 1992 0 0 0 0 0 0
Jack D. Greenwade.......... 1994 236,500 138,674 26,624 1,987 105,117 35,524
Group Vice President....... 1993 225,500 68,607 0 1,903 178,814 36,786
- - Operations of HL&P....... 1992 215,833 110,880 0 1,931 8,875 38,184
<FN>
<F1> The amounts shown include salary and bonus earned as well as earned but
deferred by the Named Officers.
<F2> The amounts shown for 1994 represent the dollar value of shares of the
Company's Common Stock paid out in 1994 under the Company's long-term
incentive compensation plan based on the achievement of certain
performance goals for the 1992-1993 performance cycle, plus dividend
equivalent accruals during the performance period.
-111-
<F3> The amounts shown include (i) Company contributions to the Company's
savings plan and accruals under its savings restoration plan for the
years shown on behalf of the Named Officers, as follows: Mr. Jordan 1992
- $41,348; 1993 - $57,152; and 1994 -$52,344; Mr. Letbetter 1992 -
$20,225; 1993 - $16,672; and 1994 - $18,074; Mr. Kelly 1992 - $26,141;
1993 - $19,569; and 1994 - $17,554; Mr. Cottle 1994 - $12,642; and Mr.
Greenwade 1992 - $16,898; 1993 - $14,128; and 1994 - $12,814; (ii) the
term portion of the premiums paid by the Company in 1994 under
split-dollar life insurance policies purchased in connection with the
Company's executive life insurance plan, as follows: Mr. Jordan -
$4,800; Mr. Letbetter - $218; Mr. Kelly - $801; Mr. Cottle - $484; and
Mr. Greenwade - $772; and (iii) the portion of accrued interest on
amounts of compensation deferred under the Company's deferred
compensation plan and executive incentive compensation plan that exceeds
120 percent of the applicable federal long-term rate provided under
Section 1274(d) of the Internal Revenue Code, as follows: Mr. Jordan
1992 - $501,856; 1993 - $590,339; and 1994 - $660,117; Mr. Letbetter
1992 - $24,588; 1993 - $25,890; and 1994 - $25,526; Mr. Kelly 1992 -
$39,125; 1993 - $38,649; and 1994 - $32,191; and Mr. Greenwade 1992 -
$21,286; 1993 - $22,658; and 1994 - $21,938. With respect to the accrued
interest on deferred amounts referenced in (iii) of this footnote, the
Company owns and is the beneficiary under certain life insurance
policies, with respect to which it is currently anticipated that the
benefits associated with these policies will be sufficient to cover such
accumulated interest.
<F4> Mr. Cottle commenced employment with HL&P in April 1993.
</FN>
</TABLE>
-112-
STOCK OPTION GRANTS. The following table contains information concerning grants
during 1994 of stock options under the Company's long-term incentive
compensation plan to the Named Officers.
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
Grant
Date
Individual Grants Value
-------------------------------------------------------- ---------
% of Total
Number of Options
Securities Granted to Exercise Grant
Underlying Employees or Base Date
Options in Fiscal Price Per Expiration Present
NAME Granted(#)<F1> Year Share Date Value<F2>
- ---- --------------- ------ ------ -------- ---------
<S> <C> <C> <C> <C> <C>
Don D. Jordan................... 13,863 21.1% $46.50 01/04/04 $49,491
R. Steve Letbetter.............. 3,183 4.8% 46.50 01/04/04 11,363
Hugh Rice Kelly................. 2,735 4.2% 46.50 01/04/04 9,764
William T. Cottle............... 2,022 3.1% 46.50 01/04/04 7,219
Jack D. Greenwade............... 1,987 3.0% 46.50 01/04/04 7,094
<FN>
<F1> The nonstatutory options for shares of Common Stock included in the table
were granted on January 5, 1994, have a ten-year term and generally
become exercisable annually in one-third increments commencing one year
after date of grant, so long as employment with the Company or its
subsidiaries continues. A change in control of the Company would result
in all options becoming immediately exercisable. For the purposes of the
Company's long-term incentive compensation plan, a "change in control"
generally is deemed to have occurred if (i) any person or group becomes
the direct or indirect beneficial owner of 30 percent or more of the
Company's outstanding voting securities; (ii) the majority of the Board
changes as a result of, or in connection with, certain transactions;
(iii) as a result of the Company merging or consolidating with another
corporation, less than 70 percent of the surviving corporation's
outstanding voting securities is owned by the former shareholders of the
Company (excluding any party to such a transaction or any affiliates of
any such party); (iv) a tender offer or exchange offer is made and
consummated for the ownership of 30 percent or more of the Company's
outstanding voting securities; or (v) the Company transfers all or
substantially all of its assets to another corporation that is not
wholly-owned by the Company.
<F2> The values are based on the Black-Scholes option pricing model adjusted
for the payment of dividends. The calculations were made based on the
following assumptions: volatility equal to historical volatility of the
Common Stock for the one-year period prior to grant date; risk-free
interest rate equal to the interest rate on a U.S. Treasury security with
a maturity date corresponding to that of the option term; option strike
price equal to current stock price on the date of grant ($46.50); current
dividend rate of $3 per share per year; and option term equal to the full
ten-year period until the stated expiration date. No reduction has been
made in the valuations on account of non-transferability of the options
or vesting or forfeiture provisions. Valuations would change if different
assumptions were made. Option values are dependent on general market
conditions and the performance of the Common Stock. There can be no
assurance that the values in this table will be realized.
</FN>
</TABLE>
-113-
STOCK OPTION VALUES. The following table sets forth information on the
unexercised options to purchase Common Stock previously granted to each of the
Named Officers under the Company's long-term incentive compensation plan and
held as of December 31, 1994. None of the options are in-the-money, having been
granted at exercise prices that are higher than the market value of the option
shares on December 31, 1994. No options were exercised by the Named Officers
during 1994.
1994 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options at
at December 31, 1994 December 31, 1994
---------------------- -----------------------
Exercisable/ Exercisable/
NAME Unexercisable Unexercisable
- ---- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Don D. Jordan....................... 13,115 / 26,903 $0.0 / $0.0
R. Steve Letbetter.................. 2,150 / 5,322 0.0 / 0.0
Hugh Rice Kelly..................... 2,652 / 5,371 0.0 / 0.0
William T. Cottle................... 0 / 2,022 0.0 / 0.0
Jack D. Greenwade................... 1,921 / 3,900 0.0 / 0.0
</TABLE>
LONG-TERM INCENTIVE COMPENSATION. The following table sets forth information
concerning awards made during 1994 for the 1994-1996 performance cycle under the
Company's long-term incentive compensation plan to each of the Named Officers.
The table represents potential payouts of awards for shares of Common Stock
based on the achievement of certain performance goals over a three year
performance cycle. The performance goals include Company consolidated and
subsidiary or business unit goals, weighted 25 percent on consolidated
performance and 75 percent on subsidiary or business unit performance. The
performance goals are generally based on financial objectives. The Company
consolidated goal applicable to each of the Named Officers shown below is
achieving a certain level of total shareholder return in relation to a group of
other companies. The subsidiary or business unit goals applicable to each of the
Named Officers shown below are maintaining certain base electric rates and
achieving certain cash flow performance in relation to a group of other
companies. An additional subsidiary or business unit goal applicable to Messrs.
Jordan and Kelly is achieving certain increases in cable television operating
profits. If a change in control of the Company occurs before the end of a
performance cycle, the payouts of awards for performance shares will occur
without regard to achievement of the performance goals. See Note 1 to the OPTION
GRANTS IN 1994 table for information regarding the definition of a change in
control under the Company's long-term incentive compensation plan.
-114-
LONG-TERM INCENTIVE PLAN AWARDS IN 1994
<TABLE>
<CAPTION>
Estimated Future Payouts Under
Performance Non-Stock Price-Based Plans<F1>
or Other -----------------------------------------
Period Until Threshold Target Maximum
Number Maturity or Number Number Number
Name of Shares Payout of Shares of Shares of Shares
- ----- --------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Don D. Jordan.................... 12,165 12/31/96 6,083 12,165 18,248
R. Steve Letbetter............... 3,223 12/31/96 1,612 3,223 4,835
Hugh Rice Kelly.................. 2,770 12/31/96 1,385 2,770 4,155
William T. Cottle................ 2,047 12/31/96 1,024 2,047 3,071
Jack D. Greenwade................ 2,012 12/31/96 1,006 2,012 3,018
<FN>
<F1> The table does not reflect dividend equivalent accruals during the
performance period.
</FN>
</TABLE>
RETIREMENT PLANS, RELATED BENEFITS AND OTHER AGREEMENTS. The following table
shows the estimated annual benefit payable under the Company's retirement plan,
benefit restoration plan and, in certain cases, supplemental agreements, to
officers in various compensation classifications upon retirement at age 65 after
the indicated periods of service, determined on a single-life annuity basis. The
amounts in the table are not subject to any deduction for Social Security or
other offsetting amounts.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Final Average
Annual Estimated Annual Pension Based on years of Service
Compensation ----------------------------------------------------------------------------------------
at Age 65 15 Years 20 Years 25 Years 30 Years 35 or More Years
---------- --------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 300,000 $ 85,901 $ 114,535 $ 143,169 $ 171,803 $200,436
400,000 115,001 153,335 191,669 230,003 268,336
500,000 144,101 192,135 240,169 288,203 336,236
600,000 173,201 230,935 288,669 346,403 404,136
700,000 202,301 269,735 337,169 404,603 472,036
800,000 231,401 308,535 385,669 462,803 539,936
900,000 260,501 347,335 434,169 521,003 607,836
1,000,000 289,601 386,135 482,669 579,203 675,736
1,200,000 347,801 463,735 579,669 695,603 811,536
1,400,000 406,001 541,335 676,669 812,003 947,336
1,500,000 435,101 580,135 725,169 870,203 1,015,236
1,600,000 464,201 618,935 773,669 928,403 1,083,136
1,700,000 493,301 657,735 822,169 986,603 1,151,036
</TABLE>
-115-
NOTE: The qualified pension plan limits compensation in accordance with Section
401(a)(17) of the Internal Revenue Code and also limits benefits in accordance
with Section 415 of the Internal Revenue Code. Pension benefits based on
compensation above the qualified plan limit or in excess of the limit on annual
benefits are provided through the benefit restoration plan.
For the purpose of the pension table above, final average annual
compensation means the average of covered compensation for 36 consecutive months
out of the 120 consecutive months immediately preceding retirement in which the
participant's covered compensation was the highest. Covered compensation only
includes the amounts shown in the "Salary" and "Bonus" columns of the Summary
Compensation Table. At December 31, 1994, the credited years of service for the
following persons are: 35 years for Mr. Jordan; 21 years for Mr. Letbetter; 20
years for Mr. Kelly, 10 of which result from a supplemental agreement; 2 years
for Mr. Cottle; and 28 years for Mr. Greenwade.
The Company maintains an executive benefits plan that provides certain
salary continuation, disability and death benefits to key officers of the
Company and certain of its subsidiaries, including HL&P. The Named Officers
participate in this plan pursuant to individual agreements that generally
provide for (i) a salary continuation benefit of 100 percent of the officer's
current salary for twelve months after his death during active employment and
then 50 percent of his salary for nine years or until the deceased officer would
have attained age 65, if later, and (ii) if the officer retires after attainment
of age 65, an annual post-retirement death benefit of 50 percent of the
officer's preretirement annual salary payable for six years.
The Company has established an executive life insurance plan providing
split-dollar life insurance in the form of a death benefit for certain officers
and members of the Company's Board of Directors. The death benefit coverage for
each of the Named Officers and members of the Board of Directors varies but in
each case is based on coverage (either single life or second to die) that is
available for the same amount of premium that could purchase coverage equal to
two times current salary for Messrs. Kelly, Cottle and Greenwade; four times
current salary for Mr. Letbetter; ten million dollars for Mr. Jordan; five
million dollars for Mr. Sykora (in his capacity as an executive officer of the
Company) and six times the annual retainer for the Company's non-employee
directors (except in the case of Mr. Trotter, who has a separate agreement
providing for similar coverage, as described below under "Compensation of
Directors"). The plan also provides that the Company may make payments to the
covered individuals designed to compensate for tax consequences with respect to
imputed income that they must recognize for federal income tax purposes based on
the term portion of the annual premiums. If a covered executive retires at age
65 or at an earlier age under circumstances approved for this purpose by the
Board of Directors, rights under the plan vest so that coverage is continued
based on the same death benefit in effect at the time of retirement. Upon death,
the Company will receive the balance of the insurance proceeds payable in excess
of the specified death benefit which by design is expected to be at least
sufficient to cover the Company's cumulative outlays to pay premiums and the
after-tax cost to the Company of the tax reimbursement payments. There is no
arrangement or understanding under which any covered individuals will receive or
be allocated any interest in any cash surrender value under the policy.
-116-
The Company has entered into employment agreements with each of Mr.
Jordan and Mr. Sykora (in their capacities as executive officers of the Company)
which provide for benefits in the event of termination of employment following a
change in control of the Company and for a two year extension of employment if
the covered executive is employed by the Company at age 65 without there having
occurred a change in control. The Company has also entered into severance
agreements with certain executive officers, including Messrs. Letbetter, Kelly,
Cottle and Greenwade, that provide for the payment of certain benefits in the
event that, within three years following a change in control of the Company, the
officer's employment is terminated by the Company or any subsidiary or successor
to the Company for reasons other than cause or disability or by the officer
following certain changes in job responsibilities, job location or compensation
and benefits from those applicable to him immediately prior to such change in
control. For the purposes of these agreements, the meaning of a change in
control generally is the same as provided in the Company's long-term incentive
compensation plan which is described in Note 1 to the OPTION GRANTS IN 1994
table. All benefits payable under these agreements would be payments by the
Company and not HL&P.
HL&P and Mr. Cottle have entered into an employment agreement
commencing on April 5, 1993 and continuing indefinitely, subject to termination
by either party on 30 days' notice (Employment Period). The agreement generally
provides for employment of Mr. Cottle as Group Vice President - Nuclear or in
such other executive capacities as may be determined from time to time, a
minimum annual base salary ($235,000), bonuses and participation in those
employee benefit plans and programs available to similarly situated employees
during the Employment Period. In addition, if the Employment Period terminates
after April 5, 2003, Mr. Cottle will be eligible for supplemental pension,
disability or death benefits determined as if his employment had commenced ten
years prior to the initial date of the Employment Period.
COMPENSATION OF DIRECTORS. Each non-employee director receives an annual
retainer fee of $20,000, a fee of $1,000 for each board meeting attended and a
fee of $700 for each committee meeting attended. Directors may defer all or a
part of their annual retainer fees (minimum deferral $2,000) and meeting fees
under the Company's deferred compensation plan.
Non-employee directors participate in a director benefits plan pursuant
to which a director who serves at least one full year will receive an annual
benefit in cash equal to the annual retainer payable in the year the director
terminates service. Benefits under this plan will be payable to a director,
commencing the January following the later of the director's termination of
service or attainment of age 65, for a period equal to the number of full years
of service of the director.
Non-employee directors may also participate in the Company's executive
life insurance plan described above under "Retirement Plans, Related Benefits
and Other Agreements," providing split-dollar life insurance with a death
benefit equal to six times the director's annual retainer with coverage
continuing after termination of service as a director. This plan also permits
the Company to provide for a tax reimbursement payment to make the directors
whole for any imputed income recognized with respect to the term portion of the
annual insurance premiums. Upon death, the Company will receive the balance of
the insurance proceeds payable in excess
-117-
of the specified death benefit which, by design, is expected to be at least
sufficient to cover the Company's cumulative outlays to pay premiums and the
after-tax cost to the Company of the tax reimbursement payments. Mr. Trotter,
who does not participate in this plan, has a separate agreement with the Company
providing for payment in the event of his death in a lump sum amount equal to
eight times his final annual retainer, which, because it is subject to taxation
at distribution, approximates on an after-tax basis the amount of the death
benefit that would have been payable had he participated in the executive life
insurance plan.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) The Company
The information called for by Item 12 is or will be set forth in the
definitive proxy statement relating to the Company's 1995 annual meeting of
shareholders pursuant to the Commission's Regulation 14A. Such definitive proxy
statement relates to a meeting of shareholders involving the election of
directors and the portions thereof called for by Item 12 are incorporated herein
by reference pursuant to Instruction G to Form 10-K.
-118-
(b) HL&P
As of the date of this Report, the Company owned all 1,000 authorized,
issued and outstanding shares of HL&P's Class A voting common stock, without par
value.
The following table sets forth information as of March 1, 1995, with
respect to the beneficial ownership of shares of the Company's Common Stock by
each current director, the chief executive officer and the other four most
highly compensated executive officers of HL&P and, as a group, by such persons
and other executive officers of HL&P. No person or member of the group listed
owns any equity securities of HL&P or any other subsidiary of the Company.
Unless otherwise indicated, each person or member of the group listed has sole
voting and sole investment power with respect to the shares of Common Stock
listed. No ownership shown in the table represents 1 percent or more of the
outstanding shares of Common Stock.
Shares of Common Stock
Name Beneficially Owned
- ---- ----------------------
Milton Carroll .......................................... 1,200
John T. Cater ........................................... 1,000(1)
William A. Cottle ....................................... 2,445(2)(3)(4)
Robert J. Cruikshank .................................... 1,000
Linnet F. Deily ......................................... 1,000(5)
Jack D. Greenwade ....................................... 17,234(2)(3)(4)
Joseph M. Hendrie ....................................... 451(4)(5)
Howard W. Horne ......................................... 6,339(4)
Don D. Jordan ........................................... 85,750(2)(3)(6)
Hugh Rice Kelly ......................................... 20,931(2)(3)(4)
R. Steve Letbetter ...................................... 16,361(2)(3)
Alexander F. Schilt ..................................... 400
Kenneth L. Schnitzer, Sr. ............................... 4,650
Don D. Sykora ........................................... 41,154(2)(3)(4)
Jack T. Trotter ......................................... 1,000
Bertram Wolfe ........................................... 110
All of the above and other executive officers
as a group (19 persons) ............................ 222,239(2)(3)(4)
- --------------
(1) Mr. Cater disclaims beneficial ownership of these shares, which are
owned by his adult children.
(2) Includes shares held under the Company's savings plan, as to which the
participant has sole voting power (subject to such power being exercised
by the plan's trustees in the same proportion as directed shares in the
savings plan are voted in the event the participant does not exercise
voting power). The shares held under the plan are reported as of December
31, 1994, except in the case of two executive officers whose individual
savings plan accounts include shares allocated during 1995 as a result of
rollovers from individual retirement accounts.
-119-
(3) The ownership shown in the table includes shares which may be acquired
within 60 days on exercise of outstanding stock options granted under the
Company's long-term incentive compensation plan by each of the persons
and group, as follows: Mr. Cottle - 674 shares; Mr. Greenwade - 3,862
shares; Mr. Jordan - 26,454 shares; Mr. Kelly - 5,326 shares; Mr.
Letbetter - 4,641 shares; Mr. Sykora - 14,160 shares; and the group -
61,142 shares.
(4) Includes shares held under the Company's dividend reinvestment plan as of
December 31, 1994.
(5) Voting power and investment power with respect to the shares listed for
Ms. Deily and for Dr. Hendrie are shared with the individual's spouse.
(6) Voting power and investment power with respect to 576 of the shares
listed are shared with Mr. Jordan's spouse.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) The Company
The information called for by Item 13 is or will be set forth in the
definitive proxy statement relating to the Company's 1995 annual meeting of
shareholders pursuant to the Commission's Regulation 14A. Such definitive proxy
statement relates to a meeting of shareholders involving the election of
directors and the portions thereof called for by Item 13 are incorporated herein
by reference pursuant to Instruction G to Form 10-K.
(b) HL&P
The information set forth in Notes 1 and 2 to Item 10(b) above is
incorporated herein by reference.
-120-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a)(1) FINANCIAL STATEMENTS. PAGE
----
<S> <C>
Statements of Consolidated Income for the Three Years Ended December 31, 1994............................. 53
Statements of Consolidated Retained Earnings for the Three Years
Ended December 31, 1994.............................................................................. 55
Consolidated Balance Sheets at December 31, 1994 and 1993................................................. 56
Consolidated Statements of Capitalization at December 31, 1994 and 1993................................... 58
Statements of Consolidated Cash Flows for the Three Years
Ended December 31, 1994.............................................................................. 60
HL&P Statements of Income for the Three Years Ended December 31, 1994..................................... 62
HL&P Statements of Retained Earnings for the Three Years
Ended December 31, 1994.............................................................................. 63
HL&P Balance Sheets at December 31, 1994 and 1993......................................................... 64
HL&P Statements of Capitalization at December 31, 1994 and 1993........................................... 66
HL&P Statements of Cash Flows for the Three Years
Ended December 31, 1994.............................................................................. 68
Notes to Consolidated Financial Statements................................................................ 70
Notes to HL&P's Financial Statements...................................................................... 100
Independent Auditors' Report - The Company................................................................ 106
Independent Auditors' Report - HL&P....................................................................... 107
(a)(2) Financial Statement Schedules For The Three Years Ended December 31, 1994.
The Company:
VIII -- Reserves.......................................................................................... 122
HL&P:
VIII -- Reserves.......................................................................................... 123
The following schedules are omitted because of the absence of the conditions under which they are
required or because the required information is included in the financial statements:
I, II, III, IV, V, VI, VII, IX, X, XI, XII and XIII.
(a)(3) Exhibits......................................................................................... 126
</TABLE>
See Index of Exhibits on page 126, which also includes the management contracts
or compensatory plans or arrangements required to be filed as exhibits to this
Form 10-K by Item 601(10)(iii) of Regulation S-K.
(b) REPORTS ON FORM 8-K. None
-121-
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
SCHEDULE VIII - RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
==================================================================================================
Col. A Col. B Col. C Col. D Col. E
- --------------------------------------------------------------------------------------------------
Additions
-------------------
Balance at Charged Charged Deductions Balance at
Beginning to to Other from End
Description of Period Income Accounts Reserves of Period
----------- --------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Accumulated provisions deducted
from related assets on balance
sheet:
Uncollectible accounts....... $ 1,682 $ 4,882 $ 1,541 $ 6,560 $ 1,545
Cable television franchises
and intangible assets...... 184,057 39,437 223,494
Deferred tax asset valuation
allowance.................. 57,661 258 57,919
Reserves other than those
deducted from assets on
balance sheet:
Property insurance........... (2,891) 2,187 2,764 (3,468)
Injuries and damages......... 2,891 3,099 3,749 2,241
Year Ended December 31, 1993:
Accumulated provisions deducted
from related assets on balance
sheet:
Uncollectible accounts....... $ 10,439 $ 4,803 $ (932) $ 12,628 $ 1,682
Cable television franchises
and intangible assets...... 145,856 38,201 184,057
Deferred tax asset valuation
allowance.................. 56,638 1,023 57,661
Reserves other than those
deducted from assets on
balance sheet:
Property insurance........... (2,821) 2,187 2,257 (2,891)
Injuries and damages......... 3,911 4,685 5,705 2,891
Year Ended December 31, 1992:
Accumulated provisions deducted
from related assets on balance
sheet:
Uncollectible accounts....... $ 12,585 $ 16,634 $ 18,780 $ 10,439
Cable television franchises
and intangible assets...... 107,681 38,175 145,856
Deferred tax asset valuation
allowance.................. 56,817 179 56,638
Reserves other than those
deducted from assets on
balance sheet:
Property insurance........... (4,645) 2,187 363 (2,821)
Injuries and damages......... 5,847 4,154 6,090 3,911
- ---------------
</TABLE>
Notes:
(A) Deductions from reserves represent losses or expenses for which the
respective reserves were created. In the case of the uncollectible accounts
reserve, such deductions are net of recoveries of amounts previously
written off.
(B) During 1992, Houston Industries Finance purchased accounts receivable of
HL&P and of certain KBLCOM subsidiaries. In January 1993, Houston
Industries Finance sold the receivables back to the respective subsidiaries
and ceased operations. HL&P is now selling its accounts receivable and most
of its accrued unbilled revenues to a third party.
-122-
<PAGE>
HOUSTON LIGHTING & POWER COMPANY
SCHEDULE VIII - RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
=============================================================================================
Col. A Col. B Col. C Col. D Col. E
- ---------------------------------------------------------------------------------------------
Additions
------------------
Balance at Charged Charged Deductions Balance at
Beginning to to Other from End
Description of Period Income Accounts Reserves of Period
----------- ---------- ------- -------- --------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994:
Reserves other than those
deducted from assets on
balance sheet:
Property insurance ... $(2,891) $2,187 $2,764 $(3,468)
Injuries and damages . 2,891 3,099 3,749 2,241
Year Ended December 31, 1993:
Reserves other than those
deducted from assets on
balance sheet:
Property insurance ... $(2,821) $2,187 $2,257 $(2,891)
Injuries and damages . 3,911 4,685 5,705 2,891
Year Ended December 31, 1992:
Reserves other than those
deducted from assets on
balance sheet:
Property insurance ... $(4,645) $2,187 $ 363 $(2,821)
Injuries and damages . 5,847 4,154 6,090 3,911
</TABLE>
- ---------------
Notes:
(A) Deductions from reserves represent losses or expenses for which the
respective reserves were created.
(B) HL&P has no reserves for uncollectible accounts due to sales of accounts
receivable.
-123-
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON
AND STATE OF TEXAS, ON THE 15TH DAY OF MARCH, 1995.
HOUSTON INDUSTRIES INCORPORATED (Registrant)
By DON D. JORDAN
(Don D. Jordan, Chairman and
Chief Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
Signature Title Date
--------- ----- ----
Chairman and Chief Executive >|
DON D. JORDAN Officer and Director |
(Don D. Jordan) (Principal Executive and |
Principal Financial Officer) |
|
MARY P. RICCIARDELLO Comptroller |
(Mary P. Ricciardello) (Principal Accounting Officer) |
|
MILTON CARROLL Director |
(Milton Carroll) |
|
JOHN T. CATER Director |
(John T. Cater) |
|
ROBERT J. CRUIKSHANK Director |
(Robert J. Cruikshank) |
|
LINNET F. DEILY Director |
(Linnet F. Deily) |
|
JOSEPH M. HENDRIE Director > March 15, 1995
(Joseph M. Hendrie) |
|
HOWARD W. HORNE Director |
(Howard W. Horne) |
|
ALEXANDER F. SCHILT Director |
(Alexander F. Schilt) |
|
KENNETH L. SCHNITZER, SR. Director |
(Kenneth L. Schnitzer, Sr.) |
|
DON D. SYKORA Director |
(Don D. Sykora) |
|
JACK T. TROTTER Director |
(Jack T. Trotter) |
|
BERTRAM WOLFE Director >|
(Bertram Wolfe)
-124-
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON
AND STATE OF TEXAS, ON THE 15TH DAY OF MARCH, 1995. THE SIGNATURE OF HOUSTON
LIGHTING & POWER COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING
REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.
HOUSTON LIGHTING & POWER COMPANY (Registrant)
By DON D. JORDAN
(Don D. Jordan, Chairman and
Chief Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED. THE SIGNATURE OF
EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING
REFERENCE TO HOUSTON LIGHTING & POWER COMPANY AND ANY SUBSIDIARIES THEREOF.
Signature Title Date
--------- ----- ----
Chairman and Chief Executive >|
DON D. JORDAN Officer and Director |
(Don D. Jordan) (Principal Executive Officer) |
|
DAVID M. McCLANAHAN Group Vice President - Finance |
(David M. McClanahan) and Regulatory Relations |
(Principal Financial Officer) |
|
KEN W. NABORS Vice President and Comptroller |
(Ken W. Nabors) (Principal Accounting Officer) |
|
MILTON CARROLL Director |
(Milton Carroll) |
|
JOHN T. CATER Director |
(John T. Cater) |
|
ROBERT J. CRUIKSHANK Director |
(Robert J. Cruikshank) |
|
LINNET F. DEILY Director > March 15, 1995
(Linnet F. Deily) |
|
JOSEPH M. HENDRIE Director |
(Joseph M. Hendrie) |
|
HOWARD W. HORNE Director |
(Howard W. Horne) |
|
ALEXANDER F. SCHILT Director |
(Alexander F. Schilt) |
|
KENNETH L. SCHNITZER, SR. Director |
(Kenneth L. Schnitzer, Sr.) |
|
DON D. SYKORA Director |
(Don D. Sykora) |
|
JACK T. TROTTER Director |
(Jack T. Trotter) |
|
BERTRAM WOLFE Director |
(Bertram Wolfe) >|
-125-
HOUSTON INDUSTRIES INCORPORATED
HOUSTON LIGHTING & POWER COMPANY
EXHIBITS TO THE ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
INDEX OF EXHIBITS
Exhibits not incorporated by reference to a prior filing are designated by a
cross (+); all exhibits not so designated are incorporated herein by reference
to a prior filing as indicated. Exhibits designated by an asterisk (*) are
management contracts or compensatory plans or arrangements required to be filed
as exhibits to this Form 10-K by Item 601(10)(iii) of Regulation S-K.
