-----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, BQNNAhiCiM4wAu4/wttZOD6c5jA657YqPSYgb8psp8+tPwIn3+uIcINt0g2Ahgx9 sWFApAGIQAjz4FKA17MxHw== 0000950129-97-000975.txt : 19970312 0000950129-97-000975.hdr.sgml : 19970312 ACCESSION NUMBER: 0000950129-97-000975 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970425 FILED AS OF DATE: 19970311 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: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-05663 FILM NUMBER: 97554269 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 DEF 14A 1 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. 1 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12 Central Louisiana Electric Company, Inc. - -------------------------------------------------------------------------------- (Name of Registrant as Specified in its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- 2 [CENTRAL LOUISIANA ELECTRIC COMPANY, INC. LOGO] NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT MARCH 12, 1997 3 [CENTRAL LOUSIANA ELECTRIC COMPANY, INC. LOGO] March 12, 1997 To the Shareholders of Central Louisiana Electric Company, Inc. The annual meeting of shareholders for 1997 will be held at the Pineville High School Auditorium at 1511 Line Street, Pineville, Louisiana, on Friday, April 25, 1997, at 9 a.m., Central time. A notice of annual meeting of shareholders and proxy statement is enclosed herewith, together with a proxy that may be used by shareholders who are unable to attend the meeting in person. The principal items of business to be transacted at the annual meeting are: (1) the election of directors; and (2) the appointment of independent auditors of the Company for the year ending December 31, 1997. The board of directors of the Company recommends election of the nominees for directors and appointment of the independent auditors, in each case as named or described in the accompanying proxy statement. You are cordially invited to attend the meeting. Even if you now expect to attend the meeting, you are requested to sign, date and return the accompanying proxy in the enclosed addressed envelope that requires no postage if mailed in the United States. If you attend the meeting, you may vote in person even though you have mailed in your proxy. Your continued interest and cooperation are greatly appreciated. Sincerely, /s/ GREGORY L. NESBITT Gregory L. Nesbitt President and Chief Executive Officer 4 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 25, 1997 To the Shareholders of Central Louisiana Electric Company, Inc. Notice is hereby given that the annual meeting of shareholders of Central Louisiana Electric Company, Inc. (the "Company") will be held at the Pineville High School Auditorium at 1511 Line Street, Pineville, Louisiana, on Friday, April 25, 1997, at 9 a.m., Central time, for the following purposes: (1) To elect directors; (2) To consider and act upon a proposal to appoint the firm of Coopers & Lybrand L.L.P., independent certified public accountants, as auditors of the Company for the year ending December 31, 1997; and (3) To transact such other business as may properly come before the meeting or any adjournments thereof. Holders of record of common stock and preferred stock of the Company at the close of business on February 25, 1997 are entitled to notice of and to vote at the annual meeting. The bylaws of the Company require that the holders of shares of capital stock representing a majority of the votes entitled to be cast be represented in person or by proxy at the meeting in order to constitute a quorum for the transaction of business. Therefore, it is important that your stock be represented at the meeting. Please date, sign and return the enclosed proxy in the accompanying envelope. By order of the board of directors. /s/ MICHAEL P. PRUDHOMME Michael P. Prudhomme Secretary/Treasurer March 12, 1997 5 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. P. O. Box 5000 Pineville, Louisiana 71361-5000 PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS OF CENTRAL LOUISIANA ELECTRIC COMPANY, INC. The accompanying proxy is solicited on behalf of the board of directors of Central Louisiana Electric Company, Inc. (the "Company") to be voted at the annual meeting of shareholders of the Company to be held at the time and place and for the purposes set forth in the foregoing notice. In addition to the original solicitation by mail, certain regular employees of the Company may solicit proxies by telephone, facsimile or in person, and Morrow & Company, Inc. ("Morrow") has been retained on customary terms to assist in the solicitation of proxies. The Company has engaged Morrow to assist in the solicitation of proxies at a fee of approximately $11,000, plus expenses. Other than Morrow, no specially engaged employees or solicitors will be retained to solicit proxies. All expenses of such solicitation, including the cost of preparing and mailing this proxy statement and the reimbursement of brokerage firms and other nominees for their reasonable expenses in forwarding proxy material to beneficial owners of the Company's capital stock, will be borne by the Company. This proxy statement and the accompanying proxy are being mailed to shareholders beginning on or about March 12, 1997. All duly executed proxies will be voted in accordance with the instructions thereon. If no instructions have been given in a proxy, the shares represented thereby will be voted at the annual meeting of shareholders or any adjournments thereof FOR Item 1 (election of the nominees for director), FOR Item 2 (appointment of Coopers & Lybrand L.L.P. as independent auditors of the Company for 1997) and, in the discretion of the persons named in the proxy, on any other business that may properly come before the meeting. Shareholders who execute proxies retain the right to revoke them at any time before they are voted. A shareholder who attends the meeting may vote in person even though such shareholder has mailed in a proxy. A proxy may be revoked by a proxy bearing a later date. The revocation of a proxy will not be effective until written notice thereof has been given to the secretary of the Company, unless the person granting such proxy votes in person. VOTING OF SECURITIES As of February 25, 1997, the record date for the determination of shareholders entitled to vote at the meeting, the Company had outstanding 22,458,556 shares of common stock, par value $2.00 per share ("Common Stock"), and 364,550 shares of preferred stock, par value $100 per share ("$100 Preferred Stock"), which are the only classes of stock of the Company outstanding and entitled to vote at the meeting. Each holder of shares of Common Stock or $100 Preferred Stock is entitled to one vote for each share held, except that at an election of directors, each holder of shares of Common Stock is entitled to cast as many votes as equal the number of such holder's shares multiplied by the number of directors to be elected, and may cumulate all or any part of such votes for one or more of the nominees. Under Louisiana law and the Company's articles of incorporation and bylaws, an abstention from voting on a matter by a shareholder present in person or represented by proxy at the meeting is not a vote "cast" and is counted neither "for" nor "against" the matter subject to the abstention. Broker non-votes on matters are treated as shares as to which voting power has been withheld by the beneficial holders of those shares and, therefore, as shares not entitled to vote. Under Louisiana law and the Company's articles of incorporation and bylaws, a quorum is determined based upon the number of outstanding shares of capital stock of the Company entitled to vote on a matter, including shares relating to abstentions. 1 6 ELECTION OF DIRECTORS The Company's bylaws provide for the division of the board of directors into three classes, Class I, Class II and Class III, with each class consisting, as nearly as possible, of one-third of the number of directors constituting the whole board. The term of each directorship is three years, and the terms of the three classes are staggered in a manner so that only one class is elected by the shareholders annually. Those persons who served as directors of the Company during the past year are named in the Company's 1996 Summary Annual Report. Three Class III directors are to be elected this year to serve as members of the board of directors until the annual meeting of shareholders in 2000, or until their successors are elected and qualified. The persons named in the accompanying proxy may act with discretionary authority (i) with respect to cumulative voting of shares of Common Stock and (ii) upon the unavailability of a nominee for election, although management is unaware of any circumstances likely to render any of the nominees unavailable for election. Unless a shareholder specifies otherwise, the persons named in the accompanying proxy intend to vote in favor of the nominees listed below. The affirmative vote of a plurality of the total votes cast is required for the election of directors. All of the nominees currently serve as directors of the Company. Directors who are members of Classes I and II, who are continuing as directors at this time and whose terms of office expire in 1998 and 1999, respectively, are named on page 3 below. Mr. Ernest L. Williamson, who has served as a director since 1989, will retire from the board of directors effective at the annual meeting of shareholders since he has reached the retirement age for outside directors specified in the Company's bylaws. Neither the shareholders nor the board of directors have nominated anyone to fill the vacancy created by Mr. Williamson's retirement. Prior to the annual meeting of shareholders, the board of directors will take action pursuant to the bylaws to decrease the number of directors from ten to nine effective with Mr. Williamson's retirement. DIRECTORS The following sets forth information concerning the three nominees for election as directors at the annual meeting of shareholders and the continuing directors, including the business experience of each during the past five years. NOMINEES FOR ELECTION UNTIL 2000 ANNUAL MEETING CLASS III DIRECTORS J. PATRICK GARRETT has been president and chief executive officer of Windsor Food Company Ltd., a privately held company engaged in the food processing business, since July 1995. Prior to that time, he had been engaged in the practice of law for more than five years as a member of the law firm of Baker & Botts, L.L.P. Mr. Garrett (age 53) has served as a director of the Company since 1981 and is a member of the compensation committee of the board of directors. F. BEN JAMES, JR. has been president of James Investments, Inc., a company primarily engaged in real estate development and international marketing, for more than five years. Mr. James (age 61) has been a director of the Company since 1986 and is chairman of the audit committee of the board of directors. He is also a director of First Commerce Corporation. A. DELOACH MARTIN, JR. has been chairman of Central Engineering & Supply Company, a company engaged in the wholesale distribution of refrigeration and mill supplies, for more than five years. Mr. Martin (age 67) became a director of the Company in 1978 and is chairman of the executive committee and a member of the audit committee of the board of directors. 2 7 CONTINUING DIRECTORS CLASS I DIRECTORS (TERMS OF OFFICE EXPIRE IN 1998) SHERIAN G. CADORIA has served as president of Cadoria Speaker and Consultancy Service since January 1992. She retired in 1990 as Brigadier General of the United States Army after a 29-year military career. Ms. Cadoria (age 57) has been a director of the Company since 1993 and is a member of the compensation committee of the board of directors. HUGH J. KELLY is a retired president and chief executive officer of Ocean Drilling & Exploration Company, a company which has offshore drilling operations and explores for and produces oil and gas. Before his retirement in 1989, he had served as chief executive officer since 1977 and as president and director since 1974. He is now an oil and gas consultant. Mr. Kelly (age 71) has been a director of the Company since 1992 and is a member of the audit committee of the board of directors. He is also a director of Tidewater Inc., Hibernia Corporation, Hibernia National Bank, Chieftain International, Inc. and Gulf Island Fabrication, Inc. GREGORY L. NESBITT has served as chief executive officer of the Company since 1993 and has served as president since 1992; he had served as chief operating officer from 1991 to 1993 and as executive vice president from 1988 to 1991. Mr. Nesbitt (age 59) has been a director of the Company since 1988 and is a member of the executive committee of the board of directors. He joined the Company in 1980 and served as senior vice president of the Company's electric power supply group until January 1988. CLASS II DIRECTORS (TERMS OF OFFICE EXPIRE IN 1999) ROBERT T. RATCLIFF has been chairman, president and chief executive officer of Ratcliff Construction Company, Inc., a company primarily engaged in the design and construction of industrial, commercial and governmental facilities, since 1975. Mr. Ratcliff (age 54) has been a director of the Company since 1993 and is a member of the audit committee of the board of directors. He is also a director of Hibernia Corporation and Hibernia National Bank. EDWARD M. SIMMONS is chairman of the board and chief executive officer of McIlhenny Company (makers of Tabasco brand products). Prior to being named chairman of the board in June 1996, Mr. Simmons had served as president and chief executive officer of McIlhenny Company for more than five years. Mr. Simmons (age 68) has been a director of the Company since 1992 and he previously served on the Company's board of directors during the period 1971-1981. He is chairman of the compensation committee and a member of the executive committee of the board of directors and also serves as a director of First Commerce Corporation, First National Bank of Commerce, Pan American Life Insurance Company and Piccadilly Cafeterias, Inc. WILLIAM H. WALKER, JR. is president and a director of Howard, Weil, Labouisse, Friedrichs Inc., an investment banking firm, and has served in such positions for more than five years. Mr. Walker (age 51) has been a director of the Company since September 1996. ORGANIZATION AND COMPENSATION OF THE BOARD OF DIRECTORS The board of directors has an executive committee, an audit committee (the "Audit Committee") and a compensation committee (the "Compensation Committee"). The members of such committees are identified under "-- Directors" above. The board of directors has no standing nominating committee. The Audit Committee recommends to the board of directors the appointment of the independent auditors of the Company, reviews the scope of audits, reviews and recommends to the board of directors financial reporting and accounting practices, reviews the scope and results of the Company's procedures for internal auditing and the adequacy of the system of internal accounting controls of the Company, and 3 8 has responsibility with respect to audit matters generally. During 1996, the Audit Committee held two meetings. The Compensation Committee approves, or in some cases recommends to the board of directors, remuneration arrangements and compensation plans involving the Company's directors, officers and employees, and administers the granting of restricted stock and other awards to eligible employees under the Company's long-term incentive compensation plan and annual incentive compensation program described below. The Compensation Committee held two meetings in 1996. The board of directors held four regular meetings and two special meetings during 1996. At intervals between formal meetings, members of the board are provided with information regarding the operations of the Company and are consulted informally from time to time with respect to pending business. During 1996, all directors attended at least 75% of the total number of meetings of the board of directors and of the committees of the board of directors on which such directors served. The director who is a regularly employed officer of the Company receives no fees for serving as a director of the Company. Each other director who is not the chairman of a board committee receives an annual fee of $12,000 for serving as a director. Each director who is the chairman of a board committee receives an additional annual fee of $3,000. Each director receives $800 for each day he or she attends one or more meetings of the board of directors or its committees. The Company also reimburses directors for travel and related expenses incurred in attending meetings of the board of directors or such committees. The Company has in effect a deferred compensation plan for directors under which a director may elect to defer all or part of his or her compensation as a director. The Company has a retirement plan for its non-employee directors under which directors with five years of service receive at age 65 or upon later retirement an annual payment equal to the annual board fee in effect at the time of retirement. Benefits are payable for life or a period equal to the number of years of service as a director, whichever is shorter. The Company also provides its non-employee directors $200,000 of life insurance and permanent total disability coverage under the Company's group accidental death and dismemberment plan, which covers all active, full-time employees. 4 9 SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT The following table sets forth the number of shares of Common Stock and $100 Preferred Stock beneficially owned as of February 1, 1997 by each director and nominee, each of the executive officers named in the Summary Compensation Table below and all directors and executive officers as a group.
