<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
______________________________
Commission file number 1-7629
HOUSTON INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Texas 74-1885573
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1111 Louisiana
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
</TABLE>
(713) 207-3000
(Registrant's telephone number, including area code)
______________________________
Commission file number 1-3187
HOUSTON LIGHTING & POWER COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Texas 74-0694415
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1111 Louisiana
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
</TABLE>
(713) 207-1111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
As of July 31, 1996, Houston Industries Incorporated had 261,352,547 shares of
common stock outstanding, including 13,798,263 ESOP shares not deemed
outstanding for financial statement purposes. As of July 31, 1996, all 1,100
shares of Houston Lighting & Power Company's common stock were held, directly
or indirectly, by Houston Industries Incorporated.
<PAGE> 2
HOUSTON INDUSTRIES INCORPORATED AND HOUSTON LIGHTING
& POWER COMPANY QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
This combined Form 10-Q is separately filed by Houston Industries Incorporated
and Houston Lighting & Power Company. Information contained herein relating to
Houston Lighting & Power Company is filed by Houston Industries Incorporated
and separately by Houston Lighting & Power Company on its own behalf. Houston
Lighting & Power Company makes no representation as to information relating to
Houston Industries Incorporated (except as it may relate to Houston Lighting &
Power Company) or to any other affiliate or subsidiary of Houston Industries
Incorporated.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Part I. Financial Information Page No.
- ------ --------------------- --------
Item 1. Financial Statements
Houston Industries Incorporated and Subsidiaries
Statements of Consolidated Income
Three Months and Six Months Ended
June 30, 1996 and 1995 3
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 5
Statements of Consolidated Cash Flows
Six Months Ended June 30, 1996 and 1995 7
Statements of Consolidated Retained Earnings
Three Months and Six Months Ended
June 30, 1996 and 1995 8
Notes to Consolidated Financial Statements 14
Houston Lighting & Power Company
Statements of Income
Three Months and Six Months Ended
June 30, 1996 and 1995 9
Balance Sheets
June 30, 1996 and December 31, 1995 10
Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 12
Statements of Retained Earnings
Three Months and Six Months Ended
June 30, 1996 and 1995 13
Notes to Financial Statements 14
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 17
Part II. Other Information
- ------- -----------------
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of
Security-Holders 22
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 26
</TABLE>
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ --------------------------
1996 1995 1996 1995
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Electric utility . . . . . . . . . . . . . . . . $1,099,971 $ 978,225 $1,911,936 $1,724,391
Other . . . . . . . . . . . . . . . . . . . . . . 13,792 11,618 26,248 20,690
---------- --------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . 1,113,763 989,843 1,938,184 1,745,081
---------- --------- ---------- ----------
EXPENSES:
Electric Utility:
Fuel . . . . . . . . . . . . . . . . . . . . . 300,666 238,465 498,288 422,067
Purchased power . . . . . . . . . . . . . . . . 74,137 50,822 152,316 116,410
Operation and maintenance . . . . . . . . . . . 237,366 217,650 430,814 416,179
Taxes other than income taxes . . . . . . . . . 65,303 64,616 127,868 135,566
Depreciation and amortization . . . . . . . . . . 129,511 112,286 258,858 216,482
Other operating expenses . . . . . . . . . . . . 20,500 22,210 46,293 39,430
---------- --------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . 827,483 706,049 1,514,437 1,346,134
---------- --------- ---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . 286,280 283,794 423,747 398,947
---------- --------- ---------- ----------
OTHER INCOME (EXPENSE):
Litigation settlements . . . . . . . . . . . . . (95,000)
Time Warner dividend income . . . . . . . . . . . 10,402 20,805
Interest income . . . . . . . . . . . . . . . . . 1,602 2,125 2,294 2,662
Allowance for other funds used
during construction . . . . . . . . . . . . . . 1,051 2,014 2,182 4,643
Other - net . . . . . . . . . . . . . . . . . . . (529) (8,927) (2,956) (11,575)
---------- --------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . 12,526 (4,788) (72,675) (4,270)
---------- --------- ---------- ----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt . . . . . . . . . . . 68,857 64,042 140,252 129,258
Other interest . . . . . . . . . . . . . . . . . 9,475 9,678 11,049 18,677
Allowance for borrowed funds used
during construction . . . . . . . . . . . . . . (672) (1,133) (1,357) (2,938)
Preferred dividends of subsidiary . . . . . . . . 5,313 7,450 11,945 16,435
---------- --------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . 82,973 80,037 161,889 161,432
---------- --------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES . . . . . . . . . 215,833 198,969 189,183 233,245
INCOME TAXES . . . . . . . . . . . . . . . . . . . . 70,499 65,709 60,589 76,136
---------- --------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS . . . . . . . . . . . . . . . . . . . 145,334 133,260 128,594 157,109
DISCONTINUED OPERATIONS (NET OF INCOME
TAXES) - Gain on sale of cable
television subsidiary . . . . . . . . . . . . . . 90,607
---------- --------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . $ 145,334 $ 133,260 $ 128,594 $ 247,716
========== ========= ========== ==========
</TABLE>
(continued)
-3-
<PAGE> 4
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ --------------------------
1996 1995 1996 1995
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE:
CONTINUING OPERATIONS . . . . . . . . . . . . . . . . $ 0.58 $ 0.54 $ 0.52 $ 0.63
DISCONTINUED OPERATIONS - Gain on sale of
cable television subsidiary . . . . . . . . . . . 0.37
---------- ---------- ---------- ---------
EARNINGS PER COMMON SHARE . . . . . . . . . . . . . . $ 0.58 $ 0.54 $ 0.52 $ 1.00
========== ========= ========== =========
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . $ 0.375 $ 0.375 $ 0.75 $ 0.75
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (000) . . . . . . . . . . . . . . . 248,656 247,538 248,561 247,369
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE> 5
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Plant in service . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,319,896 $ 12,089,490
Construction work in progress . . . . . . . . . . . . . . . . . . . . 208,235 320,040
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,462 217,604
Plant held for future use . . . . . . . . . . . . . . . . . . . . . . 48,631 48,631
Other property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,856 105,624
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,923,080 12,781,389
Less accumulated depreciation and amortization . . . . . . . . . . . . . 4,123,055 3,916,540
------------- -------------
Property, plant and equipment - net . . . . . . . . . . . . . . . 8,800,025 8,864,849
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 5,150 11,779
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 433
Accounts receivable - net . . . . . . . . . . . . . . . . . . . . . . . . 32,659 39,635
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . 61,676 59,017
Time Warner dividends receivable . . . . . . . . . . . . . . . . . . . . 10,313 10,313
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,195 59,699
Materials and supplies, at average cost . . . . . . . . . . . . . . . . . 133,164 138,007
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,603 18,562
------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 332,770 337,445
------------- -------------
OTHER ASSETS:
Investment in Time Warner securities . . . . . . . . . . . . . . . . . . 1,029,250 1,027,875
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . . 600,243 613,134
Equity investments in and advances to foreign and
non-regulated affiliates - net . . . . . . . . . . . . . . . . . . . . 479,958 41,395
Deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,875 311,758
Regulatory asset - net . . . . . . . . . . . . . . . . . . . . . . . . . 216,200 228,587
Recoverable project costs - net . . . . . . . . . . . . . . . . . . . . . 212,265 232,775
Unamortized debt expense and premium on
reacquired debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,200 161,788
------------- -------------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . 3,041,991 2,617,312
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,174,786 $ 11,819,606
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE> 6
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
CAPITALIZATION:
Common Stock Equity:
Common stock, no par value . . . . . . . . . . . . . . . . . . . . . . . $ 2,445,143 $ 2,441,790
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,156)
Unearned ESOP shares . . . . . . . . . . . . . . . . . . . . . . . . . . (259,883) (268,405)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,896,173 1,953,672
Unrealized loss on investment in Time Warner
common securities . . . . . . . . . . . . . . . . . . . . . . . . . . (2,600) (3,494)
------------- -------------
Total common stock equity . . . . . . . . . . . . . . . . . . . . 4,051,677 4,123,563
------------- -------------
Preference Stock, no par value, authorized
10,000,000 shares; none outstanding
Cumulative Preferred Stock of Subsidiary, no par
value:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . 351,345 351,345
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . 51,055
------------- --------------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . 351,345 402,400
------------- --------------
Long-Term Debt:
Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349,006 348,913
Long-term debt of subsidiaries:
First mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . 2,704,655 2,979,293
Pollution control revenue bonds . . . . . . . . . . . . . . . . . . . 5,000 4,426
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,620 5,790
------------- --------------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . 3,062,281 3,338,422
------------- --------------
Total capitalization . . . . . . . . . . . . . . . . . . . . . 7,465,303 7,864,385
------------- --------------
CURRENT LIABILITIES:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832,136 6,300
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,658 136,008
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,520 174,925
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,459 79,380
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,056 98,502
Accrued liabilities to municipalities . . . . . . . . . . . . . . . . . . . 22,254 20,773
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,117 61,582
Current portion of long-term debt and preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419,457 379,451
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,698 58,664
------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 1,863,355 1,015,585
------------- --------------
DEFERRED CREDITS:
Accumulated deferred income taxes . . . . . . . . . . . . . . . . . . . . . 2,054,248 2,067,246
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . . . 382,425 392,153
Fuel-related credits . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,216 122,063
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,239 358,174
------------- --------------
Total deferred credits . . . . . . . . . . . . . . . . . . . . . . 2,846,128 2,939,636
------------- --------------
COMMITMENTS AND CONTINGENCIES
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,174,786 $ 11,819,606
============= ==============
</TABLE>
See Notes to Consolidated Financial Statements.
-6-
<PAGE> 7
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . $ 128,594 $ 157,109
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 258,858 216,482
Amortization of nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . 14,895 13,912
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,479) 38,573
Investment tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,728) (9,715)
Allowance for other funds used during construction . . . . . . . . . . . . . (2,182) (4,643)
Fuel cost (refund) and over/(under) recovery - net . . . . . . . . . . . . . (89,988) (83,337)
Net cash provided by discontinued cable television
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,495
Changes in other assets and liabilities:
Accounts receivable and accrued unbilled revenues . . . . . . . . . . . . 4,317 (15,792)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,653) (9,760)
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,618) 2,608
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,650 10
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . (47,326) (51,826)
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . (1,396) (5,165)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,654 90,115
---------- ----------
Net cash provided by operating activities . . . . . . . . . . . . . . 275,598 344,066
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Electric capital and nuclear fuel expenditures
(including allowance for borrowed funds used
during construction) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (153,079) (133,151)
Non-regulated electric power project expenditures . . . . . . . . . . . . . . . (438,563) (12,378)
Corporate headquarters expenditures (including
capitalized interest) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,795) (56,899)
Net cash used in discontinued cable television
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47,045)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,734) (7,552)
---------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . . . (614,171) (257,025)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,156)
Payment of matured bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . (150,000)
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . (51,400) (91,400)
Payment of common stock dividends . . . . . . . . . . . . . . . . . . . . . . . (186,093) (185,581)
Increase in notes payable - net . . . . . . . . . . . . . . . . . . . . . . . . 825,836 274,874
Extinguishment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (85,263) (20,273)
Net cash used in discontinued cable television
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,798)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,020 3,272
---------- ----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . . . . . . . . . . . . . . 331,944 (59,906)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . (6,629) 27,135
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . 11,779 10,443
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 5,150 $ 37,578
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- ------------------------------------------------
Cash Payments:
Interest (net of amounts capitalized) . . . . . . . . . . . . . . . . . . . . $ 150,742 $ 188,852
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,299 30,525
</TABLE>
See Notes to Consolidated Financial Statements.
-7-
<PAGE> 8
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ --------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at Beginning of Period . . . . . . . . . . . . . $1,843,723 $1,242,925 $1,953,672 $1,221,221
Net Income for the Period . . . . . . . . . . . . . . . . 145,334 133,260 128,594 247,716
---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . 1,989,057 1,376,185 2,082,266 1,468,937
Common Stock Dividends . . . . . . . . . . . . . . . . . (92,884) (92,859) (186,093) (185,611)
---------- ---------- ---------- ----------
Balance at End of Period . . . . . . . . . . . . . . . . $1,896,173 $1,283,326 $1,896,173 $1,283,326
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-8-
<PAGE> 9
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- -----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . $ 1,099,971 $ 978,225 $ 1,911,936 $ 1,724,391
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . 300,666 238,465 498,288 422,067
Purchased power . . . . . . . . . . . . . . . . 74,137 50,822 152,316 116,410
Operation . . . . . . . . . . . . . . . . . . . 160,739 153,606 300,511 294,926
Maintenance . . . . . . . . . . . . . . . . . . 76,627 64,044 130,303 121,253
Depreciation and amortization . . . . . . . . . 129,377 111,961 257,811 215,874
Income taxes . . . . . . . . . . . . . . . . . . 82,242 77,292 114,305 96,310
Other taxes . . . . . . . . . . . . . . . . . . 65,303 64,616 127,868 135,566
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . 889,091 760,806 1,581,402 1,402,406
----------- ----------- ----------- -----------
OPERATING INCOME . . . . . . . . . . . . . . . . . 210,880 217,419 330,534 321,985
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Litigation settlements (net of tax) . . . . . . (61,750)
Allowance for other funds used
during construction . . . . . . . . . . . . . 1,051 2,014 2,182 4,643
Other - net . . . . . . . . . . . . . . . . . . (2,650) (9,055) (6,010) (10,508)
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . (1,599) (7,041) (65,578) (5,865)
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . 209,281 210,378 264,956 316,120
----------- ----------- ----------- -----------
INTEREST CHARGES:
Interest on long-term debt . . . . . . . . . . . 54,953 61,399 112,458 122,917
Other interest . . . . . . . . . . . . . . . . . 5,360 789 7,770 3,924
Allowance for borrowed funds used
during construction . . . . . . . . . . . . . (672) (1,133) (1,357) (2,938)
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . 59,641 61,055 118,871 123,903
----------- ----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . 149,640 149,323 146,085 192,217
DIVIDENDS ON PREFERRED STOCK . . . . . . . . . . . 5,313 7,450 11,945 16,435
----------- ----------- ----------- -----------
INCOME AFTER PREFERRED DIVIDENDS . . . . . . . . . $ 144,327 $ 141,873 $ 134,140 $ 175,782
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
-9-
<PAGE> 10
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant in service . . . . . . . . . . . . . . . . . . . . . . . . $ 12,319,896 $ 12,089,490
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . 208,235 320,040
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,462 217,604
Plant held for future use . . . . . . . . . . . . . . . . . . . . . . . . 48,631 48,631
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,804,224 12,675,765
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,116,921 3,906,139
------------- -------------
Property, plant and equipment - net . . . . . . . . . . . . . . . . 8,687,303 8,769,626
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 649 75,851
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 433
Accounts receivable:
Affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . 2,985 2,845
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,398 23,858
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . 61,676 59,017
Inventory:
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,195 59,699
Materials and supplies, at average cost . . . . . . . . . . . . . . . 132,491 137,584
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,473 11,876
------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 301,877 371,163
------------- -------------
OTHER ASSETS:
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . . 600,243 613,134
Deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,730 290,012
Unamortized debt expense and premium on
reacquired debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,649 159,962
Regulatory asset - net . . . . . . . . . . . . . . . . . . . . . . . . . 216,200 228,587
Recoverable project costs - net . . . . . . . . . . . . . . . . . . . . . 212,265 232,775
------------- -------------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,503,087 1,524,470
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,492,267 $ 10,665,259
============= =============
</TABLE>
See Notes to Financial Statements.
-10-
<PAGE> 11
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
CAPITALIZATION:
Common Stock Equity:
Common stock, class A; no par value . . . . . . . . . . . . . . . . . . . $ 1,524,949 $ 1,524,949
Common stock, class B; no par value . . . . . . . . . . . . . . . . . . . 150,978 150,978
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,119,726 2,150,086
------------- -------------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . 3,795,653 3,826,013
------------- -------------
Cumulative Preferred Stock:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . . 351,345 351,345
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . . 51,055
------------- -------------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . . 351,345 402,400
------------- -------------
Long-Term Debt:
First mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,704,655 2,979,293
Pollution control revenue bonds . . . . . . . . . . . . . . . . . . . . . 5,000 4,426
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,620 5,790
------------- -------------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 2,713,275 2,989,509
------------- -------------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . 6,860,273 7,217,922
------------- -------------
CURRENT LIABILITIES:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245,725
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,718 119,032
Accounts payable to affiliated companies . . . . . . . . . . . . . . . . . . 6,673 6,982
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,869 192,673
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,552 70,823
Accrued liabilities to municipalities . . . . . . . . . . . . . . . . . . . . 22,254 20,773
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,117 61,582
Current portion of long-term debt and preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,457 179,451
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,403 54,149
------------- -------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 963,768 705,465
------------- -------------
DEFERRED CREDITS:
Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . . . 1,955,038 1,947,488
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . . . . 382,425 392,153
Fuel-related credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,216 122,063
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241,547 280,168
------------- -------------
Total deferred credits . . . . . . . . . . . . . . . . . . . . . . . 2,668,226 2,741,872
------------- -------------
COMMITMENTS AND CONTINGENCIES
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,492,267 $ 10,665,259
============= =============
</TABLE>
See Notes to Financial Statements.
-11-
<PAGE> 12
Houston Lighting & POWER COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 146,085 $ 192,217
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 257,811 215,874
Amortization of nuclear fuel . . . . . . . . . . . . . . . . . . . . . 14,895 13,912
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 7,550 40,933
Investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . (9,728) (9,715)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,182) (4,643)
Fuel cost (refund) and over/(under) recovery
- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (89,988) (83,337)
Changes in other assets and liabilities:
Accounts receivable - net . . . . . . . . . . . . . . . . . . . . . 3,661 (2,418)
Material and supplies . . . . . . . . . . . . . . . . . . . . . . . 5,093 (527)
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,496) (8,901)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 39,377 (5,975)
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . (64,075) (41,876)
Other current liabilities . . . . . . . . . . . . . . . . . . . . . (1,405) (3,311)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,920) 72,415
------------ ------------
Net cash provided by operating activities . . . . . . . . . . . 296,678 374,648
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) . . . . . . . . . . . . . . . . . . . . . . (153,079) (218,151)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,498) (6,940)
------------ ------------
Net cash used in investing activities . . . . . . . . . . . . . (157,577) (225,091)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of matured bonds . . . . . . . . . . . . . . . . . . . . . . . . (150,000)
Payment of dividends . . . . . . . . . . . . . . . . . . . . . . . . . . (177,771) (183,057)
Increase in notes payable . . . . . . . . . . . . . . . . . . . . . . . . 245,725
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . (51,400) (91,400)
Extinguishment of long-term debt . . . . . . . . . . . . . . . . . . . . (85,263) (20,273)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,406 3,709
------------ ------------
Net cash used in financing activities . . . . . . . . . . . . . (214,303) (291,021)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . (75,202) (141,464)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . 75,851 235,867
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . $ 649 $ 94,403
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- ------------------------------------------------
Cash Payments:
Interest (net of amounts capitalized) . . . . . . . . . . . . . . . . $ 120,487 $ 123,563
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,088 34,974
</TABLE>
See Notes to Financial Statements.