(a) Houston Industries Incorporated
<TABLE>
<CAPTION>
Report or SEC File or
Exhibit Registration Registration Exhibit
Number Description Statement Number Reference
- ------- ----------- -------------- ------------ ---------
<S> <C> <C> <C> <C>
2(a) Articles of Merger of Form 10-Q for the 1-7629 2
Houston Industries quarter ended
Finance, Inc. with the June 30, 1993
Company, effective
June 8, 1993
3(a) Restated Articles of Form 10-Q for 1-7629 3
Incorporation of the the quarter ended
Company (Restated as June 30, 1993
of May 1993)
+3(b) Amended and Restated
Bylaws of the Company
(as of February 1, 1995)
4(a)(1) Mortgage and Deed of Form S-7 of HL&P 2-59748 2(b)
Trust dated November filed on August
1, 1944 between HL&P 25, 1977
and South Texas
Commercial National
Bank of Houston (Texas
Commerce Bank National
Association, as successor
trustee), as Trustee, as
amended and supplemented
by 20 Supplemental
Indentures thereto
4(a)(2) Twenty-First through HL&P's Form 10-K 1-3187 4(a)(2)
Fiftieth Supplemental for the year ended
Indentures to HL&P December 31, 1989
Mortgage and Deed of
Trust
4(a)(3) Fifty-First Supple- HL&P's Form 10-Q 1-3187 4(a)
mental Indenture dated for the quarter
March 25, 1991 to ended June 30,
HL&P Mortgage and Deed 1991
of Trust
4(a)(4) Fifty-Second through HL&P's Form 10-Q 1-3187 4
Fifty-Fifth Supplemental for the quarter
Indentures, each dated ended March 31,
March 1, 1992, to HL&P 1992
Mortgage and Deed of Trust
-126-
4(a)(5) Fifty-Sixth and Fifty- HL&P's Form 10-Q 1-3187 4
Seventh Supplemental for the quarter
Indentures, each dated ended September 30,
October 1, 1992, to 1992
HL&P Mortgage and Deed
of Trust
4(a)(6) Fifty-Eighth and Fifty- HL&P's Form 10-Q 1-3187 4
Ninth Supplemental for the quarter
Indenture, each dated ended March 31, 1993
as of March 1, 1993 to
HL&P Mortgage and Deed
of Trust
4(a)(7) Sixtieth Supplemental HL&P's Form 10-Q 1-3187 4
Indenture dated as for the quarter
July 1, 1993 to HL&P ended June 30, 1993
Mortgage and Deed of
Trust
4(a)(8) Sixty-First through HL&P's Form 10-K 1-3187 4(a)(8)
Sixty-Third Supplemental for the year ended
Indentures to HL&P December 31, 1993
Mortgage and Deed of
Trust
4(b)(1) Rights Agreement dated Form 8-K dated 1-7629 4(a)(1)
July 11, 1990 between July 11, 1990
the Company and Texas
Commerce Bank National
Association, as Rights
Agent (Rights Agent),
which includes form of
Statement of Resolution
Establishing Series of
Shares designated Series
A Preference Stock and
form of Rights Certificate
4(b)(2) Agreement and Appoint- Form 8-K dated 1-7629 4(a)(2)
ment of Agent dated July 11, 1990
as of July 11, 1990
between the Company
and the Rights Agent
4(c) Indenture dated as of Form 10-Q for 1-7629 4(b)
April 1, 1991 between the quarter ended
the Company and June 30, 1991
NationsBank of Texas,
National Association,
as Trustee
4(d) Agreement and Plan Form 8-K dated 1-7629 2(a)
of Merger dated as of January 26, 1995
January 26, 1995 among
KBLCOM, the Company,
Time Warner and TW
KBLCOM Acquisition Corp.
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has not filed
as exhibits to this Form 10-K certain long-term debt instruments, under which
the total amount of securities authorized do not exceed 10 percent of the total
assets of the Company and its subsidiaries on a consolidated basis. The Company
hereby agrees to furnish a copy of any such instrument to the SEC upon request.
*10(a) Executive Benefit Plan Form 10-Q for the 1-7629 10(a)(1)
of the Company and First quarter ended 10(a)(2)
and Second Amendments March 31, 1987 and
thereto (effective as 10(a)(3)
of June 2, 1982, July 1,
1984, May 7, 1986,
respectively)
-127-
*10(b)(1) Executive Incentive Form 10-K for the 1-7629 10(b)
Compensation Plan of year ended
the Company (effective December 31, 1991
as of January 1, 1982)
*10(b)(2) First Amendment to Form 10-Q for the 1-7629 10(a)
Exhibit 10(b)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
*10(b)(3) Second Amendment to Form 10-K for the 1-7629 10(b)(3)
Exhibit 10(b)(1) year ended
(effective as of December 31, 1992
November 4, 1992)
+*10(b)(4) Third Amendment to
Exhibit 10(b)(1)
(effective as of
September 7, 1994)
*10(c)(1) Executive Incentive Form 10-Q for the 1-7629 10(b)(1)
Compensation Plan quarter ended
of the Company March 31, 1987
(effective as of
January 1, 1985)
*10(c)(2) First Amendment to Form 10-K for the 1-7629 10(b)(3)
Exhibit 10(c)(1) year ended
(effective as of December 31, 1988
January 1, 1985)
*10(c)(3) Second Amendment to Form 10-K for 1-7629 10(c)(3)
Exhibit 10(c)(1) the year ended
(effective as of December 31, 1991
January 1, 1985)
*10(c)(4) Third Amendment to Form 10-Q for the 1-7629 10(b)
Exhibit 10(c)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
*10(c)(5) Fourth Amendment to Form 10-K for 1-7629 10(c)(5)
Exhibit 10(c)(1) the year ended
(effective as of December 31, 1992
November 4, 1992)
+*10(c)(6) Fifth Amendment to
Exhibit 10(c)(1)
(effective as of
September 7, 1994)
*10(d) Executive Incentive Form 10-Q for the 1-7629 10(b)(2)
Compensation Plan of quarter ended
HL&P (effective as March 31, 1987
of January 1, 1985)
*10(e)(1) Executive Incentive Form 10-Q for the 1-7629 10(b)
Compensation Plan quarter ended
of the Company June 30, 1989
(effective as of
January 1, 1989)
*10(e)(2) First Amendment to Form 10-K for the 1-7629 10(e)(2)
Exhibit 10(e)(1) year ended
(effective as of December 31, 1991
January 1, 1989)
*10(e)(3) Second Amendment to Form 10-Q for the 1-7629 10(c)
Exhibit 10(e)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
-128-
*10(e)(4) Third Amendment to Form 10-K for 1-7629 10(c)(4)
Exhibit 10(e)(1) the year ended
(effective as of December 31, 1992
November 4, 1992)
+*10(e)(5) Fourth Amendment to
Exhibit 10(e)(1)
(effective as of
September 7, 1994)
*10(f)(1) Executive Incentive Form 10-K for the 1-7629 10(b)
Compensation Plan of year ended
the Company (effec- December 31, 1990
tive as of January 1,
1991)
*10(f)(2) First Amendment to Form 10-K for the 1-7629 10(f)(2)
Exhibit 10(f)(1) year ended
(effective as of December 31, 1991
January 1, 1991)
*10(f)(3) Second Amendment to Form 10-Q for the 1-7629 10(d)
Exhibit 10(f)(1) quarter ended
(effective as of March 31, 1992
January 1, 1991)
*10(f)(4) Third Amendment to Form 10-K for 1-7629 10(f)(4)
Exhibit 10(f)(1) the year ended
(effective as of December 31, 1992
November 4, 1992)
*10(f)(5) Fourth Amendment to Form 10-K for 1-7629 10(f)(5)
Exhibit 10(f)(1) the year ended
(effective as of December 31, 1992
January 1, 1993)
+*10(f)(6) Fifth Amendment to
Exhibit 10(f)(1)
(effective as of
September 7, 1994)
*10(g)(1) Benefit Restoration Form 10-Q for the 1-7629 10(c)
Plan of the Company quarter ended
(effective as of March 31, 1987
June 1, 1985)
*10(g)(2) Benefit Restoration Form 10-K for 1-7629 10(g)(2)
Plan of the Company the year ended
as amended and re- December 31, 1991
stated (effective as
of January 1, 1988)
*10(g)(3) Benefit Restoration Form 10-K for 1-7629 10(g)(3)
Plan of the Company, the year ended
as amended and re- December 31, 1991
stated (effective as
of July 1, 1991)
*10(h)(1) Deferred Compensation Form 10-Q for the 1-7629 10(d)
Plan of the Company quarter ended
(effective as of March 31, 1987
September 1, 1985)
*10(h)(2) First Amendment to Form 10-K for the 1-7629 10(d)(2)
Exhibit 10(h)(1) year ended
(effective as of December 31, 1990
September 1, 1985)
*10(h)(3) Second Amendment to Form 10-Q for the 1-7629 10(e)
Exhibit 10(h)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
-129-
*10(h)(4) Third Amendment to Form 10-K for the 1-7629 10(h)(4)
Exhibit 10(h)(1) year ended
(effective as of December 31, 1993
June 2, 1993)
+*10(h)(5) Fourth Amendment to
Exhibit 10(h)(i)
(effective as of
September 7, 1994)
*10(i)(1) Deferred Compensation Form 10-Q for the 1-7629 10(a)
Plan of the Company quarter ended
(effective as of June 30, 1989
January 1, 1989)
*10(i)(2) First Amendment to Form 10-K for the 1-7629 10(e)(3)
Exhibit 10(i)(1) year ended
(effective as of December 31, 1989
January 1, 1989)
*10(i)(3) Second Amendment to Form 10-Q for the 1-7629 10(f)
Exhibit 10(i)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
*10(i)(4) Third Amendment to Form 10-K for the 1-7629 10(i)(4)
Exhibit 10(i)(1) year ended
(effective as of December 31, 1993
June 2, 1993)
+*10(i)(5) Fourth Amendment to
Exhibit 10(i)(1)
(effective as of
September 7, 1994)
*10(j)(1) Deferred Compensation Form 10-K for the 1-7629 10(d)(3)
Plan of the Company year ended
(effective as of December 31, 1990
January 1, 1991)
*10(j)(2) First Amendment to Form 10-K for the 1-7629 10(j)(2)
Exhibit 10(j)(1) year ended
(effective as of December 31, 1991
January 1, 1991)
*10(j)(3) Second Amendment to Form 10-Q for the 1-7629 10(g)
Exhibit 10(j)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
*10(j)(4) Third Amendment to Form 10-K for the 1-7629 10(j)(4)
Exhibit 10(j)(1) year ended
(effective as of December 31, 1993
June 2, 1993)
*10(j)(5) Fourth Amendment to Form 10-K for the 1-7629 10(j)(5)
Exhibit 10(j)(1) year ended
(effective as of December 31, 1993
December 1, 1993)
+*10(j)(6) Fifth Amendment to
Exhibit 10(j)(1)
(effective as of
September 7, 1994)
*10(k)(1) Long-Term Incentive Form 10-Q for the 1-7629 10(c)
Compensation Plan of quarter ended
the Company (effec- June 30, 1989
tive as of January 1,
1989)
-130-
*10(k)(2) First Amendment to Form 10-K for the 1-7629 10(f)(2)
Exhibit 10(k)(1) year ended
(effective as of December 31, 1989
January 1, 1990)
*10(k)(3) Second Amendment to Form 10-K for the 1-7629 10(k)(3)
Exhibit 10(k)(1) year ended
(effective as of December 31, 1992
December 22, 1992)
*10(l) Form of stock option Form 10-Q for the 1-7629 10(h)
agreement for nonqual- quarter ended
ified stock options March 31, 1992
granted under the
Company's 1989 Long-Term
Incentive Compensation
Plan
*10(m) Forms of restricted Form 10-Q for the 1-7629 10(i)
stock agreement for quarter ended
restricted stock March 31, 1992
granted under the
Company's 1989 Long-Term
Incentive Compensation
Plan
*10(n)(1) 1994 Long-Term Incentive Form 10-K for the 1-7629 10(n)(1)
Compensation Plan of year ended
the Company (effective December 31, 1993
as of January 1, 1994)
*10(n)(2) Form of stock option Form 10-K for the 1-7629 10(n)(2)
agreement for non- year ended
qualified stock options December 31, 1993
granted under the
Company's 1994 Long-Term
Incentive Compensation
Plan
*10(o)(1) Savings Restoration Form 10-K for the 1-7629 10(f)
Plan of the Company year ended
(effective as of December 31, 1990
January 1, 1991)
*10(o)(2) First Amendment to Form 10-K for the 1-7629 10(l)(2)
Exhibit 10(o)(1) year ended
(effective as of December 31, 1991
January 1, 1991)
*10(p) Director Benefits Form 10-K for the 1-7629 10(m)
Plan, effective as year ended
of January 1, 1992 December 31, 1991
*10(q) Executive Life Form 10-K for the 1-7629
Insurance Plan of year ended
the Company December 31, 1993
(effective as of
January 1, 1994)
*10(r) Employment and Form 10-Q for the 1-7629 10(f)
Supplemental Benefits quarter ended
Agreement between March 31, 1987
HL&P and Hugh Rice
Kelly
-131-
10(s)(1) Houston Industries Form 10-Q for the 1-7629 10
Master Savings Trust, quarter ended
as Amended and March 31, 1994
Restated Effective
January 1, 1994,
between the
Company and Texas
Commerce Bank
National Association
10(s)(2) ESOP Trust Agreement Form 10-K for the 1-7629 10(j)(2)
between the Company year ended
and State Street Bank December 31, 1990
and Trust Company,
as ESOP Trustee, dated
October 5, 1990
10(s)(3) Note Purchase Agree- Form 10-K for the 1-7629 10(j)(3)
ment between the year ended
Company and the ESOP December 31, 1990
Trustee, dated as of
October 5, 1990
10(s)(4) Stock Purchase Agree- Form 10-K for the 1-7629 10(j)(4)
ment between the year ended
Company and the ESOP December 31, 1991
Trustee, dated as of
October 5, 1990
*10(t) Agreement dated June 6, Form 10-Q for the 1-7629 10(a)
1994 between the quarter ended
Company and June 30, 1994
Don D. Jordan
*10(u) Agreement dated June 6, Form 10-Q for the 1-7629 10(b)
1994 between the quarter ended
Company and June 30, 1994
Don D. Sykora
+*10(v) Letter Agreement between
the Company and
Jack Trotter
+*10(w) Form of Severance
Agreements dated
December 22, 1994 between
the Company and each of
the following executive
officers: Hugh Rice Kelly,
R. Steve Letbetter and
Lee W. Hogan
+11 Computation of
Earnings Per Common
Share - and Common
Equivalent Share
+12 Computation of Ratios
of Earnings to Fixed
Charges
+21 Subsidiaries of the
Company
+23 Consent of Deloitte &
Touche LLP
+27 Financial Data Schedule
+99(a) Investors' Choice Plan
of the Company (effective
as of March 15, 1995)
-132-
+99(b) First Amendment to Houston
Industries Energy, Inc.
Long-Term Project Incentive
Compensation Plan, effective
March 1, 1995
-133-
(b) Houston Lighting & Power Company
Report or SEC File or
Exhibit Registration Registration Exhibit
Number Description Statement Number Reference
- -------- ----------- ------------- ------------ ---------
2 Articles of Merger of Form 10-Q for the 1-3187 2
Utility Fuels, Inc. quarter ended
with HL&P, effective September 30, 1993
October 8, 1993
3(a) Restated Articles of Form 10-Q for 1-3187 3
Incorporation of HL&P the quarter ended
dated May 11, 1993 June 30, 1993
+3(b) Amended and Restated
Bylaws of HL&P (as
of February 1, 1995)
4(a)(1) Mortgage and Deed of Form S-7 filed on 2-59748 2(b)
Trust dated November August 25, 1977
1, 1944 between HL&P
and South Texas
Commercial National
Bank of Houston (Texas
Commerce Bank National
Association, as
successor trustee), as
Trustee, as amended
and supplemented by 20
Supplemental
Indentures thereto
4(a)(2) Twenty-First through Form 10-K for the 1-3187 4(a)(2)
Fiftieth Supplemental year ended
Indentures to HL&P December 31, 1989
Mortgage and Deed of
Trust
4(a)(3) Fifty-First Supple- Form 10-Q for the 1-3187 4(a)
mental Indenture quarter ended
dated March 25, 1991 June 30, 1991
to HL&P Mortgage
and Deed of Trust
4(a)(4) Fifty-Second through Form 10-Q for the 1-3187 4
Fifty-Fifth Supple- quarter ended
mental Indentures, March 31, 1992
each dated March 1,
1992, to HL&P Mortgage
and Deed of Trust
4(a)(5) Fifty-Sixth and Fifty- Form 10-Q for the 1-3187 4
Seventh Supplemental quarter ended
Indentures, each September 30, 1992
dated October 1,
1992, to HL&P Mortgage
and Deed of Trust
4(a)(6) Fifty-Eighth and Fifty- Form 10-Q for the 1-3187 4
Ninth Supplemental quarter ended
Indentures, each March 31, 1993
dated March 1,
1993, to HL&P Mortgage
and Deed of Trust
-134-
4(a)(7) Sixtieth Supplemental Form 10-Q for the 1-3187 4
Indenture dated as quarter ended
July 1, 1993 to HL&P June 30, 1993
Mortgage and Deed of
Trust
4(a)(8) Sixty-First through HL&P's Form 10-K 1-3187 4(a)(8)
Sixty-Third Supplemental for the year ended
Indentures to HL&P December 31, 1993
Mortgage and Deed of
Trust
There have not been filed as exhibits to this Form 10-K certain long-term debt
instruments, including indentures, under which the total amount of securities do
not exceed 10 percent of the total assets of HL&P. HL&P hereby agrees to furnish
a copy of any such instrument to the SEC upon request.
*10(a) Executive Benefit Plan The Company's 1-7629 10(a)(1)
of the Company and Form 10-Q for the 10(a)(2)
First and Second quarter ended and
Amendments thereto March 31, 1987 10(a)(3)
(effective as of
June 2, 1982, July 1,
1984, May 7, 1986,
respectively)
*10(b)(1) Executive Incentive The Company's 1-7629 10(b)
Compensation Plan of Form 10-K for the
the Company (effective year ended
as of January 1, 1982) December 31, 1991
*10(b)(2) First Amendment to The Company's 1-7629 10(a)
Exhibit 10(b)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992
*10(b)(3) Second Amendment to The Company's 1-7629 10(b)(3)
Exhibit 10(b)(1) Form 10-K for the
(effective as of year ended
November 4, 1992) December 31, 1992
*10(b)(4) Third Amendment to The Company's 1-7629 10(b)(4)
Exhibit 10(b)(1) Form 10-K for the
(effective as of year ended
September 7, 1994) December 31, 1994
*10(c)(1) Executive Incentive The Company's 1-7629 10(b)(1)
Compensation Plan Form 10-Q for the
of the Company quarter ended
(effective as of March 31, 1987
January 1, 1985)
*10(c)(2) First Amendment to The Company's 1-7629 10(b)(3)
Exhibit 10(c)(1) Form 10-K for the
(effective as of year ended
January 1, 1985) December 31, 1988
*10(c)(3) Second Amendment to The Company's 1-7629 10(c)(3)
Exhibit 10(c)(1) Form 10-K for the
(effective as of year ended
January 1, 1985) December 31, 1991
*10(c)(4) Third Amendment to The Company's 1-7629 10(b)
Exhibit 10(c)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992
*10(c)(5) Fourth Amendment to The Company's 1-7629 10(c)(5)
Exhibit 10(c)(1) Form 10-K for the
(effective as of year ended
November 4, 1992) December 31, 1992
-135-
*10(c)(6) Fifth Amendment to The Company's 1-7629 10(c)(6)
Exhibit 10(c)(1) Form 10-K for the
(effective as of year ended
September 7, 1994) December 31, 1994
*10(d) Executive Incentive The Company's 1-7629 10(b)(2)
Compensation Plan of Form 10-Q for the
HL&P (effective as quarter ended
of January 1, 1985) March 31, 1987
*10(e)(1) Executive Incentive The Company's 1-7629 10(b)
Compensation Plan Form 10-Q for the
of the Company quarter ended
(effective as of June 30, 1989
January 1, 1989)
*10(e)(2) First Amendment to The Company's 1-7629 10(e)(2)
Exhibit 10(e)(1) Form 10-K for the
(effective as of year ended
January 1, 1989) December 31, 1991
*10(e)(3) Second Amendment to The Company's 1-7629 10(c)
Exhibit 10(e)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992
*10(e)(4) Third Amendment to The Company's 1-7629 10(c)(4)
Exhibit 10(e)(1) Form 10-K for the
(effective as of year ended
November 4, 1992) December 31, 1992
*10(e)(5) Fourth Amendment to The Company's 1-7629 10(e)(5)
Exhibit 10(e)(1) Form 10-K for the
(effective as of year ended
September 7, 1994) December 31, 1994
*10(f)(1) Executive Incentive The Company's 1-7629 10(b)
Compensation Plan Form 10-K for the
of the Company year ended
(effective as of December 31, 1990
January 1, 1991)
*10(f)(2) First Amendment to The Company's 1-7629 10(f)(2)
Exhibit 10(f)(1) Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1991
*10(f)(3) Second Amendment to The Company's 1-7629 10(d)
Exhibit 10(f)(1) Form 10-Q for the
(effective as of quarter ended
January 1, 1991) March 31, 1992
*10(f)(4) Third Amendment to The Company's 1-7629 10(f)(4)
Exhibit 10(f)(1) Form 10-K for the
(effective as of year ended
November 4, 1992) December 31, 1992
*10(f)(5) Fourth Amendment to The Company's 1-7629 10(f)(5)
Exhibit 10(f)(1) Form 10-K for the
(effective as of year ended
January 1, 1993) December 31, 1992
*10(f)(6) Fifth Amendment to The Company's 1-7629 10(f)(6)
Exhibit 10(f)(1) Form 10-K for the
(effective as of year ended
September 7, 1994) December 31, 1994
*10(g)(1) Benefit Restoration The Company's 1-7629 10(c)
Plan of the Company Form 10-Q for the
(effective as of quarter ended
June 1, 1985) March 31, 1987
-136-
*10(g)(2) Benefit Restoration The Company's 1-7629 10(g)(2)
Plan of the Company Form 10-K for the
as amended and year ended
restated (effective December 31, 1991
as of January 1, 1988)
*10(g)(3) Benefit Restoration The Company's 1-7629 10(g)(3)
Plan of the Company Form 10-K for the
as amended and year ended
restated (effective December 31, 1991
as of July 1, 1991)
*10(h)(1) Deferred Compensation The Company's 1-7629 10(d)
Plan of the Company Form 10-Q for the
(effective as of quarter ended
September 1, 1985) March 31, 1987
*10(h)(2) First Amendment to The Company's 1-7629 10(d)(2)
Exhibit 10(h)(1) Form 10-K for the
(effective as of year ended
September 1, 1985) December 31, 1990
*10(h)(3) Second Amendment to The Company's 1-7629 10(e)
Exhibit 10(h)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992
*10(h)(4) Third Amendment to The Company's 1-7629 10(h)(4)
Exhibit 10(h)(1) Form 10-K for the
(effective as of year ended
June 2, 1993) December 31, 1993
*10(h)(5) Fourth Amendment to The Company's 1-7629 10(h)(5)
Exhibit 10(h)(1) Form 10-K for
effective as of the year ended
September 7, 1994 December 31, 1994
*10(i)(1) Deferred Compensation The Company's 1-7629 10(a)
Plan of the Company Form 10-Q for the
(effective as of quarter ended
January 1, 1989) June 30, 1989
*10(i)(2) First Amendment to The Company's 1-7629 10(e)(3)
Exhibit 10(i)(1) Form 10-K for the
(effective as of year ended
January 1, 1989) December 31, 1989
*10(i)(3) Second Amendment to The Company's 1-7629 10(f)
Exhibit 10(i)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992
*10(i)(4) Third Amendment to The Company's 1-7629 10(i)(4)
Exhibit 10(i)(1) Form 10-K for the
(effective as of year ended
June 2, 1993) December 31, 1993
*10(i)(5) Fourth Amendment to The Company's 1-7629 10(i)(5)
Exhibit 10(i)(1) Form 10-K for
(effective as of the year ended
September 7, 1994) December 31, 1994
*10(j)(1) Deferred Compensation The Company's 1-7629 10(d)(3)
Plan of the Company Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1990
*10(j)(2) First Amendment to The Company's 1-7629 10(j)(2)
Exhibit 10(j)(1) Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1991
*10(j)(3) Second Amendment to The Company's 1-7629 10(g)
-137-
Exhibit 10(j)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992
*10(j)(4) Third Amendment to The Company's 1-7629 10(j)(4)
Exhibit 10(j)(1) Form 10-K for the
(effective as of year ended
June 2, 1993) December 31, 1993
*10(j)(5) Fourth Amendment to The Company's 1-7629 10(j)(5)
Exhibit 10(j)(1) Form 10-K for the
(effective as of year ended
December 1, 1993) December 31, 1993
*10(j)(6) Fifth Amendment to The Company's 1-7629 10(j)(6)
Exhibit 10(j)(1) Form 10-K for
(effective as of the year ended
September 7, 1994) December 31, 1994
*10(k)(1) Long-Term Incentive The Company's 1-7629 10(c)
Compensation Plan of Form 10-Q for the
the Company quarter ended
(effective as of June 30, 1989
January 1, 1989)
*10(k)(2) First Amendment to The Company's 1-7629 10(f)(2)
Exhibit 10(k)(1) Form 10-K for the
(effective as of year ended
January 1, 1990) December 31, 1989
*10(k)(3) Second Amendment to The Company's 1-7629 10(k)(3)
Exhibit 10(k)(1) Form 10-K for the
(effective as of year ended
December 22, 1992) December 31, 1992
*10(l) Form of stock option The Company's 1-7629 10(h)
agreement for nonqual- Form 10-Q for the
ified stock options quarter ended
granted under the March 31, 1992
Company's 1989 Long-Term
Incentive Compensation
Plan
*10(m) Forms of restricted The Company's 1-7629 10(i)
stock agreement for Form 10-Q for the
restricted stock quarter ended
granted under the March 31, 1992
Company's 1989 Long-Term
Incentive Compensation
Plan
*10(n)(1) 1994 Long-Term Incentive The Company's 1-7629 10(n)(1)
Compensation Plan of Form 10-K for the
the Company (effective year ended
as of January 1, 1994) December 31, 1993
*10(n)(2) Form of Stock Option The Company's 1-7629 10(n)(2)
Agreement for Form 10-K for the
Nonqualified Stock year ended
Options Granted December 31, 1993
under the Company's 1994
Long-Term Incentive
Compensation Plan
*10(o)(1) Savings Restoration The Company's 1-7629 10(f)
Plan of the Company Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1990
*10(o)(2) First Amendment to The Company's 1-7629 10(l)(2)
Exhibit 10(o)(1) Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1991
-138-
*10(p) Director Benefits The Company's 1-7629 10(m)
Plan, effective as Form 10-K for the
of January 1, 1992 year ended
December 31, 1991
*10(q) Executive Life The Company's 1-7629 10(q)
Insurance Plan of Form 10-K for the
the Company (effective year ended
as of January 1, 1994) December 31, 1993
*10(r) Employment and The Company's 1-7629 10(f)
Supplemental Benefits Form 10-Q for the
Agreement between HL&P quarter ended
and Hugh Rice Kelly March 31, 1987
10(s)(1) The Company's Master The Company's 1-7629 10
Savings Trust, as Form 10-Q for the
Amended and Restated quarter ended
effective as of March 31, 1994
January 1, 1994,
between the Company
and Texas Commerce Bank
National Association
10(s)(2) ESOP Trust Agreement The Company's 1-7629 10(j)(2)
between Houston Form 10-K for the
Industries and State year ended
Street Bank and Trust December 31, 1990
Company, as ESOP
Trustee, dated
October 5, 1990
10(s)(3) Note Purchase Agreement The Company's 1-7629 10(j)(3)
between the Company Form 10-K for the
and the ESOP Trustee, year ended
dated as of December 31, 1990
October 5, 1990
10(s)(4) Stock Purchase The Company's 1-7629 10(j)(4)
Agreement between Form 10-K for the
the Company and the year ended
ESOP Trustee, dated as December 31, 1991
of October 9, 1990
+*10(t) Employment Agreement
dated April 5, 1993
between HL&P and
William T. Cottle
+*10(u) Form of Severance
Agreements dated
December 22, 1994
between the Company
and the following
executive officers:
Hugh Rice Kelly,
R. Steve Letbetter,
William T. Cottle and
Jack D. Greenwade
+12 Computation of Ratios of
Earnings to Fixed Charges
and Ratios of Earnings
to Fixed Charges and
Preferred Dividends
+23 Consent of Deloitte
& Touche LLP
+27 Financial Data Schedule
-139-
</TABLE>
EXHIBIT 3(b)
AMENDED AND RESTATED BYLAWS
OF
HOUSTON INDUSTRIES INCORPORATED
(Adopted by Resolution of the
Board of Directors on
February 1, 1995)
ARTICLE I
CAPITAL STOCK
SECTION 1. CERTIFICATES REPRESENTING SHARES. The Company shall
deliver certificates representing shares to which shareholders are entitled.
Such certificates shall be signed by the President or a Vice President and
either the Secretary or an Assistant Secretary and shall be sealed with the seal
of the Company or a facsimile thereof. The signatures of such officers upon a
certificate may be facsimiles. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be issued by the
Company with the same effect as if he were such officer at the date of its
issuance.