AMOUNT AND NATURE OF AMOUNT AND NATURE OF BENEFICIAL BENEFICIAL OWNERSHIP OF COMMON STOCK(1) OWNERSHIP OF ---------------------------------------- $100 PREFERRED OPTIONS STOCK(2) EXERCISABLE ------------------- WITHIN PERCENT PERCENT DIRECT 60 DAYS OTHER OF CLASS INDIRECT OF CLASS ------- ----------- ----- -------- -------- -------- DIRECTORS - ----------- Sherian G. Cadoria....................... 150 * * J. Patrick Garrett....................... 4,744 * * F. Ben James, Jr......................... 2,400 * * Hugh J. Kelly............................ 2,000 * * A. DeLoach Martin, Jr.................... 19,200 * * Gregory L. Nesbitt(3).................... 45,631 2,000 * 283 * Robert T. Ratcliff....................... 1,000 * * Edward M. Simmons........................ 1,283 * * William H. Walker, Jr.................... 0 * * Ernest L. Williamson..................... 1,000 * * NAMED OFFICERS - ------------------ Robert L. Duncan......................... 29,269 2,600 * 327 * David M. Eppler.......................... 16,810 2,800 7 * 334 * Catherine C. Powell...................... 3,371 * 181 * Michael P. Prudhomme..................... 5,380 6,000 * 207 * All directors and executive officers as a group (16 persons, including those listed above).......................... 138,853 18,400 7 .70% 1,704 *
- --------------- (1) In accordance with Securities and Exchange Commission regulations, shares are deemed to be "beneficially owned" by a person if such person directly or indirectly has or shares the power to vote or to dispose of the shares, regardless of whether such person has any economic interest in the shares. In addition, a person is deemed to own beneficially any shares of which such person has the right to acquire beneficial ownership within 60 days, as in the case of the stock options which are set forth under the "Options Exercisable Within 60 Days" column. Shares of Common Stock listed under the "Direct" column are those as to which each named individual has sole voting or dispositive power, including shares held under the Company's 401(k) Savings and Investment Plan (1,311 shares for Mr. Nesbitt, 144 shares for Mr. Eppler, 29 shares for Ms. Powell, 43 shares for Mr. Prudhomme and 268 shares for other executive officers included in the amount shown for all directors and executive officers as a group) and shares granted as restricted stock awards under the Company's long-term incentive compensation plan described below (10,726 shares for Mr. Nesbitt, 3,718 shares for Mr. Eppler, 3,367 shares for Mr. Duncan, 2,576 shares for Ms. Powell, 1,760 shares for Mr. Prudhomme and 1,835 shares for other executive officers included in the amount shown for all directors and executive officers as a group). Shares listed under the "Other" column are those as to which the named individual shares voting and dispositive power with another person. (2) The shares of $100 Preferred Stock beneficially owned by the individuals indicated in the table are shares held for the respective accounts of executive officers under the ESOP Component of the Company's 401(k) Savings and Investment Plan. (3) Mr. Nesbitt is also the president and chief executive officer of the Company. * Less than 1% of class. 5 10 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section 16(a)"), requires the Company's executive officers and directors, and persons who beneficially own more than 10% of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of the Company's equity securities. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no year-end reports on Form 5 were required, during the fiscal year ended December 31, 1996, all Section 16(a) filing requirements applicable to its executive officers, directors and greater-than-10% shareholders were satisfied. EXECUTIVE COMPENSATION GENERAL The Summary Compensation Table sets forth individual compensation information with respect to the chief executive officer and the four other most highly paid executive officers of the Company for services rendered in all capacities to the Company during the fiscal years ended December 31, 1996, December 31, 1995 and December 31, 1994. The table discloses the annual salary, bonuses and other compensation awards and payouts to the named executive officers. SUMMARY COMPENSATION TABLE - --------------------------------------------------------------------------------
LONG-TERM COMPENSATION ANNUAL COMPENSATION PAYOUTS ------------------------------------ ------------ (a) (b) (c) (d) (e) (f) (g) - ------------------------------------------------------------------------------------------------------- OTHER ALL ANNUAL OTHER COMPEN- LTIP COMPEN- NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) SATION(2)(3) PAYOUTS(4) SATION(5) - --------------------------- ---- -------- -------- ------------ ---------- --------- Gregory L. Nesbitt.......... 1996 $271,081 $130,600 $11,954 $144,187 $6,000 President and Chief 1995 269,796 94,800 10,546 146,135 6,000 Executive Officer 1994 242,431 66,000 17,530 54,476 6,000 David M. Eppler............. 1996 $140,808 $62,800 $ 4,302 $ 58,526 $6,483 Executive Vice President 1995 140,807 49,956 4,446 72,970 6,442 1994 140,031 25,300 7,012 27,343 6,098 Robert L. Duncan............ 1996 $131,004 $53,100 $ 3,909 $ 51,626 $6,939 Vice President -- Customer 1995 128,945 42,268 4,080 69,182 6,898 Operations 1994 124,200 31,900 6,584 30,036 6,843 Catherine C. Powell......... 1996 $102,000 $44,400 $ 2,872 $ 33,523 $5,683 Vice President -- Employee 1995 96,024 32,528 1,666 0 4,715 & Corporate Services 1994 85,126 15,400 2,182 0 3,405 Michael P. Prudhomme........ 1996 $102,672 $30,300 $ 2,171 $ 27,505 $6,038 Secretary -- Treasurer 1995 107,970 17,600 2,606 48,258 5,576 1994 99,451 9,000 3,326 26,509 5,244
- --------------- (1) The "Bonus" column includes cash awards that are payable or have been paid to executive officers pursuant to an annual incentive compensation program under which participants may receive incentive compensation in addition to base compensation determined by the performance of the Company and the individual participants, and merit lump-sum payments received by certain named officers. (2) For 1994, 1995 and 1996, the "Other Annual Compensation" column includes long-term incentive plan compensation which represents dividends paid on restricted stock awards. Dividends on restricted stock are paid quarterly and at the same rate as dividends on the Common Stock. As (Footnotes continued on following page) 6 11 permitted by the rules on executive officer compensation disclosure, restricted stock awards granted under the Company's long-term incentive compensation plan, which are subject to performance-based vesting requirements, are reported under the "Long-Term Incentive Plan -- Awards in 1996" table below. The number and value of the aggregate restricted stock holdings at December 31, 1996, a portion of which is included in the "LTIP Payouts" column, for each of the named executive officers were as follows: Gregory L. Nesbitt, 7,813 shares with a value of $215,834; David M. Eppler, 2,812 shares with a value of $77,681; Robert L. Duncan, 2,555 shares with a value of $70,582; Catherine C. Powell, 1,877 shares with a value of $51,852; and Michael P. Prudhomme, 1,419 shares with a value of $39,200. (3) For 1994, the "Other Annual Compensation" column includes the amount paid to the named executive officers as reimbursement for payment of taxes incurred relating to future benefits accrued in 1994 pursuant to the Company's Supplemental Executive Retirement Plan. (4) For 1994, 1995 and 1996, the "LTIP Payouts" column includes the value of restricted stock and opportunity shares under the Company's long-term incentive compensation plan vested in 1995 relating to the performance period January 1, 1992 to December 31, 1994, in 1996 relating to the performance period January 1, 1993 to December 31, 1995, and in 1997 relating to the performance period January 1, 1994 to December 31, 1996, respectively, and related tax gross-up amounts. (5) For 1994, 1995 and 1996, respectively, the "All Other Compensation" column includes: (i) amounts contributed or accrued by the Company under the Company's 401(k) Savings and Investment Plan on behalf of the named executive officers as follows: Gregory L. Nesbitt, $6,000, $6,000 and $6,000; David M. Eppler, $5,999, $6,000 and $6,000; Robert L. Duncan, $6,000, $6,000 and $6,000; Catherine C. Powell, $3,405, $4,594 and $5,488; and Michael P. Prudhomme, $4,436, $4,679 and $5,099; and (ii) term life insurance premiums paid for the benefit of the named executive officers as follows: Gregory L. Nesbitt, $0, $0 and $0; David M. Eppler, $99, $442 and $483; Robert L. Duncan, $843, $898 and $939; Catherine C. Powell, $0, $121 and $195; and Michael P. Prudhomme, $808, $897 and $939. STOCK OPTION PLANS The Company currently maintains two plans pursuant to which options to purchase shares of Common Stock are outstanding or available for future grants. The Company's 1981 Incentive Stock Option Plan (the "Stock Option Plan"), covering an aggregate of 800,000 shares of Common Stock, expired in 1991 and no future grants can be made under this plan. As of February 1, 1997, options covering 18,400 shares remained to be exercised pursuant to grants made under the Stock Option Plan. The Company has in effect a long-term incentive compensation plan pursuant to which certain officers and key employees may receive stock options or stock appreciation rights. This plan is discussed in greater detail under the section "Long-Term Incentive Plan" below. No stock options were granted under the long-term incentive compensation plan in 1996. Although the long-term incentive compensation plan permits grants of stock appreciation rights, no such rights had been granted under the plan as of December 31, 1996. 7 12 The following table sets forth, for each of the persons listed in the Summary Compensation Table, certain information concerning stock options exercised during 1996. The table also discloses information concerning unexercised stock options held at December 31, 1996. AGGREGATE OPTION EXERCISES IN 1996 AND 1996 YEAR-END OPTION VALUES - --------------------------------------------------------------------------------
(a) (b) (c) (d) (e) - ---------------------------------------------------------------------------------------------------------------- NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE- OPTIONS AT MONEY OPTIONS AT SHARES DECEMBER 31, 1996(#) DECEMBER 31, 1996 ACQUIRED ON VALUE --------------------------- ------------------------------ NAME EXERCISE(#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE ---- ----------- ----------- ----------- ------------- -------------- ------------- Gregory L. Nesbitt..... 1,000 $10,595 2,000 0 $21,690 $0 David M. Eppler........ 2,800 28,266 2,800 0 30,366 0 Robert L. Duncan....... 3,000 30,847 2,600 0 28,197 0 Catherine C. Powell.... 0 0 0 0 0 0 Michael P. Prudhomme... 0 0 6,000 0 65,070 0
- --------------- (1) Based on the closing price of the Common Stock on the New York Stock Exchange Composite Tape on the exercise date and at year-end, as the case may be, minus the exercise price. LONG-TERM INCENTIVE PLAN The Company has in effect a long-term incentive compensation plan (the "Long-Term Plan"), pursuant to which certain officers and key employees may receive stock incentives and/or cash incentives based on the value of the Common Stock. Five types of awards may be granted under the Long-Term Plan: (i) stock awards consisting of restricted stock and "opportunity shares" which may be awarded in connection with restricted stock awards; (ii) restricted unit awards consisting of Common Stock equivalent units and "opportunity units" which may be awarded in connection with restricted unit awards; (iii) nonstatutory stock options or incentive stock options; (iv) stock appreciation rights attached to stock options; and (v) stock appreciation rights not attached to stock options. An aggregate of 800,000 shares of Common Stock, or cash equivalents of Common Stock, may be issued pursuant to the Long-Term Plan (such number being subject to antidilution adjustments under certain circumstances). Plan participants, awards to participants, performance measurement periods and performance goals are determined by the Compensation Committee. Upon a change of control of the Company or merger or similar transaction involving the Company, all restrictions imposed on awards under the Long-Term Plan will lapse, all unvested rights will vest and all stock options and similar rights granted under the plan will become fully exercisable, subject to certain limitations imposed by the Long-Term Plan. The following table sets forth, for each of the persons listed in the Summary Compensation Table, information as to long-term incentive plan awards granted under the Long-Term Plan during 1996. LONG-TERM INCENTIVE PLAN -- AWARDS IN 1996 - --------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) - ------------------------------------------------------------------------------------------------------- ESTIMATED FUTURE PAYOUTS PERFORMANCE OR ------------------------------------------ OTHER PERIOD UNTIL NUMBER OF NUMBER OF NUMBER OF NUMBER OF MATURATION OR THRESHOLD TARGET MAXIMUM NAME SHARES(#)(1) PAYOUT SHARES(#)(2) SHARES(#)(2) SHARES(#)(3) ---- ------------ ------------------ ------------ ------------ ------------ Gregory L. Nesbitt...... 3,036 1/1/96-12/31/98 759 3,036 4,554 David M. Eppler......... 1,048 1/1/96-12/31/98 262 1,048 1,572 Robert L. Duncan........ 975 1/1/96-12/31/98 244 975 1,462 Catherine C. Powell..... 759 1/1/96-12/31/98 190 759 1,139 Michael P. Prudhomme.... 573 1/1/96-12/31/98 143 573 860