-12-
<PAGE> 13
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- ------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at Beginning of
Period . . . . . . . . . . . . . . . $ 2,057,649 $ 2,104,768 $ 2,150,086 $ 2,153,109
Net Income for the Period . . . . . . . . 149,640 149,323 146,085 192,217
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . . 2,207,289 2,254,091 2,296,171 2,345,326
----------- ----------- ----------- -----------
Deductions - Cash Dividends:
Preferred . . . . . . . . . . . . . 5,313 7,450 11,945 16,435
Common . . . . . . . . . . . . . . . 82,250 82,250 164,500 164,500
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . 87,563 89,700 176,445 180,935
----------- ----------- ----------- -----------
Balance at End of Period . . . . . . . . $ 2,119,726 $ 2,164,391 $ 2,119,726 $ 2,164,391
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
-13-
<PAGE> 14
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AND
HOUSTON LIGHTING & POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL
The interim financial statements and notes (Interim Financial
Statements) contained in this Form 10-Q for the period ended June 30,
1996 (Form 10-Q) are unaudited and condensed. Certain notes and other
information contained in the Combined Annual Report on Form 10-K (File
Nos. 1-7629 and 1-3187) for the year ended December 31, 1995 (Form
10-K), of Houston Industries Incorporated (Company) and Houston
Lighting & Power Company (HL&P) have been omitted in accordance with
Rule 10-01 of Regulation S-X under the Securities Exchange Act of
1934.
The information presented in the Interim Financial Statements should
be read in combination with the information presented in the Form 10-K
and the Combined Quarterly Report on Form 10-Q of the Company and HL&P
for the quarter ended March 31, 1996 (First Quarter 10-Q).
(2) CERTAIN CONTINGENCIES
The following notes to the financial statements in the Form 10-K (as
updated by the notes contained in this Form 10-Q and the First Quarter
10-Q ) are incorporated herein by reference: Note 1(b) (System of
Accounts and Effects of Regulation), Note 2 (Jointly-Owned Nuclear
Plant), Note 3 (Rate Matters), Note 4 (Investments in Foreign and
Non-Regulated Entities) and Note 11 (Commitments and Contingencies).
(3) JOINTLY-OWNED NUCLEAR PLANT
In July 1996, HL&P and City Public Service Board of San Antonio (CPS)
entered into a settlement agreement providing, among other things,
for (i) the dismissal with prejudice of all pending arbitration claims
and lawsuits between HL&P and CPS relating to the South Texas Project
Electric Generating Station (South Texas Project), (ii) a cash payment
by HL&P to CPS of $75 million (accrued in the quarter ended March 31,
1996), (iii) an agreement to support formation of a new operating
company to replace HL&P as project manager for the South Texas Project
and (iv) the execution of a 10-year joint operations agreement under
which HL&P and CPS will share savings resulting from the joint
dispatching of their respective generating assets in order to take
advantage of each system's lower cost resources.
Under the terms of the joint operations agreement entered into between
CPS and HL&P, HL&P will guarantee CPS minimum annual savings of $10
million and a minimum cumulative savings of $150 million over the
ten-year term of the agreement. Based on current forecasts and other
assumptions regarding the combined operation of the two generating
systems, HL&P anticipates that the savings resulting from joint
operations will equal or exceed the minimum savings guaranteed under
the joint operations agreement.
For information regarding the settlement in April 1996 of a similar
lawsuit filed by the City of Austin (Austin) against HL&P and a $13
million (after-tax) charge to earnings recorded in the first quarter
of 1996 in connection with this settlement, see Notes 3 and 7(a) to
the First Quarter 10-Q, which notes are incorporated herein by
reference.
-14-
<PAGE> 15
As a result of the settlements of the CPS and Austin litigation, all
litigation and arbitration claims formerly pending between HL&P and
the other co-owners of the South Texas Project have been settled and
dismissed with prejudice.
(4) HI ENERGY
Acquisition of Interest in Brazilian Electric Utility. In May 1996, a
subsidiary of Houston Industries Energy, Inc. (HI Energy) acquired
11.35 percent of the common shares of Light - Servicos de Eletricidade
S.A. (Light), a publicly-held Brazilian corporation, for $392 million.
Light is the operator under a 30-year concession agreement of an
approximately 3,888 megawatt electric power generation, transmission
and distribution system serving 28 municipalities in the state of Rio
de Janeiro, Brazil. HI Energy acquired the shares as a bidder in the
government-sponsored auction of 60 percent of Light's outstanding
shares.
Subsequent to the auction, the winning bidders, including a subsidiary
of HI Energy, formed a consortium whose aggregate ownership interest
of 50.44 percent represents a controlling interest in Light. The
consortium, organized pursuant to a shareholders agreement dated as of
May 27, 1996, is comprised of the direct share ownership interests
held in Light by subsidiaries or affiliates of The AES Corporation
(11.35 percent), Electricite de France (11.35 percent), HI Energy
(11.35 percent), Companhia Sidercgica Nacional (7.25 percent), and
Banco Nacional de Desenvolvimento Economico E Social (BNDES) (9.14
percent). Pursuant to the shareholders agreement, principal
responsibilities for the various aspects of Light's business will be
allocated among the parties. The HI Energy subsidiary will have the
principal responsibility for all matters relating to Light's financial
affairs.
The Company has accounted for this transaction under purchase
accounting and has recorded its investment and its interest in Light's
operations since June 1, 1996, using the equity method. The effect of
Light's income on the Company's net income is immaterial for the
second quarter of 1996 and the six months ended June 30, 1996.
Class B Shares of Edelap. On May 2, 1996, Houston Argentina S.A.
(Houston Argentina), a subsidiary of HI Energy, purchased for
approximately $55 million the Class B Shares of Empresa Distribuidora
de la Plata S.A. (Edelap), an electric utility company operating in
La Plata, Argentina, and surrounding regions. The Class B Shares of
Edelap were sold by the Argentine government in a public auction. On
May 28, 1996, Houston Argentina sold a portion of its Class B Shares
to a third party for approximately $10 million. The remaining Class B
Shares held by Houston Argentina constitute 32 percent of the capital
stock of Edelap. Houston Argentina also owns indirectly through a
holding company an additional 16.6 percent of the capital stock of
Edelap, which shares were acquired in 1992 for $37 million. The
Company has recorded its investment in Edelap using the equity method.
(5) RATE CASE PROCEEDINGS
In June 1996, the Supreme Court of Texas unanimously upheld the
decision of the Public Utility Commission of Texas (Utility
Commission) in Docket No. 8425 (HL&P's 1988 rate case) to include in
HL&P's rate base $93 million in construction costs relating to the
Malakoff project (a canceled lignite generation project). The Supreme
Court also affirmed the Utility Commission's decision granting
deferred accounting treatment for Unit No. 2 of the South Texas
Project and the calculation of HL&P's federal income tax expenses
without taking into account deductions for expenses paid by the
Company's shareholders. As a result of this decision, HL&P's 1988
rate case has now become final.
For information regarding the appeal of Docket No. 6668 (an inquiry
into the prudence of the planning and construction of the South Texas
Project), see Note 3(b) to the Form 10-K.
-15-
<PAGE> 16
(6) CAPITAL STOCK
Company. At June 30, 1996 and December 31, 1995, the Company had
400,000,000 authorized shares of common stock, of which 247,690,618
and 248,316,710 shares, respectively, were outstanding as of such
dates. Outstanding shares exclude (i) the unallocated shares of the
Company's Employee Stock Ownership Plan (which as of June 30, 1996 and
December 31, 1995 totaled 13,861,929 and 14,355,758, respectively) and
(ii) 1,195,900 shares purchased by the Company as of June 30, 1996,
under the common stock repurchase program described below. 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 June 1996, the Company announced that its Board of Directors had
authorized the purchase of up to $150 million of the Company's common
stock. It is anticipated that any purchases of common stock under the
program would be effected over the next 12 months, subject to market
conditions, available cash and alternative investment opportunities.
The Company began repurchasing shares in mid-June 1996.
HL&P. All issued and outstanding shares of Class A voting common
stock of HL&P are held by the Company, and all issued and outstanding
shares of Class B non-voting common stock of HL&P are held by Houston
Industries (Delaware) Incorporated (HI Delaware), a wholly owned
subsidiary of the Company. Earnings per share data for HL&P are not
computed because all of its common stock is held by the Company and HI
Delaware.
On June 30, 1996 and December 31, 1995, HL&P had 10,000,000 authorized
shares of preferred stock, of which 3,804,397 and 4,318,397 shares,
respectively, were outstanding.
In April 1996, HL&P redeemed 514,000 shares of its $9.375 cumulative
preferred stock at a cost of approximately $53 million ($102.34375 per
share, including accrued dividends). The redemption included 257,000
shares in satisfaction of mandatory sinking fund requirements and an
additional 257,000 shares as an optional redemption.
(7) LONG-TERM DEBT
In January 1996, HL&P repaid upon maturity $100 million principal
amount of its Collateralized Medium-Term Notes Series B and $10
million principal amount of its Collateralized Medium-Term Notes
Series A, plus accrued interest on the two issues.
In April 1996, HL&P repaid upon maturity $40 million principal amount
of its 5 1/4% first mortgage bonds.
In May 1996, HL&P redeemed all outstanding principal amounts of its 7
1/4% first mortgage bonds ($50,000,000) due February 1, 2001, at a
redemption price of 100.42% (plus accrued interest) and 6 3/4% first
mortgage bonds ($35,000,000) due April 1, 1998, at a redemption price
of 100.15% (plus accrued interest).
(8) SUBSEQUENT EVENT
On August 11, 1996, the Company, HL&P and a newly formed Delaware
subsidiary of the Company (HI Merger, Inc.) entered into an Agreement
and Plan of Merger with NorAm Energy Corp. (NorAm). Under the merger
agreement and assuming all necessary regulatory and shareholder
approvals, the Company would merge with and into HL&P and the currently
outstanding stock of the Company would become the common stock of HL&P,
which would be renamed "Houston Industries Incorporated" (HII). NorAm
would merge with and into HI Merger, Inc. and would become a wholly
owned subsidiary of HII. Consideration for the purchase of NorAm shares
will be a combination of cash and shares of HII common stock. The
transaction is valued at $3.8 billion, consisting of $2.4 billion for
NorAm's common stock and equivalents and $1.4 billion of NorAm debt.
For information regarding the Agreement and Plan of Merger, see the
Company and HL&P's current report on Form 8-K dated August 11, 1996,
which report is incorporated herein by reference.
(9) INTERIM PERIOD RESULTS: RECLASSIFICATIONS
The results of interim periods are not necessarily indicative of
results expected for the year due to the seasonal nature of HL&P's
business. In the opinion of management, the interim information
reflects all adjustments (consisting only of normal recurring
adjustments) necessary for a full presentation of the results for the
interim periods. Certain amounts from the previous year have been
reclassified to conform to the 1996 presentation of financial
statements. Such reclassifications do not affect earnings.
-16-
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in combination with
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 of the Form 10-K, the financial statements and notes
contained in Item 8 of the Form 10-K, the First Quarter 10-Q and the Interim
Financial Statements. Statements contained in this Form 10-Q that are not
historical facts are forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. Such statements are expectations as
to future economic performance and are not statements of fact. Actual results
might differ materially from those projected in these statements. Important
factors that could cause future results to differ include the effects of
competition, legislative and regulatory changes, fluctuations in the weather and
changes in the economy as well as other factors discussed in this and the
Company's and HL&P's other filings with the Securities and Exchange Commission.
AGREEMENT AND PLAN OF
MERGER
On August 11, 1996, the Company, HL&P and a newly formed Delaware
subsidiary of the Company (HI Merger, Inc.) entered into an Agreement and Plan
of Merger with NorAm Energy Corp. (NorAm). Under the merger agreement and
assuming all necessary regulatory and shareholder approvals, the Company would
merge with and into HL&P, which would be renamed "Houston Industries
Incorporated" (HII). NorAm would merge with and into HI Merger, Inc. and would
become a wholly owned subsidiary of HII. Consideration for the purchase of
NorAm shares will be a combination of cash and shares of HII common stock. The
transaction is valued at $3.8 billion, consisting of $2.4 billion for NorAm's
common stock and equivalents and $1.4 billion of NorAm debt. For information
regarding the merger, reference is made to Note 8 to the Interim Financial
Statements and the Company and HL&P's Combined Report on Form 8-K dated August
11, 1996, which report is incorporated herein by reference. The Company
anticipates that the cash portion of the merger will be financed initially
through a combination of internally generated funds, commercial paper and bank
debt, with eventual refinancing in the capital markets possible.
RESULTS OF OPERATIONS
COMPANY
A summary of selected financial data for the Company and its
subsidiaries is set forth below:
<TABLE>
<CAPTION>
Three Months Ended
June 30, Percent
1996 1995 Change
---------- ---------- ------
(Thousands of Dollars)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . $1,113,763 $ 989,843 13
Operating Expenses . . . . . . . . . . . . . . . . 827,483 706,049 17
Operating Income . . . . . . . . . . . . . . . . . 286,280 283,794 1
Other Income (Expense) . . . . . . . . . . . . . . 12,526 (4,788) ---
Interest and Other Charges . . . . . . . . . . . . 82,973 80,037 4
Income Taxes . . . . . . . . . . . . . . . . . . . 70,499 65,709 7
Net Income . . . . . . . . . . . . . . . . . . . 145,334 133,260 9
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, Percent
1996 1995 Change
---------- ---------- ------
(Thousands of Dollars)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . $1,938,184 $1,745,081 11
Operating Expenses . . . . . . . . . . . . . . . . 1,514,437 1,346,134 13
Operating Income . . . . . . . . . . . . . . . . . 423,747 398,947 6
Other Income (Expense) . . . . . . . . . . . . . . (72,675) (4,270) ---
Interest and Other Charges . . . . . . . . . . . . 161,889 161,432 ---
Income Taxes . . . . . . . . . . . . . . . . . . . 60,589 76,136 (20)
Income from Continuing Operations . . . . . . . . 128,594 157,109 (18)
Gain from Discontinued Operations . . . . . . . . 90,607 ---
Net Income . . . . . . . . . . . . . . . . . . . 128,594 247,716 (48)
</TABLE>
The Company had consolidated earnings per share of $.58 for the second
quarter of 1996 compared to consolidated earnings per share of $.54 for the
second quarter of 1995. The increase in 1996 second quarter earnings was
primarily the result of after-tax dividend income of approximately $9 million
from the Company's investment in Time Warner Inc. (Time Warner) equity
securities. In addition, second quarter earnings benefited from increased
residential and commercial kilowatt-hour (KWH) sales at HL&P, the Company's
principal subsidiary.
- 17 -
<PAGE> 18
The Company's consolidated earnings for the six months ended June 30,
1996, were $.52 per share compared to $1.00 per share for the same period in
1995. Earnings for the first six months of 1996 included a $62 million, or $.25
per share, after-tax charge recorded in the first quarter of 1996 in connection
with the settlement of litigation claims relating to the South Texas Project,
while 1995 earnings included a one-time gain of $91 million, or $.37 per share,
recorded in the first quarter of 1995 in connection with the sale of the
Company's cable television subsidiary. Excluding the effects of these items
and a $3.1 million after-tax charge to earnings recorded in the first quarter
of 1996 with respect to HI Energy's two waste tire-to-energy projects, the
Company's consolidated income from continuing operations for the first six
months of 1996 would have been $.78 per share, and its consolidated income from
continuing operations for the first six months of 1995 would have been $.63 per
share. This 24 percent increase in earnings per share reflects increased KWH
sales at HL&P and the Company's after-tax dividend income from its investment
in Time Warner equity securities.
HL&P
A summary of selected financial data for HL&P is set forth below:
<TABLE>
<CAPTION>
Three Months Ended
June 30, Percent
1996 1995 Change
---------- ---------- ------
(Thousands of Dollars)
<S> <C> <C> <C>
Base Revenues (1) . . . . . . . . . . . . . . . . . $ 742,313 $ 706,001 5
Reconcilable Fuel Revenues (2) . . . . . . . . . . . 357,658 272,224 31
Operating Expenses (3) . . . . . . . . . . . . . . . 889,091 760,806 17
Operating Income (3) . . . . . . . . . . . . . . . . 210,880 217,419 (3)
Other Income (Expense) . . . . . . . . . . . . . . . (1,599) (7,041) (77)
Interest Charges . . . . . . . . . . . . . . . . . . 59,641 61,055 (2)
Income After Preferred Dividends . . . . . . . . . . 144,327 141,873 2
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, Percent
1996 1995 Change
---------- ---------- ------
(Thousands of Dollars)
<S> <C> <C> <C>
Base Revenues (1) . . . . . . . . . . . . . . . . $1,294,647 $1,230,012 5
Reconcilable Fuel Revenues (2) . . . . . . . . . . 617,289 494,379 25
Operating Expenses (3) . . . . . . . . . . . . . . 1,581,402 1,402,406 13
Operating Income (3) . . . . . . . . . . . . . . . 330,534 321,985 3
Other Income (Expense) . . . . . . . . . . . . . . (65,578) (5,865) ---
Interest Charges . . . . . . . . . . . . . . . . . 118,871 123,903 (4)
Income After Preferred Dividends . . . . . . . . . 134,140 175,782 (24)
</TABLE>
(1) Includes miscellaneous revenues, certain non-reconcilable fuel
revenues and certain purchased power related revenues.
(2) Includes revenues collected through a fixed fuel factor net of
adjustment for over/under recovery. See "Operating Revenues
and Sales" below.
(3) Includes income taxes.
In the second quarter of 1996, HL&P's income after preferred dividends
was $144 million compared to $142 million in the second quarter of 1995. The
$2 million increase in income in the second quarter of 1996 reflects increased
electric sales partially offset by increased depreciation and amortization
expenses related to HL&P's investments in the South Texas Project and certain
lignite reserves as described below under " -- Other Operating Expenses."
- 18 -
<PAGE> 19
HL&P's income after preferred dividends for the first six months of 1996
was $134 million compared to $176 million for the same period in 1995. The $42
million decrease in HL&P's first six months income after preferred dividends
was primarily the result of the $62 million, or $.25 per share, after-tax
charge to earnings recorded in connection with the settlement of South Texas
Project litigation claims. Excluding this $62 million charge to earnings,
HL&P's income after preferred dividends for the first six months of 1996 would
have been $196 million compared to $176 million for the comparable 1995 period.
This increase primarily reflects increased KWH sales, as described below.
OPERATING REVENUES AND SALES
HL&P's second quarter 1996 base revenues benefited from an 8 percent
increase in residential KWH sales and a 2 percent increase in commercial KWH
sales compared to the second quarter of 1995. Residential and commercial KWH
sales for the first six months of 1996 increased 12 percent and 4 percent,
respectively, compared to the same period in 1995. Weather was a major factor
in the increase of KWH sales. Other factors contributing to increased sales
were continued customer growth and increased electricity usage per customer.
Reconcilable fuel revenues are revenues that are collected through a
fixed fuel factor. These revenues are adjusted monthly to equal certain
related fuel and purchased power expenses; therefore, such revenues and
expenses have no effect on earnings unless such fuel costs are determined not
to be recoverable. For information regarding the recovery of fuel costs, see
"Business of HL&P -- Fuel -- Recovery of Fuel Costs" in Item 1 of the Form
10-K.