SECTION 2. SHAREHOLDERS OF RECORD. The Board of Directors of
the Company may appoint one or more transfer agents or registrars of any class
of stock of the Company. The Company shall be entitled to treat the holder of
record of any shares of the Company as the owner thereof for all purposes, and
shall not be bound to recognize any equitable or other claim to, or interest in,
such shares or any rights deriving from such shares, on the part of any other
person, including (but without limitation) a purchaser, assignee or transferee,
unless and until such other person becomes the holder of record of such shares,
whether or not the Company shall have either actual or constructive notice of
the interest of such other person.
SECTION 3. TRANSFER OF SHARES. The shares of the Company shall
be transferable on the stock certificate books of the Company by the holder of
record thereof, or his duly authorized attorney or legal representative, upon
surrender for cancellation of the certificate for such shares. All certificates
surrendered for transfer shall be cancelled and
page 1 of 17
no new certificate shall be issued until a former certificate or certificates
for a like number of shares shall have been surrendered and cancelled except
that in the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such conditions for the protection of
the Company and any transfer agent or registrar as the Board of Directors or the
Secretary may prescribe.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of shareholders
shall be held at the registered office of the Company, in the City of Houston,
Texas, or at such other place within or without the State of Texas as may be
designated by the Board of Directors or officer calling the meeting.
SECTION 2. ANNUAL MEETING. The annual meeting of the
shareholders shall be held on such date not later than June 30 of each year and
at such time as shall be designated from time to time by the Board of Directors.
Failure to hold the annual meeting at the designated time shall not work a
dissolution of the Company.
SECTION 3. SPECIAL MEETINGS. Special meetings of the
shareholders may be called by the President, the Secretary, the Board of
Directors, the holders of not less than one-tenth of all of the shares
outstanding and entitled to vote at such meeting or such other persons as may be
authorized in the Articles of Incorporation.
SECTION 4. NOTICE OF MEETING. Written or printed notice of all
meetings stating the place, day and hour of the meeting and, in case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be delivered to each shareholder of record entitled to vote at such meetings not
less than ten nor more than fifty days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary or
the officer or person calling the meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the stock transfer books of the
Company, with postage thereon prepaid.
SECTION 5. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE.
For the purpose of determining shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, the Board of Directors
may either provide that
page 2 of 17
the stock transfer books shall be closed for a stated period of not less than
ten nor more than fifty days before the meeting, or it may fix in advance a
record date for any such determination of shareholders, such date to be not less
than ten days nor more than fifty days prior to the meeting. If the stock
transfer books are not closed and no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
then the date on which the notice of the meeting is mailed shall be the record
date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
herein provided, such determination shall apply to any adjournment thereof
except where the determination has been made through the closing of the stock
transfer books and the stated period of closing has expired.
SECTION 6. VOTING LIST. The officer or agent having charge of
the stock transfer books for shares of the Company shall make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten days prior to such meeting, shall be kept on
file at the registered office of the Company and shall be subject to inspection
by any shareholder at any time during usual business hours. Such list shall also
be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original stock transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such list or to vote at any meeting
of shareholders. Failure to comply with any requirements of this Section 6 shall
not affect the validity of any action taken at such meeting.
SECTION 7. VOTING AT MEETINGS. Except as otherwise provided in
the Articles of Incorporation of the Company, each holder of shares of capital
stock of the Company entitled to vote shall be entitled to one vote for each
share of such stock, either in person or by proxy executed in writing by him or
by his duly authorized attorney-in-fact. No proxy shall be valid after eleven
months from the date of its execution unless otherwise provided in the proxy. A
proxy shall be revocable unless expressly provided therein to be irrevocable and
unless otherwise made irrevocable by law. At each election for directors, every
holder of shares of the Company entitled to vote shall have the right to vote,
in person or by proxy, the number of shares owned by him for as many persons as
there are directors to be elected, and for whose election he has a right to
vote, but in no event shall he be permitted to cumulate his votes for one or
more directors.
SECTION 8. QUORUM OF SHAREHOLDERS. Except as otherwise
provided in the Articles of Incorporation of the Company, the holders of a
majority of shares entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of
page 3 of 17
shareholders, but, if a quorum is not represented, a majority in interest of
those represented may adjourn the meeting from time to time. Except as otherwise
provided by law, the Articles of Incorporation or these Bylaws, the affirmative
vote of the holders of a majority of the shares entitled to vote and thus
represented at a meeting at which a quorum is present shall be the act of the
shareholders' meeting.
SECTION 9. OFFICERS. The President shall preside at, and the
Secretary shall keep the records of, each meeting of shareholders. In the
absence of either such officer, his duties shall be performed by another officer
of the Company appointed at the meeting.
All determinations of the presiding person at each meeting of
shareholders shall be conclusive unless a matter is determined otherwise upon
motion duly adopted by the affirmative vote of the holders of at least 80% of
the voting power of the shares of capital stock of the Company entitled to vote
in the election of directors held by shareholders present in person or
represented by proxy at such meeting.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND CLASSIFICATION OF BOARD OF DIRECTORS.
The business and affairs of the Company shall be managed by the Board of
Directors. The number of directors that shall constitute the whole Board of
Directors of the Company shall be not less than nine nor more than eighteen as
specified from time to time by the affirmative vote of at least 80% of all
directors then in office at any regular or special meeting of the Board of
Directors called for that purpose. The directors shall be divided into three
classes, Class I, Class II and Class III. Such classes shall be as nearly equal
in number of directors as possible. Each person serving as a director as of July
2, 1986 and each person elected as a director subsequent to such date but prior
to the annual meeting of shareholders to be held in 1987 shall serve for a term
expiring at such annual meeting without regard to class. Thereafter, each
director, other than those who may be elected by the holders of Preference Stock
pursuant to Section 6 of Division A of Article VI of the Articles of
Incorporation of the Company (or elected by such directors to fill a vacancy)
and except as provided in the penultimate paragraph of this Section 1, shall
serve for a term ending on the third annual meeting following the annual meeting
at which such director was elected; provided, however, that the directors
elected as Class I Directors at the annual meeting of shareholders to be held in
1987 shall serve for a term expiring at the annual meeting of shareholders to be
held in 1988, the directors elected as Class II Directors at the annual meeting
of shareholders to be held in 1987 shall serve
page 4 of 17
for a term expiring at the annual meeting of shareholders to be held in 1989 and
the directors elected as Class III Directors at the annual meeting of
shareholders to be held in 1987 shall serve for a term expiring at the annual
meeting of shareholders to be held in 1990. Each director elected by the holders
of Preference Stock pursuant to Section 6 of Division A of Article VI of the
Articles of Incorporation of the Company (or elected by such directors to fill a
vacancy) shall serve for a term ending upon the earlier of the election of his
successor or the termination at any time of a right of the holders of Preference
Stock to elect members of the Board of Directors.
At each annual election, the directors chosen to succeed those
whose terms then expire shall be of the same class as the directors they
succeed, unless, by reason of any intervening changes in the authorized number
of directors, the Board of Directors shall designate one or more directorships
whose term then expires as directorships of another class in order more nearly
to achieve equality of number of directors among the classes.
Notwithstanding the rule that the three classes shall be as
nearly equal in number of directors as possible, in the event of any change in
the authorized number of directors, each director then continuing to serve as
such shall nevertheless continue as a director of the class of which he is a
member until the expiration of his current term, or his prior death,
resignation, disqualification or removal. If any newly created directorship may,
consistent with the rule that the three classes shall be as nearly equal in
number of directors as possible, be allocated to any of the three classes, the
Board of Directors shall allocate it to that available class whose term of
office is due to expire at the earliest date following such allocation. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
No person shall be eligible to serve as a director of the
Company subsequent to the annual meeting of the shareholders on or immediately
following such person's seventieth birthday, except that a Board member who has
special technical expertise in the nuclear power field shall be eligible to
serve for no more than one additional year should any Company or subsidiary
nuclear facility have been under special or enhanced scrutiny by the Nuclear
Regulatory Commission within one year preceding such person's seventieth
birthday and such person is otherwise specifically authorized to be eligible to
serve by the affirmative vote of at least 80% of all directors then in office.
No person shall be eligible to stand for reelection at the annual meeting of
shareholders on or immediately following the tenth anniversary of such person's
initial election or appointment to the Board of Directors. Any vacancy on the
Board of Directors resulting from any director being rendered ineligible to
serve as a director of the Company by the immediately preceding two sentences
shall be filled by the shareholders entitled to vote thereon at such annual
meeting of shareholders. Any director chosen to succeed a
page 5 of 17
director who is so rendered ineligible to serve as a director of the Company
shall be of the same class as the director he succeeds. Notwithstanding the rule
that a director may not stand for reelection at the annual meeting of
shareholders on or immediately following the tenth anniversary of such person's
initial election or appointment to the Board of Directors, an incumbent director
may nevertheless continue as a director until the expiration of his current
term, or his prior death, resignation, disqualification or removal; provided,
however, that no person serving as a director as of April 1, 1992 shall be
affected by such term limitation provision, nor shall such term limitation
provision apply to directors who are also employees of the Company or its
corporate affiliates.
The above notwithstanding, each director shall serve until his
successor shall have been duly elected and qualified, unless he shall resign,
become disqualified, disabled or shall otherwise be removed.
SECTION 2. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly
created directorships resulting from any increase in the number of directors may
be filled by the affirmative vote of a majority of the directors then in office
for a term of office continuing only until the next election of one or more
directors by the shareholders entitled to vote thereon; provided, however, that
the Board of Directors shall not fill more than two such directorships during
the period between two successive annual meetings of shareholders. Except as
provided in Section 1 of this Article III, any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. Any director elected to fill any such vacancy shall hold office for
the remainder of the full term of the director whose departure from the Board of
Directors created the vacancy and until such newly elected director's successor
shall have been duly elected and qualified.
Notwithstanding the foregoing paragraph of this Section 2,
whenever holders of outstanding shares of Preference Stock are entitled to elect
members of the Board of Directors pursuant to the provisions of Section 6 of
Division A of Article VI of the Articles of Incorporation of the Company, any
vacancy or vacancies resulting by reason of the death, resignation,
disqualification or removal of any director or directors or any increase in the
number of directors shall be filled in accordance with the provisions of such
section.
SECTION 3. NOMINATION OF DIRECTORS. Nominations for the
election of directors may be made by the Board of Directors or by any
shareholder (a "Nominator") entitled to vote in the election of directors. Such
nominations, other than those made by the Board of Directors, shall be made in
writing pursuant to timely notice delivered to or mailed and received by the
Secretary of the Company as set forth in this Section 3.
page 6 of 17
To be timely in connection with an annual meeting of shareholders, a Nominator's
notice, setting forth the name and address of the person to be nominated, shall
be delivered to or mailed and received at the principal executive offices of the
Company not less than ninety days nor more than 180 days prior to the date on
which the immediately preceding year's annual meeting of shareholders was held.
To be timely in connection with any election of a director at a special meeting
of the shareholders, a Nominator's notice, setting forth the name of the person
to be nominated, shall be delivered to or mailed and received at the principal
executive offices of the Company not less than forty days nor more than sixty
days prior to the date of such meeting; provided, however, that in the event
that less than fifty days' notice or prior public disclosure of the date of the
special meeting of the shareholders is given or made to the shareholders, the
Nominator's notice to be timely must be so received not later than the close of
business on the seventh day following the day on which such notice of date of
the meeting was mailed or such public disclosure was made. At such time, the
Nominator shall also submit written evidence, reasonably satisfactory to the
Secretary of the Company, that the Nominator is a shareholder of the Company and
shall identify in writing (a) the name and address of the Nominator, (b) the
number of shares of each class of capital stock of the Company owned
beneficially by the Nominator, (c) the name and address of each of the persons
with whom the Nominator is acting in concert, (d) the number of shares of
capital stock beneficially owned by each such person with whom the Nominator is
acting in concert, and (e) a description of all arrangements or understandings
between the Nominator and each nominee and any other persons with whom the
Nominator is acting in concert pursuant to which the nomination or nominations
are to be made. At such time, the Nominator shall also submit in writing (i) the
information with respect to each such proposed nominee that would be required to
be provided in a proxy statement prepared in accordance with Regulation 14A
under the Securities Exchange Act of 1934, as amended, and (ii) a notarized
affidavit executed by each such proposed nominee to the effect that, if elected
as a member of the Board of Directors, he will serve and that he is eligible for
election as a member of the Board of Directors. Within thirty days (or such
shorter time period that may exist prior to the date of the meeting) after the
Nominator has submitted the aforesaid items to the Secretary of the Company, the
Secretary of the Company shall determine whether the evidence of the Nominator's
status as a shareholder submitted by the Nominator is reasonably satisfactory
and shall notify the Nominator in writing of his determination. The failure of
the Secretary of the Company to find such evidence reasonably satisfactory, or
the failure of the Nominator to submit the requisite information in the form or
within the time indicated, shall make the person to be nominated ineligible for
nomination at the meeting at which such person is proposed to be nominated. The
presiding person at each meeting of shareholders shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare to the
page 7 of 17
meeting and the defective nomination shall be disregarded. Beneficial ownership
shall be determined in accordance with Section 6 of Article VII of these Bylaws.
SECTION 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE.
Meetings of the Board of Directors may be held either within or without the
State of Texas, at whatever place is specified by the officer calling the
meeting. Meetings of the Board of Directors may also be held by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in such
a meeting by means of conference telephone or similar communications equipment
shall constitute presence in person at such meeting, except where a director
participates in a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened. In the absence of specific designation by the officer
calling the meeting, the meetings shall be held at the registered office of the
Company in the City of Houston, Texas.
SECTION 5. REGULAR MEETINGS. The Board of Directors shall meet
each year immediately following the annual meeting of the shareholders at the
place of such meeting, for the transaction of such business as may properly be
brought before the meeting. The Board of Directors shall also meet regularly at
least each quarter at such time as shall be established by resolution of the
Board of Directors. No notice of any kind to either old or new members of the
Board of Directors for such annual or regular meetings shall be necessary.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time upon the call of the President or the
Secretary of the Company or a majority of the directors then in office. Notice
shall be sent by mail or telegram to the last known address of the director at
least two days before the meeting, or oral notice may be substituted for such
written notice if received not later than the day preceding such meeting. Notice
of the time, place and purpose of such meeting may be waived in writing before
or after such meeting, and shall be equivalent to the giving of notice.
Attendance of a director at such meeting shall also constitute a waiver of
notice thereof, except where he attends for the announced purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened. Except as otherwise provided by these Bylaws,
neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
SECTION 7. QUORUM AND VOTING. Except as otherwise provided by
law, the Articles of Incorporation of the Company or these Bylaws, a majority of
the number of directors fixed in the manner provided in these Bylaws as from
time to time amended
page 8 of 17
shall constitute a quorum for the transaction of business. Except as otherwise
provided by law, the Articles of Incorporation of the Company or these Bylaws,
the affirmative vote of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. Any regular
or special directors' meeting may be adjourned from time to time by those
present, whether a quorum is present or not.
SECTION 8. COMPENSATION. Directors shall receive such
compensation for their services as shall be determined by the Board of
Directors.
SECTION 9. REMOVAL. No director of the Company shall be
removed from his office as a director by vote or other action of the
shareholders or otherwise except (a) with cause, as defined below, by the
affirmative vote of the holders of at least a majority of the voting power of
all outstanding shares of capital stock of the Company entitled to vote in the
election of directors, voting together as a single class, or (b) without cause
by (i) the affirmative vote of at least 80% of all directors then in office at
any regular or special meeting of the Board of Directors called for that purpose
or (ii) the affirmative vote of the holders of at least 80% of the voting power
of all outstanding shares of capital stock of the Company entitled to vote in
the election of directors, voting together as a single class.
Except as may otherwise be provided by law, cause for removal
of a director shall be construed to exist only if: (a) the director whose
removal is proposed has been convicted, or where a director is granted immunity
to testify where another has been convicted, of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal; (b) such
director has been found by the affirmative vote of at least 80% of all directors
then in office at any regular or special meeting of the Board of Directors
called for that purpose or by a court of competent jurisdiction to have been
negligent or guilty of misconduct in the performance of his duties to the
Company in a matter of substantial importance to the Company; or (c) such
director has been adjudicated by a court of competent jurisdiction to be
mentally incompetent, which mental incompetency directly affects his ability as
a director of the Company.
Notwithstanding the first paragraph of this Section 9,
whenever holders of outstanding shares of Preference Stock are entitled to elect
members of the Board of Directors pursuant to the provisions of Section 6 of
Division A of Article VI of the Articles of Incorporation of the Company, any
director of the Company may be removed in accordance with the provisions of such
section.
No proposal by a shareholder to remove a director of the
Company, regardless of whether such director was elected by holders of
outstanding shares of Preference Stock (or elected by such directors to fill a
vacancy), shall be voted upon at a meeting
page 9 of 17
of the shareholders unless such shareholder shall have delivered or mailed in a
timely manner (as set forth in this Section 9) and in writing to the Secretary
of the Company (a) notice of such proposal, (b) a statement of the grounds, if
any, on which such director is proposed to be removed, (c) evidence, reasonably
satisfactory to the Secretary of the Company, of such shareholder's status as
such and of the number of shares of each class of the capital stock of the
Company beneficially owned by such shareholder, (d) a list of the names and
addresses of other beneficial owners of shares of the capital stock of the
Company, if any, with whom such shareholder is acting in concert, and of the
number of shares of each class of the capital stock of the Company beneficially
owned by each such beneficial owner, and (e) an opinion of counsel, which
counsel and the form and substance of which opinion shall be reasonably
satisfactory to the Board of Directors of the Company (excluding the director
proposed to be removed), to the effect that, if adopted at a duly called special
or annual meeting of the shareholders of the Company by the required vote as set
forth in the first paragraph of this Section 9, such removal would not be in
conflict with the laws of the State of Texas, the Articles of Incorporation of
the Company or these Bylaws. To be timely in connection with an annual meeting
of shareholders, a shareholder's notice and other aforesaid items shall be
delivered to or mailed and received at the principal executive offices of the
Company not less than ninety nor more than 180 days prior to the date on which
the immediately preceding year's annual meeting of shareholders was held. To be
timely in connection with the removal of any director at a special meeting of
the shareholders, a shareholder's notice and other aforesaid items shall be
delivered to or mailed and received at the principal executive offices of the
Company not less than forty days nor more than sixty days prior to the date of
such meeting; provided, however, that in the event that less than fifty days'
notice or prior public disclosure of the date of the special meeting of
shareholders is given or made to the shareholders, the shareholder's notice and
other aforesaid items to be timely must be so received not later than the close
of business on the seventh day following the day on which such notice of date of
the meeting was mailed or such public disclosure was made. Within thirty days
(or such shorter period that may exist prior to the date of the meeting) after
such shareholder shall have delivered the aforesaid items to the Secretary of
the Company, the Secretary and the Board of Directors of the Company shall
respectively determine whether the items to be ruled upon by them are reasonably
satisfactory and shall notify such shareholder in writing of their respective
determinations. If such shareholder fails to submit a required item in the form
or within the time indicated, or if the Secretary or the Board of Directors of
the Company determines that the items to be ruled upon by them are not
reasonably satisfactory, then such proposal by such shareholder may not be voted
upon by the shareholders of the Company at such meeting of shareholders. The
presiding person at each meeting of shareholders shall, if the facts warrant,
determine and declare to the meeting that a proposal to remove a director of the
Company was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare to the meeting and
the defective
page 10 of 17
proposal shall be disregarded. Beneficial ownership shall be determined as
specified in Section 6 of Article VII of these Bylaws.
SECTION 10. EXECUTIVE AND OTHER COMMITTEES. The Board of
Directors, by resolution adopted by a majority of the full Board of Directors,
may designate from among its members an executive committee and two or more
other committees, each of which shall be comprised of two or more members and,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Directors.
Notwithstanding the foregoing paragraph of this Section 10, no
such committee shall have the authority of the Board of Directors to:
(a) amend the Articles of Incorporation of the Company;
(b) amend, alter or repeal the Bylaws of the Company or
adopt new Bylaws for the Company;
(c) alter or repeal any resolution of the Board of
Directors;
(d) approve a plan of merger or consolidation;
(e) take definitive action on any reclassification or
exchange of securities, or repurchase by the Company of any
of its equity securities;
(f) declare a dividend on the capital stock of the
Company;
(g) call a special meeting of the shareholders;
(h) recommend any proposal to the shareholders for
action by the shareholders;
(i) fill vacancies in the Board of Directors or any
such committee;
(j) fill any directorship to be filled by reason of an
increase in the number of directors;
(k) elect or remove officers or members of any such
committee; or
(l) fix the compensation of any member of such
committee.
page 11 of 17
The designation of any such committee and the delegation
thereto of authority shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed upon it or him by law, nor shall
such committee function where action of the Board of Directors is required under
applicable law. The Board of Directors shall have the power at any time to
change the membership of any such committee and to fill vacancies in it. A
majority of the members of any such committee shall constitute a quorum. Each
such committee may elect a chairman and appoint such subcommittees and
assistants as it may deem necessary. Except as otherwise provided by the Board
of Directors, meetings of any committee shall be conducted in accordance with
the provisions of Sections 4 and 6 of this Article III as the same shall from
time to time be amended. Any member of any such committee elected or appointed
by the Board of Directors may be removed by the Board of Directors whenever in
its judgment the best interests of the Company will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of a member of a committee shall not of
itself create contract rights.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Company shall consist
of a President, one or more Vice Presidents, a Secretary and a Treasurer, each
of whom shall be elected by the Board of Directors. Such other officers,
including assistant officers and agents, as may be deemed necessary may be
elected or appointed by the Board of Directors. Any two or more offices may be
held by the same person. The officers of the Company shall have such powers and
duties as generally pertain to their offices, respectively, as well as such
powers and duties as from time to time shall be conferred by the Board of
Directors.
SECTION 2. VACANCIES. Whenever any vacancies shall occur in
any office by death, resignation, increase in the number of offices of the
Company, or otherwise, the officer so elected shall hold office until his
successor is chosen and qualified. The Board of Directors may at any time remove
any officer of the Company, whenever in its judgment the best interests of the
Company will be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed. Election or appointment
of an officer or agent shall not of itself create contract rights.
page 12 of 17
ARTICLE V
INDEMNIFICATION
SECTION 1. GENERAL. Each person who at any time shall serve,
or shall have served, as a director, officer, employee or agent of the Company,
or any person who, while a director, officer, employee or agent of the Company,
is or was serving at its request as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise, shall be entitled to indemnification
as, and to the fullest extent, permitted by Article 2.02-1 of the Texas Business
Corporation Act or any successor statutory provision, as from time to time
amended. The foregoing right of indemnification shall not be deemed exclusive of
any other rights to which those to be indemnified may be entitled as a matter of
law or under any agreement, vote of shareholders or disinterested directors, or
other arrangement.
SECTION 2. INSURANCE. The Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company or is or was serving at the request of the Company as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise against any liability asserted against him and incurred by him in
such capacity or arising out of his status as such a person, whether or not the
Company would have the power to indemnify him against that liability under this
Article V or the Texas Business Corporation Act.
ARTICLE VI
CONTRACTS AND TRANSACTIONS WITH DIRECTORS AND OFFICERS
SECTION 1. GENERAL PROCEDURE. No contract or transaction
between the Company and one or more of its directors or officers, or between the
Company and any other corporation, partnership, association or other
organization in which one or more of the Company's directors or officers are
directors or officers or have a financial interest, shall be void or voidable
solely for this reason, solely because the director or officer is present at or
participates in the meeting of the Company's Board of Directors or committee
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if:
page 13 of 17
(a) The material facts as to his relationship or
interest and as to the contract or transaction are disclosed
or are known to the Board of Directors or the committee, and
the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the
disinterested directors constitute less than a quorum; or
(b) The material facts as to his relationship or
interest and as to the contract or transaction are disclosed
or are known to the shareholders entitled to vote thereon,
and the contract or transaction is specifically approved in
good faith by vote of the shareholders; or
(c) The contract or transaction is fair to the Company
as of the time it is authorized, approved or ratified by the
Board of Directors, the committee thereof, or the
shareholders.
SECTION 2. DETERMINATION OF QUORUM. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction as provided in Section 1 of this Article VI.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 1. OFFICES. The principal office of the Company shall
be located in Houston, Texas, unless and until changed by resolution of the
Board of Directors. The Company may also have offices at such other places as
the Board of Directors may designate from time to time, or as the business of
the Company may require. The principal office and registered office may be, but
need not be, the same.
SECTION 2. RESIGNATIONS. Any director or officer may resign at
any time. Such resignations shall be made in writing and shall take effect at
the time specified therein, or, if no time be specified, at the time of its
receipt by the President or Secretary. The acceptance of a resignation shall not
be necessary to make it effective, unless expressly so provided in the
resignation.
page 14 of 17
SECTION 3. FIXING RECORD DATES FOR PAYMENT OF DIVIDENDS AND
OTHER PURPOSES. For the purpose of determining shareholders entitled to receive
payment of any dividend or in order to make a determination of shareholders for
any other proper purpose, the Board of Directors of the Company may provide that
the stock transfer books shall be closed for a stated period but not to exceed,
in any case, fifty days. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date to be not more than fifty days prior to
the date on which the particular action requiring such determination of
shareholders is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of shareholders entitled to receive
payment of a dividend, then the date on which the resolution of the Board of
Directors declaring such dividend is adopted shall be the record date for such
determination of shareholders.
SECTION 4. SEAL. The seal of the Company shall be circular in
form, with the name "HOUSTON INDUSTRIES INCORPORATED."
SECTION 5. SEPARABILITY. If one or more of the provisions of
these Bylaws shall be held to be invalid, illegal or unenforceable, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof and these Bylaws shall be construed as if such invalid, illegal or
unenforceable provision or provisions had never been contained herein.
SECTION 6. DEFINITION OF BENEFICIAL OWNER. "Beneficial Owner"
as used in these Bylaws means any of the following:
(a) a person who individually or with any of his
affiliates or associates beneficially owns (within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) any capital stock of the Company, directly or
indirectly;
(b) a person who individually or with any of his
affiliates or associates has either of the following rights:
(i) to acquire capital stock of the Company,
whether such right is exercisable immediately or only
after the passage of time, pursuant to any agreement,
arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or
options, or otherwise,
(ii) to vote capital stock of the Company
pursuant to any agreement, arrangement or
understanding; or
page 15 of 17
(c) a person who has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing capital stock of the Company with any other person
who beneficially owns or whose affiliates beneficially own
(within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended), directly or indirectly,
such shares of capital stock.
ARTICLE VIII
AMENDMENT OF BYLAWS
SECTION 1. VOTE REQUIREMENTS. The Board of Directors shall
have the power to alter, amend or repeal the Bylaws or adopt new Bylaws by the
affirmative vote of at least 80% of all directors then in office at any regular
or special meeting of the Board of Directors called for that purpose, subject to
repeal or change by the affirmative vote of the holders of at least 80% of the
voting power of all the shares of the Company entitled to vote in the election
of directors, voting together as a single class.
SECTION 2. SHAREHOLDER PROPOSALS. No proposal by a shareholder
made pursuant to Section 1 of this Article VIII may be voted upon at a meeting
of shareholders unless such shareholder shall have delivered or mailed in a
timely manner (as set forth in this Section 2) and in writing to the Secretary
of the Company (a) notice of such proposal and the text of the proposed
alteration, amendment or repeal, (b) evidence reasonably satisfactory to the
Secretary of the Company, of such shareholder's status as such and of the number
of shares of each class of capital stock of the Company of which such
shareholder is the beneficial owner, (c) a list of the names and addresses of
other beneficial owners of shares of the capital stock of the Company, if any,
with whom such shareholder is acting in concert, and the number of shares of
each class of capital stock of the Company beneficially owned by each such
beneficial owner and (d) an opinion of counsel, which counsel and the form and
substance of which opinion shall be reasonably satisfactory to the Board of
Directors of the Company, to the effect that the Bylaws (if any) resulting from
the adoption of such proposal would not be in conflict with the Articles of
Incorporation of the Company or the laws of the State of Texas. To be timely in
connection with an annual meeting of shareholders, a shareholder's notice and
other aforesaid items shall be delivered to or mailed and received at the
principal executive offices of the Company not less than ninety nor more than
180 days prior to the date on which the immediately preceding year's annual
meeting of shareholders was held. To be timely in connection with the voting on
any such proposal at a special meeting of the shareholders, a shareholder's
notice and other aforesaid items shall be delivered to or
page 16 of 17
mailed and received at the principal executive offices of the Company not less
than forty days nor more than sixty days prior to the date of such meeting;
provided, however, that in the event that less than fifty days' notice or prior
public disclosure of the date of the special meeting of the shareholders is
given or made to the shareholders, the shareholder's notice and other aforesaid
items to be timely must be so received not later than the close of business on
the seventh day following the day on which such notice of date of the meeting
was mailed or such public disclosure was made. Within thirty days (or such
shorter period that may exist prior to the date of the meeting) after such
shareholder shall have submitted the aforesaid items, the Secretary and the
Board of Directors of the Company shall respectively determine whether the items
to be ruled upon by them are reasonably satisfactory and shall notify such
shareholder in writing of their respective determinations. If such shareholder
fails to submit a required item in the form or within the time indicated, or if
the Secretary or the Board of Directors of the Company determines that the items
to be ruled upon by them are not reasonably satisfactory, then such proposal by
such shareholder may not be voted upon by the shareholders of the Company at
such meeting of shareholders. The presiding person at each meeting of
shareholders shall, if the facts warrant, determine and declare to the meeting
that a proposal made pursuant to Section 1 of this Article VIII was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare to the meeting and the defective proposal shall
be disregarded. Beneficial ownership shall be determined in accordance with
Section 6 of Article VII of these Bylaws.