(Footnotes on following page) 8 13 - --------------- (1) The amounts under column (b) "Number of Shares" represent the target level of performance-based restricted stock awards granted to the named executive officers in 1996, as reflected in column (e) "Number of Target Shares." For further information concerning these awards and the award of "opportunity shares" granted in connection with the restricted stock, see the discussion under footnotes 2 and 3 below. (2) The amounts under columns (d) "Number of Threshold Shares" and (e) "Number of Target Shares" represent performance-based restricted stock awards granted to the named executive officers in 1996 that will vest under the threshold and target levels established by the Compensation Committee. The restricted stock awards vest based on total return to shareholders (Common Stock price appreciation plus dividends paid during performance cycle) in relation (by percentile) to a peer group of other utilities ("Total Return to Shareholders"). The vesting (payout) schedule for the restricted stock awards set forth under these two columns, based on the Company's Total Return to Shareholders ranking, is as follows: (a) No awards vest if the Company's ranking is below the 25th percentile. (b) Threshold performance provides 25% award payout at the 25th percentile. (c) Target performance provides 100% award payout from the 45th percentile to the 55th percentile. Performance awards above the threshold level and below the target level will be prorated. The recipient of a restricted stock award is the record owner of the number of target shares awarded, which are issued in the name of the recipient but held in escrow by the Company until delivery to or forfeiture by the recipient. The recipient may vote the shares covered by the award and receives dividends with respect thereto, but generally may not sell, pledge or otherwise transfer such shares until the restriction period imposed by the Compensation Committee comes to an end and the performance goals established by the committee have been met. The recipient may, at the end of the restriction period, forfeit all or a portion of the restricted shares awarded depending on the performance level achieved. The restriction period for restricted stock awarded during 1996 is three years from the date of grant (January 1999). The restricted stock awards require an additional three-year holding period following vesting before any shares may be sold. (3) The amounts under column (f) "Number of Maximum Shares" represent the number of performance-based restricted stock awards that vest at the target level set forth under column (e) "Number of Target Shares" plus the number of performance-based "opportunity shares" granted to the named executive officers in 1996 that will vest between the target and maximum levels established by the Compensation Committee. The "opportunity shares" vest based on Total Return to Shareholders and will be issued when the restriction period on the associated restricted stock awards lapses. The vesting (payout) schedule for the "opportunity shares" included in this column, based on the Company's Total Return to Shareholders ranking, is as follows: (a) No awards of "opportunity shares" vest if the Company's ranking is at or below the 55th percentile. (b) Maximum performance provides 100% "opportunity share" award payout (equal to 50% of number of target shares of restricted stock) at the 75th percentile. Performance awards of "opportunity shares" above the target level and below the maximum level will be prorated. "Opportunity shares" awarded in connection with a restricted stock award will not be issued until the lapse of restrictions on the related restricted stock and do not entitle the recipient to the rights of a shareholder with respect to the "opportunity shares" until the time of issuance of the Common (Footnotes continued on following page) 9 14 Stock representing the "opportunity shares." Provisions of the "opportunity share" awards require an additional three-year holding period following vesting before any of the shares may be sold. PENSION PLAN The Company has in effect a pension plan and related trust (the "Pension Plan"), covering substantially all employees of the Company, under which the Company makes such contributions as are actuarially necessary to provide for the retirement benefits established under the plan. Benefits are based on employees' earnings, length of service, age at retirement, payment form elected, application of statutory benefit limits, and certain other factors, and are payable upon normal retirement at age 65, upon early retirement beginning at age 55 or after termination of employment under certain circumstances. Annual benefits under the Pension Plan are limited to the maximum amount prescribed by sections 415 and 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code"). For 1997, the annual compensation of each employee which is to be taken into account under the Pension Plan cannot exceed $160,000, and the maximum allowable pension benefit for the plan is limited to $125,000. Payments to retired employees under the Pension Plan are not reduced for Social Security benefits or other offsetting amounts. In addition, effective July 1, 1992, the Company established a Supplemental Executive Retirement Plan (the "SERP") for the benefit of certain participants designated by the Compensation Committee. The SERP provides participants who have completed ten years of service and terminated employment after reaching age 65 with a right to monthly payments for the life of the participant and surviving spouse equal to 65% of final average compensation, reduced by the Pension Plan benefit and benefits under other previous employer pension plans. The SERP also provides adjusted benefits for early retirement on or after age 55 with ten years of service, for termination of service due to disability and for beneficiaries in the event of the death of the participant. Benefits under the SERP are payable out of the Company's general funds. The SERP participants in 1996 were the five individuals named in the Summary Compensation Table and one other executive officer of the Company. Under the Pension Plan, eligible remuneration for purposes of determining the annual pension benefit payable to a participant upon retirement is based upon the average of the five consecutive years (of the participant's last ten years of employment) during which the participant received his or her highest amount of remuneration from the Company. Under the SERP, eligible remuneration is based on the sum of the highest annual salary paid during the five years prior to termination of employment and the average of the three highest annual incentive compensation program awards paid to the participant during the preceding five years. The remuneration covered by the Pension Plan and the SERP consists of salaries and bonuses paid to Pension Plan and SERP participants, including the salaries and bonuses set forth in columns (c) and (d) of the Summary Compensation Table. The estimated annual benefits payable upon retirement at normal retirement age under the Pension Plan and the SERP for Mr. Nesbitt, Mr. Eppler, Mr. Duncan, Ms. Powell and Mr. Prudhomme would be approximately $239,339, $126,084, $114,013, $88,205 and $85,478, respectively. These amounts are based on the assumption that these executive officers will continue to work for the Company until age 65 and that their earnings in the five years prior to such retirement will be the same, respectively, as their earnings during the past five years. LONG-TERM DISABILITY PLAN The Company maintains a long-term disability plan that provides disability benefits up to 60% of salary or a maximum of $7,500 per month for all active full-time employees with two or more years of service. These benefits are provided for the first 24 months out of the Company's general funds, and thereafter pursuant to an insurance contract under which premiums are paid by the Company. SEVERANCE AGREEMENTS The Company has severance agreements with Mr. Nesbitt, Mr. Eppler, Mr. Duncan, Ms. Powell and Mr. Prudhomme and one other executive officer of the Company. The agreement for each such officer 10 15 provides generally for payment of a minimum annual salary equal to such executive officer's current annual base salary, participation in all Company benefit plans and programs applicable to the Company's executive officers and reimbursement of employment-related expenses incurred while performing such officer's duties. Under the severance agreements, the base salaries for 1997 for Mr. Nesbitt, Mr. Eppler, Mr. Duncan, Ms. Powell and Mr. Prudhomme are $300,000, $162,000, $144,100, $112,200 and $102,700, respectively. The severance agreements had an initial term of three years ending on July 1, 1995, with continuously renewing one-year extensions thereafter, unless either the Company or the executive officer gives notice prior to such extension that such officer's term of employment will not be extended. The severance agreements include provisions governing reductions in salary or duties, termination of employment and change in control. Generally, if the executive's employment is terminated (i) by the Company for any reason other than a material breach by the executive (as defined in the agreements) or (ii) by the executive following a reduction in base salary (other than a reduction in pay uniformly applicable to all officers) or a significant reduction in the executive's authority, duties or responsibilities, the executive is entitled to receive, as severance pay, an amount equal to his or her annual base salary at the time of termination. The executive is also entitled to continued health plan coverage for up to 18 months after such termination. The executive is also entitled to require the Company to (i) purchase his or her principal residence (if it is located within 60 miles of the Company's Pineville office) for an amount equal to the greater of (x) the purchase price of the residence plus the cost of capital improvements or (y) the fair market value of the residence, and (ii) pay or reimburse the executive for relocation costs. Generally, in the event a change in control occurs and within three years after such change in control the executive's employment is terminated by the Company for reasons other than a material breach by the executive (as defined in the agreements) or the executive terminates his or her employment for good reason (as defined in the agreements), the Company will pay the executive, in lieu of any severance obligation otherwise payable under the severance agreement, an amount equal to three times the executive's average compensation paid during the five calendar years preceding the change in control. In the event of a change in control, payments under the agreements for the individuals named in the Summary Compensation Table, using compensation for the years 1992 through 1996, would be approximately as follows: Mr. Nesbitt, $706,157; Mr. Eppler, $423,491; Mr. Duncan, $394,352; Ms. Powell, $239,324; and Mr. Prudhomme, $309,404. However, the severance agreements limit the amount payable upon a change in control to an amount that would not result in the disallowance of a deduction to the Company under the "golden parachute" provisions of the Code or the imposition of an excise tax on the employee under Section 4999 of the Code. The severance agreements also generally require the executives not to disclose confidential information relating to the Company and, for a period of one year after termination, not to hire Company officers, employees or agents, or solicit or divert any customer or supplier of the Company. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee (in this report, the "Committee") has prepared its report of 1996 executive compensation. The Committee, composed entirely of directors who are not current or former officers or employees of the Company, is responsible for implementing, or making recommendations to the board of directors with respect to, the Company's officer compensation programs. The Committee has retained the services of executive compensation consultants to provide professional assistance, data and advice regarding pay practices at the Company. This report describes the basis on which such 1996 compensation determinations or recommendations were made by the Committee with respect to the Company's executive officers. This report, required by rules of the Securities and Exchange Commission, provides specific information regarding compensation of the Company's president and chief executive officer (the "Chief Executive Officer") and general information regarding compensation of the Company's executive officers as a group. The Chief Executive Officer and four other most highly compensated executive officers are sometimes referred to as the "Named Executives." 11 16 Section 162(m) of the Code limits to $1,000,000 in a taxable year the deduction publicly held companies may claim for compensation paid to an executive officer, unless certain requirements are met. The Committee has reviewed this provision and has determined that the Company is not affected by Section 162(m) because no compensation paid to any officer currently approaches or is expected to approach $1,000,000 in the near term. Accordingly, no change to any of the compensation plans is contemplated at this time. Compensation Philosophy and Overall Objective of Executive Compensation Programs The Company seeks to ensure that executive compensation is directly linked to corporate performance and shareholder value, as well as comparable pay practices in the industry. Each year, the Committee, in making compensation decisions and recommendations, and the board of directors, in approving base salaries, review the performance of the Company and compare such performance to specified internal and external performance standards. The Committee has developed the following compensation guidelines as the principles upon which compensation decisions and recommendations are made: - Provide variable compensation opportunities that are linked to the financial performance of the Company and that align executive compensation with the interests of shareholders. - Provide incentives to increase corporate performance and shareholder value relative to those of other electric utilities. - Establish executive officer base pay levels somewhat below the competitive market, while providing incentive awards (from the annual and long-term plans) above the market, provided that performance objectives are achieved. - Provide a competitive total compensation package that is "at-risk" driven and enables the Company to attract and retain key executives. Compensation Program Components The compensation program for executive officers is currently comprised of base salary and two at-risk components: annual performance-related incentives and performance-based awards of restricted stock and related "opportunity shares" granted under the Long-Term Plan, as discussed above under "Long-Term Incentive Plan." In addition, certain of the executive officers have stock options outstanding that were granted under the Stock Option Plan, which expired in 1991 and under which no future grants can be made. See "Stock Option Plans." The compensation programs for the Company's executive officers are further explained below. - Base Salary -- Base pay levels recommended by the Committee are largely determined through comparisons with those of other electric utilities of similar size and complexity to the Company. These companies, as well as other electric utilities, are included in the Edison Electric Institute Index of approximately 100 investor-owned electric utilities (the "Edison Electric Institute Index") graphed in the performance graph shown elsewhere. Actual salaries are based on individual performance contributions within a salary structure that is established through job evaluation and market comparisons. While the actual relationship may vary from year to year, it is the Company's policy to have base pay levels for the Company's executive officers, including the Named Executives, to be at or somewhat below the average of the competitive market. Including 1996 base salary increases, actual base pay levels for the Company's executive officers, including the Named Executives, are consistent with this policy. Increases in base salary for 1996 to continuing executive officers were recommended by the Committee and approved by the board of directors in January 1996. In January 1996, the base salary of one of the executive officers, other than the Chief Executive Officer who received a 5% increase (see "-- 1996 Compensation for the President and Chief Executive Officer -- Base Salary"), was increased 4%. 