-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G48YsCinhPbvFxFk1M4n7umywdWX/AQ51LTYsdoRu6tew5XFp3nIB/sn1mFP5MS9 zn9hxv3fjIcW5Lh/PC2suw== 0000018672-97-000005.txt : 19971117 0000018672-97-000005.hdr.sgml : 19971117 ACCESSION NUMBER: 0000018672-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL LOUISIANA ELECTRIC CO INC CENTRAL INDEX KEY: 0000018672 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 720244480 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05663 FILM NUMBER: 97718339 BUSINESS ADDRESS: STREET 1: 2030 DONAHUE FERRY RD CITY: PINEVILLE STATE: LA ZIP: 71360 BUSINESS PHONE: 3184847400 MAIL ADDRESS: STREET 1: P O BOX 5000 CITY: PINEVILLE STATE: LA ZIP: 71361-5000 10-Q 1 CENTRAL LOUISIANA ELECTRIC CO., THIRD QUARTER 1997 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 Commission file number 1-5663 Or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Central Louisiana Electric Company, Inc. (Exact name of registrant as specified in its charter) Louisiana 72-0244480 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2030 Donahue Ferry Road, Pineville, Louisiana 71360-5226 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (318) 484-7400 Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of November 1, 1997 there were 22,461,412 shares outstanding of the Registrant's Common Stock, par value $2.00 per share. TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . 1 Report of Independent Accountants. . . . . . . . . . . . 2 Consolidated Statements of Income. . . . . . . . . . . . 3 Consolidated Balance Sheets. . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows. . . . . . . . . . 7 Notes to Consolidated Financial Statements . . . . . . . 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Disclosure Regarding Forward-Looking Statements. . . . . 10 Results of Operations. . . . . . . . . . . . . . . . . . 10 Financial Condition. . . . . . . . . . . . . . . . . . . 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . 15 PART II. OTHER INFORMATION Item 1. Legal Proceeding . . . . . . . . . . . . . . . . . . . . 16 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 16 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 18 SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS The consolidated financial statements for Central Louisiana Electric Company, Inc. (the Company) included herein are unaudited but reflect, in management's opinion, all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair presentation of the Company's financial position and the results of its operations for the interim periods presented. Because of the seasonal nature of the Company's business, the results of operations for the nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the full fiscal year. The financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (1996 Form 10-K). The consolidated financial statements included herein have been subjected to a limited review by Coopers & Lybrand L.L.P., independent accountants for the Company, whose report is included herein. 1 Coopers certified public accountants & Lybrand L.L.P. a professional services firm REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors Central Louisiana Electric Company, Inc.: We have made a review of the consolidated balance sheet of Central Louisiana Electric Company, Inc. as of September 30, 1997, and the related consolidated statements of income and cash flows for the three-month and nine-month periods ended September 30, 1997 and 1996, in accordance with standards established by the American Institute of Certified Public Accountants. These financial statements are the responsibility of the Company's management. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1996 and the related consolidated statements of income, cash flows and changes in common shareholders' equity for the year then ended (not present herein); and in our report dated January 29, 1997, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 1996, is fairly stated in all material respects in relation to the balance sheet from which it has been derived. COOPERS & LYBRAND, L.L.P. New Orleans, Louisiana October 28, 1997 2 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. CONSOLIDATED STATEMENTS OF INCOME For the three months ended September 30 (Unaudited)
(In thousands, except share and per share amounts) 1997 1996 ---------- ---------- OPERATING REVENUES $ 138,099 $ 130,477 ---------- ---------- OPERATING EXPENSES Fuel used for electric generation 44,607 40,310 Power purchased 10,171 12,443 Other operation 16,242 14,699 Maintenance 5,308 5,837 Depreciation 11,609 10,564 Taxes other than income taxes 9,161 8,117 Federal and state income taxes 12,377 11,317 ---------- ---------- 109,475 103,287 ---------- ---------- OPERATING INCOME 28,624 27,190 Allowance for other funds used during construction 171 637 Other income and expenses, net 1,033 206 ---------- ---------- INCOME BEFORE INTEREST CHARGES 29,828 28,033 Interest charges, including amortization of debt expense, premium and discount 7,124 7,047 Allowance for borrowed funds used during construction (184) 86 ---------- ---------- NET INCOME 22,888 20,900 Preferred dividend requirements, net 528 521 ---------- ---------- NET INCOME APPLICABLE TO COMMON STOCK $ 22,360 $ 20,379 ========== ========== WEIGHTED AVERAGE COMMON SHARES Primary 22,467,560 22,452,482 Fully diluted 23,864,477 23,856,511 EARNINGS PER SHARE Primary $1.00 $0.91 Fully diluted $0.95 $0.87 CASH DIVIDENDS PAID PER SHARE $0.395 $0.385 The accompanying notes are an integral part of the consolidated financial statements.