HOUSTON INDUSTRIES INCORPORATED
EXECUTIVE INCENTIVE COMPENSATION PLAN
(As Established Effective January 1, 1982)
THIRD AMENDMENT
Houston Industries Incorporated, a Texas corporation (the
"Company"), having adopted the Houston Lighting & Power Company Executive
Incentive Compensation Plan, as established effective January 1, 1982 (the
"Plan"), and having reserved the right under Section 13 thereof to amend the
Plan, does hereby amend Section 9 of the Plan, effective September 7, 1994, to
read as follows:
"9. NON-ALIENATION OF BENEFITS. No right or benefit under this Plan
shall be subject to anticipation, alienation, transfer, sale, assignment,
pledge, encumbrance or charge, whether voluntary, involuntary, direct or
indirect, by operation of law or otherwise, including, without limitation,
a change in beneficial interest of any trust and a change in ownership of
a corporation or partnership, but not including a change of legal and
beneficial title of a right or benefit resulting from the death of any
Participant or the spouse of any Participant (any such proscribed
transaction hereinafter a 'Disposition') and any attempted Disposition
will be null and void. No right or benefit hereunder shall in any manner
be liable for or subject to any debts, contracts, liabilities, or torts of
any Participant or other person entitled to such benefits. The foregoing
provisions of this Section 9 shall not apply to a domestic relations order
awarding any benefits under the Plan to the divorced spouse of a
Participant. The foregoing provisions of this Section 9 shall also not
apply to an irrevocable Disposition of a right or benefit under this Plan
to a 'Permitted Assignee', as defined below, by (i) a Participant age 55
or older (an 'Eligible Participant'), or (ii) a 'Permitted Assignee', as
defined below, who has received an assignment from an Eligible Participant
pursuant to this sentence.
(a) PERMITTED ASSIGNEE. The term 'Permitted Assignee'
shall mean:
(i) The Eligible Participant;
(ii) A spouse of the Eligible Participant;
-1-
(iii) Any person who is a lineal ascendant or descendant
of the Eligible Participant or the Eligible Participant's
spouse;
(iv) Any brother or sister of the Eligible Participant;
(v) Any spouse of any individual described in
subparagraph (iii) or (iv);
(vi) A trustee of any trust which, at the applicable
time, is 100% Actuarially Held for a Permitted Assignee or
Assignees (as defined in Section 9(c));
(vii) Any corporation in which, at the applicable time,
each class of stock is 100% owned by a Permitted Assignee or
Permitted Assignees;
(viii) Any partnership in which, at the applicable time,
each class of partnership interest is 100% owned by a
Permitted Assignee or Permitted Assignees; or
(ix) Any limited liability company or other form of
incorporated or unincorporated business organization in which
each class of stock, membership or other equity interest is
100% owned by a Permitted Assignee or Assignees.
(b) SUBSEQUENT ASSIGNEES. This Section 9 shall be fully
applicable to all Permitted Assignees, and the provisions of this
Section 9 shall be fully applicable to any right or benefit
transferred by an Eligible Participant to any Permitted Assignee as
if such Permitted Assignee were an Eligible Participant; provided,
however, that no Permitted Assignee shall be deemed an Eligible
Participant for determining the persons who constitute Permitted
Assignees under Section 9(a). Any Permitted Assignee acquiring a
right or benefit under this Plan shall execute and deliver to the
Committee an Agreement pursuant to which such Permitted Assignee
agrees to be bound by all of the terms and provisions of the Plan,
provided that the failure to execute and deliver such an Agreement
shall not be deemed to relieve such Permitted Assignee of the
restrictions imposed by the Plan. Any attempted Disposition of a
right or benefit under this Plan in breach of this Section 9,
whether voluntary, involuntary, by operation of law or otherwise
shall be null and void.
-2-
(c) ACTUARIALLY HELD. In making the determination whether a
trust is 100% Actuarially Held for Permitted Assignee(s), a trust,
at the applicable point in time, is 100% Actuarially Held for
Permitted Assignee or Assignees when 100% of the actuarial value of
the beneficial interests of the trust, except as provided in the
following sentence, are held for a Permitted Assignee or Permitted
Assignees. For purposes of making the determination described above,
the possibility that an interest in a trust may be appointed
pursuant to a special or general power of appointment shall be
ignored; provided, that the actual exercise of any such power of
appointment shall not be ignored."
IN WITNESS WHEREOF, Houston Industries Incorporated has caused these
presents to be executed by its duly authorized officer in a number of copies,
all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy hereof, this 9th day of March, 1995,
but effective as of the date specified herein.
HOUSTON INDUSTRIES INCORPORATED
By /s/ D. D. SYKORA
D. D. Sykora
President and Chief Operating
Officer
ATTEST
/s/ R. B. DAUPHIN
Assistant Corporate Secretary
-3-
HOUSTON INDUSTRIES INCORPORATED
EXECUTIVE INCENTIVE COMPENSATION PLAN
(As Amended and Restated Effective January 1, 1985)
FIFTH AMENDMENT
Houston Industries Incorporated, a Texas corporation (the
"Company"), having amended and restated the Houston Industries Incorporated
Executive Incentive Compensation Plan, effective January 1, 1985 (the "Plan"),
and having reserved the right under Section 18 thereof to amend the Plan, does
hereby amend Section 12 of the Plan, effective September 7, 1994, to read as
follows:
"12. NON-ALIENATION OF BENEFITS. No right or benefit under
this Plan shall be subject to anticipation, alienation, transfer,
sale, assignment, pledge, encumbrance or charge, whether
voluntary, involuntary, direct or indirect, by operation of law
or otherwise, including, without limitation, a change in
beneficial interest of any trust and a change in ownership of a
corporation or partnership, but not including a change of legal
and beneficial title of a right or benefit resulting from the
death of any Participant or the spouse of any Participant (any
such proscribed transaction hereinafter a 'Disposition') and any
attempted Disposition will be null and void. No right or benefit
hereunder shall in any manner be liable for or subject to any
debts, contracts, liabilities, or torts of any Participant or
other person entitled to such benefits. The foregoing provisions
of this Section 12 shall not apply to a domestic relations order
awarding any benefits under the Plan to the divorced spouse of a
Participant. The foregoing provisions of this Section 12 shall
also not apply to an irrevocable Disposition of a right or
benefit under this Plan to a 'Permitted Assignee', as defined
below, by (i) a Participant age 55 or older (an 'Eligible
Participant'), or (ii) a 'Permitted Assignee', as defined below,
who has received an assignment from an Eligible Participant
pursuant to this sentence.
(a) PERMITTED ASSIGNEE. The term 'Permitted Assignee'
shall mean:
(i) The Eligible Participant;
(ii) A spouse of the Eligible Participant;
-1-
(iii) Any person who is a lineal ascendant or
descendant of the Eligible Participant or the Eligible
Participant's spouse;
(iv) Any brother or sister of the Eligible
Participant;
(v) Any spouse of any individual described in
subparagraph (iii) or (iv);
(vi) A trustee of any trust which, at the applicable
time, is 100% Actuarially Held for a Permitted Assignee or
Assignees (as defined in Section 12(c));
(vii) Any corporation in which, at the applicable
time, each class of stock is 100% owned by a Permitted
Assignee or Permitted Assignees;
(viii) Any partnership in which, at the applicable
time, each class of partnership interest is 100% owned by
a Permitted Assignee or Permitted Assignees; or
(ix) Any limited liability company or other form of
incorporated or unincorporated business organization in
which each class of stock, membership or other equity
interest is 100% owned by a Permitted Assignee or
Assignees.
(b) SUBSEQUENT ASSIGNEES. This Section 12 shall be fully
applicable to all Permitted Assignees, and the provisions of this
Section 12 shall be fully applicable to any right or benefit
transferred by an Eligible Participant to any Permitted Assignee
as if such Permitted Assignee were an Eligible Participant;
provided, however, that no Permitted Assignee shall be deemed an
Eligible Participant for determining the persons who constitute
Permitted Assignees under Section 12(a). Any Permitted Assignee
acquiring a right or benefit under this Plan shall execute and
deliver to the Committee an Agreement pursuant to which such
Permitted Assignee agrees to be bound by all of the terms and
provisions of the Plan, provided that the failure to execute and
deliver such an Agreement shall not be deemed to relieve such
Permitted Assignee of the restrictions imposed by the Plan. Any
attempted Disposition of a right or benefit under this Plan in
breach of this Section 12, whether voluntary, involuntary, by
operation of law or otherwise shall be null and void.
-2-
(c) ACTUARIALLY HELD. In making the determination whether
a trust is 100% Actuarially Held for Permitted Assignee(s), a
trust, at the applicable point in time, is 100% Actuarially Held
for Permitted Assignee or Assignees when 100% of the actuarial
value of the beneficial interests of the trust, except as
provided in the following sentence, are held for a Permitted
Assignee or Permitted Assignees. For purposes of making the
determination described above, the possibility that an interest
in a trust may be appointed pursuant to a special or general
power of appointment shall be ignored; provided, that the actual
exercise of any such power of appointment shall not be ignored."
IN WITNESS WHEREOF, Houston Industries Incorporated has caused
these presents to be executed by its duly authorized officer in a number of
copies, all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy hereof, this 9th day of March, 1995,
but effective as of the date specified herein.
HOUSTON INDUSTRIES INCORPORATED
By /s/ D. D. SYKORA
D. D. Sykora
President and Chief
Operating Officer
ATTEST
/s/ R. B. DAUPHIN
Assistant Corporate Secretary
-3-
HOUSTON INDUSTRIES INCORPORATED
EXECUTIVE INCENTIVE COMPENSATION PLAN
(As Amended and Restated Effective January 1, 1989)
FOURTH AMENDMENT
Houston Industries Incorporated, a Texas corporation (the
"Company"), having amended and restated the Houston Industries Incorporated
Executive Incentive Compensation Plan, effective January 1, 1989 (the "Plan"),
and having reserved the right under Section 18 thereof to amend the Plan, does
hereby amend Section 12 of the Plan, effective September 7, 1994, to read as
follows:
"12. NON-ALIENATION OF BENEFITS. No right or benefit under this
Plan shall be subject to anticipation, alienation, transfer, sale,
assignment, pledge, encumbrance or charge, whether voluntary,
involuntary, direct or indirect, by operation of law or otherwise,
including, without limitation, a change in beneficial interest of any
trust and a change in ownership of a corporation or partnership, but not
including a change of legal and beneficial title of a right or benefit
resulting from the death of any Participant or the spouse of any
Participant (any such proscribed transaction hereinafter a
'Disposition') and any attempted Disposition will be null and void. No
right or benefit hereunder shall in any manner be liable for or subject
to any debts, contracts, liabilities, or torts of any Participant or
other person entitled to such benefits. The foregoing provisions of this
Section 12 shall not apply to a domestic relations order awarding any
benefits under the Plan to the divorced spouse of a Participant. The
foregoing provisions of this Section 12 shall also not apply to an
irrevocable Disposition of a right or benefit under this Plan to a
'Permitted Assignee', as defined below, by (i) a Participant age 55 or
older (an 'Eligible Participant'), or (ii) a 'Permitted Assignee', as
defined below, who has received an assignment from an Eligible
Participant pursuant to this sentence.
(a) PERMITTED ASSIGNEE. The term 'Permitted Assignee'
shall mean:
(i) The Eligible Participant;
(ii) A spouse of the Eligible Participant;
-1-
(iii) Any person who is a lineal ascendant or
descendant of the Eligible Participant or the Eligible
Participant's spouse;
(iv) Any brother or sister of the Eligible
Participant;
(v) Any spouse of any individual described in
subparagraph (iii) or (iv);
(vi) A trustee of any trust which, at the applicable
time, is 100% Actuarially Held for a Permitted Assignee or
Assignees (as defined in Section 12(c));
(vii) Any corporation in which, at the applicable
time, each class of stock is 100% owned by a Permitted
Assignee or Permitted Assignees;
(viii) Any partnership in which, at the applicable
time, each class of partnership interest is 100% owned by
a Permitted Assignee or Permitted Assignees; or
(ix) Any limited liability company or other form of
incorporated or unincorporated business organization in
which each class of stock, membership or other equity
interest is 100% owned by a Permitted Assignee or
Assignees.
(b) SUBSEQUENT ASSIGNEES. This Section 12 shall be fully
applicable to all Permitted Assignees, and the provisions of this
Section 12 shall be fully applicable to any right or benefit
transferred by an Eligible Participant to any Permitted Assignee
as if such Permitted Assignee were an Eligible Participant;
provided, however, that no Permitted Assignee shall be deemed an
Eligible Participant for determining the persons who constitute
Permitted Assignees under Section 12(a). Any Permitted Assignee
acquiring a right or benefit under this Plan shall execute and
deliver to the Committee an Agreement pursuant to which such
Permitted Assignee agrees to be bound by all of the terms and
provisions of the Plan, provided that the failure to execute and
deliver such an Agreement shall not be deemed to relieve such
Permitted Assignee of the restrictions imposed by the Plan. Any
attempted Disposition of a right or benefit under this Plan in
breach of this Section 12, whether voluntary, involuntary, by
operation of law or otherwise shall be null and void.
-2-
(c) ACTUARIALLY HELD. In making the determination whether
a trust is 100% Actuarially Held for Permitted Assignee(s), a
trust, at the applicable point in time, is 100% Actuarially Held
for Permitted Assignee or Assignees when 100% of the actuarial
value of the beneficial interests of the trust, except as
provided in the following sentence, are held for a Permitted
Assignee or Permitted Assignees. For purposes of making the
determination described above, the possibility that an interest
in a trust may be appointed pursuant to a special or general
power of appointment shall be ignored; provided, that the actual
exercise of any such power of appointment shall not be ignored."
IN WITNESS WHEREOF, Houston Industries Incorporated has caused
these presents to be executed by its duly authorized officer in a number of
copies, all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy hereof, this 9th day of March, 1995,
but effective as of the date specified herein.
HOUSTON INDUSTRIES INCORPORATED
By /s/ D. D. SYKORA
D. D. Sykora
President and Chief
Operating Officer
ATTEST
/s/ R. B. DAUPHIN
Assistant Corporate Secretary
-3-
HOUSTON INDUSTRIES INCORPORATED EXECUTIVE INCENTIVE COMPENSATION PLAN
(As Amended and Restated Effective January 1, 1991)
FIFTH AMENDMENT
Houston Industries Incorporated, a Texas corporation (the
"Company"), having amended and restated the Houston Industries Incorporated
Executive Incentive Compensation Plan, effective January 1, 1991 (the "Plan"),
and having reserved the right under Section 18 thereof to amend the Plan, does
hereby amend the Plan, as follows:
1. The last sentence of the first paragraph of Section 4 of the
Plan is hereby amended in its entirety, effective January 1, 1995, to
read as follows:
"Only Participants who were ineligible to participate in the Houston
Industries Incorporated Long-Term Incentive Compensation Plan and who
have participated in the Plan and been continuously employed by an
Employer through December 31 of the current Plan Year and each of the
three (3) preceding Plan Years shall be eligible to receive a Long-Term
Award at the end of the current Plan Year."
2. The first paragraph of Section 10B. of the Plan is hereby
amended in its entirety, effective January 1, 1995, to read as follows:
"B. PAYMENT OF VESTED PORTION OF ANNUAL AWARD. A Participant who
has been granted an Annual Award for a Plan Year must have been
continually employed with an Employer through December 31 of such Plan
Year in order to be eligible for payment of such Annual Award; provided,
however, that if (i) a Participant's Agreement specifies that his Annual
Award contains a vested portion and (ii) the Participant terminates
employment during the Plan Year, but after completion of no less than
three months of continuous service with an Employer, the Participant
shall be eligible to receive a prorated Annual Award which shall be
calculated as a fraction multiplied by the vested portion of the
Participants' target Annual Award for the Plan Year, where the numerator
is the number of full months of completed continuous service with an
Employer during the Plan Year and the denominator is twelve. Such a
prorated Annual Award shall be payable in cash on or before December 31
of the Plan Year during which the Participant terminates employment.
Payment of the vested portion of Annual Awards for Participants who are
continually employed by an Employer
-1-
through December 31 of a Plan Year shall be made in cash as soon as
practicable after the close of the Plan Year, unless such a
Participant's Agreement offered the Participant an irrevocable election,
which the Participant duly made, to defer payment of the vested portion
of such Annual Award and to credit such portion to an account maintained
for such Participant under the Deferred Compensation Plan, which portion
shall then be subject to all the terms and conditions of the Deferred
Compensation Plan and payable as provided in the Deferred Compensation
Plan."
3. The first paragraph of Section 10C. of the Plan is hereby
amended, effective January 1, 1995, by adding the following sentence to
the beginning thereof:
"A Participant must be continuously employed by an Employer
through December 31 of a Plan Year (and through the applicable
Forfeiture Period unless otherwise provided in Section 10E. of the Plan)
in order to be eligible for payment of the contingent portion, if any,
of his Annual Award."
4. Section 12 of the Plan is hereby amended in its entirety,
effective September 7, 1994, to read as follows:
"12. NON-ALIENATION OF BENEFITS. No right or benefit under this
Plan shall be subject to anticipation, alienation, transfer, sale,
assignment, pledge, encumbrance or charge, whether voluntary,
involuntary, direct or indirect, by operation of law or otherwise,
including, without limitation, a change in beneficial interest of any
trust and a change in ownership of a corporation or partnership, but not
including a change of legal and beneficial title of a right or benefit
resulting from the death of any Participant or the spouse of any
Participant (any such proscribed transaction hereinafter a
'Disposition') and any attempted Disposition will be null and void. No
right or benefit hereunder shall in any manner be liable for or subject
to any debts, contracts, liabilities, or torts of any Participant or
other person entitled to such benefits. The foregoing provisions of this
Section 12 shall not apply to a domestic relations order awarding any
benefits under the Plan to the divorced spouse of a Participant. The
foregoing provisions of this Section 12 shall also not apply to an
irrevocable Disposition of a right or benefit under this Plan to a
'Permitted Assignee', as defined below, by (i) a Participant age 55 or
older (an 'Eligible Participant'), or (ii) a 'Permitted Assignee', as
defined below, who has received an assignment from an Eligible
Participant pursuant to this sentence.
(a) PERMITTED ASSIGNEE. The term 'Permitted Assignee'
shall mean:
(i) The Eligible Participant;
(ii) A spouse of the Eligible Participant;
-2-
(iii) Any person who is a lineal ascendant or
descendant of the Eligible Participant or the Eligible
Participant's spouse;
(iv) Any brother or sister of the Eligible
Participant;
(v) Any spouse of any individual described in
subparagraph (iii) or (iv);
(vi) A trustee of any trust which, at the
applicable time, is 100% Actuarially Held for a Permitted
Assignee or Assignees (as defined in Section 12(c));
(vii) Any corporation in which, at the applicable
time, each class of stock is 100% owned by a Permitted
Assignee or Permitted Assignees;
(viii) Any partnership in which, at the applicable
time, each class of partnership interest is 100% owned by
a Permitted Assignee or Permitted Assignees; or
(ix) Any limited liability company or other form of
incorporated or unincorporated business organization in
which each class of stock, membership or other equity
interest is 100% owned by a Permitted Assignee or
Assignees.
(b) SUBSEQUENT ASSIGNEES. This Section 12 shall be fully
applicable to all Permitted Assignees, and the provisions of this
Section 12 shall be fully applicable to any right or benefit
transferred by an Eligible Participant to any Permitted Assignee
as if such Permitted Assignee were an Eligible Participant;
provided, however, that no Permitted Assignee shall be deemed an
Eligible Participant for determining the persons who constitute
Permitted Assignees under Section 12(a). Any Permitted Assignee
acquiring a right or benefit under this Plan shall execute and
deliver to the Committee an Agreement pursuant to which such
Permitted Assignee agrees to be bound by all of the terms and
provisions of the Plan, provided that the failure to execute and
deliver such an Agreement shall not be deemed to relieve such
Permitted Assignee of the restrictions imposed by the Plan. Any
attempted Disposition of a right or benefit under this Plan in
breach of this Section 12, whether voluntary, involuntary, by
operation of law or otherwise shall be null and void.
-3-
(c) ACTUARIALLY HELD. In making the determination whether
a trust is 100% Actuarially Held for Permitted Assignee(s), a
trust, at the applicable point in time, is 100% Actuarially Held
for Permitted Assignee or Assignees when 100% of the actuarial
value of the beneficial interests of the trust, except as
provided in the following sentence, are held for a Permitted
Assignee or Permitted Assignees. For purposes of making the
determination described above, the possibility that an interest
in a trust may be appointed pursuant to a special or general
power of appointment shall be ignored; provided, that the actual
exercise of any such power of appointment shall not be ignored."
IN WITNESS WHEREOF, Houston Industries Incorporated has caused
these presents to be executed by its duly authorized officer in a number of
copies, all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy hereof, this 9th day of March, 1995,
but effective as of the date specified herein.
HOUSTON INDUSTRIES INCORPORATED
By /s/ D. D. SYKORA
D. D. Sykora
President and Chief
Operating Officer
ATTEST:
/s/ R. B. DAUPHIN
Assistant Corporate Secretary
-4-
EXHIBIT 10(h)(5)
HOUSTON INDUSTRIES INCORPORATED
DEFERRED COMPENSATION PLAN
(As Established September 1, 1985)
FOURTH AMENDMENT
Houston Industries Incorporated, a Texas corporation (the
"Company"), having established the Houston Industries Incorporated Deferred
Compensation Plan, effective September 1, 1985 (the "Plan"), and having reserved
the right under Section 7.1 thereof to amend the Plan, does hereby amend Section
6.2 of the Plan, effective September 7, 1994, to read as follows:
"6.2 NON-ALIENATION OF BENEFITS. No right or benefit under
this Plan shall be subject to anticipation, alienation, transfer, sale,
assignment, pledge, encumbrance or charge, whether voluntary,
involuntary, direct or indirect, by operation of law or otherwise,
including, without limitation, a change in beneficial interest of any
trust and a change in ownership of a corporation or partnership, but
not including a change of legal and beneficial title of a right or
benefit resulting from the death of any Participant or the spouse of
any Participant (any such proscribed transaction hereinafter a
'Disposition') and any attempted Disposition will be null and void. No
right or benefit hereunder shall in any manner be liable for or subject
to any debts, contracts, liabilities, or torts of any Participant or
other person entitled to such benefits. The foregoing provisions of
this Section 6.2 shall not apply to a domestic relations order awarding
any benefits under the Plan to the divorced spouse of a Participant.
The foregoing provisions of this Section 6.2 shall also not apply to an
irrevocable Disposition of a right or benefit under this Plan to a
'Permitted Assignee', as defined below, by (i) a Participant age 55 or
older (an 'Eligible Participant'), or (ii) a 'Permitted Assignee', as
defined below, who has received an assignment from an Eligible
Participant pursuant to this sentence.
(a) PERMITTED ASSIGNEE. The term 'Permitted Assignee'
shall mean:
(i) The Eligible Participant;
(ii) A spouse of the Eligible Participant;
-1-
(iii) Any person who is a lineal ascendant or
descendant of the Eligible Participant or the Eligible
Participant's spouse;
(iv) Any brother or sister of the Eligible
Participant;
(v) Any spouse of any individual described in
subparagraph (iii) or (iv);
(vi) A trustee of any trust which, at the applicable
time, is 100% Actuarially Held for a Permitted Assignee or
Assignees (as defined in Section 6.2(c));
(vii) Any corporation in which, at the applicable
time, each class of stock is 100% owned by a Permitted
Assignee or Permitted Assignees;
(viii) Any partnership in which, at the applicable
time, each class of partnership interest is 100% owned by
a Permitted Assignee or Permitted Assignees; or
(ix) Any limited liability company or other form of
incorporated or unincorporated business organization in
which each class of stock, membership or other equity
interest is 100% owned by a Permitted Assignee or
Assignees.
(b) SUBSEQUENT ASSIGNEES. This Section 6.2 shall be fully
applicable to all Permitted Assignees, and the provisions of
this Section 6.2 shall be fully applicable to any right or
benefit transferred by an Eligible Participant to any
Permitted Assignee as if such Permitted Assignee were an
Eligible Participant; provided, however, that no Permitted
Assignee shall be deemed an Eligible Participant for
determining the persons who constitute Permitted Assignees
under Section 6.2(a). Any Permitted Assignee acquiring a right
or benefit under this Plan shall execute and deliver to the
Committee an Agreement pursuant to which such Permitted
Assignee agrees to be bound by all of the terms and provisions
of the Plan, provided that the failure to execute and deliver
such an Agreement shall not be deemed to relieve such
Permitted Assignee of the restrictions imposed by the Plan.
Any attempted Disposition of a right or benefit under this
Plan in breach of this Section 6.2, whether voluntary,
involuntary, by operation of law or otherwise shall be null
and void.
-2-
(c) ACTUARIALLY HELD. In making the determination whether
a trust is 100% Actuarially Held for Permitted Assignee(s), a
trust, at the applicable point in time, is 100% Actuarially
Held for Permitted Assignee or Assignees when 100% of the
actuarial value of the beneficial interests of the trust,
except as provided in the following sentence, are held for a
Permitted Assignee or Permitted Assignees. For purposes of
making the determination described above, the possibility that
an interest in a trust may be appointed pursuant to a special
or general power of appointment shall be ignored; provided,
that the actual exercise of any such power of appointment
shall not be ignored."
IN WITNESS WHEREOF, Houston Industries Incorporated has caused
these presents to be executed by its duly authorized officer in a number of
copies, all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy hereof, this 16th day of November,
1994, but effective as of the date specified herein.
HOUSTON INDUSTRIES INCORPORATED
By /S/ D. D. SYKORA
D. D. Sykora
President and Chief Operating Officer
ATTEST
/S/ R. B. DAUPHIN
Assistant Corporate Secretary
-3-
EXHIBIT 10(i)(5)
HOUSTON INDUSTRIES INCORPORATED
DEFERRED COMPENSATION PLAN
(As Amended and Restated January 1, 1989)
FOURTH AMENDMENT
Houston Industries Incorporated, a Texas corporation (the
"Company"), having amended and restated the Houston Industries Incorporated
Deferred Compensation Plan, effective January 1, 1989 (the "Plan"), and having
reserved the right under Section 7.1 thereof to amend the Plan, does hereby
amend Section 6.2 of the Plan, effective September 7, 1994, to read as follows:
"6.2 NON-ALIENATION OF BENEFITS. No right or benefit under
this Plan shall be subject to anticipation, alienation, transfer, sale,
assignment, pledge, encumbrance or charge, whether voluntary,
involuntary, direct or indirect, by operation of law or otherwise,
including, without limitation, a change in beneficial interest of any
trust and a change in ownership of a corporation or partnership, but
not including a change of legal and beneficial title of a right or
benefit resulting from the death of any Participant or the spouse of
any Participant (any such proscribed transaction hereinafter a
'Disposition') and any attempted Disposition will be null and void. No
right or benefit hereunder shall in any manner be liable for or subject
to any debts, contracts, liabilities, or torts of any Participant or
other person entitled to such benefits. The foregoing provisions of
this Section 6.2 shall not apply to a domestic relations order awarding
any benefits under the Plan to the divorced spouse of a Participant.
The foregoing provisions of this Section 6.2 shall also not apply to an
irrevocable Disposition of a right or benefit under this Plan to a
'Permitted Assignee', as defined below, by (i) a Participant age 55 or
older (an 'Eligible Participant'), or (ii) a 'Permitted Assignee', as
defined below, who has received an assignment from an Eligible
Participant pursuant to this sentence.
(a) PERMITTED ASSIGNEE. The term 'Permitted Assignee'
shall mean:
(i) The Eligible Participant;
(ii) A spouse of the Eligible Participant;
-1-
(iii) Any person who is a lineal ascendant or
descendant of the Eligible Participant or the Eligible
Participant's spouse;
(iv) Any brother or sister of the Eligible
Participant;
(v) Any spouse of any individual described in
subparagraph (iii) or (iv);
(vi) A trustee of any trust which, at the applicable
time, is 100% Actuarially Held for a Permitted Assignee or
Assignees (as defined in Section 6.2(c));
(vii) Any corporation in which, at the applicable
time, each class of stock is 100% owned by a Permitted
Assignee or Permitted Assignees;
(viii) Any partnership in which, at the applicable
time, each class of partnership interest is 100% owned by
a Permitted Assignee or Permitted Assignees; or
(ix) Any limited liability company or other form of
incorporated or unincorporated business organization in
which each class of stock, membership or other equity
interest is 100% owned by a Permitted Assignee or
Assignees.
(b) SUBSEQUENT ASSIGNEES. This Section 6.2 shall be fully
applicable to all Permitted Assignees, and the provisions of
this Section 6.2 shall be fully applicable to any right or
benefit transferred by an Eligible Participant to any
Permitted Assignee as if such Permitted Assignee were an
Eligible Participant; provided, however, that no Permitted
Assignee shall be deemed an Eligible Participant for
determining the persons who constitute Permitted Assignees
under Section 6.2(a). Any Permitted Assignee acquiring a right
or benefit under this Plan shall execute and deliver to the
Committee an Agreement pursuant to which such Permitted
Assignee agrees to be bound by all of the terms and provisions
of the Plan, provided that the failure to execute and deliver
such an Agreement shall not be deemed to relieve such
Permitted Assignee of the restrictions imposed by the Plan.