FUEL AND PURCHASED POWER EXPENSES
HL&P's fuel expense for the second quarter and first six months of
1996 increased $62 million and $76 million, respectively, compared to the
comparable 1995 periods. The average cost of fuel for the second quarter and
first six months of 1996 was $2.01 per million British Thermal Units (MMBtu)
and $1.87 per MMBtu, respectively, compared to $1.66 per MMBtu and $1.65 per
MMBtu for the comparable 1995 periods. Fuel costs increased due to an increase
in the unit cost of gas (the average cost of which was $2.28 per MMBtu for the
second quarter of 1996 and $2.24 per MMBtu for the first six months of 1996
compared to $1.72 and $1.71, respectively, for the comparable periods in 1995).
Purchased power expense increased $23 million and $36 million,
respectively, for the second quarter and first six months of 1996 compared to
the comparable 1995 periods as a result of increased energy purchases,
primarily reflecting the increase in electric sales. The increase in purchased
power expense for the first six months of 1996 was partially offset by a
decrease in firm capacity costs resulting from the renegotiation of a purchased
power contract in April 1995.
OTHER OPERATING EXPENSES
Operations expense for the second quarter and the first six months of
1996 increased $7 million and $6 million, respectively, compared to the same
periods in 1995. The increase in operations expense was primarily attributable
to an increase in municipal franchise payments, which were lower during the
first six months of 1995 because of the effects of a $112 million refund of
reconcilable fuel revenues in April of that year.
Maintenance expense for the second quarter of 1996 and the first six
months of 1996 increased $13 million and $9 million, respectively, compared to
the comparable 1995 periods. Increased maintenance expense for the second
quarter of 1996 was primarily the result of a scheduled refueling outage at
Unit No. 1 of the South Texas Project. Scheduled outages at the W.A. Parish
and P.H. Robinson generation stations and increases in general plant
maintenance contributed to the increase for the second quarter and first six
months of 1996. In addition, an outage at the W.A. Parish generation station
scheduled to occur in the first six months of 1995 did not occur until the
second quarter of 1996.
Depreciation and amortization expense increased $17 million and $42
million during the second quarter and first six months of 1996, respectively,
compared to the comparable 1995 periods. This increase reflects HL&P's
decision to write down a portion of its investment in the
- 19 -
<PAGE> 20
South Texas Project ($12.5 million for the second quarter 1996 and $25 million
for the first six months of 1996 compared to $7 million for both periods in
1995) as permitted under the settlement of HL&P's 1995 rate case (Docket No.
12065). In addition, HL&P began amortization in 1996 of its investment in
certain lignite reserves at a rate of approximately $22 million per year
(amounting to $5.5 million in the second quarter 1996 and $11 million for the
first six months of 1996). The increase in depreciation and amortization
expense for the second quarter and first six months of 1996 also included
amortization of HL&P's 1995 early retirement program and increased plant
depreciation expense.
For information regarding the settlement of HL&P's most recent rate
case and its ongoing effects on HL&P's results of operations, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Certain Factors Affecting Future Earnings of the Company and HL&P - Rate
Matters and Other Contingencies" in Item 7 of the Form 10-K and Note 3(a) to
the financial statements in the Form 10-K.
Taxes other than income taxes decreased by $8 million for the first
six months of 1996 compared to the same period in 1995 primarily due to reduced
property tax assessments.
LIQUIDITY AND CAPITAL RESOURCES
COMPANY
GENERAL
The Company's net cash provided by operating activities for the first
six months of 1996 totaled $276 million. Net cash used in the Company's
investing activities for the first six months of 1996 totaled $614 million,
primarily due to equity investments in foreign utilities as well as electric
capital and nuclear fuel expenditures. The Company's financing activities for
the first six months of 1996 resulted in a net cash inflow of $332 million.
The Company's primary financing activities were payment of matured HL&P bonds,
payment of dividends on the Company's common stock, redemption of HL&P
preferred stock, the purchase of common stock under the Company's repurchase
program, and extinguishment of long-term debt funded by an increase in notes
payable in the form of commercial paper.
SOURCES OF CAPITAL RESOURCES AND LIQUIDITY
As of June 30, 1996, the Company had approximately $584 million of
commercial paper outstanding, which is supported by bank credit facilities of
$750 million (exclusive of bank credit facilities of subsidiaries).
During the second quarter of 1996, the Company purchased 1,195,900
shares of its common stock for $27 million. The purchases were financed by
short-term borrowings. For additional information on the Company's common
stock repurchase program, see Note 6 to the Interim Financial Statements.
In the second quarter of 1996, a subsidiary of HI Energy purchased
11.35 percent of the common shares of Light - Servicos de Eletricidade S.A.
(Light), a Brazilian electric utility, for approximately $392 million. HI
Energy obtained the funds to purchase the shares of Light from the Company.
Although it is HI Energy's goal to refinance a portion of the acquisition costs
of Light on a non-recourse basis, no assurance can be given that such financing
will be available on commercially acceptable terms. In the second quarter of
1996, a subsidiary of HI Energy acquired for approximately $45 million an
additional 32 percent of the capital stock of Edelap, an Argentine utility.
For information regarding these acquisitions, see Note 4 to the Interim
Financial Statements.
In the fourth quarter of 1996, the Company will be required to redeem
$200 million of its debentures. Based on current market conditions, the
Company intends to fund this redemption requirement using short-term borrowings
or other external sources. The $200 million in debentures are recorded as
current portion of long-term debt and preferred stock on the Company's
Consolidated Balance Sheet.
- 20 -
<PAGE> 21
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges for the six and
twelve months ended June 30, 1996, were 2.12 and 2.61, respectively. The
Company believes that the ratio for the six-month period is not necessarily
indicative of the ratio for a twelve-month period due to the seasonal nature of
HL&P's business.
HL&P
GENERAL
HL&P's net cash provided by operating activities for the first six
months of 1996 totaled $297 million. Net cash used in HL&P's investing
activities for the first six months of 1996 totaled $158 million. HL&P's
capital and nuclear fuel expenditures (excluding allowance for funds used
during construction) for the first six months of 1996 totaled $152 million out
of the $387 million annual budget. HL&P's financing activities for the first
six months of 1996 resulted in a net cash outflow of approximately $214 million
attributable to the payment of dividends, the extinguishment of long-term debt,
the repayment of matured long-term debt, and the redemption of preferred stock
(all of which exceeded the increase in short-term borrowings).
SOURCES OF CAPITAL RESOURCES AND LIQUIDITY
As of June 30, 1996, HL&P had approximately $246 million of commercial
paper outstanding. HL&P's commercial paper borrowings are supported by a bank
line of credit of $400 million.
In January 1996, HL&P repaid at maturity an aggregate principal amount
of $110 million (plus accrued interest) of two series of its collateralized
medium term notes. In April 1996, HL&P redeemed 514,000 shares of its $9.375
series of preferred stock. In May 1996, HL&P repaid upon maturity $40 million
principal amount of its 5 1/4% first mortgage bonds due April 1, 1996, and
redeemed all outstanding principal amounts of its 6 3/4% first mortgage bonds
due April 1, 1998, and its 7 1/4% first mortgage bonds due February 1, 2001.
For additional information regarding these repurchases and redemptions, see
Note 7 to the Interim Financial Statements.
RATIOS OF EARNINGS TO FIXED CHARGES
HL&P's ratios of earnings to fixed charges for the six and twelve
months ended June 30, 1996 were 2.81 and 3.59, respectively. HL&P's ratios of
earnings to fixed charges and preferred dividends for the six and twelve months
ended June 30, 1996, were 2.45 and 3.12, respectively. HL&P believes that the
ratios for the six-month period are not necessarily indicative of the ratios
for a twelve-month period due to the seasonal nature of HL&P's business.
RECENT REGULATORY DEVELOPMENTS
On June 24, 1996, HL&P and other Texas electric utilities were required
to file estimates of their "Excess Cost Over Market" (ECOM) (sometimes referred
to as "stranded cost investment"). The Utility Commission intends to use the
information derived from these filings in connection with the preparation of a
report to the Texas legislature on methods or procedures for quantifying the
magnitude of stranded investment, procedures for allocating costs and the
acceptable methods of recovering stranded costs. Based on the assumptions,
economic models and methodologies established by the Utility Commission for
purposes of this report, HL&P filed estimates of ECOM in response to 54
scenarios requested by the Utility Commission. The estimates vary by as much as
$7 billion (including one scenario resulting in an estimated ECOM of $6.7
billion and another scenario resulting in an estimated ECOM of negative $300
million). HL&P has filed a motion arguing that the Utility Commission's
assumptions do not adequately capture the range of uncertainty in this matter
and that, based on other scenarios, HL&P's ECOM could vary within a range of
$10 billion. The calculation of ECOM is dependent on a number of factors
(future electric prices, generating needs, the timing of deregulation, etc.);
therefore, no assurance can be given that any estimates regarding ECOM will
ultimately prove to be accurate.
- 21 -
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For a description of legal proceedings affecting the Company and its
subsidiaries, including HL&P and HI Energy, reference is made to the
information set forth in Item 3 of the Form 10-K and Notes 2(b), 3 and
4(c) to the financial statements in the Form 10-K, which information,
as qualified and updated by the description of developments in
regulatory and litigation matters contained in Note 7(a) to the
financial statements in the First Quarter 10-Q and Note 3 of the Notes
to the Interim Financial Statements included in Part I of this Report,
is incorporated herein by reference.
In February 1996, the City of Wharton, on behalf of itself and certain
incorporated municipalities, filed a lawsuit against HL&P and Houston
Industries Finance Co., a wholly-owned subsidiary of the Company,
seeking to recover amounts allegedly owed to such municipalities
pursuant to municipal franchise agreements. The case is now pending in
a district court in Harris County (Cause No. 96-016613, 127th Judicial
District of Harris County, Texas), which has certified the case as a
class action. HL&P has appealed that ruling to the First Court of
Appeals in Houston and is awaiting a ruling from that court. The
plaintiff cities contend that HL&P has underpaid franchise fees under
its franchise agreement primarily by failing to make payments on
revenues received from activities other than the sale of electricity, a
claim HL&P vigorously disputes. Although the plaintiff cities have not
specified the damages sought, one of their witnesses during a hearing
alleged that damages could range as high as $220 million. The Company
and HL&P believe that the claims asserted by the cities are without
merit and intend to vigorously contest the lawsuit, though no assurance
can be given as to the ultimate outcome of this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Company
At the annual meeting of the Company's shareholders held on May 22,
1996, the matters voted upon and the number of votes cast for, against
or withheld, as well as the number of abstentions and broker non-votes
as to such matters (including a separate tabulation with respect to
each nominee for office) were as stated below:
For Item 1, the election of five nominees for Class III directors to
serve three-year terms expiring in 1999:
<TABLE>
<CAPTION>
For Against or Withheld Broker Non-Vote
----- ------------------- ---------------
<S> <C> <C> <C>
James A. Baker, III 224,493,738 6,610,208 0
Richard E. Balzhiser 226,386,244 4,717,702 0
Howard W. Horne 226,536,810 4,567,136 0
Don D. Jordan 226,601,535 4,502,411 0
Kenneth L. Schnitzer, Sr. 225,308,509 5,795,437 0
</TABLE>
- 22 -
<PAGE> 23
On July 19, 1996, Mr. Schnitzer resigned from the Board of
Directors of the Company.
For Item 2, the adoption of the Houston Industries
Incorporated Stock Plan for Outside Directors:
For Against Abstain Broker Non-Vote
----------- ---------- --------- ---------------
200,170,339 24,693,871 6,238,333 1,403
For Item 3, the ratification of the appointment of Deloitte &
Touche LLP as independent accountants and auditors for the
Company for 1996:
For Against Abstain Broker Non-Vote
----------- --------- --------- ---------------
226,641,726 3,076,347 1,385,873 0
HL&P
The annual shareholder meeting of HL&P was held on May 22,
1996. Houston Industries Incorporated, the owner and holder
of all of the outstanding Class A voting common stock of HL&P,
by the duly authorized vote of its Chairman and Chief
Executive Officer, Don D. Jordan, elected the following Board
of Directors for the ensuing year or until their successors
shall have qualified:
William T. Cottle, Jack D. Greenwade, Lee W. Hogan, Don D.
Jordan, Hugh Rice Kelly, David M. McClanahan, Stephen W.
Naeve, R. Steve Letbetter, Stephen C. Schaeffer, Robert L.
Waldrop.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. (Exhibits designated by an asterisk (*) are incorporated
herein by reference to a separate filing as indicated.)
Houston Industries Incorporated:
*Exhibit 2 - Agreement and Plan of Merger among the
Company, HL&P, HI Merger, Inc. and NorAm
dated August 11, 1996 (incorporated by
reference to Exhibit 2 to the Company and
HL&P's Report on Form 8-K dated August 11,
1996).
Exhibit 3 - Amended and Restated Bylaws of the Company
(as of May 22, 1996).
Exhibit 10(a) - Seventh Amendment to the Executive Incentive
Compensation Plan of the Company (As Amended
and Restated Effective January 1, 1991)
effective January 1, 1996.
Exhibit 10(b) - Sixth Amendment to the Deferred Compensation
Plan of the Company (As Established Effective
September 1, 1985) effective December 1,
1995.
- 23 -
<PAGE> 24
Exhibit 10(c) - Sixth Amendment to the Deferred Compensation
Plan of the Company (As Amended and Restated
Effective January 1, 1989) effective December
1, 1995.
Exhibit 10(d) - Seventh Amendment to the Deferred
Compensation Plan of the Company (As Amended
and Restated Effective January 1, 1991)
effective December 1, 1995.
Exhibit 11 - Computation of Earnings per Common Share and
Common Equivalent Share.
Exhibit 12 - Computation of Ratios of Earnings to Fixed
Charges.
Exhibit 27 - Financial Data Schedule.
Exhibit 99(a) - Notes 1(b), 2, 3, 4 and 11 to the Financial
Statements included on pages 57, 59 through
64 and 73 through 74 of the Form 10-K.
Exhibit 99(b) - Notes 3, 7(a) and 7(b) to the Financial
Statements included on pages 13, 14 and 15 of
the First Quarter Form 10-Q.
*Exhibit 99(c) - Houston Industries Incorporated Savings Plan
(As Amended and Restated Effective July 1,
1995) (incorporated by reference to Exhibit
99(c) to the Company's Report on Form 10-Q
for the quarter ended March 31, 1995).
*Exhibit 99(d) - First Amendment to the Houston Industries
Incorporated Savings Plan (As Amended and
Restated Effective July 1, 1995) effective
June 30, 1995 (incorporated by reference to
Exhibit 99(g) to the Company's Report on Form
10-Q for the quarter ended June 30, 1995.)
Exhibit 99(e) - Second Amendment to the Savings Plan (As
Amended and Restated Effective July 1, 1995)
effective August 1, 1996.
Houston Lighting & Power Company:
*Exhibit 2 - Agreement and Plan of Merger among the
Company, HL&P, HI Merger, Inc. and NorAm
dated August 11, 1996 (incorporated by
reference to Exhibit 2 to the Company and
HL&P's Report on Form 8-K dated August 11,
1996).
Exhibit 3 - Amended and Restated Bylaws of HL&P (as of
June 5, 1996).
*Exhibit 10(a) - Seventh Amendment to the Executive Incentive
Compensation Plan of the Company (As Amended
and Restated Effective January 1, 1991)
effective January 1, 1996 (incorporated by
reference to Exhibit 10(a) to the Company's
Report on Form 10-Q for the quarter ended
June 30, 1996, File No. 1-7629).
- 24 -
<PAGE> 25
*Exhibit 10(b) - Sixth Amendment to the Deferred Compensation
Plan of the Company (As Established Effective
September 1, 1985) effective December 1, 1995
(incorporated by reference to Exhibit 10(b)
to the Company's Report on Form 10-Q for the
quarter ended June 30, 1996, File No.
1-7629).
*Exhibit 10(c) - Sixth Amendment to the Deferred Compensation
Plan of the Company (As Amended and Restated
Effective January 1, 1989) effective December
1, 1995 (incorporated by reference to Exhibit
10(c) to the Company's Report on Form 10-Q
for the quarter ended June 30, 1996, File No.
1-7629).
*Exhibit 10(d) - Seventh Amendment to the Deferred
Compensation Plan of the Company (As Amended
and Restated Effective January 1, 1991)
effective December 1, 1995 (incorporated by
reference to Exhibit 10(d) to the Company's
Report on Form 10-Q for the quarter ended
June 30, 1996, File No. 1-7629).
Exhibit 12 - Computation of Ratios of Earnings to Fixed
Charges and Ratios of Earnings to Fixed
Charges and Preferred Dividends.
Exhibit 27 - Financial Data Schedule.
Exhibit 99(a) - Notes 1(b), 2, 3, 4 and 11 to the Financial
Statements included on pages 57, 59 through
64 and 73 through 74 of the Form 10-K.
Exhibit 99(b) - Notes 3, 7(a) and 7(b) to the Financial
Statements included on pages 13, 14 and 15 of
the First Quarter Form 10-Q.
(b) Reports on Form 8-K.
Report on Form 8-K of the Company and HL&P dated August 11, 1996.
- 25 -
<PAGE> 26
SIGNATURE
Pursuant to the requirements 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.
HOUSTON INDUSTRIES INCORPORATED
(Registrant)
/s/ Mary P. Ricciardello
-------------------------------
Mary P. Ricciardello
Vice President and Comptroller
(Principal Accounting Officer)
Date: August 13, 1996
- 26 -
<PAGE> 27
SIGNATURE
Pursuant to the requirements 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.
HOUSTON LIGHTING & POWER COMPANY
(Registrant)
/s/ Mary P. Ricciardello
-------------------------------
Mary P. Ricciardello
Vice President and Comptroller
(Principal Accounting Officer)
Date: August 13, 1996
- 27 -
<PAGE> 28
INDEX TO EXHIBITS
Houston Industries Incorporated:
*Exhibit 2 - Agreement and Plan of Merger among the Company,
HL&P, HI Merger, Inc. and NorAm dated August 11,
1996 (incorporated by reference to Exhibit 2 to
the Company and HL&P's Report on Form 8-K dated
August 11, 1996).
Exhibit 3 - Amended and Restated Bylaws of the Company (as of
May 22, 1996).
Exhibit 10(a) - Seventh Amendment to the Executive Incentive
Compensation Plan of the Company (As Amended and
Restated Effective January 1, 1991) effective
January 1, 1996.
Exhibit 10(b) - Sixth Amendment to the Deferred Compensation Plan
of the Company (As Established Effective September
1, 1985) effective December 1, 1995.
Exhibit 10(c) - Sixth Amendment to the Deferred Compensation Plan
of the Company (As Amended and Restated Effective
January 1, 1989) effective December 1, 1995.
Exhibit 10(d) - Seventh Amendment to the Deferred Compensation Plan
of the Company (As Amended and Restated Effective
January 1, 1991) effective December 1, 1995.
Exhibit 11 - Computation of Earnings per Common Share and Common
Equivalent Share.