12 17 The other executive officers, whose base salaries were already at the average of the competitive market, received merit lump-sum payments in 1996 in lieu of increases in base salary. The merit lump-sum payments to the Named Executives averaged approximately 6% of base salary and the other executive officer received a merit lump-sum payment equal to 2% of base salary. The merit lump-sum payments for 1996 to the executive officers were recommended by the Committee and approved by the board of directors in January 1996 and were paid in February 1996 in order to recognize the individual performance and team contribution of each of these executive officers. - Annual Incentive Compensation -- The Company's executive officers are eligible to participate in an annual incentive compensation program with awards generally based on earnings per share goals and the Company's actual return on equity in relation to that of the Edison Electric Institute Index, a peer group of approximately 100 electric utilities. Earnings per share and return on equity goals are generally of equal weight. Based on actual results, awards from 0% to 150% of target incentive levels may be made. For 1996, the earnings per share target was $2.10. The Company's return on equity target was the 50th to 59th percentile of the Edison Electric Institute Index. The Company's return on equity performance for the twelve months ended September 30, 1996 was in the 75th to 99th percentile of the Edison Electric Institute Index, and its primary earnings per share in 1996 were $2.23. Based on the earnings per share and return on equity financial performance, the Committee approved actual awards for 1996 at 150% of target annual bonus levels. The objective of the annual incentive compensation program is to deliver competitive levels of at-risk compensation (i.e., award levels compared to the Company's competitive peer group for comparable performance) for the attainment of short-term financial objectives that the Committee believes are primary determinants of shareholder value over time, and to reinforce behaviors that contribute to consistent growth of the enterprise. The Committee bases target annual bonus levels on average competitive bonus levels among other electric utility companies of similar size and complexity. These companies are included in the Edison Electric Institute Index. Targeted awards for executive officers of the Company under this program range from 15% to 32% of base salary. Awards are paid in the first quarter of the year following the year for which the award is earned. The amounts of actual awards are further subject to the discretion of the Committee, within established program guidelines (i.e., the ability of the Committee to make adjustments to reflect extraordinary items of income or expense). - Long-Term Incentive Compensation Plan -- The Committee supports increased stock ownership by key executives of the Company and favors awards to key executives of stock and/or cash based on the Company's stock price appreciation and other measures of performance. The basis for such position is the Committee's belief that the Company benefits by providing those persons who have substantial responsibility for the management and growth of the Company with additional incentives by increasing their proprietary interest in the success of the Company or by awarding those persons for increases in the Company's stock price or the achievement of other long-term performance goals for the Company. Thus, under the Long-Term Plan, executive officers may be eligible to receive performance-based grants of restricted stock, related "opportunity shares," restricted unit grant awards, related "opportunity units," stock options and stock appreciation rights, giving them the right to receive or purchase shares of Common Stock under specified circumstances, or to receive cash awards based on the Company's stock price appreciation or the achievement of pre-established long-term performance goals. The Committee believes that such programs are also important as a means of retaining senior management over the long term. The number of shares of stock and other awards granted to executive officers under the Long-Term Plan is based on competitive practices (i.e., compensation practices of other utilities that constitute the Edison Electric Institute Index). Grants of restricted stock and awards of related "opportunity shares" under the Long-Term Plan were made to all executive officers in 1996. Awards to executive officers are based on a competitive compensation analysis (i.e., compensation practices of other utilities that constitute the Edison Electric Institute Index). Awards actually earned are based on the Company's performance during a three-year performance cycle compared to the other electric utilities in the 13 18 Edison Electric Institute Index over the same period. For the fourth three-year performance cycle which ended December 31, 1996, the Company's total return to shareholders placed it at the 73rd percentile compared to the Edison Electric Institute Index, thus meeting the objectives, as specified in the Long-Term Plan, for such performance cycle. Provisions of the restricted stock and "opportunity share" grants require an additional three-year holding period following vesting before any shares may be sold. No other types of awards under the Long-Term Plan were made to executive officers in 1996. Other Executive Compensation Plans The Company also provides executive officers with certain executive benefits, such as a supplemental retirement plan and severance agreements. The Committee considers each of these programs to be reasonably competitive and appropriate for executive officers of the Company. 1996 Compensation for the President and Chief Executive Officer The Committee believes that the role of the Chief Executive Officer is particularly important in reaching corporate goals and accomplishing organizational objectives. As such, for fiscal year 1996, the Committee made the following recommendations or determinations regarding the compensation for Mr. Nesbitt: - Base Salary -- Mr. Nesbitt is president and chief executive officer of the Company. His base salary was increased in January 1996 from $260,000 to $272,000, an increase of approximately 5%. The amount of this increase was based on the continued performance of Mr. Nesbitt as evaluated by the Committee. Even with this adjustment, his base pay is significantly below peers in the industry. - Annual Incentive -- Mr. Nesbitt was eligible to participate in 1996 in the Company's annual incentive compensation program discussed in this report above (see "-- Annual Incentive Compensation"). The Chief Executive Officer's 1996 target award was 32% of his base salary. His actual award for 1996 was 150% of target, or 48%. - Long-Term Incentive -- Awards were made to Mr. Nesbitt under the Long-Term Plan during 1996. The number of shares of stock and other awards granted to the Chief Executive Officer under the Long-Term Plan are based on competitive practices within the industry. Administration is consistent with the provisions of the plan as described above in "Long-Term Incentive Plan." For the three-year performance cycle ended December 31, 1996, the Chief Executive Officer's award was 147.5% of target, or 2,912 shares. Summary The Committee believes that base pay levels and increases and performance-based awards are reasonable and competitive with the compensation programs provided to officers and other executives by electric utilities of similar size and complexity to the Company. The Committee believes further that the degree of performance sensitivity in the annual incentive program continues to be reasonable, yielding awards that are directly linked to the annual financial and operational results of the Company. The Long-Term Plan continues to provide, in the view of the Committee, financial opportunities to participants and retention features for the Company that are consistent with the relative returns that are generated on behalf of the Company's shareholders. The Compensation Committee Edward M. Simmons, Chairman Sherian G. Cadoria, Brig. General (retired) J. Patrick Garrett Ernest L. Williamson 14 19 PERFORMANCE GRAPH The following performance graph compares the performance of the Common Stock to the S&P 500 Index and to the Edison Electric Institute Index (which includes the Company) for the Company's last five fiscal years. The graph assumes that the value of the investment in the Common Stock and each index was $100 at December 31, 1991 and that all dividends were reinvested.
Measurement Period CLECO S&P 500 Index EEI Index(1) (Fiscal Year Covered) 1991 $100 $100 $100 1992 $104 $108 $108 1993 $113 $118 $120 1994 $113 $120 $106 1995 $139 $165 $139 1996 $151 $203 $140
(1) The Edison Electric Institute Index is comprised of: Allegheny Power System, Inc.; American Electric Power Company, Inc.; Atlantic Energy, Inc.; Baltimore Gas & Electric Company; Bangor Hydro-Electric Company; Black Hills Corporation; Boston Edison Company; Carolina Power & Light Company; Centerior Energy Corporation; Central & South West Corporation; Central Hudson Gas & Electric Corporation; Central Louisiana Electric Company, Inc.; Central Maine Power Company; Central Vermont Public Service Corporation; Cilcorp Inc.; CINergy Corp.; Cipsco Inc.; CMS Energy Corp.; Commonwealth Energy System; Consolidated Edison Company of New York, Inc.; Delmarva Power & Light Co.; Dominion Resources, Inc.; DPL Inc.; DQE Inc.; DTE Energy Co.; Duke Power Company; Eastern Utilities Associates; Edison International (formerly SCEcorp); Empire District Electric Company; Enova Corp.; Entergy Corporation; ESELCO Inc.; Florida Progress Corporation; FPL Group, Inc.; General Public Utilities Corporation; Green Mountain Power Corporation; Hawaiian Electric Industries, Inc.; Houston Industries Incorporated; Idaho Power Company; IES Industries, Inc.; Illinova Corp.; Interstate Power Co.; IPALCO Enterprises Inc.; Kansas City Power & Light Company; KU Energy Corp.; LG&E Energy Corp.; Long Island Lighting Company; Madison Gas & Electric Co.; Maine Public Service Company; MidAmerican Energy Co.; Minnesota Power & Light Co.; Montana Power Co.; Nevada Power Company; New England Electric System; New York State Electric & Gas Corporation; Niagara Mohawk Power Corp.; NIPSCO Industries, Inc.; Northeast Utilities; Northern States Power Co.; Northwestern Public Service Co.; Ohio Edison Company; Oklahoma Gas & Electric Company; Orange & Rockland Utilities, Inc.; Otter Tail Power Company; Pacific Gas & Electric Co.; Pacificorp; Peco Energy Co.; Pinnacle West Capital Corp.; Portland General Corporation; Potomac Electric Power Corporation; PP&L Resources Inc.; Public Service Co. of Colorado; Public Service Company of New Mexico; Public Service Enterprise Group Incorporated; Puget Sound Power & Light Company; Rochester Gas & Electric Corporation; SCANA Corp.; Sierra Pacific Resources; SIGECORP (holding company of Southern Indiana Gas & Electric Co.); Southern Company; Southern Indiana Gas & Electric Co.; Southwestern Public Service Company; St. Joseph Light & Power Co.; TECO Energy, Inc.; Texas Utilities Company; TNP Enterprises, Inc.; Tucson Electric Power Company; Unicom Corp.; Union Electric Co.; United Illuminating Company; Unitil Corp.; Upper Peninsula Energy Corp.; Utilicorp United Inc.; Washington Water Power Co.; Western Resources, Inc.; Wisconsin Energy Corporation; WPL Holdings Inc.; and WPS Resources Corp. 15 20 APPOINTMENT OF AUDITORS The firm of Coopers & Lybrand L.L.P., independent certified public accountants, has served as auditors for the Company continuously since 1952. The board of directors, upon recommendation of the Audit Committee, proposes to continue such firm's services as auditors for the Company for the year ending December 31, 1997. Neither such firm nor any of its associates has any relationship with the Company except in their capacity as auditors. The persons named in the accompanying proxy will vote in accordance with the choice specified thereon, or, if no choice is properly indicated, in favor of the appointment of Coopers & Lybrand L.L.P. as auditors of the Company. A representative of Coopers & Lybrand L.L.P. is expected to attend the annual meeting. If present, the representative will have an opportunity to make a statement during the meeting if he or she so desires and will respond to appropriate questions raised during the meeting. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth, to the knowledge of the Company based on a review of the information and as of the dates indicated, certain information with respect to each person who is the beneficial owner of more than 5% of the outstanding shares of any class of the Company's voting securities.