Any attempted Disposition of a right or benefit under this
Plan in breach of this Section 6.2, whether voluntary,
involuntary, by operation of law or otherwise shall be null
and void.
-2-
(c) ACTUARIALLY HELD. In making the determination whether
a trust is 100% Actuarially Held for Permitted Assignee(s), a
trust, at the applicable point in time, is 100% Actuarially
Held for Permitted Assignee or Assignees when 100% of the
actuarial value of the beneficial interests of the trust,
except as provided in the following sentence, are held for a
Permitted Assignee or Permitted Assignees. For purposes of
making the determination described above, the possibility that
an interest in a trust may be appointed pursuant to a special
or general power of appointment shall be ignored; provided,
that the actual exercise of any such power of appointment
shall not be ignored."
IN WITNESS WHEREOF, Houston Industries Incorporated has caused
these presents to be executed by its duly authorized officer in a number of
copies, all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy hereof, this 16th day of November,
1994, but effective as of the date specified herein.
HOUSTON INDUSTRIES INCORPORATED
By /S/ D. D. SYKORA
D. D. Sykora
Chairman and Chief Operating Officer
ATTEST
/S/ R. B. DAUPHIN
Assistant Corporate Secretary
EXHIBIT 10(j)(6)
HOUSTON INDUSTRIES INCORPORATED
DEFERRED COMPENSATION PLAN
(As Amended and Restated January 1, 1991)
FIFTH AMENDMENT
Houston Industries Incorporated, a Texas corporation (the
"Company"), having amended and restated the Houston Industries Incorporated
Deferred Compensation Plan, effective January 1, 1991 (the "Plan"), and having
reserved the right under Section 7.1 thereof to amend the Plan, does hereby
amend Section 6.2 of the Plan, effective September 7, 1994, to read as follows:
"6.2 NON-ALIENATION OF BENEFITS. No right or benefit under
this Plan shall be subject to anticipation, alienation, transfer, sale,
assignment, pledge, encumbrance or charge, whether voluntary,
involuntary, direct or indirect, by operation of law or otherwise,
including, without limitation, a change in beneficial interest of any
trust and a change in ownership of a corporation or partnership, but
not including a change of legal and beneficial title of a right or
benefit resulting from the death of any Participant or the spouse of
any Participant (any such proscribed transaction hereinafter a
'Disposition') and any attempted Disposition will be null and void. No
right or benefit hereunder shall in any manner be liable for or subject
to any debts, contracts, liabilities, or torts of any Participant or
other person entitled to such benefits. The foregoing provisions of
this Section 6.2 shall not apply to a domestic relations order awarding
any benefits under the Plan to the divorced spouse of a Participant.
The foregoing provisions of this Section 6.2 shall also not apply to an
irrevocable Disposition of a right or benefit under this Plan to a
'Permitted Assignee', as defined below, by (i) a Participant age 55 or
older (an 'Eligible Participant'), or (ii) a 'Permitted Assignee', as
defined below, who has received an assignment from an Eligible
Participant pursuant to this sentence.
(a) PERMITTED ASSIGNEE. The term 'Permitted Assignee'
shall mean:
(i) The Eligible Participant;
(ii) A spouse of the Eligible Participant;
-1-
(iii) Any person who is a lineal ascendant or
descendant of the Eligible Participant or the Eligible
Participant's spouse;
(iv) Any brother or sister of the Eligible
Participant;
(v) Any spouse of any individual described in
subparagraph (iii) or (iv);
(vi) A trustee of any trust which, at the applicable
time, is 100% Actuarially Held for a Permitted Assignee or
Assignees (as defined in Section 6.2(c));
(vii) Any corporation in which, at the applicable
time, each class of stock is 100% owned by a Permitted
Assignee or Permitted Assignees;
(viii) Any partnership in which, at the applicable
time, each class of partnership interest is 100% owned by
a Permitted Assignee or Permitted Assignees; or
(ix) Any limited liability company or other form of
incorporated or unincorporated business organization in
which each class of stock, membership or other equity
interest is 100% owned by a Permitted Assignee or
Assignees.
(b) SUBSEQUENT ASSIGNEES. This Section 6.2 shall be fully
applicable to all Permitted Assignees, and the provisions of
this Section 6.2 shall be fully applicable to any right or
benefit transferred by an Eligible Participant to any
Permitted Assignee as if such Permitted Assignee were an
Eligible Participant; provided, however, that no Permitted
Assignee shall be deemed an Eligible Participant for
determining the persons who constitute Permitted Assignees
under Section 6.2(a). Any Permitted Assignee acquiring a right
or benefit under this Plan shall execute and deliver to the
Committee an Agreement pursuant to which such Permitted
Assignee agrees to be bound by all of the terms and provisions
of the Plan, provided that the failure to execute and deliver
such an Agreement shall not be deemed to relieve such
Permitted Assignee of the restrictions imposed by the Plan.
Any attempted Disposition of a right or benefit under this
Plan in breach of this Section 6.2, whether voluntary,
involuntary, by operation of law or otherwise shall be null
and void.
-2-
(c) ACTUARIALLY HELD. In making the determination whether
a trust is 100% Actuarially Held for Permitted Assignee(s), a
trust, at the applicable point in time, is 100% Actuarially
Held for Permitted Assignee or Assignees when 100% of the
actuarial value of the beneficial interests of the trust,
except as provided in the following sentence, are held for a
Permitted Assignee or Permitted Assignees. For purposes of
making the determination described above, the possibility that
an interest in a trust may be appointed pursuant to a special
or general power of appointment shall be ignored; provided,
that the actual exercise of any such power of appointment
shall not be ignored."
IN WITNESS WHEREOF, Houston Industries Incorporated has caused
these presents to be executed by its duly authorized officer in a number of
copies, all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy hereof, this 16th day of November,
1994, but effective as of the date specified herein.
HOUSTON INDUSTRIES INCORPORATED
By /S/ D. D. SYKORA
D. D. Sykora
Chairman and Chief Operating Officer
ATTEST
/S/ R. B. DAUPHIN
Assistant Corporate Secretary
EXHIBIT 10(v)
[HOUSTON INDUSTRIES LOGO]
June 15, 1994
Mr. Jack Trotter
First Interstate Bank Plaza
1000 Louisiana, Suite 3600
Houston, Texas 77002
Dear Mr. Trotter:
By this letter, Houston Industries Incorporated (the
"Company") hereby agrees to pay, upon your death, a lump sum amount equal to
eight times your final annual retainer to your beneficiary as designated in
writing by you. Your final annual retainer is that amount being paid to
directors at the time of your separation from the Board of Directors of the
Company. The lump sum will be paid from the general assets of the Company and
any taxes required to be withheld will be deducted from the amount payable. This
letter agreement is binding upon the Company and its successors and assigns.
Please send your written beneficiary designation to Ms. Phylis
Hazel at P. O. Box 4567, Houston, Texas 77210; if no beneficiary designation is
on file with the Company at your death, the amount will be paid to your estate.
As always, we appreciate your continuing service to the Board.
Very truly yours,
/s/ D. D. Sykora
D. D. Sykora
President and Chief Operating Officer
EXHIBIT 10(w)
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and effective
as of the _____ day of December, 1994, by and between HOUSTON INDUSTRIES
INCORPORATED, a Texas corporation having its principal place of business in
Houston, Harris County, Texas (the "Company"), and _____________, an individual
currently residing in Houston, Texas ("Employee"). All terms defined in
paragraph 2 shall throughout this Agreement have the meanings given therein.
1. PAYMENT OF SEVERANCE AMOUNT: If Employee's employment by the Company
or any subsidiary thereof or successor thereto shall be subject to an
Involuntary Termination within the applicable Covered Period, then the Company
shall pay Employee an amount equal to the applicable Severance Amount, payable
within 15 days after the date of Employee's termination of employment
("Termination Date").
2. DEFINITIONS:
A. An "AFFILIATE" shall mean any company controlled by,
controlling or under common control with the Company within the meaning of
Section 414 of the Internal Revenue Code of 1986, as amended (the "Code").
B. "AVERAGE ANNUAL COMPENSATION" shall mean Employee's average
annual compensation which is payable by the Company or any Affiliate and is
includable in the gross income of Employee for the most recent five taxable
years of Employee ending before the date on which the Change of Control occurs,
or such portion of such period during which Employee performed personal services
for the Company or its Affiliates. Average Annual Compensation shall be
determined by reference to Section 280G(d) of the Code.
C. "CHANGE IN EMPLOYMENT" shall mean any one or more of the
following:
(i) a significant change in the nature or scope of Employee's
authority or duties from those applicable to him immediately prior to
the date on which a Change of Control occurs;
(ii) a reduction in Employee's base annual compensation from
that provided to him immediately prior to the date on which a Change of
Control occurs;
(iii) Employee's opportunity to participate in bonus, stock
option and other compensation plans which provide opportunities to
receive compensation following the Change of Control are less than the
greater of:
(x) the opportunities provided by the Company (including
its subsidiaries) for executives with comparable duties; or
-1-
(y) the opportunities under any such plans under which he
was participating immediately prior to the date on which a
Change of Control occurs;
(iv) employee benefits (including but not limited to medical,
dental, life insurance and long-term disability) and perquisites
applicable to Employee following the Change of Control are less than
the greater of:
(x) the employee benefits and perquisites provided by the
Company (including its subsidiaries) to executives with
comparable duties; or
(y) the employee benefits and perquisites to which he was
entitled immediately prior to the date on which a Change of
Control occurs;
(v) a change in the location of Employee's principal place of
employment by the Company (including its subsidiaries) by more than 200
miles from the location where he was principally employed immediately
prior to the date on which a Change of Control occurs; or
(vi) a reasonable determination by the Board of Directors of
the Company that, as a result of a Change of Control and a change in
circumstances thereafter significantly affecting Employee's position,
he is unable to exercise the authorities, powers, functions or duties
attached to his position immediately prior to the date on which a
Change of Control occurs.
D. A "CHANGE OF CONTROL" shall be deemed to have occurred if:
(i) any "person," including a "group" as determined in
accordance with Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act"), is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding securities;
(ii) as a result of, or in connection with, any tender offer
or exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing transactions
(a "Transaction"), the persons who were Directors of the Company before
the Transaction shall cease to constitute a majority of the Board of
Directors of the Company or any successor to the Company;
(iii) the Company is merged or consolidated with another
corporation and as a result of such merger or consolidation less than
70% of the outstanding voting securities of the surviving or resulting
corporation shall then be owned in the aggregate by the former
stockholders of the Company, other than (x) affiliates within the
meaning of the Exchange Act, or (y) any party to such merger or
consolidation;
-2-
(iv) a tender offer or exchange offer is made and consummated
for the ownership of securities of the Company representing 30% or more
of the combined voting power of the Company's then outstanding voting
securities; or
(v) the Company transfers substantially all of its assets to
another corporation which is not a wholly owned subsidiary of the
Company;
provided, however, that unless the Board of Directors of the Company determines
otherwise prior to the date of any event described in the foregoing clauses (i)
- - (v) above ("Event"), a "Change of Control" shall not have occurred if any
Event results, directly or indirectly, in the beneficial ownership by the
employees, former employees or members of the Board of Directors of the Company
of:
(x) substantially all of the assets of the Company; or
(y) securities of the Company representing 30% or more of
the combined voting power of the outstanding securities of the
Company or any successor to the Company.
E. "COVERED PERIOD" for Employee shall mean a period of time
following the occurrence of a Change of Control equal to the lesser of (i)
Employee's period of employment with the Company, any subsidiary or any
predecessor of either thereof prior to that Change of Control, or (ii) three
years.
F. "INVOLUNTARY TERMINATION" shall mean any termination which:
(i) does not result from a resignation by Employee (other than
a resignation pursuant to clause (ii) of this subparagraph (F)); or
(ii) results from a resignation following any Change in
Employment;
provided, however, the term "Involuntary Termination" shall not include:
(x) a Termination for Cause; or
(y) any termination as a result of death, disability or
early or normal retirement pursuant to a retirement plan to
which Employee was subject prior to any Change of Control.
G. "SEVERANCE AMOUNT" is an amount equal to 2.99 times
Employee's Average Annual Compensation.
H. "TERMINATION FOR CAUSE" shall mean only a termination as a
result of fraud, material misappropriation of or intentional material damage to
the property of the Company (including its subsidiaries), or commission of a
felony by Employee related to his employment with the Company.
-3-
I. "VOTING SECURITIES" shall mean any securities which
ordinarily possess the power to vote in the election of directors without the
happening of any pre-condition or contingency.
3. PARACHUTE PAYMENT LIMITATION: Notwithstanding any provision of this
Agreement to the contrary, the aggregate present value of all parachute payments
payable to or for the benefit of Employee, whether payable pursuant to this
Agreement or otherwise, shall be limited to three times Employee's base amount
less $1 and, to the extent necessary, benefits under this Agreement shall be
reduced by the Company in order that this limitation not be exceeded. For
purposes of this Section 3, the terms "parachute payment," "base amount" and
"present value" shall have the meanings assigned thereto under Section 280G of
the Code. It is the intention of this Section 3 to avoid excise taxes on
Employee under Section 4999 of the Code or the disallowance of a deduction to
the Company pursuant to Section 280G of the Code.
4. MEDICAL AND DENTAL BENEFITS: If Employee's employment by the Company
or any subsidiary thereof or successor thereto shall be subject to an
Involuntary Termination within the Covered Period, then to the extent that
Employee or any of Employee's dependents may be covered under the terms of any
medical or dental plans of the Company (or any subsidiary) for active employees
immediately prior to such termination, the Company will provide Employee and
those dependents with equivalent coverages for a period not to exceed 30 months
from such termination; provided, however, that if Employee retires and is
eligible for retiree medical coverage for life under the Company group medical
plan, he will instead receive such retiree medical coverage. Such coverages may
be procured directly by the Company (or any subsidiary thereof, if appropriate)
apart from, and outside of the terms of the plans themselves; provided that
Employee and Employee's dependents comply with all of the conditions of the
aforementioned plans. In consideration for these benefits, Employee must make
contributions equal to those required from time to time from active or retired
employees (as applicable) for equivalent coverages under the aforementioned
plans.
5. NOTICES: For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Company: Houston Industries Incorporated
5 Post Oak Park
P.O. Box 4567
Houston, Texas 77210
ATTENTION: Chairman of the Board
If to the Employee:
__________________________________
__________________________________
or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
-4-
6. APPLICABLE LAW: This Agreement is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
7. SEVERABILITY: If a court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, then the invalidity
or unenforceability of that provision shall not affect the validity or
enforceability of any other provision of this Agreement and all other provisions
shall remain in full force and effect.
8. WITHHOLDING OF TAXES: Company may withhold from any benefits payable
under this Agreement all federal, state, city or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
9. NO EMPLOYMENT AGREEMENT: Nothing in this Agreement shall give
Employee any rights to (or impose any obligations for) continued employment by
the Company or any subsidiary thereof or successor thereto, nor shall it give
the Company any rights (or impose any obligations) with respect to continued
performance of duties by Employee for the Company or any subsidiary thereof or
successor thereto.
10. NO ASSIGNMENT; SUCCESSORS:
A. Employee's right to receive payments or benefits hereunder
shall not be assignable or transferable, whether by pledge, creation or a
security interest or otherwise, whether voluntary, involuntary, by operation of
law or otherwise, other than a transfer by will or by the laws of descent or
distribution, and in the event of any attempted assignment or transfer contrary
to this paragraph 10 the Company shall have no liability to pay any amount so
attempted to be assigned or transferred. This Agreement shall inure to the
benefit of and be enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
B. This Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns (including, without
limitation, any company into or with which the Company may merge or
consolidate). The Company agrees that it will not effect the sale or other
disposition of all of substantially all of its assets unless either (i) the
person or entity acquiring such assets or a substantial portion thereof shall
expressly assume by an instrument in writing all duties and obligations of the
Company hereunder or (ii) the Company shall provide, through the establishment
of a separate reserve therefor, for the payment in full of all amounts which are
or may reasonably be expected to become payable to Employee hereunder.
11. TERM: This Agreement shall be effective as of the date first above
written and shall remain in effect for a period of two years thereafter;
provided, however, that in the event of a Change of Control during the term
hereof, this Agreement shall remain in effect for the Covered Period, as defined
in paragraph 2 hereof.
12. EXTENSION: The Board of Directors or Executive Committee of the
Company may, at any time prior to the expiration hereof, extend the term hereof
for a period of up to two years from
-5-
the date on which such extension is approved, without any further action on the
part of Employee or the Company.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the day and year first above written.
HOUSTON INDUSTRIES INCORPORATED
By________________________________
EMPLOYEE
__________________________________
-6-
EXHIBIT 11
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992
---------- ------------- ------------
<S> <C> <C> <C>
Primary Earnings Per Share:
(1) Weighted average shares of common stock
outstanding.............................. 122,853,373 130,004,068 129,514,102
(2) Effect of issuance of shares from
assumed exercise of stock options
(treasury stock method).................. (39,524) 3,918 805
------------ ------------ ------------
(3) Weighted average shares.................... 122,813,849 130,007,986 129,514,907
============ ============ ============
(4) Net income................................. $ 399,261 $ 416,036 $ 434,667
(5) Primary earnings per share
(line 4/line 3).......................... $ 3.25 $ 3.20 $ 3.36
Fully Diluted Earnings Per Share:
(6) Weighted average shares per computation
on line 3 above.......................... 122,813,849 130,007,986 129,514,907
(7) Shares applicable to options included
on line 2 above.......................... 39,524 (3,918) (805)
(8) Dilutive effect of stock options (treasury
stock method) based on higher of the average
price for the year or year-end price of
$36.00, $47.63 and $45.88 for 1994, 1993 and
1992, respectively....................... (39,524) 7,300 3,520
------------ ------------ ------------
(9) Weighted average shares.................... 122,813,849 130,011,368 129,517,622
============ ============ ============
(10) Net income................................. $ 399,261 $ 416,036 $ 434,667
(11) Fully diluted earnings per share
(line 10/line 9)......................... $ 3.25 $ 3.20 $ 3.36
</TABLE>
Notes:
These calculations are submitted in accordance with Regulation S-K item
601(b)(11) although it is not required for financial presentation disclosure per
footnote 2 to paragraph 14 of Accounting Principles Board (APB) Opinion No. 15
because it does not meet the 3 percent dilutive test.
The calculations for year ended December 31, 1994 are submitted in accordance
with Regulation S-K item 601(b)(11) although they are contrary to paragraphs 30
and 40 of APB No. 15 because they produce anti-dilutive results.
The amounts for 1994 reflect the adoption, effective January 1, 1994, of the
American Institute of Certified Public Accountants Statement of Position 93-6
(SOP 93-6), "Employers' Accounting for Employee Stock Ownership Plans." See
Notes 1(i) and 12(b) to the Company's Consolidated and HL&P's Financial
Statements in Item 8 of this Report for information regarding the effects of SOP
93-6 on weighted average shares of common stock outstanding and net income,
respectively. In accordance with SOP 93-6, periods prior to 1994 have not been
restated.
EXHIBIT 12
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
1994 1993 1992 1991 1990
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Fixed Charges as Defined:
(1) Interest on Long-Term Debt ..................... $ 343,844 $ 377,308 $ 424,102 $ 446,680 $ 433,435
(2) Other Interest ................................. 25,076 15,145 23,323 42,353 48,872
(3) Preferred Dividends Factor of Subsidiary
(line 12) ..................................... 51,718 53,778 58,204 69,281 70,674
(4) Interest Component of Rentals Charged to
Operating Expense ............................. 3,951 4,449 5,116 5,943 5,628
----------- ----------- ----------- ---------- -----------
(5) Total Fixed Charges ............................ $ 424,589 $ 450,680 $ 510,745 $ 564,257 $ 558,609
=========== =========== =========== ========== ===========
Earnings as Defined:
(6) Income Before Cumulative Effect of
Change in Accounting .......................... $ 407,461 $ 416,036 $ 340,487 $ 416,754 $ 342,789
(7) Income Taxes (A) ............................... 218,613 231,118 164,609 208,180 164,944
(8) Fixed Charges (line 5) ......................... 424,589 450,680 510,745 564,257 558,609
----------- ----------- ----------- ---------- -----------
(9) Earnings Before Income Taxes and Fixed
Charges ....................................... $ 1,050,663 $ 1,097,834 $ 1,015,841 $1,189,191 $ 1,066,342
=========== =========== =========== ========== ===========
Preferred Dividends Factor of Subsidiary:
(10) Preferred Stock Dividends of Subsidiary ........ $ 33,583 $ 34,473 $ 39,327 $ 46,187 $ 47,753
(11) Ratio of Pre-Tax Income to Net Income
(line 6 plus line 7 divided by line 6) ........ 1.54 1.56 1.48 1.50 1.48
----------- ----------- ----------- ---------- -----------
(12) Preferred Dividends Factor of Subsidiary
(line 10 times line 11) ....................... $ 51,718 $ 53,778 $ 58,204 $ 69,281 $ 70,674
=========== =========== =========== ========== ===========
Ratio of Earnings to Fixed Charges
(line 9 divided by line 5) ........................ 2.47 2.44 1.99 2.11 1.91
</TABLE>
(A) Excluded from the 1994, 1992 and 1990 amounts are the income taxes related
to the cumulative effect of changes in accounting principles of $4,415,
$48,517 and $219,718, respectively.
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY*
NAME JURISDICTION
Houston Lighting & Power Company Texas
KBLCOM Incorporated Delaware
Houston Industries (Delaware) Incorporated Delaware
- --------------------
*The names of certain subsidiaries of the Company are omitted pursuant to Item
601(b)(21)(ii) of Regulation S-K.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
HOUSTON INDUSTRIES INCORPORATED:
We consent to the incorporation by reference in (i) Registration
Statements on Form S-3 Nos. 33-34446, 33-39921, 33-60756, 33-51431, 33-52207 and
33-55445, (ii) Post-Effective Amendment No. 1 to Registration Statement No.
33-12439 on Form S-8, and (iii) Registration Statements on Form S-8 Nos.
33-37493, 33-50629, 33-52279, 33-55391 and 33-56855 of our report dated February
23, 1995 appearing in this Annual Report on Form 10-K of Houston Industries
Incorporated for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
HOUSTON, TEXAS
MARCH 14, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Company's and HL&P's financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000202131
<NAME> HOUSTON INDUSTRIES INCORPORATED
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 8,976,029
<OTHER-PROPERTY-AND-INVEST> 548,290
<TOTAL-CURRENT-ASSETS> 317,750
<TOTAL-DEFERRED-CHARGES> 1,422,638
<OTHER-ASSETS> 1,029,440
<TOTAL-ASSETS> 12,294,147
<COMMON> 2,148,027
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,221,221
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,369,248
121,910
351,345
<LONG-TERM-DEBT-NET> 4,214,124
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 423,291
<LONG-TERM-DEBT-CURRENT-PORT> 15,961
45,700
<CAPITAL-LEASE-OBLIGATIONS> 8,792
<LEASES-CURRENT> 3,611
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,740,165
<TOT-CAPITALIZATION-AND-LIAB> 12,294,147
<GROSS-OPERATING-REVENUE> 4,001,857
<INCOME-TAX-EXPENSE> 218,613
<OTHER-OPERATING-EXPENSES> 2,990,032
<TOTAL-OPERATING-EXPENSES> 2,990,032
<OPERATING-INCOME-LOSS> 1,011,825
<OTHER-INCOME-NET> 11,198
<INCOME-BEFORE-INTEREST-EXPEN> 1,023,023
<TOTAL-INTEREST-EXPENSE> 363,366
<NET-INCOME> 432,844<F1>
33,583
<EARNINGS-AVAILABLE-FOR-COMM> 399,261
<COMMON-STOCK-DIVIDENDS> 369,270
<TOTAL-INTEREST-ON-BONDS> 246,227
<CASH-FLOW-OPERATIONS> 1,197,104
<EPS-PRIMARY> 3.25<F2>
<EPS-DILUTED> 3.25<F2>
<FN>
<F1> Includes reduction to net income for the cumulative effect of change in
accounting for postemployment benefits of $8,200.
<F2> Reflects the reduction of weighted average common shares outstanding
resulting from the adoption of Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans," effective January 1, 1994.
</FN>
</TABLE>
EXHIBIT 99(a)
HOUSTON INDUSTRIES INCORPORATED
INVESTOR'S CHOICE PLAN
Houston Industries Incorporated, a Texas corporation (the
"Company"), hereby amends and restates its Dividend Reinvestment Plan, as
amended and restated effective September 12, 1988 (the "DRIP"), in its entirety
to establish the following Houston Industries Incorporated Investor's Choice
Plan (the "Plan"):
RECITAL:
WHEREAS, the DRIP has been in existence since 1978; and
WHEREAS, the Company desires to amend and restate the DRIP to
include other stock purchase opportunities and services in an effort to enhance
its attractiveness to investors in the Company's common stock, without par
value, including associated preference stock purchase rights (the "Common
Stock"); and
WHEREAS, the purpose of the Plan is to provide interested
investors and holders of certain debt and equity securities of the Company and
its subsidiaries a convenient, economical means of increasing their investment
in the Company through (i) regular investment of cash dividends paid and
interest payments made on such securities, (ii) optional cash investments and/or
(iii) initial cash investments in shares of Common Stock;
NOW, THEREFORE:
ARTICLE I
DEFINITIONS
The terms defined in this Article I shall, for all purposes of
this Plan, have the following respective meanings:
-1-
ACCOUNT
The term "Account" shall mean, as to any Participant, the
account maintained by the Administrator evidencing (i) the shares (and/or
fraction of a share) of Common Stock (a) purchased through the Plan and/or (b)
deposited by such Participant into the Plan pursuant to Section 4.1 hereof, and
credited to such Participant and (ii) cash held in the Plan pending investment
in Common Stock for such Participant.
ACCOUNT SHARES
The term "Account Shares" shall mean all shares (and/or
fraction of a share) of Common Stock credited to the Account of a Participant by
the Administrator, which shall include shares deposited into the Plan pursuant
to Section 4.1 hereof.
ADMINISTRATOR
The term "Administrator" shall mean the individual (who may be
an employee of the Company), bank, trust company or other entity (including the
Company) appointed from time to time by the Company to act as Administrator
hereunder.
COMMON STOCK
As defined in the Recitals.
COMPANY
As defined in the introduction to the Recitals.
COMPANY SHARE PURCHASE PRICE
The term "Company Share Purchase Price," when used with
respect to Fractional Account Shares, newly issued shares of Common Stock or
shares of Common Stock held in the Company's treasury, shall mean the average of
the high and low sales prices of Common Stock on a given trading day as reported
on the New York Stock Exchange Composite Tape and published in THE WALL STREET
JOURNAL. In the absence of knowledge of inaccuracy, the Administrator may rely
upon such prices as published in THE WALL STREET JOURNAL. In the event no
trading is so reported for a trading day, the Company Share Purchase Price for
such shares may be determined by the Company on the basis of such market
quotations as it deems appropriate.
-2-
DIRECT DEPOSIT AUTHORIZATION FORM
The term "Direct Deposit Authorization Form" shall mean the
documentation that the Administrator shall require to be completed and received
prior to a Participant having any Dividends on Account Shares not being
reinvested in Common Stock paid by electronic direct deposit to the
Participant's predesignated bank, savings or credit union account pursuant to
Section 7.7 hereof.
DIVIDEND
The term "Dividend" shall mean cash dividends paid on
Reinvestment Eligible Securities.
DIVIDEND PAYMENT DATE
The term "Dividend Payment Date" shall mean a date on which a
cash dividend on shares of Common Stock is paid.
DRIP
As defined in the introduction to the Recitals.
ELIGIBLE SECURITIES
The term "Eligible Securities" shall mean those equity and
debt securities of the Company and its subsidiaries, whether issued prior to, on
or after the date hereof, set forth in Section 6.1 hereof, and such other equity
and debt securities of the Company and its subsidiaries as the Company may
designate, in its sole discretion, pursuant to Section 6.2 hereof.
ENROLLMENT FORM
The term "Enrollment Form" shall mean the documentation that
the Administrator (i) shall require to be completed and received prior to an
investor's enrollment in the Plan pursuant to Section 2.2 or 2.4 hereof, a
Participant's changing his options under the Plan pursuant to Section 7.1
hereof, or a Participant's depositing shares of Common Stock into the Plan
pursuant to Section 4.1 hereof and (ii) may require to be completed and received
prior to an optional cash investment pursuant to Section 2.5 hereof.
EXCHANGE ACT
The term "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder.
-3-
FOREIGN PERSON
The term "Foreign Person" shall mean a Person that is a
citizen or resident of, or is organized or incorporated under, or has its
principal place of business in, a country other than the United States, its
territories and possessions.
FRACTIONAL ACCOUNT SHARES
The term "Fractional Account Shares" shall mean the shares
(and fractions of shares) of Common Stock held in the Fractional Share Account.
FRACTIONAL SHARE ACCOUNT
The term "Fractional Share Account" shall mean an account
under the Plan, owned by the Company, consisting of Fractional Account Shares,
which is held by the Administrator and administered pursuant to Section 8.3
hereof.
INDEPENDENT AGENT
The term "Independent Agent" shall mean an agent independent
of the Company who satisfies applicable legal requirements (including without
limitation the requirements of Rule 10b-6 and Rule 10b-18 promulgated under the
Exchange Act) and who has been selected by the Company, pursuant to Section 10.6
hereof, to serve as an Independent Agent for purposes of making open market
purchases and sales of Common Stock under the Plan.