3 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. CONSOLIDATED STATEMENTS OF INCOME For the nine months ended September 30 (Unaudited)
(In thousands, except share and per share amounts) 1997 1996 ---------- ---------- OPERATING REVENUES $ 341,091 $ 342,822 ---------- ---------- OPERATING EXPENSES Fuel used for electric generation 99,574 94,285 Power purchased 31,777 41,375 Other operation 46,357 46,673 Restructuring charge 1,891 Maintenance 17,072 16,264 Depreciation 34,321 31,893 Taxes other than income taxes 26,152 23,085 Federal and state income taxes 22,066 23,744 ---------- ---------- 279,210 277,319 ---------- ---------- OPERATING INCOME 61,881 65,503 Allowance for other funds used during construction 297 941 Other income and expenses, net 1,061 492 ---------- ---------- INCOME BEFORE INTEREST CHARGES 63,239 66,936 Interest charges, including amortization of debt expense, premium and discount 21,650 21,959 Allowance for borrowed funds used during construction (94) (496) ---------- ---------- NET INCOME 41,683 45,473 Preferred dividend requirements, net 1,577 1,552 ---------- ---------- NET INCOME APPLICABLE TO COMMON STOCK $ 40,106 $ 43,921 ========== ========== WEIGHTED AVERAGE COMMON SHARES Primary 22,465,705 22,450,781 Fully diluted 23,864,181 23,856,339 EARNINGS PER SHARE Primary $1.79 $1.96 Fully diluted $1.73 $1.89 CASH DIVIDENDS PAID PER SHARE $1.175 $1.145 The accompanying notes are an integral part of the consolidated financial statements.
4 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands) September 30, 1997 December 31, 1996 ------------------ ----------------- ASSETS Utility plant Property, plant and equipment $ 1,437,108 $ 1,379,035 Accumulated depreciation (501,071) (475,212) ----------------- ---------------- 936,037 903,823 Construction work-in-progress 42,386 49,075 ----------------- ---------------- Total utility plant, net 978,423 952,898 ----------------- ---------------- Investments and other assets 2,907 8,488 ----------------- ---------------- Current assets Cash and cash equivalents 21,972 20,307 Accounts receivable, net 53,399 43,912 Unbilled revenues 12,927 11,193 Fuel inventory, at average cost 8,528 9,366 Materials and supplies inventory, at average cost 15,436 17,029 Accumulated deferred fuel 1,877 Prepayments and other current assets 2,466 2,505 ----------------- ---------------- Total current assets 116,605 104,312 ----------------- ---------------- Prepayments 8,725 8,683 Regulatory assets - deferred taxes 102,885 103,839 Other deferred charges 70,054 69,320 Accumulated deferred federal and state income taxes 79,157 74,231 ----------------- ---------------- TOTAL ASSETS $ 1,358,756 $ 1,321,771 ================= ================ The accompanying notes are an integral part of the consolidated financial statements. (Continued on next page)
5 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. CONSOLIDATED BALANCE SHEETS (Continued) (Unaudited)
(In thousands, except share amounts) September 30, 1997 December 31, 1996 ------------------ ----------------- CAPITALIZATION AND LIABILITIES Common shareholders' equity Common stock, $2 par value, authorized 50,000,000 shares, issued 22,761,254 and 22,760,154 shares at September 30, 1997 and December 31, 1996, respectively $ 45,522 $ 45,520 Premium on capital stock 113,722 113,702 Retained earnings 254,125 240,414 Treasury stock at cost, 299,049 and 307,577 shares at September 30, 1997 and December 31, 1996, respectively (6,069) (6,242) --------------- ---------------- 407,300 393,394 --------------- ---------------- Preferred stock, cumulative, $100 par value Not subject to mandatory redemption 30,102 30,280 Deferred compensation related to preferred stock held by ESOP (19,013) (20,751) --------------- ---------------- 11,089 9,529 Subject to mandatory redemption 6,260 6,372 --------------- ---------------- 17,349 15,901 --------------- ---------------- Long-term debt, net 365,888 340,859 --------------- ---------------- Total capitalization 790,537 750,154 --------------- ---------------- Current liabilities Short-term debt 47,344 65,161 Long-term debt due within one year 15,000 15,000 Accounts payable 35,620 50,022 Customer deposits 20,183 19,761 Taxes accrued 39,461 5,806 Interest accrued 1,604 7,521 Accumulated deferred fuel 2,168 Other current liabilities 3,518 3,252 --------------- ---------------- Total current liabilities 162,730 168,691 --------------- ---------------- Deferred credits Accumulated deferred federal and state income taxes 281,919 281,684 Accumulated deferred investment tax credits 30,021 31,364 Regulatory liabilities - deferred credits 61,693 60,058 Other deferred credits 31,856 29,820 --------------- ---------------- Total deferred credits 405,489 402,926 --------------- ---------------- TOTAL CAPITALIZATION AND LIABILITIES $ 1,358,756 $ 1,321,771 =============== ================ The accompanying notes are an integral part of the consolidated financial statements.
