<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): SEPTEMBER 30, 1997
HOUSTON INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)
TEXAS 1-3187 74-0694415
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
1111 LOUISIANA
HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 207-3000
<PAGE> 2
ITEM 5. OTHER ITEMS
On August 6, 1997, Houston Industries Incorporated ("Former HI") merged
with and into Houston Lighting & Power Company ("HL&P"), which was renamed
"Houston Industries Incorporated" (the "Company"), and NorAm Energy Corp., a
natural gas gathering, transmission, marketing and distribution company
("Former NorAm"), merged with and into a subsidiary of the Company, HI Merger,
Inc., which was renamed "NorAm Energy Corp." ("NorAm"). Effective upon the
mergers (collectively, the "Merger"), each outstanding share of common stock of
Former HI was converted into one share of common stock (including associated
preference stock purchase rights) of the Company, and each outstanding share of
common stock of Former NorAm was converted into the right to receive $16.3051
cash or 0.74963 shares of common stock of the Company (including associated
preference stock purchase rights). The aggregate consideration paid to Former
NorAm stockholders in connection with the Merger consisted of $1.4 billion in
cash and 47.8 million shares of the Company's common stock valued at
approximately $1 billion. The overall transaction was valued at $4.0 billion
consisting of $2.4 billion for Former NorAm's common stock and common stock
equivalents and $1.6 billion of Former NorAm debt ($1.3 billion of which was
long-term debt).
The following unaudited pro forma combined condensed financial statements
give effect to the Merger. The unaudited pro forma combined condensed statements
of income for the year ended December 31, 1996 and the nine months ended
September 30, 1997 assume that the Merger occurred at the beginning of each of
the periods presented. The acquisition of NorAm has been treated as a purchase
for accounting purposes. The assets acquired and liabilities assumed have been
recorded at their estimated fair values based on preliminary analysis.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements and related notes
of the Company, Former HI, NorAm and Former NorAm. The unaudited pro forma
combined condensed statements of income are not necessarily indicative of the
financial results that would have occurred had the Merger been completed on the
indicated dates, nor are they necessarily indicative of future financial
results. Results for interim periods do not necessarily indicate results for
the full year. The historical NorAm condensed statements of income for the year
ended December 31, 1996, and the nine months ended September 30, 1997 (included
in the unaudited pro forma combined condensed statements of income under the
caption "Historical NorAm") reflect operations of Former NorAm through the
acquisition date.
The pro forma adjustments are based on assumptions and estimates made by
the Company's management and do not reflect adjustments for anticipated
operating efficiencies and cost savings the Company expects to achieve as a
result of the Merger.
<PAGE> 3
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------- ---------------------------
HI FORMER NORAM(i) ADJUSTMENTS COMBINED
---------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Revenues:
Electric ......................................... $4,025,027 $ 4,025,027
Gas .............................................. $ 4,788,462 4,788,462
Other ............................................ 70,250 70,250
---------- ----------- -------- -----------
Total ..................................... 4,095,277 4,788,462 8,883,739
---------- ----------- -------- -----------
Operating Expenses:
Fuel and purchased power ......................... 1,347,208 3,667,954 5,015,162
Operation and maintenance ........................ 888,699 524,736 $ (5,812)(h) 1,407,623
Depreciation and amortization .................... 550,038 142,362 34,912 (d) 736,752
9,440 (c)
Taxes other than income taxes .................... 246,288 116,600 362,888
Other ............................................ 72,578 22,344 94,922
---------- ----------- -------- -----------
Total ..................................... 3,104,811 4,473,996 38,540 7,617,347
---------- ----------- -------- -----------
Operating Income ........................................ 990,466 314,466 (38,540) 1,266,392
---------- ----------- -------- -----------
Other Income (Expense):
Litigation settlements ........................... (95,000) (95,000)
Time Warner dividend income ...................... 41,610 41,610
Other ............................................ (2,022) (14,577) (16,599)
---------- ----------- -------- -----------
Total ..................................... (55,412) (14,577) (69,989)
---------- ----------- -------- -----------
60,625 (b)
Interest and Other Charges .............................. 307,382 138,399 (4,757)(e) 501,649
---------- ----------- -------- -----------
From Continuing Operations:
Income before income taxes ....................... 627,672 161,490 (94,408) 694,754
Income taxes ..................................... 200,165 66,352 (24,453)(g) 242,064
---------- ----------- -------- -----------
Income before preferred dividends ................ 427,507 95,138 (69,955) 452,690
Preferred dividends .............................. 22,563 3,597 26,160
---------- ----------- -------- -----------
Income available for common stock ................ $ 404,944 $ 91,541 $(69,955) $ 426,530
========== =========== ======== ===========
Weighted average common shares
outstanding (000)............................... 244,443 131,648 292,283 (f)
Earnings per common share ........................ $ 1.66 $ 0.70 $ 1.46
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