INTEREST
The term "Interest" shall mean interest payments made on
Reinvestment Eligible Securities.
INVESTMENT DATE
The term "Investment Date" shall mean (i) in any month in
which a Dividend Payment Date occurs, such Dividend Payment Date and the
twenty-fifth day of the month or, if the twenty-fifth day is not a business day,
the business day immediately preceding the twenty-fifth day of such month, and
(ii) in any month in which no Dividend Payment Date occurs, the tenth and
twenty-fifth day of the month or, if that day is not a business day, the
business day immediately preceding that day.
-4-
MARKET SHARE PURCHASE PRICE
The term "Market Share Purchase Price," when used with respect
to shares of Common Stock purchased in the open market, shall mean the weighted
average purchase price per share (including brokerage commissions, any related
service charges and applicable taxes) of the aggregate number of shares
purchased in the open market for an Investment Date.
MARKET SHARE SALES PRICE
The term "Market Share Sales Price," when used with respect to
shares of Common Stock sold under the Plan, shall mean the weighted average
sales price per share (less brokerage commissions, any related service charges
and applicable taxes) of the aggregate number of shares sold in the open market
for the relevant period.
MAXIMUM AMOUNT
As defined in Section 2.5 hereof.
PARTICIPANT
As defined in Section 2.1 hereof.
PERSON
The term "Person" shall mean any individual, corporation,
partnership, limited liability company, joint venture, association, joint-stock
company, trust, estate or unincorporated organization.
PLAN
As defined in the introduction to the Recitals.
REINVESTMENT ELIGIBLE SECURITIES
The term "Reinvestment Eligible Securities" shall mean (i)
those Eligible Securities of which a Participant is the record or registered
holder and on which the Participant has elected to have all or a portion of the
Dividends or Interest paid reinvested in Common Stock and (ii) those Account
Shares on which the Participant has elected to have all or a portion of the
Dividends paid reinvested in Common Stock, which election under (i) or (ii) has
been made by delivering a completed optional cash investment stub or a completed
Enrollment Form, as the case may be, to the Administrator.
-5-
SALE/TRANSFER/WITHDRAWAL REQUEST FORM
The term "Sale/Transfer/Withdrawal Request Form" shall mean
the documentation that the Administrator shall require to be completed and
received prior to a Participant's (i) sale of Account Shares pursuant to Section
5.1 hereof, (ii) gift or transfer of Account Shares pursuant to Section 5.2
hereof, (iii) withdrawal of whole Account Shares pursuant to Section 7.2 hereof
(unless such Participant will be the record holder of such Account Shares after
withdrawal) and (iv) termination of participation in the Plan pursuant to
Section 7.3 hereof.
STATEMENT OF ACCOUNT
The term "Statement of Account" shall mean a written statement
prepared by the Administrator and sent to each Participant which reflects (i)
all transactions to date completed under the Plan during the current calendar
year, (ii) the number of Account Shares credited to such Participant's Account
at the date of such statement, (iii) the amount of cash, if any, credited to
such Participant's Account pending investment at the date of such statement and
(iv) such additional information regarding such Participant's Account as the
Administrator may determine to be pertinent to the Participant.
TRUST ACCOUNT
As defined in Section 11.1 hereof. TRUSTEE As defined in
Section 11.7 hereof.
A pronoun or adjective in the masculine gender includes the
feminine gender, and the singular includes the plural, unless the context
clearly indicates otherwise.
ARTICLE II
PARTICIPATION
Section 2.1. PARTICIPATION. Any Person, whether or not a
record holder of Common Stock, may elect to participate in the Plan; PROVIDED,
HOWEVER, that if such Person is a Foreign Person, he must provide evidence
satisfactory to the Administrator that his participation in the Plan would not
violate local laws applicable to the Company, the Plan or such Foreign Person.
-6-
An election by a Person to participate in the Plan shall be
made by completing and returning to the Administrator an Enrollment Form and (i)
electing to have Dividends on Eligible Securities of which such Person is the
record holder invested in Common Stock pursuant to Section 2.2 hereof, (ii)
electing to have Interest on Eligible Securities of which such Person is the
registered owner invested in Common Stock pursuant to Section 2.3 hereof, (iii)
depositing certificates representing Common Stock of which such person is the
record holder into the Plan pursuant to Section 4.1 hereof or (iv) making an
initial cash investment pursuant to Section 2.4 hereof.
Any Person who has met such requirements and has made and not
revoked such election is herein referred to as a "Participant." Notwithstanding
the foregoing, each participant in the DRIP on the date hereof is automatically
a Participant without submitting a new Enrollment Form; PROVIDED, HOWEVER, that
any such Participant who wishes to change his current participation in any way
must submit a new Enrollment Form to the Administrator. A Participant may elect
to participate in any or all of the forms of investment provided in Sections 2.2
through 2.5 hereof and to utilize the Plan's safekeeping services provided in
Section 4.1 hereof by submitting an Enrollment Form designating such election to
the Administrator; PROVIDED, HOWEVER, that a Participant may elect to make
optional cash investments pursuant to Section 2.5 hereof by submitting to the
Administrator a completed optional cash investment stub attached to a quarterly
Statement of Account in lieu of an Enrollment Form.
Section 2.2. DIVIDEND REINVESTMENT. A Participant may elect to
have all or a portion of any Dividend on his Reinvestment Eligible Securities
invested in shares (and/or a fraction of a share) of Common Stock to be credited
to his Account in lieu of receiving such Dividend directly. If a Participant
elects to reinvest only a portion of the Dividends received on Reinvestment
Eligible Securities, other than shares of Common Stock, that portion of such
Dividends not reinvested in Common Stock will be sent to the Participant by
check in the manner otherwise associated with payment of such Dividends. If a
Participant elects to reinvest only a portion of the Dividends received on his
Reinvestment Eligible Securities which are Common Stock, the portion of
Dividends not reinvested will be sent to the Participant by check in the manner
otherwise associated with payment of such
-7-
Dividends or if such Reinvestment Eligible Securities are also Account Shares,
by electronic direct deposit if the Participant has elected the direct deposit
option provided in Section 7.7 hereof.
Section 2.3. INTEREST REINVESTMENT. A Participant may elect to
have all or a portion of any Interest on his Reinvestment Eligible Securities
invested in shares (and/or a fraction of a share) of Common Stock to be credited
to his Account in lieu of receiving such Interest directly. If a Participant
elects to reinvest only a portion of the Interest on his Reinvestment Eligible
Securities, that portion of Interest not reinvested in Common Stock will be sent
to the Participant by check in the manner otherwise associated with payment of
Interest.
Section 2.4. INITIAL CASH INVESTMENT. A Person not already a
Participant may become a Participant by (i) making an initial cash payment of at
least $250, or (ii) in the case of a Person who is already a record or
registered holder of Eligible Securities, of at least $50, by personal check,
money order or wire transfer payable to Houston Industries Incorporated
Investor's Choice Plan, to be invested in Common Stock pursuant to Section 3.4
hereof; PROVIDED, HOWEVER, that payment for such initial cash investment must be
accompanied by a completed Enrollment Form.
Section 2.5. OPTIONAL CASH INVESTMENTS. A Participant may
elect to make cash payments at any time or from time to time to the Plan, by
personal check, money order or wire transfer payable to Houston Industries
Incorporated Investor's Choice Plan, for investment in Common Stock pursuant to
Section 3.4 hereof; PROVIDED, HOWEVER, that any Participant who elects to make
optional cash investments pursuant to this Section 2.5 must invest at least $50
for any single investment and may not invest more than $120,000 in aggregate
amount in any calendar year (the "Maximum Amount"). For purposes of determining
whether the Maximum Amount has been reached, initial cash investments shall be
counted as optional cash investments.
-8-
ARTICLE III
DIVIDEND AND INTEREST REINVESTMENT AND STOCK PURCHASE
Section 3.1. DIVIDEND AND INTEREST REINVESTMENT. Dividends and
Interest as to which reinvestment has been elected by a Participant shall be
paid to the Administrator or its nominee on behalf of such Participant.
Dividends and Interest shall be reinvested, at the Company's election, in either
(i) newly issued shares of Common Stock or shares of Common Stock held in the
Company's treasury purchased from the Company or (ii) shares of Common Stock
purchased in the open market. Any reinvestment of Dividends or Interest in, or
other purchases of, Common Stock pursuant to this Article III shall be subject
to Section 3.5 hereof.
Section 3.2. DIVIDEND AND INTEREST REINVESTMENT IN NEWLY
ISSUED OR TREASURY SHARES. Dividend and Interest reinvestment in newly issued
shares of Common Stock or shares of Common Stock held in the Company's treasury
shall be governed by this Section 3.2. On an Investment Date with respect to
which the Company elects to issue new shares or sell shares of Common Stock held
in the Company's treasury to the Plan in order to effect the reinvestment of
Dividends and/or Interest, the Company shall issue to the Administrator upon the
Company's receipt of the funds described in (a) below, for crediting by the
Administrator to the Account of a Participant, a number of shares (and/or
fraction of a share rounded to three decimal places) of Common Stock equal to
(a) the amount of any Dividends and/or Interest paid to the Administrator on
behalf of such Participant since the preceding Investment Date plus the amount
of any Dividends paid to the Administrator on behalf of such Participant on such
Investment Date divided by (b) the Company Share Purchase Price on the trading
day immediately preceding such Investment Date. Such shares shall be issued or
sold to, and registered in the name of, the Administrator or its nominee as
custodian for such Participants. No interest shall be paid on Dividends or
Interest held pending reinvestment pursuant to this Section 3.2.
Section 3.3. DIVIDEND AND INTEREST REINVESTMENT IN SHARES
PURCHASED IN THE OPEN MARKET. Dividend and Interest reinvestment in shares of
Common Stock purchased in the open market shall be governed by this Section 3.3.
On an Investment Date with respect to which the Company elects to effect
reinvestment of Dividends and/or Interest in
-9-
shares of Common Stock purchased in the open market, the Administrator shall (if
it is an Independent Agent), or shall cause an Independent Agent to, apply the
amount of any Dividends and/or Interest paid to the Administrator on behalf of
the Participants since the preceding Investment Date plus the amount of any
Dividends paid to the Administrator on behalf of the Participants on such
Investment Date to the purchase of shares of Common Stock in the open market.
Purchases in the open market pursuant to this Section 3.3 and Subsection 3.4.2
hereof may begin on the applicable Investment Date and shall be completed no
later than 15 days from such date unless completion at a later date is necessary
or advisable under applicable law, including without limitation any federal
securities laws. Any Dividends, Interest, optional cash investments and initial
cash investments to be reinvested in shares of Common Stock purchased in the
open market pursuant to this Section 3.3 and Subsection 3.4.2 hereof not
reinvested in shares of Common Stock within 30 days of receipt by the
Administrator, or if the Company is not the Administrator by the Company, shall
be promptly returned to the Participant at his address of record by First Class
Mail. Open market purchases pursuant to this Section 3.3 and Subsection 3.4.2
hereof may be made on any securities exchange on which the Common Stock is
traded, in the over-the-counter market or by negotiated transactions, and may be
upon such terms and subject to such conditions with respect to price and
delivery to which the Independent Agent (including the Administrator if it is
also an Independent Agent) may agree. With regard to open market purchases of
shares of Common Stock pursuant to this Section 3.3 and Subsection 3.4.2 hereof,
none of the Company, the Administrator (if it is not also serving as the
Independent Agent) or any Participant shall have any authority or power to
direct the time or price at which shares of Common Stock may be purchased, the
markets on which such shares are to be purchased (including on any securities
exchange, in the over-the-counter market or in negotiated transactions) or the
selection of the broker or dealer (other than the Independent Agent) through or
from whom purchases may be made. For the purpose of making, or causing to be
made, purchases of shares of Common Stock pursuant to this Section 3.3 and
Subsection 3.4.2 hereof, and sales of Account Shares pursuant to Section 5.1
hereof, the Independent Agent shall be entitled to commingle each Participant's
funds with those of all other Participants and to offset purchases of shares of
-10-
Common Stock against sales of shares of Common Stock to be made for
Participants, resulting in a net purchase or a net sale of shares. The number of
shares (and/or fraction of a share rounded to three decimal places) of Common
Stock that shall be credited to a Participant's Account with respect to an
Investment Date to which this Section 3.3 applies shall be equal to (a)(i) the
amount of any Dividends and/or Interest paid to the Administrator on behalf of
such Participant since the preceding Investment Date plus (ii) the amount of any
Dividends paid to the Administrator on behalf of such Participant on such
Investment Date less (iii) any Dividends and/or Interest to be returned to such
Participant pursuant to this Section 3.3 divided by (b) the Market Share
Purchase Price with respect to such Investment Date. Such shares shall be
registered in the name of the Administrator or its nominee as custodian for the
Participants. No interest shall be paid on Dividends or Interest held pending
reinvestment pursuant to this Section 3.3.
Section 3.4. INVESTMENT OF OPTIONAL CASH PAYMENTS AND INITIAL
CASH PAYMENTS. Any optional cash investments and initial cash investments
received by the Administrator from a Participant at least two business days
prior to an Investment Date shall be invested, beginning on such Investment
Date, in either (i) newly issued shares or shares of Common Stock held in the
Company's treasury in the manner provided in Subsection 3.4.1 hereof, or (ii)
Common Stock purchased in the open market in the manner provided in Subsection
3.4.2 hereof. Optional cash investments and initial cash investments not
received by the Administrator at least two business days prior to an Investment
Date need not be invested on such Investment Date; PROVIDED, HOWEVER, that any
such optional cash investments and initial cash investments not invested on such
Investment Date shall be invested beginning on the next succeeding Investment
Date. No interest shall be paid on optional cash investments and initial cash
investments held pending investment pursuant to this Section 3.4.
Subsection 3.4.1 NEWLY ISSUED OR TREASURY SHARES. On an
Investment Date with respect to which the Company elects to issue new shares or
sell shares of Common Stock held in the Company's treasury to the Plan in order
to effect the investment of optional cash investments and initial cash
investments, the Company shall issue to the Administrator upon the Company's
receipt of the funds described in (a) below, for crediting
-11-
by the Administrator to the Account of a Participant, a number of shares (and/or
fraction of a share rounded to three decimal places) of Common Stock equal to
(a) the amount of any optional cash investments and/or initial cash investment
received by the Administrator from such Participant since the preceding
Investment Date (excluding any amounts received from such Participant within two
business days of such Investment Date but including any amounts received from
such Participant within two business days prior to the preceding Investment Date
that were not invested on the preceding Investment Date as set forth in Section
3.4 hereof) divided by (b) the Company Share Purchase Price on the trading day
immediately preceding such Investment Date. Such shares shall be issued or sold
to, and registered in the name of, the Administrator or its nominee as custodian
for the Participants.
Subsection 3.4.2 SHARES PURCHASED IN THE OPEN MARKET. On an
Investment Date with respect to which the Company elects to effect the
investment of optional cash investments and initial cash investments in shares
of Common Stock purchased in the open market, the Administrator shall (if it is
an Independent Agent), or shall cause an Independent Agent to, purchase for
crediting by the Administrator to the Account of a Participant a number of
shares (and/or fraction of a share rounded to three decimal places) of Common
Stock in the open market equal to (a)(i) the amount of any optional cash
investments and/or initial cash investment received by the Administrator from
such Participant since the preceding Investment Date (excluding any amounts
received from such Participant within two business days of such Investment Date
but including any amounts received from such Participant within two business
days prior to the preceding Investment Date as set forth in Section 3.4 hereof)
less (ii) any optional cash investments and/or initial cash investments to be
returned to such Participant pursuant to Section 3.3 hereof divided by (b) the
Market Share Purchase Price with respect to such Investment Date. Such purchases
shall be made in the manner set forth in Section 3.3 hereof. Such shares shall
be registered in the name of the Administrator or its nominee as custodian for
the Participants.
Subsection 3.4.3 REQUEST TO STOP INVESTMENT. If a written
request to stop investment of optional cash investments or an initial cash
investment is received by the Administrator from a Participant at least two
business days before the next Investment Date, any optional cash investments or
initial cash investment from such Participant then held by
-12-
the Administrator shall not be invested in Common Stock and shall be returned to
such Participant. If such a request is not received by the Administrator at
least two business days prior to an Investment Date, any such optional cash
investments or initial cash investment shall be invested in shares of Common
Stock for such Participant's Account.
Section 3.5. EXHAUSTION OF FRACTIONAL SHARE ACCOUNT. Prior to
any purchase of Common Stock by the Administrator or an Independent Agent
pursuant to this Article III, the Administrator shall first purchase, at the
Company Share Purchase Price on the trading day immediately preceding the
Investment Date, the Fractional Account Shares from the Fractional Share
Account. To the extent made, such purchases from the Fractional Share Account
shall substitute for purchases required by this Article III.
ARTICLE IV
SAFEKEEPING SERVICES FOR DEPOSITED COMMON STOCK
Section 4.1. DEPOSITED COMMON STOCK. A Participant may elect
to have certificates representing shares of Common Stock of which the
Participant is the record holder deposited into the Plan by completing an
Enrollment Form and delivering such certificates and Enrollment Form to the
Administrator. Shares of Common Stock so deposited shall be transferred into the
name of the Administrator or its nominee and credited to the depositing
Participant's Account. Dividends paid on shares of Common Stock deposited into
the Plan pursuant to this Section 4.1 shall be reinvested in Common Stock
pursuant to Article III hereof in accordance with the depositing Participant's
reinvestment election designated on a completed Enrollment Form.
Section 4.2. WITHDRAWAL OF COMMON STOCK DEPOSITED PURSUANT TO
SECTION 4.1. Shares of Common Stock deposited pursuant to Section 4.1 hereof may
be withdrawn from the Plan pursuant to Section 7.2 hereof.
ARTICLE V
SALE OF ACCOUNT SHARES; GIFT OR TRANSFER OF ACCOUNT SHARES
Section 5.1. SALE OF ACCOUNT SHARES. A Participant may
request, at any time, that all or a portion of his whole Account Shares be sold
by delivering to the Administrator a completed Sale/Transfer/Withdrawal Request
Form to that effect. The Administrator (if it is not also an Independent Agent)
shall forward such sale instructions to the Independent
-13-
Agent within five business days after receipt thereof (except in the case of
instructions to sell all whole Account Shares of a Participant described below
in the immediately following paragraph). The Independent Agent shall make such
sales as soon as practicable (in accordance with stock transfer requirements and
federal and state securities laws) after processing such sale instructions. As
soon as practicable following the receipt of proceeds from such sale, the
Administrator shall mail by First Class Mail to such Participant at his address
of record a check in an amount equal to (a) the Market Share Sales Price
multiplied by (b) the number of his Account Shares sold.
If instructions for the sale of Account Shares which are not
Reinvestment Eligible Securities are received by the Administrator on or after
the record date relating to a Dividend Payment Date but before the Dividend
Payment Date, the sale shall be processed as described above, and the
Administrator shall, as soon as practicable following the receipt of Dividends
paid on such Account Shares, mail a check for such Dividends by First Class Mail
to the Participant at his address of record or directly deposit such Dividends
in the Participant's designated direct deposit account, if such Participant has
elected the direct deposit option pursuant to Section 7.7 hereof. If
instructions for the sale of Account Shares which are also Reinvestment Eligible
Securities are received by the Administrator on or after the record date
relating to a Dividend Payment Date but before the Dividend Payment Date, the
shares of Common Stock purchased from the reinvestment of such Dividends shall
be credited to the Participant's Account, and (i) if the Participant's sale
instructions cover less than all of his whole Account Shares, the sale shall be
processed as described above in the immediately preceding paragraph or (ii) if
the Participant's sale instructions cover all of his whole Account Shares, the
sale instructions shall not be processed until after such Dividends have been
reinvested pursuant to the Plan and the shares of Common Stock purchased
therewith have been credited to his Account. In the case of clause (ii) of the
immediately preceding sentence, the Administrator shall forward such sale
instructions to the Independent Agent promptly (within at least five business
days) after such Dividend Payment Date.
With regard to open market sales of Account Shares pursuant to
this Section 5.1, none of the Company, the Administrator (if it is not also
serving as the
-14-
Independent Agent) or any Participant shall have any authority or power to
direct the time or price at which shares of Common Stock may be sold, the
markets on which such shares are to be sold (including on any securities
exchange, in the over-the-counter market or in negotiated transactions) or the
selection of the broker or dealer (other than the Independent Agent) through or
from whom sales may be made, except that the timing of such sales must be made
in accordance with the terms and conditions of the Plan.
Section 5.2. GIFT OR TRANSFER OF ACCOUNT SHARES. A Participant
may elect to transfer (whether by gift, private sale or otherwise) ownership of
all or a portion of his Account Shares to the Account of another Participant or
establish an Account for a Person not already a Participant by delivering to the
Administrator a completed Sale/Transfer/Withdrawal Request Form to that effect
and a stock assignment (stock power), acceptable to the Administrator. No
fraction of a share of Common Stock credited to the transferor's Account shall
be transferred unless the transferor's entire Account is transferred.
Account Shares transferred in accordance with the preceding
paragraph shall continue to be registered in the name of the Administrator as
custodian and shall be credited to the transferee's Account. If the transferee
is not already a Participant, an Account shall be opened in the name of the
transferee and the Administrator shall send the transferee an Enrollment Form as
soon as practicable after such transfer. Unless otherwise requested by a
transferee who is already a Participant on a completed Enrollment Form, the
reinvestment of Dividends on such transferred Account Shares in shares of Common
Stock under the Plan shall be made in proportion to the reinvestment level
(I.E., full, partial or none) of the transferee's other Account Shares. Unless
otherwise requested by the transferor, the Administrator shall deliver a
Statement of Account to such transferee showing the transfer of such Account
Shares into his Account. The transferor may request that the Administrator
deliver such Statement of Account to the transferor for personal delivery to the
transferee and/or the transferor may request that the Administrator deliver to
such transferee a gift certificate. The transferor may request that the
Administrator send the gift certificate directly to such transferee with the
first Statement of Account following such transfer or request that the
Administrator deliver such gift certificate to the transferor
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for personal delivery to the transferee. The Administrator shall comply with any
such request of a transferor relating to Statements of Account and/or gift
certificates as soon as practicable following receipt of such request.
If a completed Sale/Transfer/Withdrawal Request Form with
regard to Account Shares which are not Reinvestment Eligible Securities is
received by the Administrator on or after the record date relating to a Dividend
Payment Date but before the Dividend Payment Date, the transfer shall be
processed as described above, and the Administrator shall, as soon as
practicable following the receipt of Dividends paid on such designated Account
Shares, mail a check for such Dividends by First Class Mail to the transferor at
his address of record or directly deposit such Dividends in the transferor's
direct deposit account, if he has elected the direct deposit option pursuant to
Section 7.7 hereof. If a completed Sale/Transfer/Withdrawal Request Form with
regard to Account Shares that are also Reinvestment Eligible Securities is
received by the Administrator on or after the record date relating to a Dividend
Payment Date but before the Dividend Payment Date, the shares of Common Stock
purchased from the reinvestment of such Dividends shall be credited to the
Participant's Account, and (i) if the Participant's transfer instructions cover
less than all of his whole Account Shares, the transfer shall be processed as
described above in the immediately preceding paragraph or (ii) if the
Participant's transfer instructions cover all of his whole Account Shares, the
transfer shall not be processed until after such Dividends have been reinvested
pursuant to the Plan and the shares of Common Stock purchased therewith have
been credited to his Account. In the case of clause (ii) of the immediately
preceding sentence, the Administrator shall effect such transfer as soon as
practicable after such Dividend Payment Date.
Section 5.3 REINVESTMENT OF DIVIDENDS ON REMAINING ACCOUNT
SHARES. If only a portion of a Participant's Account Shares are Reinvestment
Eligible Securities and the Participant elects to (i) sell a portion of his
Account Shares pursuant to Section 5.1 hereof, (ii) transfer a portion of his
Account Shares pursuant to Section 5.2 hereof or (iii) withdraw a portion of his
Account Shares pursuant to Section 7.2 hereof, all of the Account Shares which
are not Reinvestment Eligible Securities shall be sold, transferred or
withdrawn, as the case may be, before any Account Shares which are also
Reinvestment Eligible Securities
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are sold, transferred or withdrawn unless the Participant gives specific
instructions to the contrary in connection with such sale, transfer or
withdrawal of Account Shares.
ARTICLE VI
ELIGIBLE SECURITIES
Section 6.1. ELIGIBLE SECURITIES. The following debt and
equity securities of the Company and its subsidiaries shall be Eligible
Securities:
i. Common Stock;
ii. The Company's Debentures, 7 1/4% Series due December 1,
1996;
iii. The Company's Debentures, 9 3/8% Series due June 1,
2001;
iv. The Company's Debentures, 7 7/8% Series due July 1,
2002;
v. $4 Preferred Stock of Houston Lighting and Power
Company, a Texas corporation ("HL&P");
vi. $6.72 Cumulative Preferred Stock of HL&P;
vii. $7.52 Cumulative Preferred Stock of HL&P;
viii. $8.12 Cumulative Preferred Stock of HL&P;
ix. $8.50 Cumulative Preferred Stock of HL&P;
x. HL&P's First Mortgage Bonds, 5 1/4% Series due 1996;
xi. HL&P's First Mortgage Bonds, 5 1/4% Series due 1997;
xii. HL&P's First Mortgage Bonds, 6 3/4% Series due 1997;
xiii. HL&P's First Mortgage Bonds, 7 5/8% Series due March 1,
1997;
xiv. HL&P's First Mortgage Bonds, 6 3/4% Series due 1998;
xv. HL&P's First Mortgage Bonds, 7 1/4% Series due 2001;
xvi. HL&P's First Mortgage Bonds, 9.15% Series due March 15,
2021;
xvii. HL&P's First Mortgage Bonds, 8 3/4% Series due March 1,
2022;
xviii. HL&P's First Mortgage Bonds, 7 3/4% Series due March
15, 2023; and
xix. HL&P's First Mortgage Bonds, 7 1/2% Series due July 1,
2023.
Section 6.2. ADDITIONAL ELIGIBLE SECURITIES. The Company may
from time to time or at any time designate other debt or equity securities of
the Company and its subsidiaries as Eligible Securities by notifying the
Administrator in writing of the designation of such securities as Eligible
Securities.
ARTICLE VII
TREATMENT OF ACCOUNTS
Section 7.1. CHANGING PLAN OPTIONS. A Participant may elect to
change his Plan options, including (i) changing the reinvestment levels (I.E.,
full, partial or none) of Dividends and Interest on Reinvestment Eligible
Securities and (ii) changing the designation of Reinvestment Eligible
Securities, by delivering to the Administrator written instructions
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or a new Enrollment Form to that effect. To be effective with respect to any
Dividend or Interest payment, the instructions or Enrollment Form with respect
to such Reinvestment Eligible Securities must be received by the Administrator
on or before the record date relating to such Dividend and/or Interest. If the
instructions or Enrollment Form are not received by the Administrator on or
before the record date relating to such Dividend and/or Interest, such
instructions shall not become effective until after the payment of such Dividend
and/or Interest. The shares of Common Stock purchased from the reinvestment of
such Dividend and/or Interest shall be credited to the Participant's Account.
After the Administrator's receipt of effective option changing instructions,
Dividends and Interest on Reinvestment Eligible Securities as to which the
reinvestment election has been revoked will be paid in cash or with regard to
Dividends on Common Stock, by direct deposit to the Participant's designated
direct deposit account, if such Participant has elected the direct deposit
option pursuant to Section 7.7 hereof.
Section 7.2. RIGHT OF WITHDRAWAL. A Participant may, at any
time or from time to time, withdraw from the Plan all or any part (other than
fractions) of his Account Shares by delivering to the Administrator (i)
appropriate withdrawal instructions to that effect, if such Participant will be
the record holder of such Account Shares after withdrawal or (ii) a completed
Sale/Transfer/Withdrawal Request Form and a stock assignment (stock power) to
that effect, if the Participant will not be the record holder of such Account
Shares after withdrawal. Subject to the limitations described in the immediately
following paragraph, as soon as practicable following the Administrator's
receipt of (i) appropriate withdrawal instructions or (ii) a completed
Sale/Transfer/Withdrawal Request Form and a stock assignment (stock power), as
the case may be, which indicates the Participant's desire to withdraw certain of
his whole Account Shares, the Administrator shall mail by First Class Mail to
the Participant at his address of record, or to the address of any Person that
the Participant designated, certificates representing such designated Account
Shares.
If a completed Sale/Transfer/Withdrawal Request Form with
regard to Account Shares which are not Reinvestment Eligible Securities is
received by the Administrator on or after the record date relating to a Dividend
Payment Date but before the Dividend Payment Date, the withdrawal shall be
processed as described above, and the
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Administrator shall, as soon as practicable following the receipt of Dividends
paid on the withdrawn Account Shares, mail a check for such Dividends by First
Class Mail to the Participant at his address of record or directly deposit such
Dividends in the Participant's designated direct deposit account, if such
Participant has elected the direct deposit option pursuant to Section 7.7
hereof. If a completed Sale/Transfer/Withdrawal Request Form with regard to
Account Shares which are also Reinvestment Eligible Securities is received by
the Administrator on or after the record date relating to a Dividend Payment
Date but before the Dividend Payment Date, the shares of Common Stock purchased
from the reinvestment of such Dividends shall be credited to the Participant's
Account, and (i) if the Participant's withdrawal instructions cover less than
all of his Account Shares, the withdrawal shall be processed as described above
in the immediately preceding paragraph or (ii) if the Participant's withdrawal
instructions cover all of his whole Account Shares, the withdrawal instructions
shall not be processed until after such Dividends have been reinvested pursuant
to the Plan and the shares of Common Stock purchased therewith have been
credited to his Account. In the case of clause (ii) of the immediately preceding
sentence, the Administrator shall mail by First Class Mail to the Participant at
his address of record, or to the address of any Person that the Participant
designated, certificates representing the withdrawn Account Shares as soon as
practicable following such Dividend Payment Date.