Exhibit 12 - Computation of Ratios of Earnings to Fixed Charges.
Exhibit 27 - Financial Data Schedule.
Exhibit 99(a) - Notes 1(b), 2, 3, 4 and 11 to the Financial
Statements included on pages 57, 59 through 64 and
73 through 74 of the Form 10-K.
Exhibit 99(b) - Notes 3, 7(a) and 7(b) to the Financial Statements
included on pages 13, 14 and 15 of the First
Quarter Form 10-Q.
*Exhibit 99(c) - Houston Industries Incorporated Savings Plan (As
Amended and Restated Effective July 1, 1995)
(incorporated by reference to Exhibit 99(c) to the
Company's Report on Form 10-Q for the quarter ended
March 31, 1995).
*Exhibit 99(d) - First Amendment to the Houston Industries
Incorporated Savings Plan (As Amended and Restated
Effective July 1, 1995) effective June 30, 1995
(incorporated by reference to Exhibit 99(g) to the
Company's Report on Form 10-Q for the quarter ended
June 30, 1995.)
Exhibit 99(e) - Second Amendment to the Savings Plan (As Amended
and Restated Effective July 1, 1995) effective
August 1, 1996.
Houston Lighting & Power Company:
*Exhibit 2 - Agreement and Plan of Merger among the Company,
HL&P, HI Merger, Inc. and NorAm dated August 11,
1996 (incorporated by reference to Exhibit 2 to
the Company and HL&P's Report on Form 8-K dated
August 11, 1996).
*Exhibit 10(a) - Seventh Amendment to the Executive Incentive
Compensation Plan of the Company (As Amended and
Restated Effective January 1, 1991) effective
January 1, 1996 (incorporated by reference to
Exhibit 10(a) to the Company's Report on Form 10-Q
for the quarter ended June 30, 1996, File No.
1-7629).
*Exhibit 10(b) - Sixth Amendment to the Deferred Compensation Plan
of the Company (As Established Effective September
1, 1985) effective December 1, 1995 (incorporated
by reference to Exhibit 10(b) to the Company's
Report on Form 10-Q for the quarter ended June 30,
1996, File No. 1-7629).
*Exhibit 10(c) - Sixth Amendment to the Deferred Compensation Plan
of the Company (As Amended and Restated Effective
January 1, 1989) effective December 1, 1995
(incorporated by reference to Exhibit 10(c) to the
Company's Report on Form 10-Q for the quarter ended
June 30, 1996, File No. 1-7629).
*Exhibit 10(d) - Seventh Amendment to the Deferred Compensation Plan
of the Company (As Amended and Restated Effective
January 1, 1991) effective December 1, 1995
(incorporated by reference to Exhibit 10(d) to the
Company's Report on Form 10-Q for the quarter ended
June 30, 1996, File No. 1-7629).
Exhibit 12 - Computation of Ratios of Earnings to Fixed Charges
and Ratios of Earnings to Fixed Charges and
Preferred Dividends.
Exhibit 27 - Financial Data Schedule.
Exhibit 99(a) - Notes 1(b), 2, 3, 4 and 11 to the Financial
Statements included on pages 57, 59 through 64 and
73 through 74 of the Form 10-K.
Exhibit 99(b) - Notes 3, 7(a) and 7(b) to the Financial Statements
included on pages 13, 14 and 15 of the First
Quarter Form 10-Q.
<PAGE> 1
EXHIBIT 3
AMENDED AND RESTATED BYLAWS
OF
HOUSTON INDUSTRIES INCORPORATED
(Adopted by Resolution of the
Board of Directors as of
May 22, 1996)
ARTICLE I
CAPITAL STOCK
Section 1. Share Ownership. Shares for the capital stock of the
Company may be certificated or uncertificated. Owners of shares of the capital
stock of the Company shall be recorded in the share transfer records of the
Company and ownership of such shares shall be evidenced by a certificate or
book entry notation in the share transfer records of the Company. Any
certificates representing such shares shall be signed by the Chairman of the
Board, if there is one, the Chief Executive Officer, if there is one, the
President or a Vice President and either the Secretary or an Assistant
Secretary and shall be sealed with the seal of the Company, which signatures
and seal 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 may be its own transfer agent if so
appointed by the Board of Directors. 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.
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<PAGE> 2
Section 3. Transfer of Shares. The shares of the capital stock of
the Company shall be transferable in the share transfer records of the Company
by the holder of record thereof, or his duly authorized attorney or legal
representative. All certificates representing shares surrendered for transfer,
properly endorsed, shall be cancelled and new certificates for a like number of
shares shall be issued therefor. In the case of lost, stolen, destroyed or
mutilated certificates representing shares for which the Company has been
requested to issue new certificates, new certificates or other evidence of such
new shares may be issued upon such conditions as may be required by the Board
of Directors or the Secretary for the protection of the Company and any
transfer agent or registrar. Uncertificated shares shall be transferred in the
share transfer records of the Company upon the written instruction originated
by the appropriate person to transfer the shares.
Section 4. Shareholders of Record and Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive a
distribution by the Company (other than a distribution involving a purchase or
redemption by the Company of any of its own shares) or a share dividend, or in
order to make a determination of shareholders for any other proper purpose
(other than determining shareholders entitled to consent to action by
shareholders proposed to be taken without a meeting of shareholders), the Board
of Directors may provide that the share transfer records shall be closed for a
stated period of not more than sixty days, and in the case of a meeting of
shareholders not less than ten days, immediately preceding the meeting, or it
may fix in advance a record date for any such determination of shareholders,
such date to be not more than sixty days, and in the case of a meeting of
shareholders not less than ten days, prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If the
share transfer records 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, or shareholders entitled to receive a distribution (other than a
distribution involving a purchase or redemption by the Company of any of its
own shares) or a share dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board of Directors declaring
such distribution or share dividend is adopted, as the case may be, 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 share
transfer records and the stated period of closing has expired.
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.
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<PAGE> 3
Section 2. Annual Meeting. The annual meeting of the shareholders
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors or as may otherwise be stated in the notice of
the meeting. Failure to designate a time for the annual meeting or 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 Chairman of the Board, if there is one, the Chief
Executive Officer, if there is one, 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 of the Company.
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 not less than ten nor more than sixty days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman
of the Board, if there is one, the Chief Executive Officer, if there is one,
the President, the Secretary or the officer or person calling the meeting to
each shareholder of record entitled to vote at such meetings . 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 share transfer
records of the Company, with postage thereon prepaid.
Any notice required to be given to any shareholder, under any
provision of the Texas Business Corporation Act, as amended (TBCA), the
Articles of Incorporation of the Company or these Bylaws, need not be given to
a shareholder if notice of two consecutive annual meetings and all notices of
meetings held during the period between those annual meetings, if any, or all
(but in no event less than two) payments (if sent by first class mail) of
distributions or interest on securities during a 12-month period have been
mailed to that person, addressed at his address as shown on the share transfer
records of the Company, and have been returned undeliverable. Any action or
meeting taken or held without notice to such person shall have the same force
and effect as if the notice had been duly given. If such a person delivers to
the Company a written notice setting forth his then current address, the
requirement that notice be given to that person shall be reinstated.
Section 5. Voting List. The officer or agent having charge of the
share transfer records 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 share transfer records 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 5 shall not affect the validity of any action taken at such meeting.
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<PAGE> 4
Section 6. Voting; Proxies. Except as otherwise provided in the
Articles of Incorporation of the Company or as otherwise provided in the TBCA,
each holder of shares of capital stock of the Company entitled to vote shall be
entitled to one vote for each share standing in his name on the records of the
Company, either in person or by proxy executed in writing by him or by his duly
authorized attorney-in-fact. A proxy shall be revocable unless expressly
provided therein to be irrevocable and the proxy is coupled with an interest.
At each election of 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 7. Quorum and Vote of Shareholders. Except as otherwise
provided by law, the Articles of Incorporation of the Company or these Bylaws,
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. Directors shall be elected by a
plurality of the votes cast by the holders of shares entitled to vote in the
election of directors at a meeting of shareholders at which a quorum is
present. With respect to each matter other than the election of directors as
to which no other voting requirement is specified by law, the Articles of
Incorporation of the Company or in this Section 7 or in Article VII of these
Bylaws, the affirmative vote of the holders of a majority of the shares
entitled to vote on that matter and represented in person or by proxy at a
meeting at which a quorum is present shall be the act of the shareholders.
With respect to a matter submitted to a vote of the shareholders as to which a
shareholder approval requirement is applicable under the shareholder approval
policy of the New York Stock Exchange, Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (Exchange Act), or any provision of the Internal
Revenue Code, in each case for which no higher voting requirement is specified
by law, the Articles of Incorporation of the Company or these Bylaws, the
affirmative vote of the holders of a majority of the shares entitled to vote
on, and voted for or against, that matter at a meeting at which a quorum is
present shall be the act of the shareholders, provided that approval of such
matter shall also be conditioned on any more restrictive requirement of such
shareholder approval policy, Rule 16b- 3 or Internal Revenue Code provision, as
applicable, being satisfied. With respect to the approval of independent
public accountants (if submitted for a vote of the shareholders), the
affirmative vote of the holders of a majority of the shares entitled to vote
on, and voted for or against, that matter at a meeting of shareholders at which
a quorum is present shall be the act of the shareholders.
Section 8. Presiding Officer and Conduct of Meetings. The Chairman
of the Board, if there is one, or in his absence, the Chief Executive Officer,
if there is one, or in his absence, the President shall preside at all meetings
of the shareholders or, if such officers are not present at a meeting, by such
other person as the Board of Directors shall designate or if no such person is
designated by the Board of Directors, the most senior officer of the Company
present at the meeting. The Secretary of the Company, if present, shall act as
secretary of each meeting of shareholders; if he is not present at a meeting,
then such person as may be designated by the presiding officer shall act as
secretary of the meeting. Meetings of shareholders shall follow reasonable and
fair procedure. Subject to the
Page 4 of 20
<PAGE> 5
foregoing, the conduct of any meeting of shareholders and the determination of
procedure and rules shall be within the absolute discretion of the officer
presiding at such meeting (Chairman of the Meeting), and there shall be no
appeal from any ruling of the Chairman of the Meeting with respect to procedure
or rules. Accordingly, in any meeting of shareholders or part thereof, the
Chairman of the Meeting shall have the sole power to determine appropriate
rules or to dispense with theretofore prevailing rules. Without limiting the
foregoing, the following rules shall apply:
(a) If disorder should arise which prevents continuation of
the legitimate business of meeting, the Chairman of the Meeting may
announce the adjournment of the meeting; and upon so doing, the
meeting shall be immediately adjourned.
(b) The Chairman of the Meeting may ask or require that
anyone not a bona fide shareholder or proxy leave the meeting.
(c) A resolution or motion shall be considered for vote only
if proposed by a shareholder or a duly authorized proxy, and seconded
by an individual who is a shareholder or a duly authorized proxy,
other than the individual who proposed the resolution or motion,
subject to compliance with any other requirements concerning such
proposed resolution or motion contained in these Bylaws. The Chairman
of the Meeting may propose any motion for vote.
(d) The order of business at all meetings of shareholders
shall be determined by the Chairman of the Meeting.
(e) The Chairman of the Meeting may impose any reasonable
limits with respect to participation in the meeting by shareholders,
including, but not limited to, limits on the amount of time taken up
by the remarks or questions of any shareholder, limits on the number
of questions per shareholder and limits as to the subject matter and
timing of questions and remarks by shareholders.
(f) Before any meeting of shareholders, the Board of
Directors may appoint three persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If
no inspectors of election are so appointed, the Chairman of the
Meeting may, and on the request of any shareholder or a shareholder's
proxy shall, appoint inspectors of election at the meeting of the
shareholders and the number of such inspectors shall be three. If any
person appointed as inspector fails to appear or fails or refuses to
act, the Chairman of the Meeting may, and upon the request of any
shareholder or a shareholder's proxy shall, appoint a person to fill
such vacancy.
Page 5 of 20
<PAGE> 6
The duties of the inspectors shall be to:
(i) determine the number of shares outstanding and
the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity,
validity and effect of proxies and ballots;
(ii) receive votes or ballots;
(iii) hear and determine all challenges and
questions in any way arising in connection with the vote;
(iv) count and tabulate all votes;
(v) report to the Board of Directors the results
based on the information assembled by the inspectors; and
(vi) do any other acts that may be proper to conduct
the election or vote with fairness to all shareholders.
Notwithstanding the foregoing, the final certification of the
results of the election or other matter acted upon at a
meeting of shareholders shall be made by the Board of
Directors.
All determinations of the Chairman of the Meeting 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;
Qualifications. 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 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
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<PAGE> 7
annual meeting following the annual meeting at which such director was elected.
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 shareholders occurring on or after the
first day of the month immediately following the month of such person's
seventieth birthday. 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 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.
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<PAGE> 8
No person shall be eligible for election or reelection or to continue
to serve as a member of the Board of Directors who is an officer, director,
agent, representative, partner, employee, or nominee of, or otherwise acting at
the direction of, or acting in concert with, (a) a "public-utility company"
(other than Houston Lighting & Power Company) as such term is defined in
Section 2(a)(5) of the Public Utility Holding Company Act of 1935, as in effect
on May 1, 1996 (35 Act), or (b) an "affiliate" (as defined in either Section
2(a)(11) of the 35 Act or in Rule 405 under the Securities Act of 1933, as
amended) of any such "public-utility company" specified in clause (a)
immediately preceding.
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, or may be filled by
election at an annual or special meeting of the shareholders called for that
purpose; 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 may 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, or may be filled by election at an annual
or special meeting of the shareholders called for that purpose. 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
(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. 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;
Page 8 of 20
<PAGE> 9
provided, however, that in the event that less than forty-seven 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 Exchange Act 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 meeting
and the defective nomination shall be disregarded. Beneficial ownership shall
be determined in accordance with Rule 13d-3 under the Exchange Act.
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 principal office of the Company.
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<PAGE> 10
Section 5. Regular Meetings. The Board of Directors shall meet each
year immediately following the annual meeting of the shareholders for the
transaction of such business as may properly be brought before the meeting.
The Board of Directors shall also meet regularly at such other times as shall
be designated by the Board of Directors. No notice of any kind to either
existing or newly elected 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 Chairman of the Board,
if there is one, the Chief Executive Officer, if there is one, the President or
the Secretary of the Company or a majority of the directors then in office.
Notice shall be sent by mail, facsimile 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 express
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 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
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<PAGE> 11
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 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 forty-seven 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
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<PAGE> 12
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 proposal shall be
disregarded. Beneficial ownership shall be determined as specified in
accordance with Rule 13d-3 under the Exchange Act.
Section 10. Executive and Other Committees. The Board of Directors,
by resolution or resolutions adopted by a majority of the full Board of
Directors, may designate one or more members of the Board of Directors to
constitute an Executive Committee, and one or more other committees, which
shall in each case be comprised of such number of directors as the Board of
Directors may determine from time to time. Subject to such restrictions as may
be contained in the Company's Articles of Incorporation or that may be imposed
by the TBCA, any such committee shall have and may exercise such powers and
authority of the Board of Directors in the management of the business and
affairs of the Company as the Board of Directors may determine by resolution
and specify in the respective resolutions appointing them, or as permitted by
applicable law, including, without limitation, the power and authority to (a)
authorize a distribution, (b) authorize the issuance of shares of the Company
and (c) exercise the authority of the Board of Directors vested in it pursuant
to Article 2.13 of the TBCA or such successor statute as may be in effect from
time to time. Each duly- authorized action taken with respect to a given
matter by any such duly-appointed committee of the Board of Directors shall
have the same force and effect as the action of the full Board of Directors and
shall constitute for all purposes the action of the full Board of Directors
with respect to such matter.
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 cannot be delegated
to a committee thereof 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. The Board of Directors shall name a chairman at the time
it designates members to a committee. Each such committee shall 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
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<PAGE> 13
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 and a Secretary and such other officers and agents as the Board of
Directors may from time to time elect or appoint, which may include, without
limitation, a Chairman of the Board, a Chief Executive Officer, one or more
Vice Presidents (whose seniority and titles, including Executive Vice
Presidents, Senior Vice Presidents and such assistant or subordinate Vice
Presidents, may be specified by the Board of Directors), a Treasurer, one or
more Assistant Treasurers, and one or more Assistant Secretaries. Each officer
shall hold office until his successor shall have been duly elected and shall
qualify or until his death or until he shall resign or shall have been removed
in the manner hereinafter provided. Any two or more offices may be held by the
same person. Except for the Chairman of the Board, if any, no officer need be
a director.
Section 2. Vacancies; Removal. 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.
Section 3. Powers and Duties of Officers. The officers of the
Company shall have such powers and duties as generally pertain to their offices
as well as such powers and duties as from time to time shall be conferred by
the Board of Directors.
ARTICLE V
INDEMNIFICATION
Section 1. General. The Company shall indemnify and hold harmless
the Indemnitee (as this and all other capitalized words are defined in this
Article or in Article 2.02-1 of the TBCA), to the fullest extent permitted, or
not prohibited, by the TBCA or other applicable law as the same exists or may
hereafter be amended (but in the case of any such amendment, with respect to
Matters occurring before such amendment, only to the extent that such amendment
permits the Company to
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<PAGE> 14
provide broader indemnification rights than said law permitted the Company to
provide prior to such amendment). The provisions set forth below in this
Article are provided as means of furtherance and implementation of, and not in
limitation on, the obligation expressed in this Section 1.
Section 2. Advancement or Reimbursement of Expenses. The rights of
the Indemnitee provided under Section 1 of this Article shall include, but not
be limited to, the right to be indemnified and to have Expenses advanced
(including the payment of expenses before final disposition of a Proceeding) in
all Proceedings to the fullest extent permitted, or not prohibited, by the TBCA
or other applicable law. If the Indemnitee is not wholly successful, on the
merits or otherwise, in a Proceeding, but is successful, on the merits or
otherwise, as to any Matter in such Proceeding, the Company shall indemnify the
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf relating to each Matter. The termination of any Matter in a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such Matter. In addition, to the extent the Indemnitee
is, by reason of his Corporate Status, a witness or otherwise participates in
any Proceeding at a time when he is not named a defendant or respondent in the
Proceeding, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith. The
Indemnitee shall be advanced Expenses, within ten days after any request for
such advancement, to the fullest extent permitted, or not prohibited, by
Article 2.02-1 of the TBCA; provided that the Indemnitee has provided to the
Company all affirmations, acknowledgments, representations and undertakings
that may be required of the Indemnitee by Article 2.02-1 of the TBCA.