SHARES OF COMMON STOCK SHARES OF $100 PREFERRED BENEFICIALLY OWNED STOCK BENEFICIALLY OWNED ------------------------ ------------------------ AMOUNT AND AMOUNT AND NATURE OF NATURE OF BENEFICIAL PERCENTAGE BENEFICIAL PERCENTAGE NAME AND ADDRESS OWNERSHIP OF CLASS OWNERSHIP OF CLASS ---------------- ---------- ---------- ---------- ---------- College Retirement Equities Fund 730 Third Avenue New York, NY 10017........................ 1,134,364(1) 5.1% State Street Bank and Trust Company, Trustee of the ESOP Component of the Company's 401(k) Savings and Investment Plan 225 Franklin Street Boston, MA 02110.......................... 292,507(2) 80.2%
- --------------- (1) As of December 31, 1996, based on a Schedule 13G filed with the Securities and Exchange Commission. The reporting entity states that it has sole voting and dispositive power with respect to 1,134,364 shares of Common Stock and shared voting and dispositive power with respect to no shares of Common Stock. (2) As of December 31, 1996, based upon a Schedule 13G filed with the Securities and Exchange Commission. The reporting entity states that it has shared dispositive power with respect to 292,507 shares and shared voting power with respect to 292,507 shares. Such 292,507 shares are held by State Street Bank and Trust Company as trustee (the "ESOP Trustee") of the ESOP component (the "ESOP") of the Company's 401(k) Savings and Investment Plan (the "Savings Plan"). Such 292,507 shares are convertible under certain circumstances pursuant to the Company's Restated Articles of Incorporation and the governing instruments of the ESOP and the Savings Plan into 1,404,034 shares of Common Stock, subject to antidilution adjustment, or approximately 6.3% of the Common Stock outstanding as of December 31, 1996. Participants in the Savings Plan have voting rights with respect to shares of $100 Preferred Stock (or Common Stock into which such stock has been converted) allocated to their accounts. The ESOP Trustee is required to vote unallocated shares in the same proportion as allocated shares as to which it has received voting instructions from participants. Participants in the Savings Plan have, in the event of a tender or exchange offer, (Footnotes continued on following page) 16 21 investment discretion with respect to shares of $100 Preferred Stock (or Common Stock into which such stock has been converted) allocated to their accounts. In such an event, the ESOP Trustee is required to tender unallocated shares in the same proportion that it tenders allocated shares as to which it has received investment instructions, but has no power to tender allocated shares as to which it has received no investment instructions. The reporting entity also states that it, as trustee of various collective investor funds for employee benefit plans and other index accounts and various personal trust accounts, has sole voting power with respect to 96,442 shares of Common Stock, shared voting power with respect to 2,931 shares of Common Stock, sole dispositive power with respect to 98,308 shares of Common Stock and shared dispositive power with respect to 3,965 shares of Common Stock. ANNUAL REPORT The Company's 1996 Summary Annual Report, together with the enclosed 1996 Annual Report to Shareholders, which contains the Company's consolidated financial statements for the year ended December 31, 1996, accompany the proxy material being mailed to all shareholders. The Summary Annual Report and the Annual Report to Shareholders are not a part of the proxy solicitation material. PROPOSALS BY SHAREHOLDERS Proposals of shareholders intended to be presented at the Company's annual meeting of shareholders to be held in 1998, and otherwise eligible, must be received by the Company (at the address indicated on the first page of this proxy statement) no later than November 12, 1997 (subject to certain provisions of the Company's bylaws which require that certain proposals be submitted 180 days before such meeting) to be included in the Company's proxy material and form of proxy relating to such meeting. OTHER MATTERS Management does not intend to bring any other matters before the meeting and has not been informed that any other matters are to be presented to the meeting by others. If other matters properly come before the meeting or any adjournments thereof, the persons named in the accompanying proxy and acting thereunder intend to vote in accordance with their best judgment. ALL SHARES THAT A SHAREHOLDER OWNS, NO MATTER HOW FEW, SHOULD BE REPRESENTED AT THE ANNUAL MEETING OF SHAREHOLDERS. THE ACCOMPANYING PROXY SHOULD THEREFORE BE COMPLETED, SIGNED, DATED AND RETURNED AS SOON AS POSSIBLE. By order of the board of directors. /s/ GREGORY L. NESBITT Gregory L. Nesbitt President and Chief Executive Officer March 12, 1997 17 22 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. Proxy Solicited on Behalf of the Board of Directors of the Company for the Annual Meeting on April 25, 1997 P The undersigned hereby constitutes and appoints Gregory L. Nesbitt, David M. Eppler and Michael P. Prudhomme, and each of them (the "Proxy R Committee"), his or her true and lawful agents and proxies, with full power of substitution in each, to represent the undersigned at the O annual meeting of shareholders of Central Louisiana Electric Company, Inc., to be held at the Pineville High School Auditorium, 1511 Line X Street, Pineville, Louisiana, on Friday, April 25, 1997, and at any adjournments thereof, on all matters coming before said meeting. Receipt Y of the notice of the meeting and the proxy statement, both dated March 12, 1997, is acknowledged. The following items of business will be considered at the aforesaid annual meeting: 1.Election of three Class III Directors. Nominees: J. Patrick Garrett, F. Ben James, Jr. and A. DeLoach Martin, Jr., whose terms of office expire in 2000. 2. Proposal to approve appointment of Coopers & Lybrand L.L.P. as auditors. YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES (SEE REVERSE SIDE) BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXY COMMITTEE CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. ACTION TAKEN PURSUANT TO THIS PROXY CARD WILL BE EFFECTIVE AS TO ALL THE SHARES (WHETHER COMMON OR PREFERRED, AND, IF PREFERRED, OF ANY CLASS OR SERIES) THAT YOU OWN. 23 Please mark your |x| votes as in this 1628 example. This proxy when executed will be voted in the manner directed herein. If no direction is made, this proxy will be voted "FOR" Items 1 and 2. - ------------------------------------------------------------------------------ The Board of Directors recommends a vote FOR all proposals. - ------------------------------------------------------------------------------ 1. Election of FOR WITHHELD Directors. | | | | (see reverse) For, except vote withheld from the following nominee(s): - -------------------------------------------------------- 2. Proposal to approve FOR AGAINST ABSTAIN appointment of | | | | | | Coopers & Lybrand L.L.P. as auditors. NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, trustee or guardian, please give full title as such. - --------------------------------------------- - --------------------------------------------- SIGNATURE(S) DATE 24 EXHIBIT INDEX Exhibit 99 -- 1996 Annual Report to Shareholders EX-99 2 1996 ANNUAL REPORT TO SHAREHOLDERS 1 1996 ANNUAL REPORT TO SHAREHOLDERS [CLECO LOGO] 2 TABLE OF CONTENTS
PAGE ---- Disclosure Regarding Forward-Looking Statements............................ 1 Selected Financial Data................. 3 Management's Discussion and Analysis of Results of Operations and Financial Condition Industry Developments/Customer Choice............................. 4 Results of Operations................. 4 Financial Condition................... 8 Consolidated Statements of Income....... 12 Consolidated Balance Sheets............. 13 Consolidated Statements of Cash Flows... 14 Consolidated Statements of Changes in Common Shareholders' Equity........... 15 Notes to Consolidated Financial Statements............................ 16 Report of Independent Accountants....... 30
i 3 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 "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Industry Developments/Customer Choice," "-- Results of Operations," "-- Financial Condition -- Liquidity and Capital Resources," "-- Financial Condition -- Regulatory Matters" and Note K to the Consolidated Financial Statements contain forward-looking statements. Located elsewhere in this Report are forward-looking statements regarding sales growth, capital expenditures, the Company's proposed acquisition of Teche Electric Cooperative, Inc., the settlement of the Company's earnings review approved by the Louisiana Public Service Commission (LPSC) in October 1996, the Company's shelf registration statement, the effect of certain recent Federal Energy Regulatory Commission (FERC) regulations, future legislative and regulatory changes affecting electric utilities, and other matters. 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. Forward-looking statements have been and will be made in written documents and oral presentations of the Company. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in the Company documents or oral presentations, the words "anticipate," "estimate," "expect," "objective," "projection," "forecast," "goal," and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause the Company's actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages; unusual maintenance or repairs; unanticipated changes to fuel costs, gas supply costs, or availability constraints due to higher demand, shortages, transportation problems or other developments; environmental incidents; or electric transmission or gas pipeline system constraints; Increased competition in the electric environment, including effects of: industry restructuring, transmission system operation or administration, retail wheeling, or cogeneration; Regulatory factors such as unanticipated changes in rate-setting policies or procedures; recovery of investments made under traditional regulation; and the frequency and timing of rate increases; Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board, the Securities and Exchange Commission, FERC, LPSC, or similar entities with regulatory or accounting oversight; Economic conditions, including inflation rates and monetary fluctuations; Changing market conditions and a variety of other factors associated with physical energy and financial trading activities, including, but not limited to, price, basis, credit, liquidity, volatility, capacity, transmission, interest rate, and warranty risks; Availability or cost of capital resulting from changes in the Company, interest rates, and securities ratings or market perceptions of the electric utility industry and energy-related industries; Employee workforce factors, including changes in key executives; 1 4 Legal and regulatory delays and other obstacles associated with mergers, acquisitions, or investments in joint ventures; Cost and other effects of legal and administrative proceedings, settlements, investigations, claims, and other matters; and Changes in federal, state, or local legislature requirements, such as changes in tax laws or rates, or environmental law and regulations. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of changes in actual results, changes in assumptions, or other factors affecting such statements. 2 5 SELECTED FINANCIAL DATA
For the years ended December 31, --------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------- ------------- ------------- ------------- ----------- (In thousands, except per share amounts, ratios and operating statistics) FINANCIAL DATA Statement of Income Data Operating revenues.................... $ 435,416 $ 394,426 $ 379,603 $ 382,433 $351,613 Net income............................ $ 52,135 $ 48,703 $ 45,043 $ 41,812 $ 45,239 Net income applicable to common stock.............................. $ 50,061 $ 46,651 $ 43,017 $ 39,827 $ 43,010 Primary net income per common share... $ 2.23 $ 2.08 $ 1.92 $ 1.78 $ 1.93(1) Fully diluted net income per common share.............................. $ 2.16 $ 2.01 $ 1.86 $ 1.73 $ 1.89(1) Cash dividends paid per common share.............................. $ 1.53 $ 1.49 $ 1.45 $ 1.41 $ 1.37(1) Ratio of earnings to fixed charges...... 3.70X 3.49x 3.35x 3.30x 3.16x Ratio of earnings to combined fixed charges and preferred stock dividends............................. 3.36X 3.17x 3.02x 2.96x 2.83x Balance Sheet Data (at end of period) Total assets.......................... $1,321,771 $1,226,034 $1,178,191 $1,161,635 $978,220 Long-term obligations and redeemable preferred stock.................... $ 347,231 $ 367,432 $ 343,509 $ 358,329 $318,214 OPERATING STATISTICS Electric sales -- regular system customers (million KWH) Residential........................... 2,723 2,763 2,532 2,470 2,353 Commercial............................ 1,338 1,265 1,180 1,109 1,062 Industrial............................ 2,369 2,227 2,030 2,005 1,972 Other retail.......................... 526 502 487 463 477 Sales for resale...................... 291 360 210 175 146 ---------- ---------- ---------- ---------- -------- Total sales to regular customers...... 7,247 7,117 6,439 6,222 6,010 Short-term energy sales to other utilities (million KWH)......................... 330 68 174 266 88 ---------- ---------- ---------- ---------- -------- Total electric sales.................. 7,577 7,185 6,613 6,488 6,098 ========== ========== ========== ========== ======== System peak (thousand kilowatts)........ 1,500 1,473 1,310 1,346 1,308 Electric customers...................... 224,703 220,923 217,568 212,559 213,941
- --------------- (1) Amounts have been restated to reflect a two-for-one stock split effective in May 1992. 3 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION INDUSTRY DEVELOPMENTS/CUSTOMER CHOICE Forces driving the movement toward increased competition in the electric utility industry involve numerous and complex economic, political and technological factors. These factors have resulted in the introduction of federal and state legislation and other regulatory initiatives that are likely to result in even greater competition at both the wholesale and retail level in the future. In 1995 the LPSC opened a docket to investigate customer choice of electric power supplier. In 1996 legislation was proposed at the federal and Louisiana levels that would have mandated retail customer "choice" of electric supplier. The Company expects that customer choice debate will continue in legislative and regulatory bodies in 1997. The Company has taken the position that all customers, large or small, should have a choice in electric supplier. The Company recognizes the need to work out issues to create a level playing field for all energy suppliers. The increasingly competitive environment presents opportunities to compete for new customers, as well as the risk of loss of existing customers. The Company believes that it is a reliable, low-cost provider of electricity and as such is currently positioned to compete effectively in the changing marketplace. RESULTS OF OPERATIONS Net income applicable to common stock for 1996 totaled $50.1 million, or $2.23 per share, an increase of $0.15 per share from 1995 earnings of $46.1 million, or $2.08 per share. Net income applicable to common stock for 1994 was $43.0 million, or $1.92 per share. The increase in 1996 earnings was primarily due to the effect on base revenues of increased kilowatt-hour sales to commercial and industrial customers, slightly offset by an increase in nonfuel operating expenses. Results for 1995 were affected by increased kilowatt-hour sales resulting from warmer-than-normal weather, which were partially offset by higher operating expenses compared to 1994. Net income for 1994 reflected a $0.03 per share after-tax restructuring charge for a customer service office consolidation plan. Earnings for the past three years are not necessarily indicative of future earnings and results. The Company's future earnings may be affected by weather conditions, the Company's business development programs, the overall economy of the Company's service area, increased property and other taxes, a full-year's effect of a $3 million rate reduction, a scheduled rate reduction of $2 million in 1998, legislative and other regulatory changes and increased competition. REVENUES AND SALES Revenues and kilowatt-hour (kwh) sales for 1996 and 1995 were as follows:
Revenues 1996 1995 -------- -------------------- -------------------- In Percent In Percent Thousands Change Thousands Change --------- ------- --------- ------- Base (nonfuel).......................... $266,301 2.0% $261,143 7.0% Fuel cost recovery...................... 169,115 26.9% 133,283 (1.7)% -------- ---- -------- ---- Total revenues................ $435,416 10.4% $394,426 3.9% ======== ==== ======== ====
4 7
Sales 1996 1995 ----- ------------------ ------------------ Million Percent Million Percent kwh Change kwh Change ------- ------- ------- ------- Regular customers Residential........................... 2,723 (1.4)% 2,763 9.1% Commercial............................ 1,338 5.8% 1,265 7.2% Industrial............................ 2,369 6.4% 2,227 9.7% Other retail.......................... 526 4.8% 502 3.1% Sales for resale...................... 291 (19.2)% 360 71.4% ----- ----- ----- ----- Total sales to regular customers........ 7,247 1.8% 7,117 10.5% Short-term sales to other utilities..... 330 385.3% 68 (60.9)% ----- ----- ----- ----- Total electric sales.......... 7,577 5.5% 7,185 8.6% ===== ===== ===== =====