Withdrawal of Account Shares shall not affect reinvestment of
Dividends on the Account Shares withdrawn unless (i) the Participant is no
longer the record holder of such Account Shares, (ii) such reinvestment is
changed by the Participant by delivering to the Administrator written
instructions or an Enrollment Form to that effect pursuant to Section 7.1 hereof
or (iii) the Participant has terminated his participation in the Plan.
Section 7.3. RIGHT OF TERMINATION OF PARTICIPATION. If a
Participant's Sale/Transfer/Withdrawal Request Form indicates the Participant's
desire to terminate his participation in the Plan, the Administrator shall treat
such request as a withdrawal of all of such Participant's whole Account Shares
pursuant to Section 7.2 hereof. The Administrator, in addition to mailing
certificates representing all whole Account Shares, if any, pursuant to Section
7.2 hereof, shall mail by First Class Mail to the Participant at his
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address of record a check for an amount equal to the sum of (i) the amount of
cash credited to such Participant's Account pending investment in Common Stock
and (ii) the cash value of any fraction of a share of Common Stock credited to
his Account. Such fraction of a share shall be valued at the Company Share
Purchase Price for the trading day immediately preceding the date of receipt of
the completed Sale/Transfer/Withdrawal Request Form.
Section 7.4. STOCK SPLITS, STOCK DIVIDENDS AND RIGHTS
OFFERINGS. Any shares or other securities representing stock splits or other
noncash distributions on Account Shares shall be credited to such Participant's
Account. Stock splits, combinations, recapitalizations and similar events
affecting the Common Stock shall, as to shares credited to Accounts of
Participants, be credited to such Accounts on a pro rata basis.
In the event of a rights offering, a Participant shall receive
rights based upon the total number of whole shares of Common Stock credited to
his Account.
Section 7.5. SHAREHOLDER MATERIALS; VOTING RIGHTS. The
Administrator shall send or forward to each Participant all applicable proxy
solicitation materials, other shareholder materials or consent solicitation
materials. Participants shall have the exclusive right to exercise all voting
rights respecting Account Shares credited to their respective Accounts. A
Participant may vote any of his whole Account Shares in person or by proxy. A
Participant's proxy card shall include his whole Account Shares and shares of
Common Stock of which he is the record holder. Account Shares shall not be voted
unless a Participant or his proxy votes them. Fractions of shares of Common
Stock shall not be voted.
Solicitation of the exercise of Participants' voting rights by
the management of the Company and others under a proxy or consent provision
applicable to all holders of Common Stock shall be permitted. Solicitation of
the exercise of Participants' tender or exchange offer rights by management of
the Company and others shall also be permitted. The Administrator shall notify
the Participants of each occasion for the exercise of their voting rights or
rights with respect to a tender offer or exchange offer within a reasonable time
before such rights are to be exercised. Such notification shall include all
information distributed to the shareholders of the Company by the Company
regarding the exercise of such rights.
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Section 7.6. STATEMENTS OF ACCOUNT. As soon as practicable
after each calendar quarter, the Administrator shall send to each Participant a
quarterly Statement of Account. Additionally, the Administrator shall send a
supplemental Statement of Account to each Participant in months where such
Participant made an optional cash investment, deposited Common Stock into the
Plan pursuant to Section 4.1 hereof, transferred or withdrew Account Shares or
had Dividends or Interest reinvested in Common Stock. As soon as practicable
following a sale of Account Shares by a Participant, the Administrator shall
deliver a confirmation to such Participant.
Section 7.7. DIRECT DEPOSIT OPTION. A Participant may elect to
have any Dividends on Account Shares not being reinvested in Common Stock
pursuant to the Plan paid by electronic direct deposit to the Participant's
predesignated bank, savings or credit union account. To receive such direct
deposit of funds, a Participant must complete, sign and return a Direct Deposit
Authorization Form to the Administrator. Direct deposit will become effective as
soon as practicable after receipt of a completed Direct Deposit Authorization
Form. A Participant may change his designated direct deposit account by
delivering a completed Direct Deposit Authorization Form to the Administrator.
ARTICLE VIII
CERTIFICATES AND FRACTIONS OF SHARES
Section 8.1. CERTIFICATES. A Participant, at any time or from
time to time, may request in writing to receive a certificate for all or a
portion of his whole Account Shares and upon such request the Administrator
shall promptly mail such certificate (in any event, within at least two business
days of the receipt of such written request) by First Class Mail to such
Participant at his address of record; PROVIDED, HOWEVER, that upon the mailing
of such certificate the shares of Common Stock represented by such certificate
shall no longer be Account Shares but shall remain Reinvestment Eligible
Securities (to the extent such Participant has elected to have Dividends on such
Account Shares reinvested in Common Stock).
Section 8.2. FRACTIONAL SHARES. Fractions of shares of Common
Stock shall be credited to Accounts as provided in Article III hereof; PROVIDED,
HOWEVER, that no certificate for a fraction of a share shall be distributed to
any Participant at any time; and
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PROVIDED, FURTHER, that the Company shall issue and sell only whole shares of
Common Stock to the Administrator in respect of Dividends and Interest
reinvested in, and purchases made by the Administrator hereunder of, newly
issued shares or shares of Common Stock held in the Company's treasury.
Section 8.3. FRACTIONAL SHARE ACCOUNT. In the event that, upon
a Participant's termination of participation in the Plan, the Account of such
Participant is credited with a fraction of a share of Common Stock, such
fraction of a share shall be purchased by the Administrator for the Fractional
Share Account at the Company Share Purchase Price determined as of the trading
date specified in Sections 7.3, 9.1 or 9.4 hereof, as the case may be, and the
proceeds thereof shall be remitted to such Participant as set forth in Sections
7.3, 9.1 or 9.4 hereof, respectively. The Company shall from time to time credit
the Fractional Share Account with such amounts of money as may be necessary to
fund such purchases for the Fractional Share Account; PROVIDED, HOWEVER, that
the Company may, at any time or from time to time, direct the Administrator to
repay, and thereupon the Administrator shall repay to the Company such portion
of the cash as the Company may, in its discretion, deem to be in excess of the
amount needed to fund the operations of the Fractional Share Account.
As set forth in Section 3.5 hereof, on each Investment Date,
the Administrator shall first apply the aggregate amount of optional cash
investments, initial cash investments, Dividends and Interest to the purchase of
all currently existing Fractional Account Shares. If the remaining aggregate
amount of optional cash investments, initial cash investments, Dividends and
Interest is not sufficient to purchase a whole number of shares of Common Stock,
the Company shall provide to the Administrator, as agent for the Company, such
additional amount of money as may be necessary to enable the Administrator (or
the Independent Agent, as the case may be) to purchase an additional share of
Common Stock. The fraction of a share that has been purchased with funds
provided by the Company shall be credited to the Fractional Share Account, and
the remaining fraction of a share shall be allocated among the Participants'
Accounts as necessary.
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ARTICLE IX
CONCERNING THE PLAN
Section 9.1. SUSPENSION, MODIFICATION AND TERMINATION. The
Company may at any time and from time to time, at its sole option, suspend,
modify, amend or terminate the Plan, in whole, in part or in respect of
Participants in one or more jurisdictions; PROVIDED, HOWEVER, no such amendment
shall decrease the Account of any Participant or result in a distribution to the
Company of any amount credited to the Account of any Participant. Upon complete
termination of the Plan, the Accounts of all Participants (or in the case of
partial termination of the Plan, the Accounts of all affected Participants)
shall be treated as if each such Participant had elected to terminate his
participation in the Plan pursuant to Section 7.3 hereof, except that any
fraction of a share of Common Stock shall be valued as of the trading date
immediately preceding the date on which the Plan is terminated. The
Administrator shall promptly send each affected Participant notice of such
suspension, modification or termination.
Section 9.2. RULES AND REGULATIONS. The Company may from time
to time adopt such administrative rules and regulations concerning the Plan as
it deems necessary or desirable for the administration of the Plan. The Company
shall have the power and authority to interpret the terms and the provisions of
the Plan and shall interpret and construe the Plan and reconcile any
inconsistency or supply any omitted detail in a manner consistent with the
general terms of the Plan and applicable law.
Section 9.3. COSTS. All costs of administration of the Plan
shall be paid by the Company; PROVIDED, HOWEVER, that any brokerage commissions,
service charges or applicable taxes incurred in connection with open market
purchases and sales of shares of Common Stock made under the Plan shall be borne
by the Participants.
Section 9.4. TERMINATION OF A PARTICIPANT. If a Participant
does not have at least one whole Account Share or own or hold any other
Reinvestment Eligible Securities, the Participant's participation in the Plan
may be terminated by the Company, in its sole discretion, after written notice
is mailed to such Participant at his address of record. Additionally, the
Company, in its sole discretion, may terminate any Participant's participation
in the Plan after written notice mailed in advance to such Participant at his
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address of record. Upon such termination, the Account of such Participant shall
be treated as if he had elected to terminate his participation in the Plan
pursuant to Section 7.3 hereof, except that any fraction of a share of Common
Stock shall be valued as of the trading date immediately preceding the date on
which such Participant's participation is terminated.
ARTICLE X
ADMINISTRATION OF THE PLAN
Section 10.1. SELECTION OF AN ADMINISTRATOR. The Administrator
shall be appointed by the Company. The Administrator's appointment to serve as
such may be revoked by the Company at any time. The Administrator may resign at
any time upon reasonable notice to the Company. In the event that no
Administrator is appointed, the Company shall be deemed to be the Administrator
for purposes of the Plan. The Company shall be the initial Administrator.
Section 10.2. COMPENSATION. The officers of the Company shall
make such arrangements regarding compensation, reimbursement of expenses and
indemnification of the Administrator and any Independent Agent as they from time
to time deem reasonable and appropriate.
Section 10.3. AUTHORITY AND DUTIES OF ADMINISTRATOR. The
Administrator shall have the authority to undertake any act necessary to fulfill
its duties as set forth in the various provisions of the Plan. Upon receipt, the
Administrator shall deposit all Dividends, Interest, optional cash investments
and initial cash investments in the Trust Account. The Administrator shall
maintain appropriate records of the Accounts of Participants and the Fractional
Share Account.
Section 10.4. LIABILITY OF THE COMPANY, THE ADMINISTRATOR AND
ANY INDEPENDENT AGENT. The Company, the Administrator and any Independent Agent
shall not be liable for any act done in good faith, or for the good faith
omission to act in administering or performing their duties with respect to the
Plan, including, without limitation, any claim of liability arising out of
failure to terminate a Participant's Account upon such Participant's death prior
to receipt of notice in writing of such death, or with respect to the prices at
which shares are purchased or sold for a Participant's Account and
-24-
the times when such purchases and sales are made, or with respect to any loss or
fluctuation in the market value after the purchase or sale of such shares.
Section 10.5. RECORDS AND REPORTS. The Administrator shall
keep appropriate records concerning the Plan, Accounts of Participants,
purchases and sales of Common Stock made under the Plan and Participants'
addresses of record and shall send Statements of Account and confirmations to
each Participant in accordance with the provisions of Section 7.5 hereof.
Section 10.6. SELECTION OF INDEPENDENT AGENT. Any Independent
Agent serving in such capacity pursuant to the Plan shall be selected by the
Company, and the Administrator and the Company, or either of them, shall,
subject to the provisions of Section 3.3 hereof, make such arrangements and
enter into such agreements with the Independent Agent in connection with the
activities contemplated by the Plan as the Administrator and the Company, or
either of them, deem reasonable and appropriate.
Section 10.7. SOURCE OF SHARES OF COMMON STOCK. The Company
shall not change the source of shares of Common Stock purchased by Participants
in the Plan (I.E., either (i) newly issued shares of Common Stock or shares of
Common Stock held in the Company's treasury purchased from the Company or (ii)
shares of Common Stock purchased in the open market) more than once in any
12-month period. At any time that the source of shares of Common Stock purchased
in the Plan are shares purchased in the open market, the Company shall not
exercise its right to change the source of shares absent a determination by the
Company's Board of Directors or Finance Committee of the Board of Directors that
the Company has a need to raise additional capital or there is another
compelling reason for a change.
ARTICLE XI TRUST AGREEMENT
Section 11.1. CREATION OF TRUST ACCOUNT. The Company hereby
creates with the Trustee a trust consisting of all Dividends, Interest, optional
cash investments and initial cash investments deposited by the Administrator in
that certain non-interest bearing trust account (together with all Dividends,
Interest, optional cash investments and initial cash investments deposited
therein from time to time, the "Trust Account") established by the
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Company at Texas Commerce Bank National Association ("TCB"), account no.
0010-091-2428, or such other non-interest bearing accounts as the Company may
establish from time to time hereunder with any commercial bank organized under
the laws of the United States or any state, which commercial bank must have
assets in excess of $500,000,000.
Section 11.2. ACCEPTANCE OF TRUST. By his signature below, the
current Treasurer of the Company hereby accepts the trust created hereby and
covenants to hold the Trust Account, IN TRUST, for the exclusive purposes
provided in the Plan.
Section 11.3. SUCCESSOR TRUSTEES. The person serving at any
particular time as the Treasurer of the Company shall be the trustee of the
trust hereunder. Therefore, if any person who is serving as trustee for any
reason ceases to serve as Treasurer of the Company, that person shall also be
deemed to have ceased to serve as trustee hereunder, and the successor Treasurer
of the Company shall be the trustee hereunder. If the situation arises, under
the preceding part of this Section 11.3 or otherwise, in which no trustee is
either serving or designated to serve hereunder, a trustee of the trust shall be
appointed by the Company in accordance with Section 11.4 or, if the Company
fails to appoint a successor within sixty (60) days of receiving notification
that a vacancy has occurred, a trustee for the trust shall be appointed in
accordance with applicable law.
Section 11.4. METHOD OF APPOINTMENT BY COMPANY. The
appointment of a successor trustee hereunder by the Company shall be
accomplished by (i) an instrument in writing appointing such successor trustee,
executed by the Company, together with a certified copy of resolutions of the
Board of Directors of the Company to such effect and (ii) an acceptance in
writing of the office of successor trustee hereunder executed by the successor
so appointed. The Company shall send notice of such appointment to the
Administrator. Any successor trustee hereunder may be either a corporation
authorized and empowered to exercise trust powers or one or more individuals.
Section 11.5. REMOVAL OF TRUSTEE. Any person or entity serving
as trustee may be removed as such by the Company at any time, with or without
cause, effective sixty (60) days after delivery of written notice to the
trustee, but such notice may be waived by the trustee. Such removal shall be
effected by delivering to the trustee a written notice of
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removal executed by the Company and by giving notice to the trustee of the
appointment of a successor trustee in the manner set forth in Section 11.4.
Section 11.6. RESIGNATION OF TRUSTEE. Any person or entity
serving as trustee may resign as such, effective sixty (60) days after delivery
of notice thereof in writing to the Company.
Section 11.7. TRUSTEE DEFINED. As used or applied below in
this Article XI, the term "Trustee" refers collectively to the one or ones at
any particular time serving as the trustee or trustees of the trust. The neuter
gender is used in referring to that term.
Section 11.8 GENERAL DUTIES OF THE COMPANY. The Company shall
provide the Trustee with a true and correct copy of the Plan and true and
correct copies of any amendments to the Plan promptly upon their adoption and
shall certify to the Trustee the names and specimen signatures of any person who
shall have authority to control and manage the operation and administration of
the Plan on behalf of the Administrator.
Section 11.9 GENERAL DUTIES AND POWERS OF THE TRUSTEE. No bond
or other security shall ever be required of the Trustee.
The Trustee shall keep accurate and detailed records of
receipts and disbursements and other transactions affecting the Trust Account,
and shall make disbursements from the Trust Account at such times, to such
persons (including the Administrator) and in such amounts as the Administrator
shall direct in writing. All such disbursements shall comply with the provisions
of the Plan and no disbursement shall be made which would cause any property in
the Trust Account to be used or diverted for purposes not consistent with the
provisions of the Plan.
The Trustee shall, in the Trustee's sole and absolute
discretion, perform such other acts as the Trustee may deem necessary or proper
for the protection of the Trust Account and, except to the extent inconsistent
with the provisions of the Plan, may exercise all such further rights and powers
as may be granted to trustees generally under the Texas Trust Code.
Section 11.10. LIABILITY OF TRUSTEE. The Trustee shall use
ordinary care, skill, prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise
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of a like character and with like aims. The Trustee shall not be liable or
responsible for any loss sustained by the Trust Account by reason of the
insolvency of the financial institution holding such account or for acting
without question on the direction of, or failing to act in the absence of any
direction from, the Administrator or any person with authority to act on behalf
of the Administrator, unless the Trustee knows that by such action or failure to
act he or she will be in breach of his or her fiduciary duty. The Trustee shall
not be responsible in any respect for the administration of the Plan.
The duties and obligations of the Trustee hereunder shall be
governed solely by the terms of this Article XI, and no implied covenants or
obligations shall be read into this Article XI against the Trustee.
Section 11.11. TRANSFER OF TRUST ACCOUNT TO SUCCESSOR. Upon
resignation or removal, the Trustee shall transfer and deliver control over the
Trust Account and all records relating to the Trust Account to the successor
trustee of the trust. All of the provisions set forth herein with respect to the
Trustee shall relate to each successor trustee hereunder with the same force and
effect as if such successor trustee had been originally named herein as the
Trustee hereunder.
Section 11.12. TRUSTEE'S COMPENSATION. The officers of the
Company shall make such arrangements regarding compensation, reimbursement of
expenses and indemnification of the Trustee as they from time to time deem
reasonable and appropriate.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1. CONTROLLING LAW. This Plan shall be construed, regulated
and administered under the laws of the State of Texas.
12.2. ACCEPTANCE OF TERMS AND CONDITIONS OF PLAN BY
PARTICIPANTS. Each Participant, by completing an Enrollment Form and as a
condition of participation herein, for himself, his heirs, executors,
administrators, legal representatives and assigns, approves and agrees to be
bound by the provisions of this Plan and any subsequent amendments hereto, and
all actions of the Company and the Administrator hereunder.
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EXHIBIT 99(b)
HOUSTON INDUSTRIES ENERGY, INC.
LONG-TERM PROJECT INCENTIVE COMPENSATION PLAN
(As Established Effective January 1, 1994)
FIRST AMENDMENT
Houston Industries Incorporated, a Texas corporation, having established
the Houston Industries Energy, Inc. Long-Term Project Incentive Compensation
Plan, effective January 1, 1994 (the "Plan"), and having reserved the right
under Article XIV thereof to amend the Plan, does hereby amend the Plan,
effective as of March 1, 1995, as follows:
1. The second sentence of Article VIII.A is hereby amended in its entirety,
to read as follows:
"In the discretion of the Personnel Committee, all or a portion of this
Award shall be designated as the 'Annual Award', and the remaining
portion, if any, shall be designated as the 'Long-Term Award'."
2. Article IX.A(1) is hereby amended in its entirety to read as follows:
"(1) ANNUAL AWARDS: In the sole discretion of the Personnel
Committee, Annual Awards may be paid either in cash, in one lump sum, or
in shares of HI Stock, or in a combination of cash and shares of HI
Stock."
3. Terms used in this Amendment and not defined herein are used herein as
they are defined in the Plan. References in the Plan to "this Plan" (and
indirect references such as "hereof" and "herein") are amended to refer to the
Plan as amended by this Amendment. Except as expressly amended hereby, the Plan
shall remain in full force and effect and is hereby ratified and confirmed in
all respects.
-1-
IN WITNESS WHEREOF, Houston Industries Incorporated has caused this
Amendment to be executed by its duly authorized officers this 3rd day of March,
1995, but effective as of March 1, 1995.
HOUSTON INDUSTRIES INCORPORATED
By /S/ D. D. SYKORA
D. D. Sykora
President and Chief Operating Officer
ATTEST:
/S/ R. B. DAUPHIN
Assistant Corporate Secretary
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EXHIBIT 3(b)
AMENDED AND RESTATED BYLAWS
OF
HOUSTON LIGHTING & POWER COMPANY
(Adopted by Resolution of the
Board of Directors on
February 1, 1995)
ARTICLE I.
CAPITAL STOCK
SECTION 1. CERTIFICATES REPRESENTING SHARES. The Company shall
deliver certificates representing shares to which shareholders are entitled.
Such certificates shall be signed by the President or a Vice President and
either the Secretary or an Assistant Secretary and shall be sealed with the seal
of the Company or a facsimile thereof. The signatures of such officers upon a
certificate may be facsimiles. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be issued by the
Company with the same effect as if he were such officer at the date of its
issuance.
SECTION 2. SHAREHOLDERS OF RECORD. The Board of Directors of
the Company may appoint one or more transfer agents or registrars of any class
of stock of the Company. The Company shall be entitled to treat the holder of
record of any shares of the Company as the owner thereof for all purposes, and
shall not be bound to recognize any equitable or other claim to, or interest in,
such shares or any rights deriving from such shares, on the part of any other
person, including (but without limitation) a purchaser, assignee or transferee,
unless and until such other person becomes the holder of record of such shares,
whether or not the Company shall have either actual or constructive notice of
the interest of such other person.
SECTION 3. TRANSFER OF SHARES. The shares of the Company shall
be transferable on the stock certificate books of the Company by the holder of
record thereof, or his duly authorized attorney or legal representative, upon
surrender for cancellation of the certificate for such shares. All certificates
surrendered for transfer shall be cancelled and no new certificate shall be
issued until a former certificate or certificates for a like number of shares
page 1 of 10
shall have been surrendered and cancelled except that in the case of a lost,
destroyed or mutilated certificate, a new certificate may be issued therefor
upon such conditions for the protection of the Company and any transfer agent or
registrar as the Board of Directors or the Secretary may prescribe.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of shareholders
shall be held at the registered office of the Company, in the City of Houston,
Texas, or at such other place within or without the State of Texas as may be
designated by the Board of Directors or officer calling the meeting.
SECTION 2. ANNUAL MEETING. The annual meeting of the
shareholders shall be held on such date not later than June 30 of each year and
at such time as shall be designated from time to time by the Board of Directors.
Failure to hold the annual meeting at the designated time shall not work a
dissolution of the Company.
SECTION 3. SPECIAL MEETINGS. Special meetings of the
shareholders may be called by the President, the Secretary, the Board of
Directors, the holders of not less than one-tenth of all of the shares
outstanding and entitled to vote at such meeting or such other persons as may be
authorized in the Articles of Incorporation.
SECTION 4. NOTICE OF MEETING. Written or printed notice of all
meetings stating the place, day and hour of the meeting and, in case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be delivered to each shareholder of record entitled to vote at such meetings not
less than ten nor more than fifty days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary or
the officer or person calling the meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the stock transfer books of the
Company, with postage thereon prepaid.
SECTION 5. CLOSING OF TRANSFER BOOKS AND FIXING Record Date.
For the purpose of determining shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, the Board of Directors
may either provide that the stock transfer books shall be closed for a stated
period of not less than ten nor more than fifty days before the meeting, or it
may fix in advance a record date for any such determination of shareholders,
such date to be not less than ten days nor more than fifty days prior to the
meeting. If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, then the date on which the notice of the meeting is
mailed shall be the record date for such determination of
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shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as herein provided, such determination
shall apply to any adjournment thereof except where the determination has been
made through the closing of the stock transfer books and the stated period of
closing has expired.
SECTION 6. VOTING LIST. The officer or agent having charge of
the stock transfer books for shares of the Company shall make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten days prior to such meeting, shall be kept on
file at the registered office of the Company and shall be subject to inspection
by any shareholder at any time during usual business hours. Such list shall also
be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original stock transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such list or to vote at any meeting
of shareholders. Failure to comply with any requirements of this Section 6 shall
not affect the validity of any action taken at such meeting.
SECTION 7. VOTING AT MEETINGS. Except as otherwise provided in
the Articles of Incorporation of the Company, each holder of shares of capital
stock of the Company entitled to vote shall be entitled to one vote for each
share of such stock, either in person or by proxy executed in writing by him or
by his duly authorized attorney-in-fact. No proxy shall be valid after eleven
months from the date of its execution unless otherwise provided in the proxy. A
proxy shall be revocable unless expressly provided therein to be irrevocable and
unless otherwise made irrevocable by law. At each election for directors, every
holder of shares of the Company entitled to vote shall have the right to vote,
in person or by proxy, the number of shares owned by him for as many persons as
there are directors to be elected, and for whose election he has a right to
vote, but in no event shall he be permitted to cumulate his votes for one or
more directors.
SECTION 8. QUORUM OF SHAREHOLDERS. Except as otherwise
provided in the Articles of Incorporation of the Company, the holders of a
majority of shares entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders, but, if a quorum is not
represented, a majority in interest of those represented may adjourn the meeting
from time to time. Except as otherwise provided by law, the Articles of
Incorporation or these Bylaws, the affirmative vote of the holders of a majority
of the shares entitled to vote and thus represented at a meeting at which a
quorum is present shall be the act of the shareholders' meeting.
SECTION 9. OFFICERS. The President shall preside at, and the
Secretary shall keep the records of, each meeting of shareholders. In the
absence of either such officer, his duties shall be performed by another officer
of the Company appointed at the meeting.
page 3 of 10
ARTICLE III.
DIRECTORS
SECTION 1. NUMBER AND TENURE. The business and affairs of the
Company shall be managed by the Board of Directors. The number of directors that
shall constitute the whole Board of Directors shall be fixed by the affirmative
vote of a majority of the members at any time constituting the Board of
Directors, and such number may be increased or decreased from time to time;
provided, however, that no such decrease shall have the effect of shortening the
term of any incumbent director. A member of the Board of Directors shall hold
office until the next annual meeting of shareholders.
No person shall be eligible to serve as a director of the Company
subsequent to the annual meeting of the shareholders on or immediately following
such person's seventieth birthday, except that a Board member who has special
technical expertise in the nuclear power field shall be eligible to serve for no
more than one additional year should any Company nuclear facility have been
under special or enhanced scrutiny by the Nuclear Regulatory Commission within
one year preceding such person's seventieth birthday and such person is
otherwise specifically authorized to be eligible to serve by the affirmative
vote of at least 80% of all directors then in office. The term of any director
who is rendered ineligible to serve as a director of the Company by the
immediately preceding sentence shall expire at such annual meeting of
shareholders.
The foregoing notwithstanding, each director shall serve until
his successor shall have been duly elected and qualified, unless he shall
resign, become disqualified, disabled or shall otherwise be removed.
SECTION 2. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly
created directorships resulting from any increase in the number of directors may
be filled by the affirmative vote of a majority of the directors then in office
for a term of office continuing only until the next election of one or more
directors by the shareholders entitled to vote thereon; provided, however, that
the Board of Directors shall not fill more than two such directorships during
the period between two successive annual meetings of shareholders. Any vacancies
on the Board of Directors resulting from death, resignation, disqualification,
removal or other cause shall be filled by the affirmative vote of a majority of
the remaining directors then in office, even though less than a quorum of the
Board of Directors. Any director elected to fill any such vacancy shall hold
office for the remainder of the full term of the director whose departure from
the Board of Directors created the vacancy and until such newly elected
director's successor shall have been duly elected and qualified.
SECTION 3. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE.
Meetings of the Board of Directors may be held either within or without the
State of Texas, at whatever place is specified by the officer calling the
meeting. Meetings of the Board of Directors may also
page 4 of 10
be held by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
Participation in such a meeting by means of conference telephone or similar
communications equipment shall constitute presence in person at such meeting,
except where a director participates in a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened. In the absence of specific designation by the
officer calling the meeting, the meetings shall be held at the registered office
of the Company in the City of Houston, Texas.
SECTION 4. REGULAR MEETINGS. The Board of Directors shall meet
each year immediately following the annual meeting of the shareholders at the
place of such meeting, for the transaction of such business as may properly be
brought before the meeting. The Board of Directors shall also meet regularly at
least each quarter at such time as shall be established by resolution of the
Board of Directors. No notice of any kind to either old or new members of the
Board of Directors for such annual or regular meetings shall be necessary.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time upon the call of the President or the
Secretary of the Company or a majority of the directors then in office. Notice
shall be sent by mail or telegram to the last known address of the director at
least two days before the meeting, or oral notice may be substituted for such
written notice if received not later than the day preceding such meeting. Notice
of the time, place and purpose of such meeting may be waived in writing before
or after such meeting, and shall be equivalent to the giving of notice.
Attendance of a director at such meeting shall also constitute a waiver of
notice thereof, except where he attends for the announced purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened. Except as otherwise provided by these Bylaws,
neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
SECTION 6. QUORUM AND VOTING. Except as otherwise provided by
law, the Articles of Incorporation of the Company or these Bylaws, a majority of
the number of directors fixed in the manner provided in these Bylaws as from
time to time amended shall constitute a quorum for the transaction of business.
Except as otherwise provided by law, the Articles of Incorporation of the
Company or these Bylaws, the affirmative vote of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. Any regular or special directors' meeting may be adjourned from
time to time by those present, whether a quorum is present or not.