<PAGE> 4
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ---------------------------
HI FORMER NORAM(i) ADJUSTMENTS COMBINED
----------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Operating Revenues:
Electric .............................. $ 3,285,005 $ 3,285,005
Gas ................................... 737,206 $ 3,337,048 4,074,254
Other ................................. 78,889 78,889
----------- ----------- ---------- -----------
Total ....................... 4,101,100 3,337,048 7,438,148
----------- ----------- ---------- -----------
Operating Expenses:
Fuel and purchased power .............. 1,640,296 2,700,400 4,340,696
Operation and maintenance ............. 850,249 306,309 $ (3,390)(h) 1,153,168
Depreciation and amortization ......... 446,889 84,901 20,365 (d) 557,662
5,507 (c)
Taxes other than income taxes ......... 207,008 73,142 280,150
Other ................................. 90,593 17,256 107,849
----------- ----------- ---------- -----------
Total ....................... 3,235,035 3,182,008 22,482 6,439,525
----------- ----------- ---------- -----------
Operating Income ............................. 866,065 155,040 (22,482) 998,623
----------- ----------- ---------- -----------
Other Income (Expense):
Time Warner dividend income ........... 31,028 31,028
Other ................................. 13,631 7,210 20,841
----------- ----------- ---------- -----------
Total ....................... 44,659 7,210 51,869
----------- ----------- ---------- -----------
35,365 (b)
Interest and Other Charges ................... 288,430 84,977 (5,117)(e) 403,655
----------- ----------- ---------- -----------
From Continuing Operations:
Income before income taxes ............ 622,294 77,273 (52,730) 646,837
Income taxes .......................... 197,249 31,398 (13,302)(g) 215,345
----------- ----------- ---------- -----------
Income before preferred dividends ..... 425,045 45,875 (39,428) 431,492
Preferred dividends ................... 64 64
----------- ----------- ---------- -----------
Income available for common stock ..... $ 424,981 $ 45,875 $ (39,428) $ 431,428
=========== =========== ========== ===========
Weighted average common shares
outstanding (000)........................... 243,769 281,796 (f)
Earnings per common share .................... $ 1.74 $ 1.53
</TABLE>
See Notes to Unaudited Combined Condensed Pro Forma Financial Statements.
<PAGE> 5
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(Thousands)
----------
<S> <C>
(a) NorAm common stock exchanged:
NorAm common shares outstanding at August 6, 1997 (the "Merger Date") ............................. 149,683
Less shares accepted for cash ..................................................................... 85,865
----------
NorAm shares exchanged for HI stock................................................................ 63,818
Exchange rate...................................................................................... .74963
----------
Shares of HI common stock exchanged............................................................... 47,840
==========
Value of HI common stock consideration ............................................................ $1,005,836
==========
Cash consideration and acquisition debt ........................................................... $1,400,033
==========
(Thousands)
----------
(b) Interest expense and fair value adjustments for long-term debt are as follows:
Acquisition debt - see note (a) ................................................................... $1,400,033
Approximate annual interest rate on acquisition debt .............................................. 6.01%(1)
----------
Adjustment to 1996 interest expense for acquisition debt ........................................ $ 84,142
----------
Adjustment to interest expense for acquisition debt for the period from January 1, 1997
to the Merger Date ............................................................................ 49,083
----------
NorAm long-term debt assumed:
Principal amount ......................................................... $1,249,844
Fair value ............................................................... 1,324,037
----------
Revaluation adjustment of debt assumed to fair value ..................... $ 74,193
==========
Adjustment to 1996 interest expense for revaluation of long-term debt
assumed (using the effective interest rate method) ............................................ $ (23,517)
----------
Adjustment to interest expense for revaluation of long-term debt assumed for the period
from January 1, 1997 to the Merger Date ....................................................... $ (13,718)
----------
Total interest expense adjustment for 1996 ........................................................ $ 60,625
==========
Total interest expense adjustment for the period from January 1, 1997 to
the Merger Date ................................................................................. $ 35,365
==========
</TABLE>
(1) For purposes of the unaudited pro forma condensed statements of income,
the annual interest rate on the acquisition debt was approximately
6.01%. A 1% change in the interest rate on the acquisition debt would
change 1996 interest expense by $14.0 million and interest expense for the
period from January 1, 1997 to the Merger Date by $8.2 million. The cash
portion of the consideration was obtained by issuance of Commercial Paper
under a revolving credit and letter of credit facility which had been
negotiated with a syndicate of banks and financial institutions. The
annual interest rate for direct borrowings under the facility is based
upon either the London interbank offered rate ("LIBOR") plus
.25% or the greater of the prime rate or the federal funds rate plus .5%,
plus a .125% facility fee. LIBOR was 5.63% on the Merger Date.