Section 3. Determination of Request. Upon written request to the
Company by an Indemnitee for indemnification pursuant to these Bylaws, a
determination, if required by applicable law, with respect to an Indemnitee's
entitlement thereto shall be made in accordance with Article 2.02-1 of the
TBCA; provided, however, that notwithstanding the foregoing, if a Change in
Control shall have occurred, such determination shall be made by Special Legal
Counsel selected by the Indemnitee, unless the Indemnitee shall request that
such determination be made in accordance with Article 2.02-1F (1) or (2). The
Company shall pay any and all reasonable fees and expenses of Special Legal
Counsel incurred in connection with any such determination. If a Change in
Control shall have occurred, the Indemnitee shall be presumed (except as
otherwise expressly provided in this Article) to be entitled to
indemnification under this Article upon submission of a request to the Company
for indemnification, and thereafter the Company shall have the burden of proof
in overcoming that presumption in reaching a determination contrary to that
presumption. The presumption shall be used by Special Legal Counsel, or such
other person or persons determining entitlement to indemnification, as a basis
for a determination of entitlement to indemnification unless the Company
provides information sufficient to overcome such presumption by clear and
convincing evidence or the investigation, review and analysis of Special Legal
Counsel or such other person or persons convinces him or them by clear and
convincing evidence that the presumption should not apply.
Section 4. Effect of Certain Proceedings. The termination of any
Proceeding or of any Matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or
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<PAGE> 15
its equivalent, shall not (except as otherwise expressly provided in this
Article) of itself adversely affect the right of the Indemnitee to
indemnification or create a presumption that (a) the Indemnitee did not conduct
himself in good faith and in a manner which he reasonably believed, in the case
of conduct in his official capacity as a director of the Company, to be in the
best interests of the Company, or, in all other cases, that at least his
conduct was not opposed to the Company's best interests, or (b) with respect to
any criminal Proceeding, that the Indemnitee had reasonable cause to believe
that his conduct was unlawful.
Section 5. Expenses of Enforcement of Article. In the event that an
Indemnitee, pursuant to this Article, seeks a judicial adjudication to enforce
his rights under, or to recover damages for breach of, rights created under or
pursuant to this Article, the Indemnitee shall be entitled to recover from the
Company, and shall be indemnified by the Company against, any and all Expenses
actually and reasonably incurred by him in such judicial adjudication but only
if he prevails therein. If it shall be determined in said judicial
adjudication that the Indemnitee is entitled to receive part but not all of the
indemnification or advancement of Expenses sought, the Expenses incurred by
Indemnitee in connection with such judicial adjudication shall be reasonably
prorated in good faith by counsel for the Indemnitee. Notwithstanding the
foregoing, if a Change in Control shall have occurred, Indemnitee shall be
entitled to indemnification under this Section regardless of whether indemnitee
ultimately prevails in such judicial adjudication.
Section 6. Nonexclusive Rights. The rights of indemnification and to
receive advancement of Expenses as provided by this Article shall not be deemed
exclusive of any other rights to which the Indemnitee may at any time be
entitled under applicable law, the Articles of Incorporation of the Company,
these Bylaws, agreement, insurance, arrangement, a vote of shareholders or a
resolution of directors, or otherwise. No amendment, alteration or repeal of
this Article or any provision thereof shall be effective as to any Indemnitee
for acts, events and circumstances that occurred, in whole or in part, before
such amendment, alteration or repeal. The provisions of this Article shall
continue as to an Indemnitee whose Corporate Status has ceased and shall inure
to the benefit of his heirs, executors and administrators.
Section 7. Invalidity. If any provision or provisions of this
Article shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Article shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
Section 8. Definitions. For purposes of this Article:
"Change of Control" means a change in control of the Company
occurring after the date of adoption of these Bylaws in any of the
following circumstances: (a) there shall have occurred an event
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A (or in response to any similar item on any similar
schedule or form) promulgated under the Exchange Act, whether or not
the Company is then subject to such
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<PAGE> 16
reporting requirement; (b) any "person" (as such term is used in
Section 13(d) and 14(d) of the Exchange Act), other than a trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or a corporation or other entity owned directly or
indirectly by the shareholders of the Company in substantially the
same proportions as their ownership of stock of the Company, shall
have become the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's
then outstanding voting securities without prior approval of at least
two-thirds of the members of the Board of Directors in office
immediately prior to such person attaining such percentage interest;
(c) the Company is a party to a merger, consolidation, share exchange,
sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office
immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; (d) during any fifteen
month period, individuals who at the beginning of such period
constituted the Board of Directors (including for this purpose any new
director whose election or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of
such period) cease for any reason to constitute at least a majority of
the Board of Directors.
"Corporate Status" means the status of a person who is or was
a director, officer, partner, venturer, proprietor, trustee, employee
(including an employee acting in his Designated Professional
Capacity), or agent or similar functionary of the Company or of any
other foreign or domestic corporation, partnership, joint venture,
sole proprietorship, trust, employee benefit plan or other enterprise
which such person is or was serving in such capacity at the request of
the Company. The Company hereby acknowledges that unless and until
the Company provides the Indemnitee with written notice to the
contrary, the Indemnitee's service as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary
of an Affiliate of the Company shall be conclusively presumed to be at
the Company's request. An Affiliate of the Company shall be deemed to
be (a) any foreign or domestic corporation in which the Company owns
or controls, directly or indirectly, 5% or more of the shares entitled
to be voted in the election of directors of such corporation; (b) any
foreign or domestic partnership, joint venture, proprietorship or
other enterprise in which the Company owns or controls, directly or
indirectly, 5% or more of the revenue interests in such partnership,
joint venture, proprietorship or other enterprise; or (c) any trust or
employee benefit plan the beneficiaries of which include the Company,
any Affiliate of the Company as defined in the foregoing clauses (a)
and (b) or any of the directors, officers, partners, venturers,
proprietors, employees, agents or similar functionaries of the Company
or of such Affiliates of the Company.
"Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness
fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other
disbursements or expenses of the types customarily incurred in
connection with prosecuting, defending,
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<PAGE> 17
preparing to prosecute or defend, investigating, or being or preparing
to be a witness in a Proceeding.
"Indemnitee" includes any person who is, or is threatened to
be made, a witness in or a party to any Proceeding as described in
Section 1 or 2 of this Article by reason of his Corporate Status.
"Matter" is a claim, a material issue, or a substantial
request for relief.
"Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution proceeding,
investigation, administrative hearing and any other proceeding,
whether civil, criminal, administrative, investigative or other, any
appeal in such action, suit, arbitration, proceeding or hearing, or
any inquiry or investigation, whether conducted by or on behalf of the
Company, a subsidiary of the Company or any other party, formal or
informal, that the Indemnitee in good faith believes might lead to the
institution of any such action, suit, arbitration, proceeding,
investigation or hearing, except one initiated by an Indemnitee
pursuant to Section 5 of this Article.
"Special Legal Counsel" means a law firm, or member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the five years previous to his selection or
appointment has been, retained to represent: (a) the Company or the
Indemnitee in any matter material to either such party; (b) any other
party to the Proceeding giving rise to a claim for indemnification
hereunder; or (c) 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 voting securities.
Notwithstanding the foregoing, the term "Special Legal Counsel" shall
not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of
interest in representing either the Company or the Indemnitee in an
action to determine the Indemnitee's rights to indemnification under
these Bylaws.
For the purposes of this Article, an employee acting in his
"Designated Professional Capacity" shall include, but not be limited
to, a physician, nurse, psychologist or therapist, registered
surveyor, registered engineer, registered architect, attorney,
certified public accountant or other person who renders such
professional services within the course and scope of his employment,
who is licensed by appropriate regulatory authorities to practice such
profession and who, while acting in the course of such employment,
committed or is alleged to have committed any negligent acts, errors
or omissions in rendering such professional services at the request of
the Company or pursuant to his employment (including, without
limitation, rendering written or oral opinions to third parties).
Section 9. Notice. Any communication required or permitted to the
Company under this Article shall be addressed to the Secretary of the Company
and any such communication to the
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<PAGE> 18
Indemnitee shall be addressed to his home address unless he specifies otherwise
and shall be personally delivered or delivered by overnight mail or courier
delivery.
Section 10. Insurance and Self-Insurance Arrangements. The Company
may procure or maintain insurance or other similar arrangements, at its
expense, to protect itself and any Indemnitee against any expense, liability or
loss asserted against or incurred by such person, incurred by him in such a
capacity or arising out of his Corporate Status as such a person, whether or
not the Company would have the power to indemnify such person against such
expense or liability. In considering the cost and availability of such
insurance, the Company (through the exercise of the business judgment of its
directors and officers) may, from time to time, purchase insurance which
provides for any and all of (a) deductibles, (b) limits on payments required to
be made by the insurer, or (c) coverage which may not be as comprehensive as
that previously included in insurance purchased by the Company. The purchase
of insurance with deductibles, limits on payments and coverage exclusions will
be deemed to be in the best interest of the Company but may not be in the best
interest of certain of the persons covered thereby. As to the Company,
purchasing insurance with deductibles, limits on payments, and coverage
exclusions is similar to the Company's practice of self-insurance in other
areas. In order to protect the Indemnitees who would otherwise be more fully
or entirely covered under such policies, the Company shall indemnify and hold
each of them harmless as provided in Section 1 or 2 of this Article, without
regard to whether the Company would otherwise be entitled to indemnify such
officer or director under the other provisions of this Article, or under any
law, agreement, vote of shareholders or directors or other arrangement, to the
extent (i) of such deductibles, (ii) of amounts exceeding payments required to
be made by an insurer or (iii) that prior policies of officer's and director's
liability insurance held by the Company or its predecessors would have provided
for payment to such officer or director. Notwithstanding the foregoing
provision of this Section, no Indemnitee shall be entitled to indemnification
for the results of such person's conduct that is intentionally adverse to the
interests of the Company. This Section is authorized by Section 2.02-1(R) of
the TBCA as in effect on May 1, 1996, and further is intended to establish an
arrangement of self-insurance pursuant to that section.
ARTICLE VI
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 Chairman of the Board, if there is one, the Chief Executive Officer,
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<PAGE> 19
if there is one, the President or the Secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
Section 3. Seal. The seal of the Company shall be circular in form,
with the name "HOUSTON INDUSTRIES INCORPORATED."
Section 4. 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.
ARTICLE VII
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, 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 VII 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 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 forty-seven days' notice or prior public disclosure
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<PAGE> 20
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 VII 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
Rule 13d-3 under the Exchange Act.
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<PAGE> 1
EXHIBIT 10(a)
HOUSTON INDUSTRIES INCORPORATED
EXECUTIVE INCENTIVE COMPENSATION PLAN
(As Amended and Restated Effective January 1, 1991)
Seventh 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 Paragraph 18 thereof to amend the Plan,
does hereby amend the Plan, effective January 1, 1996, as follows:
1. Paragraph 11B. of the Plan is hereby amended to read
as follows:
"B. Payment of Long-Term Award. Upon satisfaction of the
Long-Term Performance Goal as determined by the Committee, payment of
the Long-Term Award shall be made in cash and/or full shares of HII
Stock (as determined by the Committee in its sole and absolute
discretion) to the Participant as soon as practicable after the close
of the four (4) consecutive calendar year measurement period described
in paragraph 6 above, provided that (i) the Participant has satisfied
the requirements of paragraph 4 throughout such measurement period and
(ii) the payment in the form of HII Stock shall be permitted only with
respect to measurement periods commencing on or after January 1, 1996.
If the form of payment of a Long-Term Award is
undesignated by the Committee, such Award will be paid entirely in the
form of cash. If all or any portion of such Award is to be paid in
HII Stock, the number of full shares payable shall be determined by
dividing the portion of such Participant's Long-Term Award payable in
cash by an amount equal to the Market Price of HII Stock as of the
date of the Committee determination regarding payment of the Long-Term
Award. Any fractional share shall be paid in cash."
2. Paragraph 15 of the Plan is hereby amended by adding
at the end thereof the following:
"With respect to any Long-Term Award payable in full shares of HII
Common Stock, the Committee shall deduct applicable taxes (without
regard to any alternative rule permitting the use of the flat
percentage rate in computing such applicable income tax withholding
amounts) and withhold, at the time of delivery or other appropriate
time, an appropriate amount of cash or number of shares of HII Common
Stock or
<PAGE> 2
combination thereof for payment of taxes as required by law, such
withholding to be administered on a uniform basis (not involving any
election by any Participant). If shares of HII Common Stock are used
to satisfy tax withholding, such shares shall be valued based on the
Fair Market Value when the tax withholding is required to be made."
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 18th day of June,
1996, but effective as of the date stated herein.
HOUSTON INDUSTRIES INCORPORATED
By: /s/ D. D. Sykora
-----------------------------------
D. D. Sykora
Chairman of the Benefits Committee
ATTEST:
/s/ Rufus S. Scott
- ------------------------------------
Assistant Corporate Secretary
-2-
<PAGE> 1
EXHIBIT 10(B)
HOUSTON INDUSTRIES INCORPORATED
DEFERRED COMPENSATION PLAN
(As Established Effective September 1, 1985)
Sixth Amendment
Houston Industries Incorporated, a Texas corporation (the
"Company"), having established the Houston Industries Incorporated Deferred
Compensation Plan, effective September 1, 1985 and as amended (the "Plan"), and
having reserved the right under Section 7.1 thereof to amend the Plan, does
hereby amend the last sentence of Section 7.1 of the Plan, effective as of
December 1, 1995, to read as follows:
"Any such amendment or termination shall not, however, without the
written consent of the affected Participant, reduce the interest rate
applicable to, or otherwise adversely affect the rights of a
Participant with respect to, Compensation with respect to which a
Participant made an irrevocable deferral election before the later of
the date that such amendment is executed or effective."
IN WITNESS WHEREOF, Houston Industries Incorporated has caused
these presents to be executed by the duly authorized Chairman of the Benefits
Committee 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 18th day of June, 1996, but effective as of the date stated herein.
HOUSTON INDUSTRIES INCORPORATED
By: /s/ D. D. Sykora
-----------------------------------
D. D. Sykora
Chairman of the Benefits
Committee
ATTEST:
/s/ Rufus S. Scott
- ----------------------------------
Assistant Corporate Secretary
<PAGE> 1
EXHIBIT 10(c)
HOUSTON INDUSTRIES INCORPORATED
DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective January 1, 1989)
Sixth Amendment
Houston Industries Incorporated, a Texas corporation (the
"Company"), having established the Houston Industries Incorporated Deferred
Compensation Plan, as amended and restated effective January 1, 1989 and as
amended (the "Plan"), and having reserved the right under Section 7.1 thereof
to amend the Plan, does hereby amend the last sentence of Section 7.1 of the
Plan, effective as of December 1, 1995, to read as follows:
"Any such amendment or termination shall not, however, without the
written consent of the affected Participant, reduce the interest rate
applicable to, or otherwise adversely affect the rights of a
Participant with respect to, Compensation with respect to which a
Participant made an irrevocable deferral election before the later of
the date that such amendment is executed or effective."
IN WITNESS WHEREOF, Houston Industries Incorporated has caused
these presents to be executed by the duly authorized Chairman of the Benefits
Committee 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 18th day of June, 1996, but effective as of the date stated herein.
HOUSTON INDUSTRIES INCORPORATED
By: /s/ D. D. Sykora
----------------------------------
D. D. Sykora
Chairman of the Benefits Committee
ATTEST:
/s/ Rufus S. Scott
- ------------------------------------
Assistant Corporate Secretary
<PAGE> 1
EXHIBIT 10(d)
HOUSTON INDUSTRIES INCORPORATED
DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective January 1, 1991)
Seventh Amendment
Houston Industries Incorporated, a Texas corporation (the
"Company"), having established the Houston Industries Incorporated Deferred
Compensation Plan, as amended and restated effective January 1, 1991 and as
amended (the "Plan"), and having reserved the right under Section 7.1 thereof
to amend the Plan, does hereby amend the last sentence of Section 7.1 of the
Plan, effective as of December 1, 1995, to read as follows:
"Any such amendment or termination shall not, however, without the
written consent of the affected Participant, reduce the interest rate
applicable to, or otherwise adversely affect the rights of a
Participant with respect to, Compensation with respect to which a
Participant made an irrevocable deferral election before the later of
the date that such amendment is executed or effective."
IN WITNESS WHEREOF, Houston Industries Incorporated has caused
these presents to be executed by the duly authorized Chairman of the Benefits
Committee 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 18th day of June, 1996, but effective as of the date stated herein.
HOUSTON INDUSTRIES INCORPORATED
By: /s/ D. D. Sykora
-----------------------------------
D. D. Sykora
Chairman of the Benefits Committee
ATTEST:
/s/ Rufus S. Scott
- ------------------------------------
Assistant Corporate Secretary
<PAGE> 1
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>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
(1) Weighted average shares of
common stock outstanding . . . . . . . . 248,656,061 247,538,498 248,561,076 247,368,572
(2) Effect of issuance of shares
from assumed exercise of
stock options
(treasury stock method) . . . . . . . . . 18,885 (9,266) (15,577) (24,190)
------------ ------------ ------------ ------------
(3) Weighted average shares . . . . . . . . . 248,674,946 247,529,232 248,545,499 247,344,382
============ ============ ============ ============
(4) Net income . . . . . . . . . . . . . . . $ 145,334 $ 133,260 $ 128,594 $ 247,716
(5) Primary earnings per share
(line 4/line 3) . . . . . . . . . . . . . $ 0.58 $ 0.54 $ 0.52 $ 1.00
Fully Diluted Earnings Per Share:
(6) Weighted average shares per
computation on line 3 above . . . . . . . 248,674,946 247,529,232 248,545,499 247,344,382
(7) Shares applicable to options
included on line 2 above . . . . . . . . (18,885) 9,266 15,577 24,190
(8) Dilutive effect of stock
options based on the average
price for the period or period-
end price, whichever is higher,
of $24.63 and $21.06 for the
second quarter of 1996 and 1995,
respectively, and $24.63 and
$21.06 for the first six months
of 1996 and 1995, respectively.
(treasury stock method) . . . . . . . . . 58,282 (2,728) 58,283 (2,728)
------------ ------------ ------------ ------------
(9) Weighted average shares . . . . . . . . . 248,714,343 247,535,770 248,619,359 247,365,844
============ ============ ============ ============
(10) Net income . . . . . . . . . . . . . . . $ 145,334 $ 133,260 $ 128,594 $ 247,716
(11) Fully diluted earnings per
share (line 10/line 9) . . . . . . . . . $ 0.58 $ 0.54 $ 0.52 $ 1.00
</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% dilutive test.
The calculations for the quarters and six months ended June 30, 1996 and 1995
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.