The Company's base rates did not change in 1995 or 1994, but were reduced in 1996 by the settlement of the Company's earnings review conducted by the LPSC. For more information concerning the settlement of the LPSC earnings review of the Company, see "Financial Condition -- Retail Rates" below. The $41.0 million increase in 1996 operating revenues compared to 1995 was primarily due to a $35.8 million increase in fuel cost recovery revenues, caused primarily by higher natural gas prices in effect during 1996. Base revenues improved $5.2 million due to an increase in kilowatt-hour sales to commercial and industrial customers. Net income is not affected by changes in the cost of fuel and purchased power because these cost fluctuations are currently passed on to customers through fuel adjustment clauses. Total operating revenues were 3.9% higher in 1995 compared to 1994 largely as a result of the effect on base revenues of weather-related increases in kilowatt-hour sales. The net increase in operating revenues resulted from an increase in base revenues offset by a slight decrease in fuel cost recovery revenues resulting from lower natural gas prices. During 1996, consumption by commercial and industrial customers was higher than in 1995 due to customer growth and increased consumption by the Company's largest industrial customer. Residential kilowatt-hour sales are influenced significantly by weather. The summer weather in 1996 was milder than experienced in 1995, resulting in a 1.4% decrease in residential sales. The unusually hot weather during 1995, together with industrial growth, produced higher sales in 1995 than in 1994. During the last five years, sales growth to regular customers averaged 4.2% per year, and is expected to range from 2.5% to 4.5% per year during the next five years. The level of future sales will depend upon weather conditions, customer conservation efforts, the Company's retail marketing and business development programs, acquisitions of other electric utility properties and the overall economy of the service area. Sales to industrial customers are also affected by the national economy and worldwide demand for wood products, since the Company's two largest customers are producers of such products. Issues facing the electric utility industry that could affect sales include deregulation, retail wheeling, legislative and regulatory changes, retention of large industrial customers, municipal franchises and access to transmission systems. In 1995, the Company leased the England Industrial Airpark distribution system from the industrial development authority for a twenty year period. This facility includes a new commercial airport, industrial park, golf course and residential village. These are all portions of the former England Air Force Base near Alexandria which the Company was serving prior to its closure several years ago. Also in 1996, the Company signed a contract to serve a new industrial port on the Red River at Natchitoches. This port is a development resulting from a federal project which has made the Red River navigable from its confluence with the Mississippi River to near Shreveport. The Red River 5 8 runs through the Company's service territory in central and western Louisiana and provides a water transportation connection to the world via the Mississippi River and the Gulf of Mexico. On May 1, 1995, the Company began providing approximately 13 megawatts of wholesale power service to the city of St. Martinville under a five-year contract subject to the jurisdiction of the FERC. This contract was challenged in 1993 by the previous supplier, Louisiana Energy and Power Authority (LEPA), as well as the city of Lafayette and the American Public Power Association, with assertions of preferential, discriminatory and predatory pricing. An initial decision of the FERC's presiding administrative law judge (ALJ) in February 1995 rejected LEPA's arguments. Under FERC procedures, LEPA filed a brief requesting the FERC to revise the initial decision and this matter is still pending before the FERC. The Company has opposed LEPA's brief. Management believes that the ALJ's initial decision will be upheld. FUEL AND PURCHASED POWER Changes in fuel and purchased power expenses reflect fluctuations in generation mix, fuel costs, availability of economy power and deferral of expenses for recovery from customers through fuel adjustment clauses in subsequent months. Fuel and purchased power expenses for 1996 and 1995 were as follows:
1996 1995 ------------------- ------------------- In Percent In Percent Thousands Change Thousands Change --------- ------- --------- ------- Fuel used for electric generation............ $115,642 6.8% $108,322 (10.1)% Power purchased.............................. 55,609 103.2% 27,367 57.5% -------- ----- -------- ----- Total fuel expenses................ $171,251 26.2% $135,689 (1.6)% ======== ===== ======== =====
The increase in the cost of fuel used for electric generation is attributable primarily to the higher cost of natural gas in 1996, compared to 1995. The increase in purchased power resulted from the increased availability of low-cost power (generally from solid fuel generation) on the wholesale market, primarily due to the substantial increases in natural gas prices. The Company obtains coal and lignite under long-term contracts. The Company purchases natural gas under short-term contracts on the spot market when prices are advantageous. Power is purchased from other utilities when the purchase price is less than the Company's cost to generate. During 1996, 33% of the Company's energy requirements were met with purchased power, compared to 18% in 1995. During 1996, the Company constructed natural gas pipelines at its three power stations where natural gas is used as a primary fuel. These pipelines increase the Company's access to natural gas markets and lower-cost gas supplies. These pipelines are owned and operated by a consolidated subsidiary of the Company. Also during the year, the Company terminated its contracts with its main transporter and supplier of natural gas and replaced them with a base supply contract for approximately one-third of the Company's natural gas requirements. The combination of the new natural gas contracts and access to the gas markets afforded by the pipelines will help assure that the Company's generating units remain competitive. CO-OP DEVELOPMENTS In February 1994, the Company approached the management of Teche Electric Cooperative, Inc. (Teche) about the possibility of purchasing Teche. Teche serves about 8,600 customers, and its service area, which comprises parts of Iberia, St. Martin and St. Mary parishes, is adjacent to the Company's service area. The acquisition of Teche would result in an increase in the Company's kilowatt-hour sales to regular customers of about 2.4%. 6 9 In February 1995, Teche and the Company executed a purchase and sale agreement for a purchase price, including the Company's assumption or other discharge of Teche's liabilities, of approximately $22.4 million. The members of Teche overwhelmingly approved the sale at their annual meeting in March 1995. On March 31, 1996, the board of directors of Teche voted to extend the Purchase and Sale Agreement with the Company for an additional twelve months until March 31, 1997, to allow for the Teche wholesale power contract with Cajun Electric Power Cooperative, Inc. (Cajun) to be resolved through Cajun's bankruptcy process. Consummation of the acquisition is subject to a number of conditions, including approval by the LPSC, the Rural Utilities Service and other governmental agencies, the successful resolution of Teche's wholesale power supply contract with Cajun and certain other conditions. Each plan of reorganization currently filed with the bankruptcy court in the Cajun bankruptcy includes a provision for the assignment or substitution of Teche's supply contract to or with the Company. This provision is subject to a number of approvals, including confirmation by the bankruptcy court. NONFUEL OPERATING EXPENSES AND INCOME TAXES The changes in nonfuel operating expenses (excluding restructuring charges) for 1996 and 1995 were as follows:
1996 1995 -------------------- -------------------- In Percent In Percent Thousands Change Thousands Change --------- ------- --------- ------- Other operation......................... $(2,898) (4.4)% $ 9,402 16.6% Maintenance............................. $ 873 3.9% $(2,064) (8.4)% Depreciation............................ $ 2,277 5.5% $ 1,157 2.9% Other taxes............................. $ 532 1.8% $ 164 0.6% Income taxes............................ $ 925 3.7% $ 5,328 26.8% ------- ---- ------- ---- Total......................... $ 1,709 0.9% $13,987 8.2% ======= ==== ======= ====
In 1996, total nonfuel operating expenses increased 0.9% compared to 1995. The increase was primarily due to higher depreciation expense and federal and state income taxes offset by a decrease in costs to operate the Company's electric system. Depreciation expense increased primarily due to property additions associated with the Energy Control Center and transmission and distribution facilities. The increase in federal and state income taxes resulted from an increase in pretax income. The cost of operating the Company's electric system decreased as a result of reduced co-op acquisition expenses during 1996 and a higher employee incentive expense incurred in 1995. Maintenance expenses increased as a result from additional upkeep of the water plant facilities at Coughlin Power Station. Nonfuel operating expenses in 1995 increased 8.2% over 1994, excluding the effects of restructuring charges. This increase was primarily due to costs associated with the Company's electric cooperative acquisition efforts, an employee incentive plan, prior year criteria pollutant fees assessed by the Louisiana Department of Environmental Quality in 1995, costs associated with the start-up of the Company's 24-hour call center (while customer service offices remained open until full implementation of the call center) and uncollectible accounts expense resulting from higher sales and a pre-bankruptcy receivable from Cajun. Maintenance expenses in 1995 decreased relative to 1994 because of a major inspection at Teche power plant performed in 1994 and because of a reduction in the portion of employees' time associated with maintenance activities. Income taxes increased primarily due to higher taxable income in 1995. An audit of the Company's 1991 and 1992 tax returns was completed by agents of the Internal Revenue Service (IRS) in January 1995. A settlement of these audit assessments totaling $0.9 million has been proposed by an IRS appeals officer. Deferred federal income taxes have been provided for all temporary differences, and reserves have been provided for other issues. In October 1996, the IRS completed an audit of the Company's 1993 and 1994 tax returns. The 7 10 assessments in this audit totaling $1.3 million were agreed to and paid by the Company at the conclusion of the audit. Interest has not been paid in either settlement but all interest through December 31, 1996 has been accrued. In 1997, a ten-year property tax exemption will expire on the Dolet Hills Power Station. The Company expects that taxes other than income taxes will increase approximately $3 million annually, its estimated share of the property taxes on this generating station. A number of parishes have attempted in recent years to impose franchise fees on retail revenues earned within the unincorporated areas served by the Company. If the parishes are ultimately successful, taxes other than income taxes could increase substantially in future years. OTHER INCOME AND INTEREST EXPENSE During 1996, "other income (expenses), net" increased $0.2 million as a result of lower charitable donations and other miscellaneous expenses compared to 1995. In 1995, the Company donated several closed customer service offices to local government authorities. "Other income (expenses), net" increased in 1995 as compared to the prior year, as a result of earnings from short-term instruments held by an unregulated subsidiary. Total interest expense decreased $0.2 million in 1996, as compared to 1995, due, in part, to lower interest rates on short-term debt and variable-rate pollution control bonds. During 1996, $50 million of 9 5/8% first mortgage bonds were redeemed with proceeds from $45 million of medium-term notes issued at a weighted average interest rate of 6.37%. Interest expense increased $1.8 million in 1995, as compared to 1994, due to higher interest rates on short-term debt and variable-rate pollution control bonds. Also during 1995, $25 million of medium-term notes were issued at a weighted average interest rate of 6.63% to refinance $14 million of maturing 5.0% first mortgage bonds and to reduce short-term debt levels. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) AFUDC represents the estimated cost of financing construction work-in-progress and is not a current source of cash. A return on and recovery of AFUDC is generally permitted by regulatory bodies in setting rates charged for utility services. In the absence of a specified return on equity in the LPSC earnings review, a rolling average of the last three years was used. AFUDC for 1996 decreased as a result of a lower AFUDC rate as well as lower average construction work-in-progress balances compared to 1995. AFUDC increased in 1995 from the prior year as a result of higher average construction work-in-progress balances. AFUDC accounted for 1.5% of net income applicable to common stock in 1996, compared to 4.5% in 1995 and 3.3% in 1994. EARNINGS PER SHARE In 1996, potentially dilutive securities had more than a 3% dilutive effect on net income per common share due to the assumed conversion of the Incentive Stock Option Plan and the convertible preferred stock held by the Employee Stock Ownership Plan (ESOP). As a result, both primary and fully diluted average shares of common stock outstanding and earnings per share are presented in the Consolidated Statements of Income. FINANCIAL CONDITION - ---------------------------- LIQUIDITY AND CAPITAL RESOURCES Financing for construction requirements and operational needs is dependent upon the cost and availability of external funds through capital markets and from financial institutions. Access to funds is dependent upon factors such as general economic conditions, regulation and the Company's credit rating. 8 11 Since 1990, the Company participated in a program where up to $35 million of receivables were sold on an ongoing basis. The amount of receivables that could be sold at any time depended upon seasonal fluctuations in the amount of eligible receivables. In December 1996, the Company reduced to zero outstanding sales of accounts receivable under this program. The Company plans to terminate this program in early 1997. To replace this short-term liquidity program, the Company plans to increase its committed bank borrowing capacity by $25 million in 1997. For more information concerning the Company's accounts receivables, see "Note C -- Receivables" included in the notes to the Consolidated Financial Statements. The Company has an effective shelf registration statement and all regulatory approvals necessary to issue up to $180 million of medium-term notes. At December 31, 1996 and 1995, the Company had $65.2 million and $23.1 million, respectively, of short-term debt outstanding in the form of commercial paper borrowings and bank loans. Short-term debt increased as a result of the Company discontinuing the sale of accounts receivable. The Company currently has a $100 million revolving credit facility, which supports the issuance of commercial paper, and is scheduled to continue through June 2000. Uncommitted lines of credit with banks totaling $20 million are available to meet short-term working capital needs. Additionally, at December 31, 1996, an unregulated consolidated subsidiary of the Company held $14.1 million of cash and marketable securities. CASH GENERATION AND CASH REQUIREMENTS During 1996, the Company generated $60.8 million of cash flows from operating activities, as shown in the Consolidated Statements of Cash Flows. Net cash provided by operating activities resulted from net income, adjusted for noncash charges to income, and changes in working capital. Net cash used in investing activities is related to additions to utility plant and changes in utility and nonutility investments. Net cash used in financing activities resulted principally from the payment of dividends to shareholders and long-term financing activities. In recent years, the construction program has consisted primarily of enhancements to the transmission and distribution systems. In 1996, the Company completed $10 million in additions to its Energy Control Center. Utility expenditures, excluding AFUDC, totaled $60 million in 1996 and $55 million in 1995. Construction expenditures, excluding AFUDC, for 1997 are estimated to be $67.5 million and for the five-year period ending 2001 are expected to total $280 million. About half of the planned construction in the five-year period will support line extensions and substation upgrades to accommodate new business and load growth. Approximately 25% will be used to enhance or rehabilitate the Company's transmission and distribution systems. About 10% will be used to lower fuel cost, extend the life of generating units and comply with environmental standards. The remaining investments will be in information technology and general infrastructure to operate the Company more efficiently. Scheduled maturities of debt and preferred stock will total about $15.3 million for 1997 and approximately $111.6 million for the five-year period ending 2001. In 1991, the Company began a common stock repurchase program, and as part of that program, up to $23.5 million of common stock may be repurchased in the future. The Company did not repurchase any shares of common stock during 1996. The Company may require additional funds to purchase outstanding shares of the Company's common stock. Approximately 96% of total construction requirements were funded internally in 1996, as compared to 93% in 1995 and 100% in 1994. In 1997, 81% of construction requirements are expected to be funded internally. For the five-year period ending 2001, all of the construction requirements are expected to be funded internally. Other capital requirements in 1996 and 1995 were funded by the issuance of debt, while in 1994, other capital requirements were funded internally. 