<PAGE> 6
(c) Based on preliminary analyses, the following adjustment has been made to
reflect the fair value of property, plant and equipment:
<TABLE>
<CAPTION>
(Thousands)
----------
<S> <C>
Revaluation of property, plant and equipment to fair value ....................................... $283,196
========
Adjustment to 1996 depreciation expense (assumes 30 year average depreciable life)................ $ 9,440
========
Adjustment to depreciation expense for the period from January 1, 1997 to the
Merger Date .................................................................................... $ 5,507
========
</TABLE>
(d) The excess of the total purchase price over the allocation of fair value to
the net assets was recorded as goodwill. HI's calculation of goodwill is
based on the following:
<TABLE>
<CAPTION>
(Thousands)
----------
<S> <C>
Value of HI Common Stock consideration - see note (a) ............................................ $1,005,836
Acquisition debt - see note (a) .................................................................. 1,400,033
Transaction fees ................................................................................. 26,043
Net asset value of NorAm at the Merger Date....................................................... (977,833)
----------
Initial purchase price in excess of historical net asset value ................................... $1,454,079
Increase (decrease) from fair value allocations:
Elimination of NorAm historical goodwill ....................................................... 458,663
Property, plant and equipment - see note (c) ................................................... (283,196)
Deferred income taxes .......................................................................... 137,449
Unrecognized postretirement benefits liability - see note (h) .................................. 80,836
Debt assumed - see note (c) .................................................................... 74,193
Regulated asset related to pension and post-retirement assets/liabilities ...................... (66,859)
Accrual of severance ........................................................................... 51,000
Unrecognized pension liability - see note (h) .................................................. 17,969
Other .......................................................................................... 39,834
----------
Total goodwill ............................................................................... 1,963,968
==========
Increase in goodwill amortization expense (assumes 40 year life) ............................... 49,099
Less NorAm historical goodwill amortization .................................................... (14,187)
==========
Adjustment to 1996 amortization expense ...................................................... 34,912
==========
Adjustment to amortization expense for the period from January 1, 1997 to the
Merger Date ................................................................................ 20,365
==========
</TABLE>
(e) Prior to the Merger Date, 81% of NorAm Convertible Preferred Securities was
converted into shares of NorAm Common Stock. Because of the conversion, a
portion of preferred dividends of subsidiary trust ($4,757,000 and
$5,117,000) have been eliminated for 1996 and for the period from January
1, 1997 to the Merger Date, respectively.
(f) Pro forma number of common shares outstanding represents the historical
weighted average shares outstanding of HI Common Stock in addition to the
actual number of shares of HI Common Stock issued in exchange for the
NorAm Common Stock and stock equivalents at the Merger Date (see note (a)).
(g) Represents the tax effect at the effective tax rate of all pre-tax pro
forma adjustments after excluding nondeductible goodwill amortization.
(h) Pension and postretirement benefits liabilities:
<TABLE>
(Thousands)
----------
<S> <C>
Unrecognized pension liability - see note (d) ............................................. 17,969
Unrecognized postretirement benefits liability - see note (d) ............................. 80,836
--------
98,805
========
Adjustment to 1996 operation and maintenance expense (assumes 17-year
amortization period) .................................................................... (5,812)
========
Adjustment to operation and maintenance expense for the period from January 1, 1997
to the Merger Date ...................................................................... (3,390)
========
</TABLE>
(i) The historical NorAm condensed statements of income reflect operations of
Former NorAm through the Merger Date.
<PAGE> 7
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 hereunto duly authorized.
HOUSTON INDUSTRIES INCORPORATED
Date: November 20, 1997 By: /s/ MARY P. RICCIARDELLO
----------------------------------
Mary P. Ricciardello
Vice President and Comptroller
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