<PAGE> 1
EXHIBIT 12
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six Twelve
Months Ended Months Ended
June 30, 1996 June 30, 1996
------------------ ------------------
<S> <C> <C>
Fixed Charges as Defined:
(1) Interest on Long-Term Debt . . . . . . . . . . . $ 140,252 $ 290,485
(2) Other Interest . . . . . . . . . . . . . . . . . 11,049 13,957
(3) Preferred Dividends Factor
of Subsidiary . . . . . . . . . . . . . . . 17,559 38,198
(4) Interest Component of Rentals
Charged to Operating Expense . . . . . . . . 591 1,768
------------------ ------------------
(5) Total Fixed Charges . . . . . . . . . . . . . . $ 169,451 $ 344,408
================== ==================
Earnings as Defined:
(6) Income from Continuing
Operations . . . . . . . . . . . . . . . . $ 128,594 $ 368,885
(7) Income Taxes for Continuing
Operations . . . . . . . . . . . . . . . . . 60,589 184,008
(8) Fixed Charges (line 5) . . . . . . . . . . . . . 169,451 344,408
------------------ ------------------
(9) Income from Continuing Operations
Before Income Taxes and
Fixed Charges . . . . . . . . . . . . . . . $ 358,634 $ 897,301
================== ==================
Preferred Dividends Factor of
Subsidiary:
(10) Preferred Stock Dividends of
Subsidiary . . . . . . . . . . . . . . . . . $ 11,945 $ 25,465
(11) Ratio of Pre-Tax Income from
Continuing Operations to Income
from Continuing Operations
(line 6 plus line 7 divided
by line 6) . . . . . . . . . . . . . . . . . 1.47 1.50
------------------ ------------------
(12) Preferred Dividends Factor of
Subsidiary (line 10 times
line 11) . . . . . . . . . . . . . . . . . . $ 17,559 $ 38,198
================== ==================
Ratio of Earnings to Fixed Charges
(line 9 divided by line 5) . . . . . . . . . . . . . . 2.12 2.61
</TABLE>
<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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 8,687,303
<OTHER-PROPERTY-AND-INVEST> 1,621,930
<TOTAL-CURRENT-ASSETS> 332,770
<TOTAL-DEFERRED-CHARGES> 1,532,783
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 12,174,786
<COMMON> 2,155,504
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,896,173
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,051,677
0
351,345
<LONG-TERM-DEBT-NET> 3,059,406
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 2,544
<COMMERCIAL-PAPER-OBLIGATIONS> 829,592
<LONG-TERM-DEBT-CURRENT-PORT> 390,130
25,700
<CAPITAL-LEASE-OBLIGATIONS> 2,875
<LEASES-CURRENT> 3,627
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,457,890
<TOT-CAPITALIZATION-AND-LIAB> 12,174,786
<GROSS-OPERATING-REVENUE> 1,938,184
<INCOME-TAX-EXPENSE> 60,589
<OTHER-OPERATING-EXPENSES> 1,514,437
<TOTAL-OPERATING-EXPENSES> 1,514,437
<OPERATING-INCOME-LOSS> 423,747
<OTHER-INCOME-NET> (72,675)
<INCOME-BEFORE-INTEREST-EXPEN> 351,072
<TOTAL-INTEREST-EXPENSE> 149,944
<NET-INCOME> 140,539
11,945
<EARNINGS-AVAILABLE-FOR-COMM> 128,594
<COMMON-STOCK-DIVIDENDS> 186,093
<TOTAL-INTEREST-ON-BONDS> 112,430
<CASH-FLOW-OPERATIONS> 275,598
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
<PAGE> 1
EXHIBIT 99(a)
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(B) SYSTEM OF ACCOUNTS AND EFFECTS OF REGULATION. HL&P, the principal
subsidiary of the Company, maintains its accounting records in
accordance with the FERC Uniform System of Accounts. HL&P's
accounting practices are subject to regulation by the Utility
Commission, which has adopted the FERC Uniform System of Accounts.
As a result of its regulated status, HL&P follows the accounting
policies set forth in SFAS No. 71, "Accounting for the Effects of
Certain Types of Regulation," which allows a utility with cost-based
rates to defer certain costs in concert with rate recovery that would
otherwise be expensed. In accordance with this statement, HL&P 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 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. The
following is a list of significant regulatory assets and liabilities
reflected on the Company's Consolidated and HL&P's Balance Sheets:
<TABLE>
<CAPTION>
December 31, 1995
---------------------
(Millions of Dollars)
<S> <C>
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . $613
Malakoff investment . . . . . . . . . . . . . . . . . . . . . . . . . 233
Regulatory tax asset - net . . . . . . . . . . . . . . . . . . . . . . 229
Unamortized loss on reacquired debt . . . . . . . . . . . . . . . . . 121
Deferred debits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Unamortized investment tax credit. . . . . . . . . . . . . . . . . . . (392)
Accumulated deferred income taxes - regulatory tax asset . . . . . . . (80)
</TABLE>
If as a result of changes in regulation or competition, HL&P's ability
to recover these assets and/or liabilities would not be assured, then
pursuant to SFAS No. 71 and to the extent that such regulatory assets
or liabilities ultimately were determined not to be recoverable, HL&P
would be required to write off or write down such assets or
liabilities.
57
<PAGE> 2
(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 costs associated with the project. As of December 31, 1995,
HL&P's investment in the South Texas Project and in nuclear fuel,
including AFUDC, was $2.0 billion (net of $439 million plant
accumulated depreciation) and $75.1 million (net of $142 million
nuclear fuel amortization), respectively.
(B) REGULATORY PROCEEDINGS AND LITIGATION. Between June 1993 and February
1995, the South Texas Project was listed on the United States Nuclear
Regulatory Commission's (NRC) "watch list" of plants with weaknesses
that warrant increased NRC regulatory attention. In February 1995,
the NRC removed the South Texas Project from its "watch list."
59
<PAGE> 3
In February 1994, the City of Austin (Austin), one of the four
co-owners of the South Texas Project, filed suit against HL&P
(Austin Litigation). Trial of that suit, which began in March 1996
is pending in the 11th District Court of Harris County, Texas.
Austin alleges that the outages at the South Texas 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 on behalf of the co-
owners under the terms of the NRC Operating Licenses and Technical
Specifications relating to the South Texas Project.
Under amended pleadings in the Austin Litigation, Austin claims it
suffered damages of at least $120 million due to increased operating
and maintenance costs, the cost of replacement power and lost profits
on wholesale transactions that did not occur. Although HL&P and the
Company do not believe there is merit to Austin's claims, no assurance
can be given as to the ultimate outcome of this matter.
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. Although San Antonio has not specified the damages sought in
its complaint, expert reports filed in the litigation have indicated
that San Antonio's claims may be in excess of $228 million. On
February 29,1996, San Antonio announced that it was taking a nonsuit
on its claims in the Austin Litigation in order to pursue settlement
discussions with HL&P concerning those claims, as well as separate
claims for unspecified damages previously asserted by San Antonio
against HL&P with respect to the construction of the South Texas
Project, which construction claims are the subject of a request for
arbitration under the Participation Agreement. In order to preserve
its litigation claims pending the outcome of settlement negotiations,
San Antonio refiled its lawsuit in the 152nd District Court of Harris
County, Texas. While neither the Company nor HL&P believes there is
merit to San Antonio's claims either in the pending litigation or in
the arbitration proceeding, there can be no assurance as to the
ultimate outcome of those matters, nor can there be an assurance as to
the ultimate outcome of the settlement discussions. If a settlement
is reached, it is possible, among other things, that such resolution
could require in the near term a charge to earnings from continuing
operations, but it is not anticipated that any such resolution would
be material to the Company's or HL&P's financial position, liquidity
or ability to meet their respective cash requirements stemming from
operating, capital expenditures and financing activities.
(C) 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 $2.75 billion in property damage insurance
coverage which is above the legally required minimum, but is less than
the total amount of insurance currently available for such losses.
This coverage consists 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
in November 1995), HL&P and the other owners of the South Texas
Project are subject to assessments, the maximum aggregate assessment
under current policies being $25.8 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 $8.92 billion as of December 1995. 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
60
<PAGE> 4
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
and results of operations.
(D) NUCLEAR DECOMMISSIONING. In accordance with the Rate Case Settlement,
HL&P contributes $14.8 million per year to a trust established to fund
HL&P's share of the decommissioning costs for the South Texas Project.
For a discussion of securities held in the Company's nuclear
decommissioning trust, see Note 1(j). In May 1994, an outside
consultant estimated HL&P's portion of decommissioning costs to be
approximately $318 million (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. 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. Such costs may vary
because of changes in the assumed date of decommissioning, changes in
regulatory and accounting requirements, changes in technology and
changes in costs of labor, materials and equipment.
(3) RATE MATTERS
The Utility Commission has original (or in some cases appellate)
jurisdiction over HL&P's electric rates and services. 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. In the event
that the courts ultimately reverse actions of the Utility Commission,
such matters are remanded to the Utility Commission for action in
light of the courts' orders. On remand, the Utility Commission's
action could range from granting rate relief substantially equal to
the rates previously approved to reducing 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.
(A) 1995 RATE CASE. In August 1995, the Utility Commission unanimously
approved the Rate Case Settlement, which resolved HL&P's 1995 rate
case (Docket No. 12065) as well as a separate proceeding (Docket No.
13126) regarding the prudence of operation of the South Texas Project.
Subject to certain changes in existing regulation or legislation, the
Rate Case Settlement precludes HL&P from seeking rate increases until
after December 31, 1997. HL&P began recording the effects of the Rate
Case Settlement in the first quarter of 1995. The Rate Case Settlement
reduced HL&P's earnings for 1995 by approximately $100 million.
61
<PAGE> 5
The after-tax effects in 1995 of the Rate Case Settlement are as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
-----------------
(Millions of Dollars)
<S> <C>
Reduction in base revenues . . . . . . . . . . . . . . . . . . . $ 52
South Texas Project write-down . . . . . . . . . . . . . . . . . 33
One-time write-off of mine-related costs . . . . . . . . . . . . 6
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . 9
----
Total Rate Case Settlement effect on net income . . . . $100
====
</TABLE>
The Rate Case Settlement gives HL&P the option to write down up to $50
million ($33 million after-tax) per year of its investment in the
South Texas Project through December 31, 1999. The parties to the
Rate Case Settlement agreed that any such write-down will be treated
as a reasonable and necessary expense during routine reviews of HL&P's
earnings and any rate review proceeding initiated against HL&P. In
accordance with the Rate Case Settlement, HL&P recorded a $50 million
pre-tax write-down in 1995 of its investment in the South Texas
Project which is included in the Company's Statements of Consolidated
Income and HL&P's Statements of Income in depreciation and
amortization expense. In 1995, HL&P also began accruing its share of
decommissioning expense for the South Texas Project at an annual rate
of $14.8 million (a $9 million per year increase over 1994).
As required by the Rate Case Settlement, HL&P will begin in 1996 to
amortize its $153 million investment in certain lignite reserves
associated with the canceled Malakoff project. These amortizations
will equal approximately $22 million per year. As a result of this
additional amortization, HL&P's remaining investment in Malakoff
($233 million at December 31, 1995) will be fully amortized no later
than December 31, 2002. During the second quarter of 1995, HL&P
recorded a one-time pre-tax charge of $9 million incurred in
connection with certain Malakoff mine-related costs that were not
previously recorded and were not recoverable under the terms of the
Rate Case Settlement. Issues concerning the prudence of expenditures
related to Malakoff were deferred until a subsequent rate case.
In Docket No. 8425, the Utility Commission allowed recovery of certain
costs associated with Malakoff by allowing HL&P to amortize these
costs over ten years. Such recoverable costs are not included in rate
base and, as a result, no return on investment is being earned during
the recovery period. The $28 million unamortized balance of these
costs at December 31, 1995 is included in the $233 million discussed
above and is to be amortized over the following 54 months.
In anticipation of the Rate Case Settlement, the Company and HL&P
recorded in the fourth quarter of 1994 a one-time, pre-tax charge of
approximately $70 million to reconcilable fuel revenues, an amount
which HL&P agreed as a part of the Rate Case Settlement was not
recoverable from ratepayers.
(B) RATE CASE APPEALS. Pursuant to the Rate Case Settlement, HL&P and the
other parties to that settlement have dismissed their pending appeals
of previous Utility Commission orders. As a result of that action or
subsequent judicial action, the Utility Commission's orders have
become final in Docket No. 9850 (involving HL&P's 1991 rate case) and
in Docket Nos. 8230 and 9010 (involving deferred accounting). Two
appeals of other orders, by parties who did not join in the Rate Case
Settlement, remain pending: review of Docket No. 8425 (HL&P's 1988
rate case), and review of Docket No. 6668 (the Utility Commission's
inquiry into the prudence of the planning and construction of the
South Texas Project). The appeal from the order in Docket No. 8425
concerns (i) the treatment as "plant held for future use" of certain
costs associated with the Malakoff
62
<PAGE> 6
generating station and (ii) the treatment by HL&P of certain tax
savings associated with federal income tax deductions for expenses not
included in cost of service for ratemaking purposes. The appeal is
currently pending before the Texas Supreme Court.
Review of the Utility Commission's order in Docket No. 6668 is pending
before a Travis County district court. In that order the Utility
Commission determined that $375.5 million of HL&P's $2.8 billion
investment in the South Texas Project had been imprudently incurred.
That ruling was incorporated into HL&P's 1988 and 1991 rate cases.
Unless the order is modified or reversed on appeal, the amount found
imprudent by the Utility Commission will be sustained.
(4) INVESTMENTS IN FOREIGN AND NON-REGULATED ENTITIES
(A) GENERAL. HI Energy sustained net losses of $33 million, $6 million
and $2 million in 1995, 1994 and 1993, respectively. Development
costs for 1995 were approximately $14 million. The majority of costs
in 1994 and 1993 were related to project development activities.
(B) FOREIGN INVESTMENTS. Houston Argentina S.A. (Houston Argentina),
a subsidiary of HI Energy, owns a 32.5 percent interest in
Compania de Inversiones en Electricidad S.A. (COINELEC), an Argentine
holding company which acquired a 51 percent interest in Empresa
Distribuidora de La Plata S.A. (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. Such investment was in the form of (i) a capital
contribution of $27.6 million to COINELEC and (ii) a loan to COINELEC
in the aggregate principal amount of $9.8 million. HI Energy has also
entered into support agreements with two financial institutions
pursuant to which HI Energy has agreed to make additional cash
contributions or subordinated loans to COINELEC or pay COINELEC's
lenders up to a maximum aggregate of $6.6 million in the event of a
default by COINELEC of its commitments to such financial institutions.
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. HI Energy's
portion of EDELAP and Central Dique S.A. earnings was approximately $1
million in both 1995 and 1994.
In January 1995, HI Energy acquired for $15.7 million a 90 percent
ownership interest in an electric utility operating company located in
a rural province in the north central part of Argentina. The utility
system serves approximately 116,000 customers in an area of 136,000
square kilometers. HI Energy's share of net losses from this
investment for 1995 was $3.6 million substantially all of which was
due to non-recurring severance costs.
In 1995, HI Energy invested approximately $7 million in a cogeneration
project being developed in San Nicolas, Argentina and approximately $5
million in a coke calcining project being developed in the state of
Andhra Pradesh, India. These projects had no earnings impact in 1995.
HI Energy estimates that its commitment in 1996 for the Argentine
cogeneration project will be approximately $31 million and that its
share of the 1996 commitment for the coke calcining project will be
approximately $3 million. HI Energy has entered into a support
agreement in favor of the International Finance Corporation (IFC)
under the terms of which HI Energy has agreed to provide one of its
subsidiaries (HIE Rain), which is an investor in the coke calcining
project, with sufficient funds to meet certain funding obligations of
HIE Rain under agreements with the IFC. The maximum aggregate funding
commitment of HI Energy under this support agreement is approximately
$18 million, of which approximately $16 million is to support
contingent obligations of HIE Rain and the balance of which is
additional equity to be contributed to the coke calcining project.
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(C) ILLINOIS WASTE TIRE-TO-ENERGY PROJECTS. HI Energy is a subordinated
lender to two waste tire-to-energy projects being developed by Ford
Heights and Fulton, respectively, located in the state of Illinois. HI
Energy also owns a $400,000 equity interest (20 percent) in Ford
Heights. Both projects were being developed in reliance on the terms of
the Illinois Retail Rate Law, enacted in 1987, to encourage development
of energy production facilities for the disposal of solid waste by
providing an operating subsidy to qualifying projects. In March 1996,
the Governor of Illinois signed into law legislation which purports to
repeal the subsidy provided to most of such energy production
facilities, including the two waste tire-to-energy projects in which HI
Energy has invested. A lawsuit has been filed on behalf of the Ford
Heights and Fulton projects challenging, among other things, the
constitutionality of the repeal and its retroactive application to the
two waste tire-to-energy projects. On March 26, 1996, the Ford Heights
project filed a voluntary petition seeking protection under the federal
bankruptcy laws. The ability of the two waste tire-to-energy projects
to meet their debt obligations is dependent upon the projects
continuing to receive the operating subsidy under the Retail Rate Law.
The terms of the public bonds issued by the Ford Heights and Fulton
projects are non-recourse to the Company and HI Energy.
In response to the actions taken by the state of Illinois, the Company
has established a valuation allowance of $28 million ($18 million
after-tax), which amount reflects the combined amounts lent on a
subordinated basis to the Ford Heights and Fulton projects. In
addition to amounts funded through March 26, 1996, HI Energy also is
party to two separate Note Purchase Agreements committing it, under
certain circumstances, to acquire up to (i) $3 million in aggregate
principal amount of additional subordinated notes from the Ford Heights
project and (ii) $17 million in aggregate principal amount of
additional subordinated notes from the Fulton project. The Company has
entered into a support agreement under which it has agreed to provide
additional funds to HI Energy to enable it to honor its obligations
under the two Note Purchase Agreements. The Company is unable to
predict the ultimate effect of these developments on HI Energy's
remaining funding commitments under these Note Purchase Agreements;
however, in the Company's opinion it is unlikely that the majority of
the additional unfunded subordinated debt provided for in the Fulton
Note Purchase Agreement would be required to be funded unless
construction activities with respect to the Fulton project are
recommenced at some future date. If HI Energy becomes obligated to
advance additional funds under the Note Purchase Agreements, the
Company could be required to increase the amount of the valuation
allowance, which would result in additional charges to earnings.
64
<PAGE> 8
(11) COMMITMENTS AND CONTINGENCIES
(a) HL&P COMMITMENTS. 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.
(b) FUEL AND PURCHASED POWER. HL&P is a party to several long-term coal,
lignite and natural gas contracts which have various quantity
requirements and durations. Minimum payment obligations for coal and
transportation agreements are approximately $175 million in 1996, $178
million in 1997 and $184 million in 1998. Additionally, minimum
payment obligations for lignite mining and lease agreements are
approximately $5 million for 1996, $8 million for 1997 and $9 million
for 1998. Collectively, the fixed price gas supply contracts, which
expire in 1997, could amount to 11 percent of HL&P's annual natural
gas requirements for 1996 and 7 percent for 1997. Minimum payment
obligations for both natural gas purchase and storage contracts are
approximately $57 million in 1996, $38 million in 1997 and $9 million
in 1998.
HL&P also has commitments to purchase firm capacity from cogenerators
of approximately $22 million in each of the years 1996 through 1998.
Utility Commission rules currently allow recovery of these costs
through HL&P's base rates for electric service and additionally
authorize HL&P to charge or credit customers through a purchased power
cost recovery factor for any variation in actual purchased power costs
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.
73
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(c) OTHER. HL&P's service area is heavily dependent on oil, gas, refined
products, petrochemicals and related businesses. Significant adverse
events affecting these industries would negatively affect the
revenues of the Company and HL&P. For information regarding
contingencies relating to the South Texas Project, see Note 2 above.
The Company and HL&P are involved in legal, tax and regulatory
proceedings before various courts, regulatory commissions and
governmental agencies regarding matters arising in the ordinary course
of business, some of which involve substantial amounts.