9 12 RETAIL RATES Retail rates, which are regulated by the LPSC, account for 97% of total revenues. Fuel costs and monthly fuel adjustment billing factors are subject to audit by the LPSC. The LPSC establishes base rates for the Company which reflect nonfuel costs, including the cost of capital, and sales. In the past, the Company has sought increases in base rates to reflect the cost of service related to plant facility additions and increases in operating costs. If the Company were to request an increase in its rates and adequate rate relief was not granted on a timely basis, the Company's ability to attract capital at reasonable costs to finance its operations and capital improvements might be impaired. The LPSC elected in 1993 to review the earnings of all electric, gas, water and telecommunications utilities regulated by it to determine whether the returns on equity of these companies may be higher than returns that might be awarded in the current economic environment. The LPSC began its review of the Company's earnings in August 1995. In October 1996, the LPSC approved a settlement of the Company's earnings review, providing for lower electricity rates to the Company's customers. The first rate decrease was effective November 1, 1996, with a second decrease scheduled for January 1, 1998. On November 1, 1996, the Company's annual base rate tariff for electric service was reduced by $3 million. In January 1998, the Company's annual base rate tariff for electric service will be reduced an additional $2 million. The terms of this settlement will be effective for a five-year period. During the five-year period, which began November 1, 1996, a rate stabilization plan will be in place. This plan will allow the Company to retain all earnings equating to a regulatory return on equity up to and including 12.25% on its regulated utility operations. Any earnings over 12.25%, up to and including 13%, will be shared equally between the Company and its customers, which effectively provides the Company with the opportunity to realize a regulatory rate of return of up to 12.625%. Any earnings above this level would be refunded fully to customers. During the five-year period, 1997-2001, the Company's revenues and return on equity will be reviewed each year by the LPSC. If the Company is found to be achieving a regulatory return on equity in any given year which requires a refund to customers, the refund will be made in the form of billing credits during the months of July, August and September following the evaluation period. During the five-year rate stabilization period, the Company will have the right to apply for a rate increase if a significant event affecting its earnings would justify it, such as regulatory or economic changes, major hurricane damage or other unforeseen circumstances. During the period, the Company will also be able to propose for LPSC consideration any revenue-neutral rate design changes it feels appropriate, such as revenue redistribution among customer classes which may be warranted. Also, during the period, the LPSC may amend or modify any of the settlement's terms should it determine changes are warranted by the public interest. INFLATION AND FUEL COSTS The Company is a capital-intensive electric utility. As such, it is affected by inflation since depreciation, which is based on the historical cost of assets, will in all likelihood not fully reflect the cost of replacing assets. Although the cost of fuel used for electric generation is a major component of total costs, the Company is not currently exposed to the effects of market fluctuations in fuel prices since fuel costs are currently recovered from customers through fuel adjustment clauses. ENVIRONMENTAL MATTERS The Company is subject to federal, state and local laws and regulations governing the protection of the environment. Violations of such laws and regulations may result in substantial fines and penalties. The Company has obtained all material environmental permits necessary for its operations and believes it is in substantial compliance with these permits, as well as all applicable environmental laws and regulations. The Company does not anticipate that existing environmental rules will significantly impact its operations, but some capital improvements may have to be made in response to new environmental programs expected in the next few years. 10 13 Implementation of Phase I of the Clean Air Act will not require the Company to reduce sulfur emissions at its solid-fuel generating units, which either burn low-sulfur coal or utilize pollution control equipment. Installation of continuous emission monitoring equipment on its generating units has been completed at a cost of approximately $3.0 million. Although Phase II of the legislation, effective in 2000, involves more stringent limits on emissions, it should not significantly affect the operation of the Company's generating units. However, some capital investment may be necessary in order to comply with Phase II requirements. Capital expenditures for environmental matters in 1997 are estimated to be $0.5 million. REGULATORY MATTERS In 1996, the FERC issued rules requiring open transmission access. The open access provisions require FERC-regulated electric utilities to offer third parties open access to transmission under comparable terms and conditions as the utilities' use of their own systems. Providing unbundled transmission services to firm-requirements customers may have significant financial consequences to the utility industry. Providing open access for non-firm sales may have a significant effect on utility operations. Currently, the Company has three wholesale full-requirements customers representing about 0.9% of the Company's total kilowatt-hour sales to regular customers. Federal and state regulators and legislators are studying potential effects of deintegrating the vertically integrated utility systems and providing retail customers a choice of supplier. At this time, it is not possible to predict when, if, or to what extent, retail customers will be able to choose their electric service suppliers. The regulatory requirement to serve customers and industry standards for reliability of electric supply have resulted in the construction of facilities sufficient to meet peak load conditions with a margin for reserve. With customer choice, costs associated with utility assets specifically dedicated to, or used by, departing customers would have to be paid by the departing customers (stranded costs), absorbed by remaining and new customers or written off by the Company. Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121), establishes accounting standards for determining if long-lived assets are impaired, and when and how losses, if any, should be recognized. The Company believes that the net cash flows that will result from the operation of its assets are sufficient to cover the carrying value of the assets. The Company has recorded regulatory assets and liabilities, primarily for the effects of income taxes, as a result of past rate actions of the Company's regulators, pursuant to Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). The effects of potential deregulation of the industry or possible future changes in the method of rate regulation of the Company could require the Company to discontinue the application of SFAS 71, pursuant to Statement of Financial Accounting Standards No. 101, "Regulated Enterprises -- Accounting for the Discontinuation of Application of FASB Statement No. 71" (SFAS 101). At December 31, 1996, the Company had recorded $43.8 million of regulatory assets, net of regulatory liabilities, because of the regulatory requirement to flow through the tax benefits of accelerated deductions to current customers and an implied regulatory compact that future customers would pay when the Company paid the additional taxes. These differences occur over the lives of relatively long-lived assets, up to 30 years or more. Under the current regulatory and competitive environment, the Company believes that these regulatory assets are fully recoverable. However, if in the future, as a result of regulatory changes or increased competition, the Company's ability to recover these regulatory assets would not be probable, then to the extent that such regulatory assets were determined not to be recoverable, the Company would be required to write off or write down such assets. 11 14 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31 ------------------------------------ 1996 1995 1994 ---------- ---------- ---------- (In thousands, except share and per share amounts) OPERATING REVENUES................................... $435,416 $394,426 $379,603 ---------- ---------- ---------- Operating expenses Fuel used for electric generation.................. 115,642 108,322 120,546 Power purchased.................................... 55,609 27,367 17,376 Other operation.................................... 63,065 65,963 56,561 Restructuring charges.............................. 1,203 Maintenance........................................ 23,489 22,616 24,680 Depreciation....................................... 43,441 41,164 40,007 Taxes other than income taxes...................... 29,595 29,063 28,899 Federal and state income taxes..................... 26,154 25,229 19,901 ---------- ---------- ---------- Total operating expenses................... 356,995 319,724 309,173 ---------- ---------- ---------- OPERATING INCOME..................................... 78,421 74,702 70,430 Interest income...................................... 256 219 238 Allowance for other funds used during construction... 1,134 1,912 1,716 Other income (expenses), net......................... 333 74 (967) ---------- ---------- ---------- INCOME BEFORE INTEREST CHARGES....................... 80,144 76,907 71,417 ---------- ---------- ---------- Interest charges Interest on debt and other......................... 27,492 27,998 25,736 Allowance for borrowed funds used during construction.................................... (590) (1,028) (585) Amortization of debt discount, premium and expense, net............................................. 1,107 1,234 1,223 ---------- ---------- ---------- Total interest charges..................... 28,009 28,204 26,374 ---------- ---------- ---------- NET INCOME........................................... 52,135 48,703 45,043 Preferred dividend requirements, net................. 2,074 2,052 2,026 ---------- ---------- ---------- NET INCOME APPLICABLE TO COMMON STOCK................ $ 50,061 $ 46,651 $ 43,017 ========== ========== ========== AVERAGE SHARES OF COMMON STOCK OUTSTANDING Primary............................................ 22,452,762 22,430,759 22,414,831 Fully diluted...................................... 23,858,530 23,849,854 23,842,199 ========== ========== ========== EARNINGS PER SHARE Primary............................................ $2.23 $2.08 $1.92 Fully diluted...................................... $2.16 $2.01 $1.86 ---------- ---------- ---------- CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK........ $1.53 $1.49 $1.45 ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 12 15 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. CONSOLIDATED BALANCE SHEETS
At December 31 ----------------------- 1996 1995 ---------- ---------- (In thousands) ASSETS Utility plant (Notes A and B) Property, plant and equipment............................. $1,379,035 $1,319,815 Accumulated depreciation.................................. (475,212) (441,686) ---------- ---------- Net property, plant and equipment......................... 903,823 878,129 Construction work-in-progress............................. 49,075 51,390 ---------- ---------- Total utility plant, net............................ 952,898 929,519 ---------- ---------- Investments and other assets (Note D)....................... 8,488 8,097 ---------- ---------- Current assets Cash and cash equivalents (Note A)........................ 20,307 20,621 Accounts receivable, net (Note C) Customer accounts receivable............................ 23,145 6,081 Other accounts receivable............................... 20,767 10,994 Unbilled revenues......................................... 11,193 3,098 Fuel inventory, at average cost........................... 9,366 8,699 Material and supplies inventory, at average cost.......... 17,029 15,819 Prepayments and other current assets...................... 2,505 2,501 ---------- ---------- Total current assets...................................... 104,312 67,813 ---------- ---------- Prepayments................................................. 8,683 8,213 ---------- ---------- Regulatory assets -- deferred taxes (Note J)................ 103,839 118,967 ---------- ---------- Other deferred charges...................................... 69,320 66,967 ---------- ---------- Accumulated deferred federal and state income taxes (Note J)........................................................ 74,231 66,458 ---------- ---------- TOTAL ASSETS........................................ $1,321,771 $1,266,034 ========== ========== CAPITALIZATION AND LIABILITIES Common shareholders' equity Common stock, $2 par value, authorized 50,000,000 shares, issued 22,760,154 and 22,745,104 shares at December 31, 1996 and 1995, respectively (Note F).................... $ 45,520 $ 45,490 Premium on capital stock.................................. 113,702 113,444 Retained earnings......................................... 240,414 224,688 Treasury stock, at cost, 307,577 and 318,446 shares at December 31, 1996 and 1995, respectively................ (6,242) (6,459) ---------- ---------- Total common shareholders' equity................... 393,394 377,163 ---------- ---------- Preferred stock (Note H) Not subject to mandatory redemption....................... 30,280 30,519 Subject to mandatory redemption........................... 6,372 6,610 Deferred compensation related to preferred stock held by ESOP...................................................... (20,751) (22,595) Long-term debt, net (Note E)................................ 340,859 360,822 ---------- ---------- Total capitalization................................ 750,154 752,519 ---------- ---------- Current liabilities Short-term debt (Note E).................................. 65,161 23,062 Long-term debt due within one year (Note E)............... 15,000 Accounts payable.......................................... 50,022 51,087 Customer deposits......................................... 19,761 19,725 Taxes accrued (Note J).................................... 5,806 2,503 Interest accrued.......................................... 7,521 8,909 Accumulated deferred fuel................................. 2,168 3,651 Other current liabilities................................. 3,252 2,343 ---------- ---------- Total current liabilities........................... 168,691 111,280 ---------- ---------- Deferred credits Accumulated deferred federal and state income taxes (Note J)...................................................... 281,684 266,873 Accumulated deferred investment tax credits (Note J)...... 31,364 33,173 Regulatory liabilities -- deferred taxes (Note J)......... 60,058 79,332 Other deferred credits.................................... 29,820 22,857 ---------- ---------- Total deferred credits.............................. 402,926 402,235 ---------- ---------- Commitments and contingencies (Notes E, F, H, I, J and K) TOTAL CAPITALIZATION AND LIABILITIES................ $1,321,771 $1,266,034 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 13 16 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31 -------------------------------- 1996 1995 1994 -------- -------- -------- (In thousands) OPERATING ACTIVITIES Net income................................................ $ 52,135 $ 48,703 $ 45,043 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization......................... 44,548 42,398 40,095 Allowance for funds used during construction.......... (1,724) (2,940) (2,301) Amortization of investment tax credits................ (1,809) (1,814) (1,819) Deferred income taxes................................. 3,818 2,854 2,445 Deferred fuel costs................................... (1,483) (2,463) 799 Restructuring charge.................................. 1,152 Gain (loss) on disposition of utility plant, net...... (20) (270) 25 Changes in assets and liabilities Accounts receivable, net............................ (26,837) (5,928) (446) Unbilled revenues................................... (8,095) (2,525) 933 Fuel, material and supplies inventories............. (1,877) 611 776 Accounts payable.................................... (1,065) 7,621 2,076 Customer deposits................................... 