6 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30 (Unaudited)
(In thousands) 1997 1996 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 41,683 $ 45,473 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 35,673 32,722 Allowance for funds used during construction 391 (1,437) Amortization of investment tax credits (1,343) (1,357) Deferred income taxes (2,083) 1,500 Deferred fuel costs (4,045) 928 Restructuring charge 1,632 (Gain) loss on disposition of utility plant, net (236) 1 Changes in assets and liabilities Accounts receivable, net (9,487) (5,961) Unbilled revenues (1,734) (1,616) Fuel inventory, materials and supplies 2,431 (1,474) Accounts payable (16,034) (21,345) Customer deposits 422 98 Other deferred accounts 1,824 (244) Taxes accrued 33,655 25,335 Interest accrued (5,917) (6,136) Other, net 9,189 (1,792) ---------- ---------- Net cash provided by operating activities 82,373 64,695 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to utility plant (59,640) (46,227) Allowance for funds used during construction (391) 1,437 Sale of utility plant 371 420 Purchase of investments (222) (200) Sale of investments 1 445 ---------- ---------- Net cash used in investing activities (59,881) (44,125) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock 22 67 Reacquisition of common stock (2) Issuance of long-term debt 40,000 25,000 Retirement of long-term debt (15,000) (25,000) Increase (decrease) in short-term, net (17,817) 8,435 Issuance of preferred stock 178 Redemption of preferred stock (237) (40) Dividends paid on common and preferred stock,net (27,973) (27,246) ---------- ---------- Net cash used in financing activities (20,827) (18,786) ---------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,665 1,784 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,307 20,621 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,972 $ 22,405 ========== ========== Supplementary cash flow information Interest paid (net of amount capitalized) $ 27,709 $ 27,921 ========== ========== Income taxes paid $ 9,876 $ 7,817 ========== ========== The accompanying notes are an integral part of the consolidated financial statements.
7 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note A. Reclassification Certain prior-period amounts have been reclassified to conform with the presentation shown in the current year's financial statements. These reclassifications had no effect on net income applicable to common stock or common shareholders' equity. Note B. Acquisition of Teche Electric Cooperative, Inc. In February 1995, Teche Electric Cooperative, Inc. (Teche) and the Company executed a Purchase and Sale Agreement whereby the parties agreed that the Company would purchase all of the assets of Teche for a purchase price, including the Company's assumption or other discharge of Teche's liabilities, of approximately $22.4 million. The Company closed the purchase of Teche on September 30, 1997. The purchase of Teche's assets and assumption of Teche's liabilities are reflected in the Company's third quarter financial statements. The effects of the additional revenues, depreciation and expenses associated with the operation of the former Teche electric system will be reflected in the Company's results of operation beginning October 1, 1997. Note C. Restructuring Charge During the second quarter of 1997, the Company reorganized the electric production section of its generation services. The primary objective of this reorganization was to create a centralized power production maintenance function. Other initiatives included improving power production operations and providing better services to customers. As a result, approximately 30 employee positions were eliminated resulting in a charge to earnings which is estimated to be $1,891,000 ($1,248,000 on an after-tax basis), consisting mainly of voluntary severance programs offered to eligible employees. Note D. Legal Proceeding: Fuel Supply - Lignite The Company and Southwestern Electric Power Company (SWEPCO), each a 50% owner of Dolet Hills Power Station Unit 1 (Dolet Hills Unit 1), jointly own lignite reserves in the Dolet Hills area of northwestern Louisiana. In 1982 the Company and SWEPCO entered into a Lignite Mining Agreement (LMA) with the Dolet Hills Mining Venture (DHMV), a partnership for the mining and delivery of lignite from a portion of these reserves (Dolet Hills Mine). The LMA expires in 2011. The price of lignite delivered pursuant to the LMA is a base price per ton, subject to escalation based on certain inflation indices, plus specified "pass-through" costs. Currently, the Company is receiving annually a minimum delivery of 1,187,500 tons under the LMA. Since the late 1980s, additional spot lignite deliveries have been obtained through competitive bidding from DHMV and another lignite supplier. In 1996 the Company and SWEPCO received deliveries which approximated 24% of the annual lignite consumption at Dolet Hills Unit 1 from the other lignite supplier. 8 On April 15, 1997, the Company and SWEPCO filed suit against DHMV and its partners in the United States District Court for the Western District of Louisiana (Federal Court Suit) seeking to enforce various obligations of DHMV to the Company and SWEPCO under the LMA, including provisions relating to the quality of the delivered lignite, pricing, and mine reclamation practices. On June 15, 1997, DHMV filed an answer denying the allegations in the Company's suit and filed a counterclaim asserting various contract-related claims against the Company and SWEPCO. The Company and SWEPCO have denied the allegations in the counterclaims on the grounds the counterclaims have no merit. The counterclaims filed by DHMV in the Federal Court Suit resulted in the Company and SWEPCO filing a separate lawsuit against the parent companies of DHMV, namely Jones Capital Corporation and Philipp Holzmann USA, Inc., on August 13, 1997, in the First Judicial District Court for Caddo Parish, Louisiana (State Court Suit). The State Court Suit seeks to enforce a separate 1995 agreement by Jones Capital Corporation and Philipp Holzmann USA, Inc. related to the LMA. Jones Capital Corporation and Philipp Holzmann USA, Inc. have asked the State Court to stay that proceeding until the Federal Court Suit is resolved. The suits are currently in the discovery phase. At DHMV's request, negotiations among DHMV, SWEPCO and the Company have been terminated. A status conference is currently scheduled for May 22, 1998. At this conference, a trial date will be set. The Company and SWEPCO will aggressively prosecute the claims against DHMV and defend against the counterclaims which DHMV has asserted. The Company and SWEPCO continue to pay DHMV for lignite delivered pursuant to the LMA. Normal day-to-day operations continue at the Dolet Hills Mine and Dolet Hills Unit 1. Although the ultimate outcome of this litigation cannot be predicted at this time, based on information currently available to the Company, management does not believe that the counterclaims asserted by the DHMV in the Federal Court Suit will have a significant adverse effect on the Company's financial position or results of operations. 