74
<PAGE> 1
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AND
HOUSTON LIGHTING & POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL
The interim financial statements and notes (Interim Financial
Statements) contained in this Form 10-Q for the period ended
March 31, 1996 (Form 10-Q) are unaudited and condensed. Certain
notes and other information contained in the Combined Annual
Report on Form 10-K (File Nos. 1-7629 and 1-3187) for the year
ended December 31, 1995 (Form 10-K), of Houston Industries
Incorporated (Company) and Houston Lighting & Power Company
(HL&P) have been omitted in accordance with Rule 10-01 of
Regulation S-X under the Securities Exchange Act of 1934. The
information presented in the Interim Financial Statements should
be read in combination with the information presented in the
Form 10-K, including the financial statements and notes
contained therein. For information regarding the Company's
discontinued cable television operations, see Note 13 to the
financial statements contained in the Form 10-K.
(2) CERTAIN CONTINGENCIES
The following notes to the financial statements of the Form 10-K
(as updated by the notes contained in this Form 10-Q) are
incorporated herein by reference: Note 1(b) (System of Accounts
and Effects of Regulation), Note 2 (Jointly-Owned Nuclear
Plant), Note 3 (Rate Matters), Note 4 (Investments in Foreign
and Non-Regulated Entities) and Note 11 (Commitments and
Contingencies).
(3) JOINTLY-OWNED NUCLEAR PLANT
HL&P is the project manager (and one of four co-owners) of the
South Texas Project Electric Generating Station (South Texas
Project), which consists of two 1,250 megawatt nuclear
generating units. HL&P has a 30.8 percent interest in the
project.
On April 30, 1996, HL&P and the City of Austin (Austin), one of
the four co-owners of the South Texas Project, agreed to settle
a lawsuit in which Austin had alleged that outages occurring at
the South Texas Project between early 1993 and early 1994 were
due to HL&P's failure to perform certain obligations it owed
Austin under a Participation Agreement relating to the project.
For information regarding this settlement and a $13 million
(after-tax) charge to first quarter earnings resulting from the
settlement, see Note 7(a) to the Interim Financial Statements.
For information concerning a similar lawsuit filed against HL&P
by the City of San Antonio (San Antonio), another co-owner of
the South Texas Project, and San Antonio's pending arbitration
claims against HL&P with respect to the construction of the
South Texas Project, see Note 2(b) to the financial statements
contained in the Form 10-K. HL&P and San Antonio (acting
through the City Public Service Board of San Antonio (CPS)) have
agreed on the principles under which they would settle all
claims with respect to the South Texas Project. For information
regarding the proposed settlement and a $49 million (after-tax)
charge to first quarter earnings relating thereto, see Note 7(a)
to the Interim Financial Statements.
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<PAGE> 2
(4) RATE CASE PROCEEDINGS
For information concerning the settlement of HL&P's most recent
rate case (Docket No. 12065) and the continuing impact of that
settlement on HL&P's results of operations, see Note 3(a) to the
financial statements contained in the Form 10-K. The two Public
Utility Commission of Texas (Utility Commission) orders
concerning HL&P that are still subject to appellate review are:
Docket No. 8425 (HL&P's 1988 rate case) and Docket No. 6668 (an
inquiry into the prudence of the planning and construction of
the South Texas Project). For information regarding these
appeals, see Note 3(b) to the financial statements contained in
the Form 10-K.
(5) CAPITAL STOCK
Company. At March 31, 1996 and December 31, 1995, the Company
had 400,000,000 authorized shares of common stock, of which
248,556,370 and 248,316,710 shares, respectively, were
outstanding as of such dates. Outstanding shares exclude the
unallocated shares of the Company's Employee Stock Ownership
Plan, which as of March 31, 1996 and December 31, 1995 totaled
14,186,577 and 14,355,758, respectively. 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.
HL&P. All issued and outstanding shares of Class A voting
common stock of HL&P are held by the Company, and all issued and
outstanding shares of Class B non-voting common stock of HL&P
are held by Houston Industries (Delaware) Incorporated (HI
Delaware), a wholly owned subsidiary of the Company. Earnings
per share data for HL&P are not computed because all of its
common stock is held by the Company and HI Delaware.
On March 31, 1996 and December 31, 1995, HL&P had 10,000,000
authorized shares of preferred stock, of which 4,318,397 shares
were outstanding.
(6) LONG-TERM DEBT
HL&P. In January 1996, HL&P repaid upon maturity $100 million
principal amount of its Collateralized Medium-Term Notes Series
B and $10 million principal amount of its Collateralized
Medium-Term Notes Series A plus accrued interest on the two
issues.
In March 1996, HL&P deposited approximately $86 million in a
trust and irrevocably directed the trustee to redeem on May 8,
1996 all issued and outstanding principal amounts of HL&P's
7 1/4% first mortgage bonds due February 1, 2001 (at a redemption
price of 100.42% plus accrued interest) and 6 3/4% first
mortgage bonds due April 1, 1998 (at a redemption price of
100.15% plus accrued interest).
(7) SUBSEQUENT EVENTS
(a) South Texas Project Litigation. On April 30, 1996,
Houston Lighting & Power Company entered into a settlement
with Austin regarding City of Austin v. Houston Lighting &
Power Company, Cause No. 94-07946, in the 11th Judicial
District Court, Harris County, Texas. In that suit, filed
by Austin in May 1994, Austin asserted that HL&P had
mismanaged its responsibilities as Project Manager of the
South Texas Project. Austin contended that, because of
HL&P's mismanagement and negligence, the outage at the
South Texas Project during 1993-94 had caused Austin
damages of approximately $120 million.
Trial of Austin's suit began in March 1996, and the
settlement was reached in April 1996. Under the
settlement, HL&P agreed to pay Austin $20 million in cash
to resolve all pending disputes between HL&P and Austin,
and Austin agreed to
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<PAGE> 3
support the formation of a new operating company to
assume HL&P's role as project manager for the South Texas
Project. The Company and HL&P have recorded the $20
million ($13 million net of tax) payment to Austin on the
Company's Statements of Consolidated Income and HL&P's
Statements of Income as litigation settlements expense.
HL&P and CPS have agreed on the principles under which they
would settle all claims with respect to the South Texas
Project. Under the proposed settlement, HL&P and CPS would
enter into definitive agreements providing, among other
things, for (i) a cash payment by HL&P to CPS of $75
million ($25 million of which has already been paid), (ii)
an agreement to support formation of a new operating
company to replace HL&P as project manager of the South
Texas Project and (iii) the execution of a 10-year joint
operations agreement under which HL&P and CPS will share
savings resulting from the joint dispatching of their
respective generating assets in order to take advantage of
each system's lower cost resources. Under the terms of the
joint operations agreement, CPS will be guaranteed minimum
annual savings of $10 million with a minimum cumulative
savings of $150 million over the ten year term of the
agreement. Based on current forecasts and other assumptions
regarding the combined operation of the two generating
systems, HL&P anticipates that the savings resulting from
joint operations will equal or exceed the minimum savings
guaranteed under the joint operations agreement.
Although no assurance can be given as to the ultimate
resolution of negotiations, the proposed settlement will
resolve all claims, litigation and matters in arbitration
between the two parties with respect to the South Texas
Project. The proposed settlement has been reviewed by San
Antonio's city council but is still subject to approval by
CPS. In anticipation of the settlement, the Company and
HL&P have recorded a $49 million expense (net of tax) on
the Company's Statement of Consolidated Income and HL&P's
Statements of Income (reflected as litigation settlement
expense). The unpaid portion of the cash payment
contemplated by the settlement is shown in other deferred
credits on the Company's Consolidated and HL&P's Balance
Sheets.
(b) HI Energy. In May 1996, a subsidiary of Houston
Industries Energy, Inc. (HI Energy) purchased for
approximately $55 million an additional 39 percent of the
capital stock of Empresa Distribuidora la Plata (EDELAP),
an electric utility company operating in La Plata,
Argentina and surrounding regions. HI Energy also
indirectly owns 16.6 percent of the capital stock of
EDELAP, which shares were acquired in December 1992 for
$37 million. For additional information regarding HI
Energy's investments in foreign and non-regulated
entities, see Note 4 to the financial statements contained
in the Form 10-K. Beginning in the second quarter of
1996, EDELAP will be reflected in the Company's financial
statements on a consolidated basis.
(c) Redemption of HL&P Preferred Stock. In March 1996, HL&P
provided notice to the holders of its $9.375 preferred
stock that it would redeem 514,000 shares of such stock at
a cost of approximately $53 million ($102.34375 per share
including accrued dividends). On April 1, 1996, HL&P
redeemed 257,000 of such shares pursuant to a sinking fund
requirement and 257,000 shares pursuant to optional
redemption provisions. HL&P will record the redemptions
in the second quarter of 1996.
(8) INTERIM PERIOD RESULTS: RECLASSIFICATIONS
The results of interim periods are not necessarily indicative of
results expected for the year due to the seasonal nature of
HL&P's business. In the opinion of management, the interim
information reflects all adjustments (consisting only of normal
recurring adjustments) necessary for a full presentation of the
results for the interim periods. Certain amounts from the
previous year have been reclassified to conform to the 1996
presentation of financial statements. Such reclassifications do
not affect earnings.
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<PAGE> 1
EXHIBIT 99e
HOUSTON INDUSTRIES INCORPORATED
SAVINGS PLAN
(As Amended and Restated Effective July 1, 1995)
Second Amendment
The Benefits Committee of Houston Industries Incorporated,
having reserved the right under Section 10.3 of the Houston Industries
Incorporated Savings Plan, as amended and restated effective July 1, 1995 and
thereafter amended (the "Plan"), to amend the Plan, does hereby amend the Plan
as follows, effective August 1, 1996:
1. Section 6.2 of the Plan is hereby amended in its
entirety as follows:
"6.2 Disability of Participants: If a Participant
satisfies the definition of 'Disability' under the Company's long-term
disability plan and commences to receive disability benefits
thereunder, such Participant shall become entitled to receive the
entire interest in his Pre-Tax Contribution Account, his After-Tax
Contribution Account, his Employer Matching Account and his ESOP
Account. The determination of whether a Participant has become
'Disabled' under the Company's long-term disability plan by such
disability plan's administrator shall be final and binding on all
parties concerned."
2. The fourth paragraph of Section 8.1 of the Plan is
hereby amended by deleting the second sentence therefrom.
IN WITNESS WHEREOF, the Benefits Committee of Houston
Industries Incorporated has caused these presents to be executed by its duly
authorized Chairman in a number of copies, all of which shall constitute one
and the same instrument, which may be sufficiently
<PAGE> 2
evidenced by any executed copy hereof, this 31st day of July, 1996, but
effective as of August 1, 1996.
BENEFITS COMMITTEE OF HOUSTON
INDUSTRIES INCORPORATED
By /s/ D. D. Sykora
--------------------------------
D. D. Sykora, Chairman
ATTEST:
/s/ Elizabeth P. Weylandt
- --------------------------------------
Elizabeth P. Weylandt,
Secretary of the Benefits Committee
<PAGE> 1
EXHIBIT 3
AMENDED AND RESTATED BYLAWS
OF
HOUSTON LIGHTING & POWER COMPANY
(Adopted by Resolution of the
Board of Directors on
June 5, 1996)
ARTICLE I
CAPITAL STOCK
Section 1. Share Ownership. Shares for the capital stock of the
Company may be certificated or uncertificated. Owners of shares of the capital
stock of the Company shall be recorded in the share transfer records of the
Company and ownership of such shares shall be evidenced by a certificate or
book entry notation in the share transfer records of the Company. Any
certificates representing such shares shall be signed by the Chairman of the
Board, if there is one, the Chief Executive Officer, if there is one, the
President or a Vice President and either the Secretary or an Assistant
Secretary and shall be sealed with the seal of the Company, which signatures
and seal 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 may be its own transfer agent if so
appointed by the Board of Directors. 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 capital stock of
the Company shall be transferable in the share transfer records of the Company
by the holder of record thereof, or his duly authorized attorney or legal
representative. All certificates representing shares surrendered for transfer,
properly endorsed, shall be cancelled and new certificates for a like number of
shares shall
<PAGE> 2
be issued therefor. In the case of lost, destroyed or mutilated certificates
representing shares for which the Company has been requested to issue new
certificates, new certificates or other evidence of such new shares may be
issued upon such conditions as may be required by the Board of Directors or the
Secretary for the protection of the Company and any transfer agent or
registrar. Uncertificated shares shall be transferred in the share transfer
records of the Company upon the written instruction originated by the
appropriate person to transfer the shares.
Section 4. Shareholders of Record and Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive a
distribution by the Company (other than a distribution involving a purchase or
redemption by the Company of any of its own shares) or a share dividend, or in
order to make a determination of shareholders for any other proper purpose
(other than determining shareholders entitled to consent to action by
shareholders proposed to be taken without a meeting of shareholders), the Board
of Directors may provide that the share transfer records shall be closed for a
stated period of not more than sixty days, and in the case of a meeting of
shareholders not less than ten days, immediately preceding the meeting, or it
may fix in advance a record date for any such determination of shareholders,
such date to be not more than sixty days, and in the case of a meeting of
shareholders not less than ten days, prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If the
share transfer records 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, or shareholders entitled to receive a distribution (other than a
distribution involving a purchase or redemption by the Company of any of its
own shares) or a share dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board of Directors declaring
such distribution or share dividend is adopted, as the case may be, 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 share
transfer records and the stated period of closing has expired.
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 and at such time as shall be designated from time to
time by the Board of Directors or as may otherwise be stated in the notice of
the meeting. Failure to designate a time for the annual meeting or to hold the
annual meeting at the designated time shall not work a dissolution of the
Company.
page 2 of 14
<PAGE> 3
Section 3. Special Meetings. Special meetings of the shareholders
may be called by the Chairman of the Board, if there is one, the Chief
Executive Officer, if there is one, 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 of the Company.
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 not less than ten nor more than sixty days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman
of the Board, if there is one, the Chief Executive Officer, if there is one,
the President, the Secretary or the officer or person calling the meeting to
each shareholder of record entitled to vote at such meetings. 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 share transfer
records of the Company, with postage thereon prepaid.
Any notice required to be given to any shareholder, under any
provision of the Texas Business Corporation Act, as amended (TBCA), the
Articles of Incorporation of the Company or these Bylaws, need not be given to
a shareholder if notice of two consecutive annual meetings and all notices of
meetings held during the period between those annual meetings, if any, or all
(but in no event less than two) payments (if sent by first class mail) of
distributions or interest on securities during a 12-month period have been
mailed to that person, addressed at his address as shown on the share transfer
records of the Company, and have been returned undeliverable. Any action or
meeting taken or held without notice to such person shall have the same force
and effect as if the notice had been duly given. If such a person delivers to
the Company a written notice setting forth his then-current address, the
requirement that notice be given to that person shall be reinstated.
Section 5. Voting List. The officer or agent having charge of the
share transfer records 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 share transfer records 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 5 shall not affect the validity of any action taken at such meeting.
Section 6. Voting; Proxies. Except as otherwise provided in the
Articles of Incorporation of the Company, or as otherwise provided in the TBCA,
each holder of shares of capital stock of the Company entitled to vote shall be
entitled to one vote for each share standing in his name on the records of the
Company, either in person or by proxy executed in writing by him or by his duly
page 3 of 14
<PAGE> 4
authorized attorney-in-fact. A proxy shall be revocable unless expressly
provided therein to be irrevocable and the proxy is coupled with an interest.
At each election of 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 7. Quorum and Vote of Shareholders. Except as otherwise
provided by law, the Articles of Incorporation of the Company, or these Bylaws,
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. Directors shall be elected by a
plurality of the votes cast by the holders of shares entitled to vote in the
election of directors at a meeting of shareholders at which a quorum is
present. With respect to each matter other than the election of directors as
to which no other voting requirement is specified by law, the Articles of
Incorporation of the Company or in this Section 7 of these Bylaws, the
affirmative vote of the holders of a majority of the shares entitled to vote on
that matter and represented in person or by proxy at a meeting at which a
quorum is present shall be the act of the shareholders.
Section 8. Presiding Officer and Conduct of Meetings. The Chairman
of the Board, if there is one, or in his absence, the Chief Executive Officer,
if there is one, or in his absence, the President shall preside at all meetings
of the shareholders or, if such officers are not present at a meeting, by such
other person as the Board of Directors shall designate or if no such person is
designated by the Board of Directors, the most senior officer of the Company
present at the meeting. The Secretary of the Company, if present, shall act as
secretary of each meeting of shareholders; if he is not present at a meeting,
then such person as may be designated by the presiding officer shall act as
secretary of the meeting. Meetings of shareholders shall follow reasonable and
fair procedure. Subject to the foregoing, the conduct of any meeting of
shareholders and the determination of procedure and rules shall be within the
absolute discretion of the officer presiding at such meeting (Chairman of the
Meeting), and there shall be no appeal from any ruling of the Chairman of the
Meeting with respect to procedure or rules. Accordingly, in any meeting of
shareholders or part thereof, the Chairman of the Meeting shall have the sole
power to determine appropriate rules or to dispense with theretofore prevailing
rules.
ARTICLE III
DIRECTORS
Section 1. Number and Tenure; Qualifications. 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
page 4 of 14
<PAGE> 5
time; provided, however, that no such decrease shall have the effect of
shortening the term of any incumbent director. Except as otherwise provided
herein, 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 shareholders occurring on or after the
first day of the month immediately following such person's seventieth birthday
and the term of any director who is thereby rendered ineligible to serve as a
director of the Company shall expire at such annual meeting of shareholders.
No person who is also an officer of the Company or its corporate affiliates,
including Houston Industries Incorporated (HI), shall be eligible to serve as a
director upon termination of such person's service as an officer, whether by
reason of retirement, resignation, or otherwise, and the term of any such
director shall simultaneously terminate when that director's service as an
officer terminates.
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.
No person shall be eligible for election or reelection or to continue
to serve as a member of the Board of Directors who is an officer, director,
agent, representative, partner, employee, or nominee of, or otherwise acting at
the direction of, or acting in concert with, (a) a "public-utility company"
(other than the Company) as such term is defined in Section 2(a)(5) of the
Public Utility Holding Company Act of 1935, as in effect on May 1, 1996 (35
Act), or (b) an "affiliate" (as defined in either Section 2(a)(11) of the 35
Act or in Rule 405 under the Securities Act of 1933, as amended), other than
HI, of any such "public-utility company" specified in clause (a) immediately
preceding.
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, or may be filled by
election at an annual or special meeting of the shareholders called for that
purpose; 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 may 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, or may be
filled by election at an annual or special meeting of the shareholders called
for that purpose. 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 Preferred 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
page 5 of 14
<PAGE> 6
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. 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 principal office of the Company.
Section 4. Regular Meetings. The Board of Directors shall meet each
year immediately following the annual meeting of the shareholders for the
transaction of such business as may properly be brought before the meeting.
The Board of Directors shall also meet regularly at such other times as shall
be designated by the Board of Directors. No notice of any kind to either
existing or newly elected 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 Chairman of the Board,
if there is one, the Chief Executive Officer, if there is one, the President or
the Secretary of the Company or a majority of the directors then in office.