SECTION 7. COMPENSATION. Directors shall receive such
compensation for their services as shall be determined by the Board of
Directors.
SECTION 8. REMOVAL. Any director may be removed, either with
or without cause, at any meeting of shareholders by the affirmative vote of a
majority of the outstanding
page 5 of 10
shares entitled to vote at elections of directors. The notice calling such
meeting shall give express notice of the intention to act upon such matter, and
if the notice so provides, the vacancy caused by such removal may be filled at
such meeting by vote of a majority of the shares represented at such meeting and
entitled to vote for the election of directors.
SECTION 9. EXECUTIVE AND OTHER COMMITTEES. The Board of
Directors, by resolution adopted by a majority of the full Board of Directors,
may designate from among its members an executive committee and two or more
other committees, each of which shall be comprised of two or more members and,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Directors.
Notwithstanding the foregoing paragraph of this Section 9, no
such committee shall have the authority of the Board of Directors to:
(a) amend the Articles of Incorporation of the Company;
(b) amend, alter or repeal the Bylaws of the Company or
adopt new Bylaws for the Company;
(c) alter or repeal any resolution of the Board of
Directors;
(d) approve a plan of merger or consolidation;
(e) take definitive action on any reclassification or
exchange of securities, or repurchase by the Company of any of
its equity securities;
(f) declare a dividend on the capital stock of the
Company;
(g) call a special meeting of the shareholders;
(h) recommend any proposal to the shareholders for action
by the shareholders;
(i) fill vacancies in the Board of Directors or any such
committee;
(j) fill any directorship to be filled by reason of an
increase in the number of directors;
(k) elect or remove officers or members of any such
committee; or
(l) fix the compensation of any member of such committee.
page 6 of 10
The designation of any such committee and the delegation
thereto of authority shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed upon it or him by law, nor shall
such committee function where action of the Board of Directors is required under
applicable law. The Board of Directors shall have the power at any time to
change the membership of any such committee and to fill vacancies in it. A
majority of the members of any such committee shall constitute a quorum. Each
such committee may elect a chairman and appoint such subcommittees and
assistants as it may deem necessary. Except as otherwise provided by the Board
of Directors, meetings of any committee shall be conducted in accordance with
the provisions of Sections 3 and 5 of this Article III as the same shall from
time to time be amended. Any member of any such committee elected or appointed
by the Board of Directors may be removed by the Board of Directors whenever in
its judgment the best interests of the Company will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of a member of a committee shall not of
itself create contract rights.
ARTICLE IV.
OFFICERS
SECTION 1. OFFICERS. The officers of the Company shall consist
of a President, one or more Vice Presidents, a Secretary and a Treasurer, each
of whom shall be elected by the Board of Directors. Such other officers,
including assistant officers and agents, as may be deemed necessary may be
elected or appointed by the Board of Directors. Any two or more offices may be
held by the same person. The officers of the Company shall have such powers and
duties as generally pertain to their offices, respectively, as well as such
powers and duties as from time to time shall be conferred by the Board of
Directors.
SECTION 2. VACANCIES. Whenever any vacancies shall occur in
any office by death, resignation, increase in the number of offices of the
Company, or otherwise, the officer so elected shall hold office until his
successor is chosen and qualified. The Board of Directors may at any time remove
any officer of the Company, whenever in its judgment the best interests of the
Company will be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed. Election or appointment
of an officer or agent shall not of itself create contract rights.
ARTICLE V.
INDEMNIFICATION
SECTION 1. GENERAL. Each person who at any time shall serve,
or shall have served, as a director, officer, employee or agent of the Company,
or any person who, while
page 7 of 10
a director, officer, employee or agent of the Company, is or was serving at its
request as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise, shall be entitled to indemnification as, and
to the fullest extent, permitted by Article 2.02-1 of the Texas Business
Corporation Act or any successor statutory provision, as from time to time
amended. The foregoing right of indemnification shall not be deemed exclusive of
any other rights to which those to be indemnified may be entitled as a matter of
law or under any agreement, vote of shareholders or disinterested directors, or
other arrangement.
SECTION 2. INSURANCE. The Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company or is or was serving at the request of the Company as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise against any liability asserted against him and incurred by him in
such capacity or arising out of his status as such a person, whether or not the
Company would have the power to indemnify him against that liability under this
Article V or the Texas Business Corporation Act.
Article VI.
CONTRACTS AND TRANSACTIONS WITH DIRECTORS AND OFFICERS
SECTION 1. GENERAL PROCEDURES. No contract or transaction
between the Company and one or more of its directors or officers, or between the
Company and any other corporation, partnership, association or other
organization in which one or more of the Company's directors or officers are
directors or officers or have a financial interest, shall be void or voidable
solely for this reason, solely because the director or officer is present at or
participates in the meeting of the Company's Board of Directors or committee
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are
known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative vote of a majority
of the disinterested directors, even though the disinterested
directors constitute less than a quorum; or
(b) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are
known to the shareholders entitled
page 8 of 10
to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the
shareholders; or
(c) The contract or transaction is fair to the Company as
of the time it is authorized, approved or ratified by the
Board of Directors, the committee thereof, or the
shareholders.
SECTION 2. DETERMINATION OF QUORUM. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction as provided in Section 1 of this Article VI.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
SECTION 1. OFFICES. The principal office of the Company shall
be located in Houston, Texas, unless and until changed by resolution of the
Board of Directors. The Company may also have offices at such other places as
the Board of Directors may designate from time to time, or as the business of
the Company may require. The principal office and registered office may be, but
need not be, the same.
SECTION 2. RESIGNATIONS. Any director or officer may resign at
any time. Such resignations shall be made in writing and shall take effect at
the time specified therein, or, if no time be specified, at the time of its
receipt by the President or Secretary. The acceptance of a resignation shall not
be necessary to make it effective, unless expressly so provided in the
resignation.
SECTION 3. FIXING RECORD DATES FOR PAYMENT OF DIVIDENDS AND
OTHER PURPOSES. For the purpose of determining shareholders entitled to receive
payment of any dividend or in order to make a determination of shareholders for
any other proper purpose, the Board of Directors of the Company may provide that
the stock transfer books shall be closed for a stated period but not to exceed,
in any case, fifty days. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date to be not more than fifty days prior to
the date on which the particular action requiring such determination of
shareholders is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of shareholders entitled to receive
payment of a dividend, then the date on which the resolution of the Board of
Directors declaring such dividend is adopted shall be the record date for such
determination of shareholders.
page 9 of 10
SECTION 4. SEAL. The seal of the Company shall be circular in
form, with the name "HOUSTON LIGHTING & POWER COMPANY."
SECTION 5. SEPARABILITY. If one or more of the provisions of
these Bylaws shall be held to be invalid, illegal or unenforceable, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof and these Bylaws shall be construed as if such invalid, illegal or
unenforceable provision or provisions had never been contained herein.
SECTION 6. AMENDMENTS. These Bylaws may be altered or repealed
at any regular meeting of the shareholders or at any special meeting of the
shareholders at which a quorum is present or represented, provided notice of the
proposed alteration or repeal be contained in the notice of such special
meeting, by the affirmative vote of a majority of the shares entitled to vote at
such meeting and present or represented thereat, or by the affirmative vote of a
majority of the Board of Directors at any regular meeting of the Board of
Directors or at any special meeting of the Board of Directors if notice of the
proposed alteration or repeal be contained in the notice of such special
meeting, except that the directors shall not alter, amend or repeal any bylaw
adopted by the shareholders or enact any bylaw in conflict with a bylaw adopted
by the shareholders.
page 10 of 10
EXHIBIT 10(t)
Employment Agreement
THIS AGREEMENT made this 5th day of April, 1993, but effective
April 5, 1993, by and between Houston Lighting & Power Company, a Texas
corporation (the "Company" herein), and William T. Cottle ("Mr. Cottle" herein);
W I T N E S S E T H:
WHEREAS, the Company and Mr. Cottle each desire that the
Company's agreement to employ Mr. Cottle and to pay him unfunded supplemental
pension benefits be set forth in writing;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and in consideration of Mr. Cottle's accepting
employment with the Company, the Company and Mr. Cottle agree as follows:
1. EMPLOYMENT. The Company hereby employs Mr. Cottle, and Mr.
Cottle hereby accepts employment with the Company, from and after the effective
date of this Agreement as Group Vice President-Nuclear and in such other
executive capacities as may be determined from time to time by the Company. As
used in this Agreement, "employment with the Company" shall mean employment with
Houston Lighting & Power Company or with Houston Industries Incorporated or with
any wholly-owned subsidiary of either of said companies.
2. EXTENT OF SERVICES. Mr. Cottle agrees to devote his
services full time to the business of the Company and to perform to the best of
his ability and with reasonable diligence the duties and responsibilities
assigned to him by appropriate management of the Company.
3. TERM. The term of this Agreement shall commence on April 5,
1993 and shall continue indefinitely thereafter, subject to termination by the
Company or by Mr. Cottle at any time, with or without cause, on thirty days
notice to the other.
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4. COMPENSATION. As compensation for the services to be
rendered by Mr. Cottle under this Agreement, the Company agrees to pay Mr.
Cottle an annual salary of $235,000, payable in accordance with the general
practices of the Company. The provisions of this paragraph 4 shall not operate
as a limitation upon, or as a direction against, the exercise by the Board of
Directors of the Company of its power and discretion to grant salary increases,
bonuses, or other additional direct or indirect compensation or benefits to or
on behalf of Mr. Cottle if, in the judgment of the Board of Directors, such
action is in the best interest of the Company. Mr. Cottle's annual salary may be
reduced during the term of this Agreement if the Company is effecting a general
percentage salary decrease for other officers of equal position or rank.
5. RETIREMENT, DISABILITY AND DEATH BENEFITS. Upon Mr.
Cottle's termination of employment with the Company for any reason with or
without cause, Mr. Cottle, or his spouse in the event of his death, shall be
entitled to receive a pension, disability or death benefit provided under the
Retirement Plan for Employees of Houston Industries Incorporated (or the
successor plan thereto) (the "Retirement Plan") on the same basis as any other
employee participating in the Retirement Plan.
In addition, if Mr. Cottle's termination is after April 5,
2003 (that is, after ten years of employment with the Company), a supplemental
pension, disability or death benefit shall be payable to Mr. Cottle, or his
spouse in the event of his death, out of the general funds of the Company and
will be calculated in the same manner and payable under the same terms and
conditions as the pension, disability or death benefit provided for under the
Retirement Plan, provided, however, that (i) the supplemental benefit shall be
determined as if Mr. Cottle had been an employee of the Company throughout the
ten-year period commencing ten years before April 5, 1993, the effective date of
this Agreement, as well as during the period of his employment with the Company
for and after April 5, 1993 (all of such service to be counted for purposes of
eligibility, vesting, benefit accrual, minimum pensions and the fulfillment of
service requirements for any pension, disability or death benefit under the
Retirement Plan) and (ii) the supplemental benefit shall be reduced by
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any benefit received by Mr. Cottle or his spouse under the Retirement Plan as
described in the paragraph above.
6. OTHER EMPLOYEE BENEFITS. Throughout the term of Mr.
Cottle's employment with the Company, he shall be eligible to participate on the
same basis as other eligible employees in the Retirement Plan, the Savings Plan
of Houston Industries Incorporated and any other qualified plan of the Company,
and he shall be eligible to participate in any long-term disability plan, group
life insurance plan, group medical and dental plan, and any other employee
benefit plan maintained by the Company for its regular employees. For purposes
of participation in these employee benefit plans, Mr. Cottle's service with the
Company shall commence on April 5, 1993.
Mr. Cottle shall be eligible for four weeks of vacation per
year following one year's service. Annual vacation entitlement beyond four weeks
per year will be in accordance with the Company's vacation policy for employees
generally. Mr. Cottle shall be furnished an automobile and home security system
in accordance with the Company's policy covering officers of equal position or
rank, and Mr. Cottle shall be furnished a luncheon club membership in Houston or
Lake Jackson to be used for business purposes of the Company. Mr. Cottle will
also be eligible for the Company's Relocation Assistance Plan.
7. EXECUTIVE BENEFITS. Mr. Cottle shall be eligible to
participate in the Company's Executive Incentive Compensation Plan and Long-Term
Incentive Compensation Plan at a target award level of 40% of annual salary.
Participation in the Executive Incentive Compensation Plan shall commence in the
1994 calendar year. In addition, the Company will pay Mr. Cottle an amount equal
to 75% of the award which would have been payable to him under the Executive
Incentive Compensation Plan (based on Mr. Hall's goals and Mr. Cottle's salary)
if Mr. Cottle had been eligible for participation in 1993. Restricted shares for
the 1993-1995 performance cycle will be awarded on a pro-rata basis to Mr.
Cottle under the Long-Term Incentive Compensation Plan; options will be granted
in early January 1994. Mr. Cottle shall also be eligible to participate in the
Company's Deferred
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Compensation Plan, Executive Benefits Plan, Benefit and Savings Restoration
Plans and shall be eligible to participate on the same basis as other group
vice presidents of the Company in any other executive compensation plan or
program of the Company which may from time to time cover such officers of the
Company.
8. WITHHOLDING OF TAXES. The Company shall deduct from any
payments hereunder any taxes required to be withheld by the federal or any state
or local government.
9. PROHIBITION AGAINST ASSIGNMENT. Mr. Cottle agrees on behalf
of himself and his executors and administrators, heirs, legatees, distributees,
and any other person or persons claiming any benefits under him by virtue of
this Agreement, that this Agreement and the rights, interests and unfunded
benefits hereunder shall not be assigned, transferred, pledged or hypothecated
in any way. Any attempted assignment, transfer, pledge or hypothecation or other
disposition of this Agreement or of such rights, interests and benefits, or the
levy of any attachment or similar process thereupon, shall be null and void and
without effect.
10. CONTROLLING LAW. This Agreement shall be interpreted and
construed in accordance with the laws of the State of Texas.
11. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of any successor of this Company and any such
successor shall be deemed substituted for the Company under the terms of this
Agreement. As used in this Agreement, the term "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
merger, purchase or otherwise, acquires all or substantially all of the assets
or business of the Company or gains control of the Company.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof, and may be
modified only by a written instrument executed by both parties.
-4-
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
HOUSTON LIGHTING & POWER COMPANY
By: /S/ DON D. JORDAN
Don D. Jordan, Chairman of the Board
and Chief Executive Officer
/S/ WILLIAM T. COTTLE
William T. Cottle
EXHIBIT 10(u)
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and effective
as of the _____ day of December, 1994, by and between HOUSTON INDUSTRIES
INCORPORATED, a Texas corporation having its principal place of business in
Houston, Harris County, Texas (the "Company"), and _____________, an individual
currently residing in Houston, Texas ("Employee"). All terms defined in
paragraph 2 shall throughout this Agreement have the meanings given therein.
1. PAYMENT OF SEVERANCE AMOUNT: If Employee's employment by the Company
or any subsidiary thereof or successor thereto shall be subject to an
Involuntary Termination within the applicable Covered Period, then the Company
shall pay Employee an amount equal to the applicable Severance Amount, payable
within 15 days after the date of Employee's termination of employment
("Termination Date").
2. DEFINITIONS:
A. An "AFFILIATE" shall mean any company controlled by,
controlling or under common control with the Company within the meaning of
Section 414 of the Internal Revenue Code of 1986, as amended (the "Code").
B. "AVERAGE ANNUAL COMPENSATION" shall mean Employee's average
annual compensation which is payable by the Company or any Affiliate and is
includable in the gross income of Employee for the most recent five taxable
years of Employee ending before the date on which the Change of Control occurs,
or such portion of such period during which Employee performed personal services
for the Company or its Affiliates. Average Annual Compensation shall be
determined by reference to Section 280G(d) of the Code.
C. "CHANGE IN EMPLOYMENT" shall mean any one or more of the
following:
(i) a significant change in the nature or scope of Employee's
authority or duties from those applicable to him immediately prior to
the date on which a Change of Control occurs;
(ii) a reduction in Employee's base annual compensation from
that provided to him immediately prior to the date on which a Change of
Control occurs;
(iii) Employee's opportunity to participate in bonus, stock
option and other compensation plans which provide opportunities to
receive compensation following the Change of Control are less than the
greater of:
(x) the opportunities provided by the Company
(including its subsidiaries) for executives with comparable
duties; or
-1-
(y) the opportunities under any such plans under
which he was participating immediately prior to the date on
which a Change of Control occurs;
(iv) employee benefits (including but not limited to medical,
dental, life insurance and long-term disability) and perquisites
applicable to Employee following the Change of Control are less than
the greater of:
(x) the employee benefits and perquisites provided by
the Company (including its subsidiaries) to executives with
comparable duties; or
(y) the employee benefits and perquisites to which he
was entitled immediately prior to the date on which a Change
of Control occurs;
(v) a change in the location of Employee's principal place of
employment by the Company (including its subsidiaries) by more than 200
miles from the location where he was principally employed immediately
prior to the date on which a Change of Control occurs; or
(vi) a reasonable determination by the Board of Directors of
the Company that, as a result of a Change of Control and a change in
circumstances thereafter significantly affecting Employee's position,
he is unable to exercise the authorities, powers, functions or duties
attached to his position immediately prior to the date on which a
Change of Control occurs.
D. A "CHANGE OF CONTROL" shall be deemed to have occurred if:
(i) any "person," including a "group" as determined in
accordance with Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act"), is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding securities;
(ii) as a result of, or in connection with, any tender offer
or exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing transactions
(a "Transaction"), the persons who were Directors of the Company before
the Transaction shall cease to constitute a majority of the Board of
Directors of the Company or any successor to the Company;
(iii) the Company is merged or consolidated with another
corporation and as a result of such merger or consolidation less than
70% of the outstanding voting securities of the surviving or resulting
corporation shall then be owned in the aggregate by the former
stockholders of the Company, other than (x) affiliates within the
meaning of the Exchange Act, or (y) any party to such merger or
consolidation;
-2-
(iv) a tender offer or exchange offer is made and consummated
for the ownership of securities of the Company representing 30% or more
of the combined voting power of the Company's then outstanding voting
securities; or
(v) the Company transfers substantially all of its assets to
another corporation which is not a wholly owned subsidiary of the
Company;
provided, however, that unless the Board of Directors of the Company determines
otherwise prior to the date of any event described in the foregoing clauses (i)
- - (v) above ("Event"), a "Change of Control" shall not have occurred if any
Event results, directly or indirectly, in the beneficial ownership by the
employees, former employees or members of the Board of Directors of the Company
of:
(x) substantially all of the assets of the Company;
or
(y) securities of the Company representing 30% or
more of the combined voting power of the outstanding
securities of the Company or any successor to the Company.
E. "COVERED PERIOD" for Employee shall mean a period of time
following the occurrence of a Change of Control equal to the lesser of (i)
Employee's period of employment with the Company, any subsidiary or any
predecessor of either thereof prior to that Change of Control, or (ii) three
years.
F. "INVOLUNTARY TERMINATION" shall mean any termination which:
(i) does not result from a resignation by Employee (other than
a resignation pursuant to clause (ii) of this subparagraph (F)); or
(ii) results from a resignation following any Change in
Employment;
provided, however, the term "Involuntary Termination" shall not include:
(x) a Termination for Cause; or
(y) any termination as a result of death, disability
or early or normal retirement pursuant to a retirement plan to
which Employee was subject prior to any Change of Control.
G. "SEVERANCE AMOUNT" is an amount equal to 2.99 times
Employee's Average Annual Compensation.
H. "TERMINATION FOR CAUSE" shall mean only a termination as a
result of fraud, material misappropriation of or intentional material damage to
the property of the Company (including its subsidiaries), or commission of a
felony by Employee related to his employment with the Company.
-3-
I. "VOTING SECURITIES" shall mean any securities which
ordinarily possess the power to vote in the election of directors without the
happening of any pre-condition or contingency.
3. PARACHUTE PAYMENT LIMITATION: Notwithstanding any provision of this
Agreement to the contrary, the aggregate present value of all parachute payments
payable to or for the benefit of Employee, whether payable pursuant to this
Agreement or otherwise, shall be limited to three times Employee's base amount
less $1 and, to the extent necessary, benefits under this Agreement shall be
reduced by the Company in order that this limitation not be exceeded. For
purposes of this Section 3, the terms "parachute payment," "base amount" and
"present value" shall have the meanings assigned thereto under Section 280G of
the Code. It is the intention of this Section 3 to avoid excise taxes on
Employee under Section 4999 of the Code or the disallowance of a deduction to
the Company pursuant to Section 280G of the Code.
4. MEDICAL AND DENTAL BENEFITS: If Employee's employment by the Company
or any subsidiary thereof or successor thereto shall be subject to an
Involuntary Termination within the Covered Period, then to the extent that
Employee or any of Employee's dependents may be covered under the terms of any
medical or dental plans of the Company (or any subsidiary) for active employees
immediately prior to such termination, the Company will provide Employee and
those dependents with equivalent coverages for a period not to exceed 30 months
from such termination; provided, however, that if Employee retires and is
eligible for retiree medical coverage for life under the Company group medical
plan, he will instead receive such retiree medical coverage. Such coverages may
be procured directly by the Company (or any subsidiary thereof, if appropriate)
apart from, and outside of the terms of the plans themselves; provided that
Employee and Employee's dependents comply with all of the conditions of the
aforementioned plans. In consideration for these benefits, Employee must make
contributions equal to those required from time to time from active or retired
employees (as applicable) for equivalent coverages under the aforementioned
plans.
5. NOTICES: For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Company: Houston Industries Incorporated
5 Post Oak Park
P.O. Box 4567
Houston, Texas 77210
ATTENTION: Chairman of the Board
If to the Employee: _________________________________
_________________________________
or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
-4-
6. APPLICABLE LAW: This Agreement is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
7. SEVERABILITY: If a court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, then the invalidity
or unenforceability of that provision shall not affect the validity or
enforceability of any other provision of this Agreement and all other provisions
shall remain in full force and effect.
8. WITHHOLDING OF TAXES: Company may withhold from any benefits payable
under this Agreement all federal, state, city or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
9. NO EMPLOYMENT AGREEMENT: Nothing in this Agreement shall give
Employee any rights to (or impose any obligations for) continued employment by
the Company or any subsidiary thereof or successor thereto, nor shall it give
the Company any rights (or impose any obligations) with respect to continued
performance of duties by Employee for the Company or any subsidiary thereof or
successor thereto.
10. NO ASSIGNMENT; SUCCESSORS:
A. Employee's right to receive payments or benefits hereunder
shall not be assignable or transferable, whether by pledge, creation or a
security interest or otherwise, whether voluntary, involuntary, by operation of
law or otherwise, other than a transfer by will or by the laws of descent or
distribution, and in the event of any attempted assignment or transfer contrary
to this paragraph 10 the Company shall have no liability to pay any amount so
attempted to be assigned or transferred. This Agreement shall inure to the
benefit of and be enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
B. This Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns (including, without
limitation, any company into or with which the Company may merge or
consolidate). The Company agrees that it will not effect the sale or other
disposition of all of substantially all of its assets unless either (i) the
person or entity acquiring such assets or a substantial portion thereof shall
expressly assume by an instrument in writing all duties and obligations of the
Company hereunder or (ii) the Company shall provide, through the establishment
of a separate reserve therefor, for the payment in full of all amounts which are
or may reasonably be expected to become payable to Employee hereunder.
11. TERM: This Agreement shall be effective as of the date first above
written and shall remain in effect for a period of two years thereafter;
provided, however, that in the event of a Change of Control during the term
hereof, this Agreement shall remain in effect for the Covered Period, as defined
in paragraph 2 hereof.
12. EXTENSION: The Board of Directors or Executive Committee of the
Company may, at any time prior to the expiration hereof, extend the term hereof
for a period of up to two years from
-5-
the date on which such extension is approved, without any further action on the
part of Employee or the Company.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the day and year first above written.
HOUSTON INDUSTRIES INCORPORATED
By______________________________
EMPLOYEE
________________________________
-6-
EXHIBIT 12
HOUSTON LIGHTING & POWER COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Fixed Charges as Defined:
(1) Interest on Long-Term Debt.......... $ 246,533 $ 276,049 $ 311,208 $ 326,722 $ 319,713
(2) Other Interest...................... 8,493 12,317 19,548 41,216 36,006
(3) Amortization of (Premium) Discount.. 8,484 7,234 5,346 4,209 4,764
(4) Interest Component of Rentals
Charged to Operating Expense...... 3,951 4,449 5,116 5,943 5,628
----------- ----------- ----------- ----------- -----------
(5) Total Fixed Charges................. $ 267,461 $ 300,049 $ 341,218 $ 378,090 $ 366,111
=========== =========== =========== =========== ===========
Earnings as Defined:
(6) Net Income ......................... $ 486,764 $ 484,223 $ 509,462 $ 518,899 $ 476,962
(7) Cumulative Effect of Change in
Accounting........................ 8,200 (94,180)
----------- ----------- ----------- ----------- -----------
(8) Income Before Cumulative Effect of
Change in Accounting.............. 494,964 484,223 415,282 518,899 476,962
----------- ----------- ----------- ----------- -----------
Income Taxes:
(9) Current............................. 181,109 113,394 129,611 143,054 143,653
(10) Deferred (Net)...................... 68,633 123,077 92,575 83,991 56,031
(11) Cumulative Effect of Change in
Accounting........................ 4,415 (48,517)
----------- ----------- ----------- ----------- -----------
(12) Total Income Taxes Before Cumulative
Effect of Change in Accounting.... 254,157 236,471 173,669 227,045 199,684
----------- ----------- ----------- ----------- -----------
(13) Total Fixed Charges (line 5)........ 267,461 300,049 341,218 378,090 366,111
----------- ----------- ----------- ----------- -----------
(14) Earnings Before Income Taxes and
Fixed Charges (line 8 plus line
12 plus line 13).................. $ 1,016,582 $ 1,020,743 $ 930,169 $ 1,124,034 $ 1,042,757
=========== =========== =========== =========== ===========
Ratio of Earnings to Fixed Charges
(line 14 divided by line 5)............... 3.80 3.40 2.73 2.97 2.85
Preferred Dividend Requirements:
(15) Preferred Dividends................. $ 33,583 $ 34,473 $ 39,327 $ 46,187 $ 47,753
(16) Less Tax Deduction for Preferred
Dividends......................... 54 54 56 56 56
----------- ----------- ----------- ----------- -----------
(17) Total............................... 33,529 34,419 39,271 46,131 47,697
(18) Ratio of Pre-Tax Income to Net
Income (line 8 plus line 12
divided by line 8)................ 1.51 1.49 1.42 1.44 1.42
----------- ----------- ----------- ----------- -----------
(19) Line 17 times line 18............... 50,629 51,284 55,765 66,429 67,730
(20) Add Back Tax Deduction (line 16).... 54 54 56 56 56
----------- ----------- ----------- ----------- -----------
(21) Preferred Dividends Factor ......... $ 50,683 $ 51,338 $ 55,821 $ 66,485 $ 67,786
=========== =========== =========== =========== ===========
(22) Total Fixed Charges (line 5)........ $ 267,461 $ 300,049 $ 341,218 $ 378,090 $ 366,111
(23) Preferred Dividends Factor (line 21) 50,683 51,338 55,821 66,485 67,786
----------- ----------- ----------- ----------- -----------
(24) Total............................... $ 318,144 $ 351,387 $ 397,039 $ 444,575 $ 433,897
=========== =========== =========== =========== ===========
Ratio of Earnings to Fixed Charges and
Preferred Dividends Requirements
(line 14 divided by line 24)............. 3.20 2.90 2.34 2.53 2.40
</TABLE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
HOUSTON LIGHTING & POWER COMPANY:
We consent to the incorporation by reference in Registration Statements
on Form S-3 Nos. 33-46368 and 33-54228 and in Post-Effective Amendment No. 1 to
Registration Statement No. 33-51417 on Form S-3 of our report dated February 23,
1995 appearing in this Annual Report on Form 10-K of Houston Lighting & Power
Company for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
HOUSTON, TEXAS
MARCH 14, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from HL&P's
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000048732
<NAME> HOUSTON LIGHTING & POWER COMPANY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 8,976,029
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 501,656
<TOTAL-DEFERRED-CHARGES> 1,373,296
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 10,850,981
<COMMON> 1,675,927
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 2,153,109
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,829,036
121,910
351,345
<LONG-TERM-DEBT-NET> 3,176,612
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 164
45,700
<CAPITAL-LEASE-OBLIGATIONS> 8,792
<LEASES-CURRENT> 3,611
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,313,811
<TOT-CAPITALIZATION-AND-LIAB> 10,850,981
<GROSS-OPERATING-REVENUE> 3,746,085
<INCOME-TAX-EXPENSE> 254,993
<OTHER-OPERATING-EXPENSES> 2,748,210
<TOTAL-OPERATING-EXPENSES> 3,003,203
<OPERATING-INCOME-LOSS> 742,882
<OTHER-INCOME-NET> 1,554
<INCOME-BEFORE-INTEREST-EXPEN> 744,436
<TOTAL-INTEREST-EXPENSE> 249,472
<NET-INCOME> 486,764<F1>
33,583
<EARNINGS-AVAILABLE-FOR-COMM> 453,181
<COMMON-STOCK-DIVIDENDS> 328,996
<TOTAL-INTEREST-ON-BONDS> 246,227
<CASH-FLOW-OPERATIONS> 1,226,911
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes reduction to net income for the cumulative effect of change in
accounting for postemployment benefits of $8,200.
</FN>
</TABLE>