9 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. 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 1996 Form 10-K, the financial statements and notes contained in Item 8 of the 1996 Form 10-K and the interim financial statements and notes thereto contained elsewhere in this Report. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This Report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this Report, including, without limitation, the statements under "--Financial Condition --Regulatory Matters - --Retail Electric Competition," "--Wholesale Electric Competition," "Other Information--Acquisition of Teche Electric Cooperative, Inc.," "--Joint Venture with Covenant Energy Corporation" and "Legal Proceeding -- Fuel Supply - Lignite" regarding the effect of certain proposed legislation, the effect of a regional open access tariff, the impact of the Teche acquisition, the impact of the Company's joint venture with Covenant Energy Corporation, the impact of certain legal proceedings involving the Company, and other matters, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such forward-looking statements are based on numerous assumptions (some of which may prove to be incorrect) and are subject to risks and uncertainties which could cause the actual results to differ materially from the Company's expectations. Such risks and uncertainties include, without limitation, the effects of competition in the power industry, legislative and regulatory changes affecting electric utilities, fluctuations in the weather and changes in general economic and business conditions, as well as other factors discussed in this and the Company's other filings with the Securities and Exchange Commission (Cautionary Statements). All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. RESULTS OF OPERATIONS For the Three Months Ended September 30, 1997 - --------------------------------------------- Net income applicable to common stock totaled $22.4 million or $1.00 per share for the third quarter of 1997, as compared to $20.4 million or $0.91 per share for the corresponding period in 1996. The following principal factors contributed to these results: Operating revenues for the quarter increased $7.6 million or 5.8% compared to the same period in 1996, due to an increase in kilowatt-hour sales to all classes of customers resulting from warmer weather during the third quarter of 1997. Fuel cost recovery revenues for the third quarter of 1997 were $0.9 million more than the third quarter of 1996. This increase is primarily attributable to higher natural gas prices in effect during the third quarter of 10 1997 compared to the same period in 1996. Changes in fuel cost have historically had no effect on net income, as fuel costs are generally recovered through a fuel cost adjustment clause that enables the Company to pass on to customers substantially all changes in the cost of generating fuel and purchased power. These adjustments are audited monthly and are regulated by the Louisiana Public Service Commission (LPSC) (representing about 99% of the total fuel cost adjustment) while the remaining portion, regulated by the Federal Energy Regulatory Commission (FERC), is audited periodically for several years at a time. Until approval is received, the adjustments are subject to refund. Base revenues increased $6.7 million during the third quarter of 1997 compared to the corresponding period in 1996. The increase in base revenues is primarily the result of an increase in kilowatt-hour sales to residential customers. The demand for electricity by residential customers, especially during the summer months, is affected by the weather. Hot summers increase customer demand while milder, cooler weather reduces demand. Weather during the third quarter of 1997 was 16% warmer than the third quarter of 1996 and 11% warmer than normal as measured by degree day calculations. Kilowatt-hour sales to regular customers improved 8.3% over the third quarter of 1996. Sales to residential customers increased 9.4%, sales to commercial customers rose 5.1% and sales to industrial customers improved 7.4% over the third quarter of 1996. Base revenues were negatively affected by the $3.0 million reduction of the Company's annual base rate tariff for electric service effective November 1, 1996, as part of the Company's October 1996 LPSC earnings review settlement. In January 1998, the Company's annual base rate tariff for electric service will be reduced by an additional $2.0 million. See "Management's Discussion and Analysis of Results of Operations and Financial Condition - Financial Condition - Retail Rates" in Item 7 of the 1996 Form 10-K for discussion of the settlement. Operating expenses increased $6.2 million, or 6.0%, during the third quarter of 1997 compared to the same period in 1996. The rise in operating expenses is the result of increases in the cost of fuel used for electric generation, other operation expenses, depreciation, taxes other than income taxes and federal and state income taxes; partially offset by a decrease in the amount of purchased power and maintenance expenses. The increase in the cost of fuel used for electric generation and purchased power is primarily attributable to fluctuations in the Company's generation mix, higher fuel costs, availability of economy power and deferral of expenses for recovery from customers through fuel adjustment clauses in subsequent months, as compared to the same period in 1996. The increase in the cost of fuel used for electric generation results from higher natural gas prices in effect during the third quarter of 1997 