Notice shall be sent by mail, facsimile 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 express
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.
page 6 of 14
<PAGE> 7
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 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 or resolutions adopted by a majority of the full Board of
Directors, may designate one or more members of the Board of Directors to
constitute an Executive Committee and one or more other committees, which shall
in each case be comprised of such number of directors as the Board of Directors
may determine from time to time. Subject to such restrictions as may be
contained in the Company's Articles of Incorporation or that may be imposed by
the TBCA, any such committee shall have and may exercise such powers and
authority of the Board of Directors in the management of the business and
affairs of the Company as the Board of Directors may determine by resolution
and specify in the respective resolutions appointing them, or as permitted by
applicable law, including, without limitation, the power and authority to (a)
authorize a distribution, (b) authorize the issuance of shares of the Company
and (c) exercise the authority of the Board of Directors vested in it pursuant
to Article 2.13 of the TBCA or such successor statute as may be in effect from
time to time. Each duly- authorized action taken with respect to a given
matter by any such duly-appointed committee of the Board of Directors shall
have the same force and effect as the action of the full Board of Directors and
shall constitute for all purposes the action of the full Board of Directors
with respect to such matter.
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 cannot be delegated
to a committee thereof 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. The Board of Directors shall name a chairman at the time
it designates members to a committee. Each such committee shall 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.
page 7 of 14
<PAGE> 8
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the Company shall consist of a
President and a Secretary and such other officers as the Board of Directors may
from time to time elect or appoint, which may include, without limitation, a
Chairman of the Board, a Chief Executive Officer, one or more Vice Presidents
(whose seniority and titles, including Executive Vice Presidents, Senior Vice
Presidents and such assistant or subordinate Vice Presidents, may be specified
by the Board of Directors), a Treasurer, one or more Assistant Treasurers, and
one or more Assistant Secretaries. Each officer shall hold office until his
successor shall have been duly elected and shall qualify or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided. Any two or more offices may be held by the same person. Except for
the Chairman of the Board, if any, no officer need be a director.
Section 2. Vacancies; Removal. 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.
Section 3. Powers and Duties of Officers. The officers of the
Company shall have such powers and duties as generally pertain to their offices
as well as such powers and duties as from time to time shall be conferred by
the Board of Directors.
ARTICLE V
INDEMNIFICATION
Section 1. General. The Company shall indemnify and hold harmless
the Indemnitee (as this and all other capitalized words are defined in this
Article or in Article 2.02-1 of the TBCA), to the fullest extent permitted, or
not prohibited, by the TBCA or other applicable law as the same exists or may
hereafter be amended (but in the case of any such amendment, with respect to
Matters occurring before such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than said law
permitted the Company to provide prior to such amendment). The provisions set
forth below in this Article are provided as means of furtherance and
implementation of, and not in limitation on, the obligation expressed in this
Section 1.
Section 2. Advancement or Reimbursement of Expenses. The rights of
the Indemnitee provided under Section 1 of this Article shall include, but not
be limited to, the right to be indemnified
page 8 of 14
<PAGE> 9
and to have Expenses advanced (including the payment of expenses before final
disposition of a Proceeding) in all Proceedings to the fullest extent
permitted, or not prohibited, by the TBCA or other applicable law. If the
Indemnitee is not wholly successful, on the merits or otherwise, in a
Proceeding, but is successful, on the merits or otherwise, as to any Matter in
such Proceeding, the Company shall indemnify the Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf relating to
each Matter. The termination of any Matter in a Proceeding by dismissal, with
or without prejudice, shall be deemed to be a successful result as to such
Matter. In addition, to the extent the Indemnitee is, by reason of his
Corporate Status, a witness or otherwise participates in any Proceeding at a
time when he is not named a defendant or respondent in the Proceeding, he shall
be indemnified against all Expenses actually and reasonably incurred by him or
on his behalf in connection therewith. The Indemnitee shall be advanced
Expenses, within ten days after any request for such advancement, to the
fullest extent permitted, or not prohibited, by Article 2.02-1 of the TBCA;
provided that the Indemnitee has provided to the Company all affirmations,
acknowledgments, representations and undertakings that may be required of the
Indemnitee by Article 2.02-1 of the TBCA.
Section 3. Determination of Request. Upon written request to the
Company by an Indemnitee for indemnification pursuant to these Bylaws, a
determination, if required by applicable law, with respect to an Indemnitee's
entitlement thereto shall be made in accordance with Article 2.02-1 of the
TBCA; provided, however, that notwithstanding the foregoing, if a Change in
Control shall have occurred, such determination shall be made by Special Legal
Counsel selected by the Indemnitee, unless the Indemnitee shall request that
such determination be made in accordance with Article 2.02-1F (1) or (2). The
Company shall pay any and all reasonable fees and expenses of Special Legal
Counsel incurred in connection with any such determination. If a Change in
Control shall have occurred, the Indemnitee shall be presumed (except as
otherwise expressly provided in this Article) to be entitled to indemnification
under this Article upon submission of a request to the Company for
indemnification, and thereafter the Company shall have the burden of proof in
overcoming that presumption in reaching a determination contrary to that
presumption. The presumption shall be used by Special Legal Counsel, or such
other person or persons determining entitlement to indemnification, as a basis
for a determination of entitlement to indemnification unless the Company
provides information sufficient to overcome such presumption by clear and
convincing evidence or the investigation, review and analysis of Special Legal
Counsel or such other person or persons convinces him or them by clear and
convincing evidence that the presumption should not apply.
Section 4. Effect of Certain Proceedings. The termination of any
Proceeding or of any Matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Article) of itself adversely
affect the right of the Indemnitee to indemnification or create a presumption
that (a) the Indemnitee did not conduct himself in good faith and in a manner
which he reasonably believed, in the case of conduct in his official capacity
as a director of the Company, to be in the best interests of the Company, or,
in all other cases, that at least his conduct was not opposed to the Company's
best
page 9 of 14
<PAGE> 10
interests, or (b) with respect to any criminal Proceeding, that the Indemnitee
had reasonable cause to believe that his conduct was unlawful.
Section 5. Expenses of Enforcement of Article. In the event
that an Indemnitee, pursuant to this Article, seeks a judicial adjudication to
enforce his rights under, or to recover damages for breach of, rights created
under or pursuant to this Article, the Indemnitee shall be entitled to recover
from the Company, and shall be indemnified by the Company against, any and all
Expenses actually and reasonably incurred by him in such judicial adjudication
but only if he prevails therein. If it shall be determined in said judicial
adjudication that the Indemnitee is entitled to receive part but not all of the
indemnification or advancement of Expenses sought, the Expenses incurred by
Indemnitee in connection with such judicial adjudication shall be reasonably
prorated in good faith by counsel for the Indemnitee. Notwithstanding the
foregoing, if a Change in Control shall have occurred, the Indemnitee shall be
entitled to indemnification under this Section regardless of whether Indemnitee
ultimately prevails in such judicial adjudication.
Section 6. Nonexclusive Rights. The rights of indemnification and to
receive advancement of Expenses as provided by this Article shall not be deemed
exclusive of any other rights to which the Indemnitee may at any time be
entitled under applicable law, the Articles of Incorporation of the Company,
these Bylaws, agreement, insurance, arrangement, a vote of shareholders or a
resolution of directors, or otherwise. No amendment, alteration or repeal of
this Article or any provision thereof shall be effective as to any Indemnitee
for acts, events and circumstances that occurred, in whole or in part, before
such amendment, alteration or repeal. The provisions of this Article shall
continue as to an Indemnitee whose Corporate Status has ceased and shall inure
to the benefit of his heirs, executors and administrators.
Section 7. Invalidity. If any provision or provisions of this
Article shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Article shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
Section 8. Definitions. For purposes of this Article:
"Change of Control" means a change in control of HI or the
Company occurring after the date of adoption of these Bylaws in any of
the following circumstances: (a) there shall have occurred an event
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A (or in response to any similar item on any similar
schedule or form) promulgated under the Exchange Act, whether or not
HI or the Company, as the case may be, is then subject to such
reporting requirement; (b) any "person" (as such term is used in
Section 13(d) and 14(d) of the Exchange Act), other than a trustee or
other fiduciary holding securities under an employee benefit plan of
HI or the Company or a corporation or other entity owned directly or
indirectly by the shareholders of HI or the Company in substantially
page 10 of 14
<PAGE> 11
the same proportions as their ownership of stock of HI or the Company,
as the case may be, shall have become the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of HI or the Company representing 30% or more of the
combined voting power of HI's or the Company's then- outstanding
voting securities without prior approval of at least two-thirds of the
members of the Board of Directors of HI or the Company, as the case
may be, in office immediately prior to such person attaining such
percentage interest; (c) HI or the Company is a party to a merger,
consolidation, share exchange, sale of assets or other reorganization,
or a proxy contest, as a consequence of which members of the Board of
Directors of HI or the Company, as the case may be, in office
immediately prior to such transaction or event constitute less than a
majority of the respective Board of Directors thereafter; (d) during
any fifteen-month period, individuals who at the beginning of such
period constituted the Board of Directors of HI or the Company
(including for this purpose any new director whose election or
nomination for election by HI's or the Company's shareholders was
approved by a vote of at least two-thirds of the respective directors
then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the
Board of Directors of HI or the Company, as the case may be.
"Corporate Status" means the status of a person who is or was
a director, officer, partner, venturer, proprietor, trustee, employee
(including an employee acting in his Designated Professional
Capacity), or agent or similar functionary of the Company or of any
other foreign or domestic corporation, partnership, joint venture,
sole proprietorship, trust, employee benefit plan or other enterprise
which such person is or was serving in such capacity at the request of
the Company. The Company hereby acknowledges that unless and until
the Company provides the Indemnitee with written notice to the
contrary, the Indemnitee's service as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary
of an Affiliate of the Company shall be conclusively presumed to be at
the Company's request. An Affiliate of the Company shall be deemed to
be (a) any foreign or domestic corporation in which the Company owns
or controls, directly or indirectly, 5% or more of the shares entitled
to be voted in the election of directors of such corporation; (b) any
foreign or domestic partnership, joint venture, proprietorship or
other enterprise in which the Company owns or controls, directly or
indirectly, 5% or more of the revenue interests in such partnership,
joint venture, proprietorship or other enterprise; or (c) any trust or
employee benefit plan the beneficiaries of which include the Company,
any Affiliate of the Company as defined in the foregoing clauses (a)
and (b) or any of the directors, officers, partners, venturers,
proprietors, employees, agents or similar functionaries of the Company
or of such Affiliates of the Company.
"Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness
fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all
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<PAGE> 12
other disbursements or expenses of the types customarily incurred in
connection with prosecuting, defending, preparing to prosecute or
defend, investigating, or being or preparing to be a witness in a
Proceeding.
"Indemnitee" includes any person who is, or is threatened to
be made, a witness in or a party to any Proceeding as described in
Section 1 or 2 of this Article by reason of his Corporate Status.
"Matter" is a claim, a material issue, or a substantial
request for relief.
"Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution proceeding,
investigation, administrative hearing and any other proceeding,
whether civil, criminal, administrative, investigative or other, any
appeal in such action, suit, arbitration, proceeding or hearing, or
any inquiry or investigation, whether conducted by or on behalf of the
Company, a subsidiary of the Company or any other party, formal or
informal, that the Indemnitee in good faith believes might lead to the
institution of any such action, suit, arbitration, proceeding,
investigation or hearing, except one initiated by an Indemnitee
pursuant to Section 5 of this Article.
"Special Legal Counsel" means a law firm, or member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the five years previous to his selection or
appointment has been, retained to represent: (a) HI, the Company or
the Indemnitee in any matter material to either such party; (b) any
other party to the Proceeding giving rise to a claim for
indemnification hereunder; or (c) the beneficial owner, directly or
indirectly, of securities of HI or the Company representing 30% or
more of the combined voting power of the Company's then-outstanding
voting securities. Notwithstanding the foregoing, the term "Special
Legal Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or the
Indemnitee in an action to determine the Indemnitee's rights to
indemnification under these Bylaws.
For the purposes of this Article, an employee acting in his
"Designated Professional Capacity" shall include, but not be limited
to, a physician, nurse, psychologist or therapist, registered
surveyor, registered engineer, registered architect, attorney,
certified public accountant or other person who renders such
professional services within the course and scope of his employment,
who is licensed by appropriate regulatory authorities to practice such
profession and who, while acting in the course of such employment,
committed or is alleged to have committed any negligent acts, errors
or omissions in rendering such professional services at the request of
the Company or pursuant to his employment (including, without
limitation, rendering written or oral opinions to third parties).
page 12 of 14
<PAGE> 13
Section 9. Notice. Any communication required or permitted to the
Company under this Article shall be addressed to the Secretary of the Company
and any such communication to the Indemnitee shall be addressed to his home
address unless he specifies otherwise and shall be personally delivered or
delivered by overnight mail or courier delivery.
Section 10. Insurance and Self-Insurance Arrangements. The Company
may procure or maintain insurance or other similar arrangements, at its
expense, to protect itself and any Indemnitee against any expense, liability or
loss asserted against or incurred by such person, incurred by him in such a
capacity or arising out of his Corporate Status as such a person, whether or
not the Company would have the power to indemnify such person against such
expense or liability. In considering the cost and availability of such
insurance, the Company (through the exercise of the business judgment of its
directors and officers) may, from time to time, purchase insurance which
provides for any and all of (a) deductibles, (b) limits on payments required to
be made by the insurer, or (c) coverage which may not be as comprehensive as
that previously included in insurance purchased by the Company. The purchase
of insurance with deductibles, limits on payments and coverage exclusions will
be deemed to be in the best interest of the Company but may not be in the best
interest of certain of the persons covered thereby. As to the Company,
purchasing insurance with deductibles, limits on payments, and coverage
exclusions is similar to the Company's practice of self-insurance in other
areas. In order to protect the Indemnitees who would otherwise be more fully
or entirely covered under such policies, the Company shall indemnify and hold
each of them harmless as provided in Section 1 or 2 of this Article, without
regard to whether the Company would otherwise be entitled to indemnify such
officer or director under the other provisions of this Article, or under any
law, agreement, vote of shareholders or directors or other arrangement, to the
extent (i) of such deductibles, (ii) of amounts exceeding payments required to
be made by an insurer or (iii) that prior policies of officer's and director's
liability insurance held by the Company or its predecessors would have provided
for payment to such officer or director. Notwithstanding the foregoing
provision of this Section, no Indemnitee shall be entitled to indemnification
for the results of such person's conduct that is intentionally adverse to the
interests of the Company. This Section is authorized by Section 2.02-1(R) of
the TBCA as in effect on May 1, 1996, and further is intended to establish an
arrangement of self-insurance pursuant to that section.
ARTICLE VI
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.
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<PAGE> 14
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 Chairman of the Board, if there is one, the Chief Executive Officer, if
there is one, the President or the Secretary. The acceptance of a resignation
shall not be necessary to make it effective, unless expressly so provided in
the resignation.
Section 3. Seal. The seal of the Company shall be circular in form,
with the name "HOUSTON LIGHTING & POWER COMPANY."
Section 4. 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 5. 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 14 of 14
<PAGE> 1
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>
Six Twelve
Months Ended Months Ended
June 30,1996 June 30, 1996
------------------ ------------------
<S> <C> <C>
Fixed Charges as Defined:
(1) Interest on Long-Term Debt . . . . . . . . . . . . $ 112,458 $ 233,925
(2) Other Interest . . . . . . . . . . . . . . . . . . 7,770 11,963
(3) Amortization of Discount . . . . . . . . . . . . . 4,521 9,036
(4) Interest Component of Rentals
Charged to Operating Expense . . . . . . . . . . . 591 1,768
------------------ ------------------
(5) Total Fixed Charges . . . . . . . . . . . $ 125,340 $ 256,692
================== ==================
Earnings as Defined:
(6) Net Income . . . . . . . . . . . . . . . . . . . $ 146,085 $ 434,800
------------------ ------------------
Federal Income Taxes:
(7) Current . . . . . . . . . . . . . . . . . . . . . 77,208 201,610
(8) Deferred (Net) . . . . . . . . . . . . . . . . . . 3,422 28,091
------------------ ------------------
(9) Total Federal Income Taxes . . . . . . . . . . . . 80,630 229,701
------------------ ------------------
(10) Fixed Charges (line 5) . . . . . . . . . . . . . . 125,340 256,692
------------------ ------------------
(11) Earnings Before Income Taxes and
Fixed Charges (line 6 plus
line 9 plus line 10) . . . . . . . . . . . . . $ 352,055 $ 921,193
================== ==================
Ratio of Earnings to Fixed Charges
(line 11 divided by line 5) . . . . . . . . . . . . . . 2.81 3.59
Preferred Dividends Requirements:
(12) Preferred Dividends . . . . . . . . . . . . . . . $ 11,945 $ 25,465
(13) Less Tax Deduction for
Preferred Dividends . . . . . . . . . . . . . 27 54
------------------ ------------------
(14) Total . . . . . . . . . . . . . . . . . . 11,918 25,411
(15) Ratio of Pre-Tax Income to Net
Income (line 6 plus line 9
divided by line 6) . . . . . . . . . . . . . . 1.55 1.53
------------------ ------------------
(16) Line 14 times line 15 . . . . . . . . . . . . . . 18,473 38,879
(17) Add Back Tax Deduction
(line 13) . . . . . . . . . . . . . . . . . . 27 54
------------------ ------------------
(18) Preferred Dividends Factor . . . . . . . . . . . . $ 18,500 $ 38,933
================== ==================
(19) Fixed Charges (line 5) . . . . . . . . . . . . . . $ 125,340 $ 256,692
(20) Preferred dividends Factor
(line 18) . . . . . . . . . . . . . . . . . . 18,500 38,933
------------------ ------------------
(21) Total . . . . . . . . . . . . . . . . . . $ 143,840 $ 295,625
================== ==================
Ratio of Earnings to Fixed Charges and
Preferred Dividends
(line 11 divided by line 21) . . . . . . . . . . . . . . 2.45 3.12
</TABLE>
<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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 8,687,303
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 301,877
<TOTAL-DEFERRED-CHARGES> 1,503,087
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 10,492,267
<COMMON> 1,675,927
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 2,119,726
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,795,653
0
351,345
<LONG-TERM-DEBT-NET> 2,710,400
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 245,725
<LONG-TERM-DEBT-CURRENT-PORT> 190,130
25,700
<CAPITAL-LEASE-OBLIGATIONS> 2,875
<LEASES-CURRENT> 3,627
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,166,812
<TOT-CAPITALIZATION-AND-LIAB> 10,492,267
<GROSS-OPERATING-REVENUE> 1,911,936
<INCOME-TAX-EXPENSE> 114,305
<OTHER-OPERATING-EXPENSES> 1,467,097
<TOTAL-OPERATING-EXPENSES> 1,581,402
<OPERATING-INCOME-LOSS> 330,534
<OTHER-INCOME-NET> (65,578)
<INCOME-BEFORE-INTEREST-EXPEN> 264,956
<TOTAL-INTEREST-EXPENSE> 118,871
<NET-INCOME> 146,085
11,945
<EARNINGS-AVAILABLE-FOR-COMM> 134,140
<COMMON-STOCK-DIVIDENDS> 164,500
<TOTAL-INTEREST-ON-BONDS> 112,430
<CASH-FLOW-OPERATIONS> 296,678
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