as compared to natural gas prices in effect during the corresponding period in 1996. The Company purchases electric energy from other electric power generators when the price of the energy purchased is less than the cost to the Company of generating such energy from its own facilities. Sixteen percent of the Company's energy requirements during the third quarter of 1997 were met with purchased power, compared to 25% for the corresponding period in 1996. Other operation expenses increased $1.5 million, or 10.5%, compared to the same period in 1996, primarily due to costs associated with employee pension and benefit plans. Depreciation expense grew $1.0 million compared to the same period in 1996, primarily due to the additions to the Company's energy control center being placed into service in late 1996. Taxes other than income taxes rose $1.0 million compared to the same period in 1996, primarily resulting from the expiration of a ten-year property tax exemption on a lignite-fired generating unit built in 1986. See "Management's Discussion and Analysis of Results of Operations and Financial Condition - Results of Operations - Nonfuel Operating Expenses and Income Taxes" in Item 7 of the 1996 Form 10-K for a 11 discussion of the expiration of the property tax exemption. Federal and state income taxes increased $1.1 million, or 9.4%, compared to the corresponding period in 1996 resulting from higher taxable income in 1997. Maintenance expenses decreased $0.5 million primarily due to reduced right-of-way reclearing activities by the Company during the third quarter of 1997 compared to the third quarter of 1996. For the Nine Months Ended September 30, 1997 - -------------------------------------------- Net income applicable to common stock totaled $40.1 million or $1.79 per share for the first nine months of 1997, as compared to $43.9 million or $1.96 per share for the corresponding period in 1996. Net income applicable to common stock for the 1997 period was affected by a restructuring charge of $1.9 million ($1.2 million net-of-tax) or $0.05 per share. The following principal factors also contributed to these results: Operating revenues for the first nine months of 1997 decreased $1.7 million, or 0.5%, compared to the same period in 1996, due to a decrease in collection of fuel cost recovery revenues partially offset by an increase in base revenues. Fuel cost recovery revenues for the first nine months of 1997 were $4.9 million less than the same period of 1996. Although fuel costs in 1997 are higher than fuel costs in 1996, these increases in fuel costs have not been recovered from customers through fuel adjustment clauses. This under-recovery of fuel costs will be collected from customers in subsequent months through normal fuel surcharge calculations. Base revenues increased $3.2 million during the first nine months of 1997 compared to the corresponding period in 1996. The increase in base revenues is primarily the result of an increase in kilowatt-hour sales to all classes of customers except residential. Demand for electricity by commercial and industrial customers is primarily dependent upon the strength of the economy in the Company's service territory, and is not greatly affected by the weather. Sales to commercial and industrial customers rose 2.9% and 5.0%, respectively, over the first nine months of 1996. Residential customers' demand for electricity is affected by various weather conditions. Hot summers and cold winters increase customer demand while cool summers and warm winters reduce customer demand. Weather, as measured by degree day calculations, during the first nine months of 1997 was slightly milder than the corresponding period of 1996. A milder winter during the beginning of 1997 offset the warmer summer of 1997. Sales to residential customers remained relatively flat compared to the first nine months of 1996. Kilowatt-hour sales to regular customers improved 2.4% over the first nine months of 1996. Base revenues were negatively affected by the $3.0 million reduction of the Company's annual base rate tariff for electric service effective November 1, 1996, as part of the Company's October 1996 LPSC earnings review settlement. Operating expenses increased $1.9 million, or 0.7%, for the first nine months of 1997 compared to the corresponding period in 1996. The increase in operating expenses is the result of increases in the cost of fuel used for electric generation, maintenance expenses, depreciation, taxes other than income taxes and a restructuring charge relating to the reorganization of the Company's electric production section of its generation services. These increases were partially offset by decreases in the amount of purchase power, other operation expenses, and federal and state income taxes. The decrease in the fuel costs used for electric generation and purchased power is primarily attributable to fluctuations in the Company's generation mix, higher fuel costs, availability of economy power and deferral of expenses for recovery from 12 customers through fuel adjustment clauses in subsequent months, as compared to the same period in 1996. The increase in the cost of fuel used for electric generation results from higher natural gas prices in effect during 1997 as compared to natural gas prices in effect during 1996. Twenty-two percent of the Company's energy requirements during the first nine months of 1997 were met with purchased power, compared to 30% for the corresponding period in 1996. A restructuring of the Company's generation services business resulted in a one-time pre-tax charge of $1.9 million related to severance payments. Maintenance expenses increased $0.8 million, or 5.0%, as a result of increased right-of-way reclearing activities in 1997 compared to 1996. Depreciation expense increased $2.4 million and taxes other than income taxes rose $3.1 million compared to the same period in 1996, for the same reasons as the results for the three months ended September 30, 1997, discussed above. Other operation expenses decreased $0.3 million primarily due to a decrease in distribution operation expenses partially offset by an increase in customer sales and service expenses. Federal and state income taxes declined $1.7 million, or 7.1%, due to lower taxable income in 1997 compared to the same period in 1996. FINANCIAL CONDITION Liquidity and Capital Resources - ------------------------------- At December 31, 1996, the Company had reduced to zero the amount of receivables that had been sold under a program which allowed it to sell, on an ongoing basis, up to $35 million of eligible accounts receivable. During the quarter ended March 31, 1997, the Company terminated the accounts receivable program. With the termination of the receivables program, the Company increased the amount of short-term debt it could borrow by putting in place an additional $25 million revolving credit facility with a scheduled termination date of March 19, 1998. An existing $100 million revolving credit facility is scheduled to terminate on June 15, 2000. Both facilities provide support for the issuance of commercial paper and working capital needs. Uncommitted lines of credit with banks totaling $20 million are also available to support working capital needs. On August 15, 1997, the Company issued $25 million of unsecured, noncallable, medium-term notes, which are due December 14, 2007, at an interest rate of 7.00%. The notes were issued to finance the Teche acquisition, which was consummated on October 1, 1997. As of November 15, 1997, the Company had $140 million of debt issuance capability remaining under its medium-term note shelf registration statement on file with the Securities and Exchange Commission. At September 30, 1997 and 1996, the Company had $47.3 million and $31.5 million, respectively, of short-term debt outstanding in the form of commercial paper borrowings and bank loans. Much of this increase was due to the utilization of short-term debt to replace the sale of the accounts receivable program discussed above. At September 30, 1997, an unregulated consolidated subsidiary of the Company had $13.8 million of cash and temporary cash investments in securities with original maturities of 90 days or less, but the Company committed these funds for use as a credit facility to CLECO ENERGY L.L.C. See Item 5 in Part II of this Report for additional information relating to the Joint Venture with Covenant Energy Corporation. 13 Regulatory Matters - Retail Electric Competition - ------------------------------------------------ The LPSC has set a generic docket, number U-21453, to investigate whether retail choice is in the best interests of Louisiana electric utility consumers. In March 1997, the LPSC consolidated portions of pre-existing, separate elctric utility company dockets that involved issues of retail customer choice into the generic docket. The Company and a number of parties, including the other Louisiana electric utilities, certain power marketing companies and various associations representing industry and consumers, filed testimony with the LPSC in September 1997. In October 1997, the Company, along with other interested parties, participated in testimony before the LPSC. The Company has taken the position that it favors retail choice no later than the year 2001 and that it opposes a stranded cost recovery mechanism that would lead to higher-cost suppliers gaining an advantage when competing for new business. In May 1997, the Commerce Committee of the Louisiana House of Representatives deferred any action on legislation regarding deregulation/customer choice of the electric utility industry in Louisiana. The legislators determined that the issues surrounding deregulation should be left to the LPSC. However, the legislature passed a resolution establishing a special committee to study existing federal, state, and local laws, rules and policies to assess the impact of electric retail competition. The committee held its first meeting during October 1997 and must submit a report of its findings by the 1998 regular legislative session. The Company has one representative on this committee. Various federal and state legislative and regulatory bodies are considering a number of issues in addition to those discussed above that will shape the future of the electric utility industry. Such issues include deregulation of retail electricity sales; the ability of electric utilities to recover stranded costs; the repeal or modification of the Public Utility Holding Company Act of 1935; the unbundling of vertically integrated electric utility companies into separate business segments or companies (i.e., generation, transmission, distribution and retail energy services); the role of electric utilities, independent power producers and competitive bidding in the construction and operation of new generating capacity; and the pricing of transmission service on an electric utility's transmission system. The Company is unable to predict the outcome of such issues or their effect on the Company's financial position, results of operations or cash flows. Regulatory Matters - Wholesale Electric Competition - --------------------------------------------------- The Company is a member of the Southwest Power Pool (SPP). The SPP plans to file a regional open access tariff with the FERC by January 1, 1998, with a requested effective date of April 1998. The Company has not yet signed an agency agreement allowing the Company to participate in the tariff. The tariff, if approved, would begin to charge for wholesale energy transactions that induce loop flows in adjoining transmission systems. The operation of adjoining transmission systems at times may affect the Company's ability to transmit power. The Company expects that a number of parties will intervene in the FERC proceedings and expects delays in the effective date. Since revenues and charges depend upon the nature and extent of wholesale transactions by the Company and by adjoining systems, the effects of this tariff, if approved, cannot be determined at this time. Entergy Corporation has advised the SPP that Entergy and its operating companies are withdrawing their memberships from the 14 SPP effective December 31, 1997. In addition, 15 other parties have advised the SPP of their intention to withdraw from the SPP effective December 31, 1997. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. 15 PART II OTHER INFORMATION Item 1. LEGAL PROCEEDING For a discussion of certain legal proceedings involving the Company and the Dolet Hills Mining Venture, a partnership that is a party to a Lignite Mining Agreement with the Company and Southwestern Electric Power Company, see Note D to the Consolidated Financial Statements contained elsewhere in this Form 10-Q, which Note is incorporated herein by reference. Item 5. OTHER INFORMATION New Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards "SFAS No. 128, Earnings Per Share" effective for financial statements issued for periods ending after December 15, 1997. Management believes adoption of this statement will not have a significant effect on the Company's earnings per share. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards "SFAS No. 130, Reporting Comprehensive Income" effective for fiscal years beginning after December 15, 1997. Management believes adoption of this statement will affect only financial statement presentation and will not affect the Company's financial position or results of operations. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards "SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information" effective for financial statements for periods beginning after December 15, 1997. Management believes adoption of this statement will affect only financial statement disclosure and will not affect the Company's financial position or results of operations. This Statement need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application is to be reported in financial statements for interim periods in the second year of application. Acquisition of Teche Electric Cooperative, Inc. On September 30, 1997, the Company acquired substantially all of the assets of Teche Electric Cooperative, Inc. (Teche). One of the conditions precedent to the closing of the Teche acquisition was the execution of an interim power purchase agreement with Cajun Electric Power Cooperative, Inc. (Cajun), Teche's former wholesale power supplier. An interim agreement, acceptable to Cajun's bankruptcy trustee and the Rural Utilities Service, was reached in September 1997. Based on Teche's kilowatt-hour sales during the first nine months of 1997, Teche's sales are expected to increase the Company's kilowatt-hour sales to regular customers by 2% to 3%. The initial costs to acquire and operate Teche may reduce the Company's annual earnings by an estimated two cents per average common share in 1997. The effect of the Teche acquisition on the Company's results of operations may vary materially from the Company's current expectations depending upon customer growth in Teche's former service area, legislative and regulatory changes affecting electric utilities, the timing of the conclusion of Cajun's bankruptcy and the ability of the Company to 16 negotiate a new power purchase agreement with Cajun's successor. Fuel Supply - Coal The majority of the coal for Rodemacher Power Station Unit 2 (Rodemacher Unit 2) is purchased under a long-term contract with Kerr-McGee Coal Corporation from a mine in Wyoming. The Company has a 30% interest in the capacity of Rodemacher Unit 2. The coal is transported under a long-term rail transportation contract with the Union Pacific Railroad. Union Pacific is currently experiencing operating problems resulting in reduced volumes delivered to Rodemacher Unit 2. Consequently, the Company's coal inventory is currently below the Company's desired minimum level. Based on the anticipated delivery schedule of future coal shipments, management does not expect that Rodemacher Unit 2 operations will need to be curtailed due to fuel supply. The Company is closely monitoring this situation and has scheduled a meeting with Union Pacific in November to address delivery schedules. Other regional utilities are experiencing similar delivery problems. Joint Venture with Covenant Energy Corporation On October 30, 1997, the Company and Covenant Energy Corporation (Covenant) entered into a joint venture to market electricity and natural gas services, as well as energy management services to commercial and industrial customers and utilities throughout the southeastern United States, and to engage in energy asset development projects, such as cogeneration projects, natural gas pipelines connecting to customers' plants and certain strategic asset acquisitions in the southeastern United States. The newly formed venture is named CLECO ENERGY, L.L.C. and is headquartered in Houston, Texas. Covenant President John T. McDougal heads CLECO ENERGY, L.L.C. An unregulated subsidiary of the Company owns 51% of the newly formed venture and Covenant owns the remaining 49%. The venture's effect on the Company's results of operations may vary materially depending upon such factors as the growth and expansion of the commercial and industrial sector within the southeastern United States, the venture's ability to penetrate existing energy markets, opportunities relating to the acquisition or construction of natural gas pipeline projects, and the venture's ability to successfully negotiate cogeneration projects. 17 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 Computation of Net Income Per Common Share for the three and nine months ended September 30, 1997 and September 30, 1996 12 Computation of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends for the twelve months ended September 30, 1997 15 Awareness letter, dated November 12, 1997, from Coopers & Lybrand L.L.P. regarding review of the unaudited interim financial statements 27 Financial Data Schedule (b) Reports on Form 8-K During the three-month period ended September 30, 1997, the Company filed no Current Reports on Form 8-K. 18 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. CENTRAL LOUISIANA ELECTRIC COMPANY, INC. (Registrant) By: /s/ Thomas J. Howlin _____________________________________ Thomas J. Howlin Senior Vice President of Finance and Chief Financial Officer (Principal Financial Officer) Date: November 14, 1997 19 EX-11 2 NET INCOME PER COMMON SHARE CENTRAL LOUISIANA ELECTRIC COMPANY, INC. COMPUTATION OF NET INCOME PER COMMON SHARE For the three months ended September 30, (Unaudited)
(In thousands, except share and per share amounts) 1997 1996 ---------- ---------- PRIMARY Net income applicable to common stock $ 22,360 $ 20,379 ========== ========== Weighted average number of shares of common stock outstanding during the period 22,460,931 22,441,812 Common stock under stock option grants 6,629 10,670 ---------- ---------- Average shares 22,467,560 22,452,482 ========== ========== Primary net income per common share $ 1.00 $ 0.91 ========== ========== FULLY DILUTED Net income applicable to common stock $ 22,360 $ 20,379 Adjustments to net income related to Employee Stock Ownership Plan (ESOP) under the "if-converted" method: Add loss of deduction from net income for actual dividends paid on convertible preferred stock, net of tax 364 365 Deduct additional cash contribution required which is equal to dividends on preferred stock less dividends paid at the common dividend rate, net of tax (25) (33) Add tax benefit associated with dividends paid on allocated common shares 77 60 ---------- ---------- Adjusted income applicable to common stock $ 22,776 $ 20,771 ========== ========== Weighted average number of shares of common stock outstanding during the period 22,460,931 22,441,812 Number of equivalent common shares attributable to ESOP 1,396,778 1,404,029 Common stock under stock option grants 6,768 10,670 ---------- ---------- Average shares 23,864,477 23,856,511 ========== ========== Fully diluted net income per common share $ 0.95 $ 0.87 ========== ==========
CENTRAL LOUISIANA ELECTRIC COMPANY, INC. COMPUTATION OF NET INCOME PER COMMON SHARE For the nine months ended September 30, (Unaudited)
(In thousands, except share and per share amounts) 1997 1996 ---------- ---------- PRIMARY Net income applicable to common stock $ 40,106 $ 43,921 ========== ========== Weighted average number of shares of common stock outstanding during the period 22,459,128 22,439,941 Common stock under stock option grants 6,577 10,840 ---------- ---------- Average shares 22,465,705 22,450,781 ========== ========== Primary net income per common share $ 1.79 $ 1.96 ========== ========== FULLY DILUTED Net income applicable to common stock $ 40,106 $ 43,921 Adjustments to net income related to Employee Stock Ownership Plan (ESOP) under the "if-converted" method: Add loss of deduction from net income for actual dividends paid on convertible preferred stock, net of tax 1,092 1,097 Deduct additional cash contribution required which is equal to dividends on preferred stock less dividends paid at the common dividend rate, net of tax (82) (107) Add tax benefit associated with dividends paid on allocated common shares 217 170 ---------- ---------- Adjusted income applicable to common stock $ 41,333 $ 45,081 ========== ========== Weighted average number of shares of common stock outstanding during the period 22,459,128 22,439,941 Number of equivalent common shares attributable to ESOP 1,398,141 1,405,558 Common stock under stock option grants 6,912 10,840 ---------- ---------- Average shares 23,864,181 23,856,339 ========== ========== Fully diluted net income per common share $ 1.73 $ 1.89 ========== ========== [/TABLE] EX-12 3 EARNINGS TO FIXED CHARGES CENTRAL LOUISIANA ELECTRIC COMPANY, INC. COMPUTATION OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS For the twelve months ended September 30, 1997 (Unaudited)
(In thousands, except ratios) ------------------ Earnings $ 48,345 Income taxes 24,476 ------------------ Earnings from continuing operations before income taxes $ 72,821 ------------------ Fixed charges Interest, long-term debt 23,481 Interest, other (including interest on short-term debt) 3,637 Amortization of debt expense, premium, net 1,172 Portion of rentals representative of an interest factor 470 ------------------ Total fixed charges $ 28,760 ------------------ Earnings from continuing operations before income taxes and fixed charges $ 101,581 ================== Ratio of earnings to fixed charges 3.53x ================== Fixed charges from above $ 28,760 Preferred stock dividends* 2,883 ------------------ Total fixed charges and preferred stock dividends $ 31,643 ================== Ratio of earnings to combined fixed charges and preferred stock dividends 3.21x ================== * Preferred stock dividends multiplied by the ratio of pretax income to net income.
EX-15 4 AWARENESS LETTER Coopers Coopers & Lybrand L.L.P. 639 Loyola Avenue telephone (504) 529-2700 a professional services firm Suite 1800 facsmile (504) 529-1439 & Lybrand New Orleans, LA 70113 Novmeber 12, 1997 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Central Louisiana Electric Company, Inc. Registrations On Form S-8 (Nos. 2-79671, 33-10169, 33-38362 and 33-44663) and Form S-3 (Nos. 33-24895, 33-62950 and 333-02895) We are aware that our report dated October 28, 1997 on our review of the interim financial information of Central Louisiana Electric Company, Inc. as of September 30, 1997 and for the three-month and nine-month periods ended September 30, 1997 and 1996 included in this Form 10-Q is incorporated by reference in the above mentioned registration statements. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statements prepared or certified by us within the meaning of Sections 7 and 11 of that Act. Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P., a registered limited liability partnership, is member of Coopers & Lybrand international. EX-27 5 FINANCIAL DATA SCHEDULE UT WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT This schedule contains summary financial information extracted from the Company's financial statements and is qualified in its entirety by reference to such financial statements. 1,000 PERIOD-TYPE 9-MOS FISCAL-YEAR-END Dec-31-1997 PERIOD-START Jan-01-1997 PERIOD-END Sep-30-1997 BOOK-VALUE PER-BOOK TOTAL-NET-UTILTIY-PLANT $ 978,423 OTHER-PROPERTY-AND-INVEST $ 2,907 TOTAL-CURRENT-ASSETS $ 116,605 TOTAL-DEFERRED-CHARGES $ 252,096 OTHER-ASSETS $ 8,725 TOTAL-ASSETS $ 1,358,756 COMMON $ 45,522 CAPITAL-SURPLUS-PAID-IN $ 107,653 RETAINED-EARNINGS $ 254,125 TOTAL-COMMON-STOCKHOLDERS-EQ $ 407,300 PREFERRED-MANDATORY $ 6,260 PREFERRED $ 11,089 LONG-TERM-DEBT-NET $ 120,888 SHORT-TERM-NOTES $ 0 LONG-TERM-NOTES-PAYABLE $ 245,000 COMMERCIAL-PAPER-OBLIGATIONS $ 47,344 LONG-TERM-DEBT-CURRENT-PORT $ 15,000 PREFERRED-STOCK-CURRENT $ 0 CAPITAL-LEASE-OBLIGATIONS $ 0 LEASES-CURRENT $ 0 OTHER-ITEMS-CAPITAL-AND-LIAB $ 505,875 TOT-CAPITALIZATION-AND-LIAB $ 1,358,756 GROSS-OPERATING-REVENUE $ 341,091 INCOME-TAX-EXPENSE $ 22,066 OTHER-OPERATING-EXPENSES $ 257,144 TOTAL-OPERATING-EXPENSES $ 279,210 OPERATING-INCOME-LOSS $ 61,881 OTHER-INCOME-NET $ 1,358 INCOME-BEFORE-INTEREST-EXPEN $ 63,239 TOTAL-INTEREST-EXPENSE $ 21,556 NET-INCOME $ 41,683 PREFERRED-STOCK-DIVIDENDS $ 1,577 EARNINGS-AVAILABLE-FOR-COMM $ 40,106 COMMON-STOCK-DIVIDENDS $ 26,395 TOTAL-INTEREST-ON-BONDS $ 6,781 CASH-FLOW-OPERATIONS $ 82,373 EPS-PRIMARY $ 1.79 EPS-DILUTED $ 1.73
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