36 212 875 Taxes accrued....................................... 3,303 (759) (1,807) Interest accrued.................................... (1,388) 611 (31) Other, net............................................ 1,251 1,343 981 -------- -------- -------- Net cash provided by operating activities........... 60,793 87,654 88,796 -------- -------- -------- INVESTING ACTIVITIES Additions to utility plant................................ (64,425) (57,839) (55,445) Allowance for funds used during construction.............. 1,724 2,940 2,301 Sale of utility plant..................................... 482 546 373 Purchase of investments................................... (420) (2,618) (203,165) Sale of investments....................................... 807 14,278 203,749 -------- -------- -------- Net cash used in investing activities............... (61,832) (42,693) (52,187) -------- -------- -------- FINANCING ACTIVITIES Issuance of common stock.................................. 288 379 208 Repurchase of common stock................................ (16) (309) Redemption of preferred stock............................. (238) (310) (322) Issuance of long-term debt................................ 45,000 25,000 Retirement of long-term debt.............................. (50,000) (15,481) (650) Increase (decrease) in short-term debt, net............... 42,099 (5,915) 603 Dividends paid on common and preferred stock, net......... (36,408) (35,453) (34,501) -------- -------- -------- Net cash provided by (used in) financing activities........................................ 725 (31,780) (34,971) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (314) 13,181 1,638 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 20,621 7,440 5,802 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 20,307 $ 20,621 $ 7,440 ======== ======== ======== Supplementary cash flow information Interest paid (net of amount capitalized)................. $ 29,881 $ 27,744 $ 27,457 ======== ======== ======== Income taxes paid......................................... $ 20,351 $ 24,357 $ 25,762 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 14 17 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1994, 1995 and 1996 ------------------------------------------------------------------- Common Stock Premium Treasury Stock --------------------- on Capital Retained ---------------- Shares Amount Stock Earnings Shares Cost ---------- ------- ------------ -------- ------- ------ (In thousands, except share and per share amounts) BALANCE, JANUARY 1, 1994............ 22,708,874 $45,418 $112,829 $200,908 326,380 $6,600 ---------- ------- -------- -------- ------- ------ Redemptions of preferred stock...... 48 Incentive stock options exercised... 11,200 22 186 Repurchase of common stock.......... 14,300 309 Issuance of treasury stock.......... 7 (11,247) (228) Capital stock expense............... (12) Dividend requirements, preferred stock, net........................ (2,026) Cash dividends paid, common stock, $1.45 per share................... (32,475) Unrealized holding loss on available-for-sale securities, net............................... (240) Net income.......................... 45,043 ---------- ------- -------- -------- ------- ------ BALANCE, DECEMBER 31, 1994.......... 22,720,074 45,440 113,070 211,198 329,433 6,681 ---------- ------- -------- -------- ------- ------ Redemptions of preferred stock...... 39 Incentive stock options exercised... 25,030 50 329 Issuance of treasury stock.......... 6 (10,987) (222) Dividend requirements, preferred stock, net........................ (2,052) Cash dividends paid, common stock, $1.49 per share................... (33,401) Change in unrealized holding loss on available-for-sale securities, net............................... 240 Net income.......................... 48,703 ---------- ------- -------- -------- ------- ------ BALANCE, DECEMBER 31, 1995.......... 22,745,104 45,490 113,444 224,688 318,446 6,459 ---------- ------- -------- -------- ------- ------ Redemptions of preferred stock...... 31 Incentive stock options exercised... 15,050 30 220 Issuance of treasury stock.......... 7 (11,484) (233) Incentive shares forfeited.......... 615 16 Dividend requirements, preferred stock, net........................ (2,073) Cash dividends paid, common stock, $1.53 per share................... (34,336) Net income.......................... 52,135 ---------- ------- -------- -------- ------- ------ BALANCE, DECEMBER 31, 1996.......... 22,760,154 $45,520 $113,702 $240,414 307,577 $6,242 ========== ======= ======== ======== ======= ======
The accompanying notes are an integral part of the consolidated financial statements. 15 18 CENTRAL LOUISIANA ELECTRIC COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRESENTATION AND REGULATION Central Louisiana Electric Company, Inc. (the Company) provides electric service to a diversified base of residential, commercial and industrial customers in 23 parishes of Louisiana. The Company maintains its accounts in accordance with the Uniform System of Accounts prescribed for electric utilities by the Federal Energy Regulatory Commission (FERC), as adopted by the Louisiana Public Service Commission (LPSC). The Company's retail rates for residential, commercial and industrial customers and other retail sales are regulated by the LPSC, and its rates for transmission services and wholesale power sales are regulated by the FERC. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. UTILITY PLANT AND DEPRECIATION Utility plant is stated at the original cost of construction, which includes certain materials, labor, payroll taxes and benefits, administrative and general costs, and the estimated cost of funds used during construction. The cost of repairs and minor replacements is charged as incurred to the appropriate operating expense and clearing accounts. The cost of improvements is capitalized. Upon retirement or disposition, the recorded cost of depreciable plant and the cost of removal, net of salvage value, are charged to accumulated depreciation. The provision for depreciation is computed using the straight-line method at rates which will amortize the unrecovered cost of depreciable property over its estimated useful life. Annual depreciation provisions expressed as a percentage of average depreciable property were 3.21% for 1996, 3.19% for 1995 and 3.17% for 1994. CASH EQUIVALENTS The Company considers highly liquid, marketable securities and other similar instruments with original maturity dates of three months or less at the time of purchase to be cash equivalents. INCOME TAXES Deferred income taxes are provided at the current enacted income tax rate on all temporary differences between tax and book bases of assets and liabilities. The Company recognizes regulatory assets and liabilities for the tax effect of temporary differences, which, to the extent past ratemaking practices are continued by regulators, will be realized over the accounting lives of the related properties. INVESTMENT TAX CREDITS Investment tax credits which were deferred for financial statement purposes are amortized to income over the estimated service lives of the properties which gave rise to the credits. 16 19 DEBT EXPENSE, PREMIUM AND DISCOUNT Expense, premium and discount applicable to debt securities are amortized to income ratably over the lives of the related issues. Expense and call premium related to refinanced debt are amortized over the remaining life of the original issue. REVENUES AND FUEL COSTS Revenues from sales of electricity are recognized based upon the amount of energy delivered. The cost of fuel is currently recovered from customers through fuel adjustment clauses, based upon fuel costs incurred in prior months. These adjustments are subject to audit and final determination by regulators. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) The capitalization of AFUDC is a utility accounting practice prescribed by the FERC. AFUDC represents the estimated cost of financing construction work-in-progress. AFUDC does not represent a current source of cash, but under regulatory practices, a return on and recovery of AFUDC is permitted in setting rates charged for utility services. The composite AFUDC rate, including borrowed and other funds on a combined basis, for 1996 was 13.33% on a pre-tax basis (8.20% net of tax), and was 15.10% on a pre-tax basis (9.29% net of tax) for the years 1995 and 1994. NET INCOME PER COMMON SHARE Net income per common share has been computed using the weighted average number of shares of common stock outstanding during the year. In 1996 potentially dilutive securities had more than a 3% dilutive effect on net income per common share due to the assumed conversion of the Incentive Stock Option Plan and the convertible preferred stock held by the Employee Stock Ownership Plan (ESOP). As a result, both primary and fully diluted average shares of common stock outstanding and earnings per share are presented. DERIVATIVES From time to time the Company may limit or expand its exposure to interest rate risk or electricity or generator boiler fuel market price risk by using hedging transactions. In each case the transactions reflect underlying indebtedness or commodity requirements. No hedging transactions are entered into for speculative purposes. The Company did not engage in any interest rate hedges in 1996 and has only diminimus amounts of natural gas futures transactions outstanding at December 31, 1996. NOTE B -- JOINTLY OWNED GENERATING UNITS Two electric generating units operated by the Company are jointly owned with other utilities. The Company's proportionate share of operation and maintenance expenses associated with these two units is reflected in the financial statements.
At December 31, 1996 ------------------------- Rodemacher Dolet Hills Unit #2 Unit #1 ---------- ----------- (Dollar amounts in thousands) Percentage of ownership..................................... 30% 50% Utility plant in service.................................... $85,234 $271,401 Accumulated depreciation.................................... $36,818 $ 86,781 Unit capability (thousand kilowatts)........................ 523.0 650.0 Share of capability (thousand kilowatts).................... 156.9 325.0
17 20 NOTE C -- RECEIVABLES During 1996 and 1995, the Company participated in a program in which it sold an ownership interest in certain types of accounts receivable and unbilled revenues. A maximum of $35 million of receivables could be sold at any time, and new receivables were sold as previously sold receivables were collected. The Company discontinued selling receivables in late 1996 and plans to terminate its participation in the program in early 1997.
For the year ended December 31 ------------------ 1996 1995 ------- ------- (In thousands) Receivables sold but not collected (at year-end)............................. $ 0 $35,000 Average amount of receivables sold...... $33,706 $34,058 Costs charged to operating expense...... $ 1,911 $ 2,251 Receivables subject to repurchase (at year-end)............................. $ 0 $ 4,137 Accumulated provision for uncollectible accounts (at year-end)................ $ 681 $ 538
NOTE D -- INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS The Company classifies various debt securities it owns as "available-for-sale" securities and carries these securities at fair value. These securities are invested through an outside investment manager pending final determination by the Company as to their ultimate utilization. The original cost and fair market values for the "available-for-sale" securities that are not classified as cash equivalents because of their short-term nature are shown below.
At December 31 ----------------------------------------------- 1996 1995 ---------------------- ---------------------- Original Fair Market Original Fair Market Cost Value Cost Value -------- ----------- -------- ----------- (In thousands) U.S. Treasury/Government Agency......... $0 $0 $594 $594 -- -- ---- ---- Total marketable securities... $0 $0 $594 $594 -- -- ---- ----
During 1996, there were no sales of "available-for-sale" securities. Proceeds from the sales of "available-for-sale" securities in 1995 were $15.1 million and these sales produced gross realized gains of approximately $78,000 and gross realized losses of approximately $76,000. 18 21 The amounts reflected in the financial statements at December 31, 1996 and 1995 for cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximate fair value because of their short-term nature. The fair value of investments at December 31, 1996 and 1995 is estimated based on quoted market prices for these or similar investments. The fair value of the Company's long-term debt and nonconvertible preferred stock is estimated based upon the quoted market price for the same or similar issues or by a discounted present value analysis of future cash flows using current rates obtainable by the Company for debt and preferred stock with similar maturities. The fair value of convertible preferred stock is estimated assuming its conversion into common stock at the market price per common share at December 31, 1996 and 1995, with proceeds from the sale of the common stock used to repay the principal balance of the Company's loan to the ESOP.
At December 31 --------------------------------------------- 1996 1995 --------------------- --------------------- Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value -------- ---------- -------- ---------- (In thousands) Investments............................... $ 585 $ 585 $ 7,786 $ 7,786 Long-term debt............................ $356,260 $364,784 $361,260 $384,427 Preferred stock Not subject to mandatory redemption..... $ 9,529 $ 15,889 $ 7,924 $ 13,359 Subject to mandatory redemption......... $ 6,372 $ 5,490 $ 6,610 $ 4,597
NOTE E -- DEBT The Company has a $100 million revolving credit facility with a group of banks that provides for uncollateralized borrowings at prevailing market interest rates or at interest rates established by competitive bids. The facility has a scheduled termination date of June 15, 2000. The Company pays a commitment fee (currently 0.10%) on the full amount of the facility, based upon the Company's lowest senior secured debt rating. The Company is not required to maintain compensating balances in connection with the revolving credit facility. In addition to its revolving credit facility, the Company also has various uncommitted borrowing arrangements with banks totaling $20 million. The banks are not obligated to lend under uncommitted arrangements, and any borrowings are made at negotiated interest rates and are uncollateralized. The Company pays no fees on any of the uncommitted arrangements, nor are compensating balances required. The weighted average interest rate on short-term debt was 5.56% at December 31, 1996 and 5.90% at December 31, 1995. 19 22 Changes in total indebtedness for the two-year period ended December 31, 1996, were as follows:
At December 31 ---------------------- 1996 1995 -------- -------- (In thousands) Commercial paper, net...................................... $ 65,161 $ 22,922 Bank loans................................................. 140 -------- -------- Total short-term debt............................ $ 65,161 $ 23,062 ======== ======== First mortgage bonds Series X, 9 1/2%, due 2005............................... $ 60,000 $ 60,000 Series Y, 9 5/8%, due 2021, redeemed 1996................ 50,000 Pollution control revenue bonds, variable rate, due 2018... 61,260 61,260 Medium-term notes 9.10%, due 1997.......................................... 5,000 5,000 9.15%, due 1997.......................................... 10,000 10,000 7.85%, due 2000.......................................... 25,000 25,000 7.55%, due 2004, callable at 100%, 2002.................. 15,000 15,000 7.50%, due 2004, callable at 100%, 2002.................. 10,000 10,000 7.00%, due 2003.......................................... 10,000 10,000 6.90%, due 1998.......................................... 15,000 15,000 5.90%, due 1999.......................................... 10,000 10,000 6.55%, due 2003.......................................... 15,000 15,000 6.33%, due 2002.......................................... 25,000 25,000 5.78%, due 2001.......................................... 10,000 10,000 6.20%, due 2006.......................................... 15,000 15,000 6.42%, due 2001.......................................... 15,000 15,000 6.95%, due 2006.......................................... 10,000 10,000 6.53%, due 2007.......................................... 10,000 6.32%, due 2006.......................................... 15,000 6.28%, due 2018, putable at 100%, 1999................... 20,000 -------- -------- Total long-term debt............................. $356,260 $361,260 Amount due within one year................................. (15,000) Unamortized premium and discount, net...................... (401) (438) -------- -------- Total long-term debt, net........................ $340,859 $360,822 ======== ========
1997 1998 1999 2000 2001 Thereafter ------- ------- ------- ------- ------- ---------- (In thousands) Amounts payable under long-term debt agreements........................ $15,000 $15,000 $30,000 $25,000 $25,000 $246,260 ======= ======= ======= ======= ======= ========
NOTE F -- COMMON STOCK In association with incentive compensation plans in effect during the three-year period ended December 31, 1996, certain officers and key employees could be awarded shares of restricted or unrestricted common stock or granted options to purchase shares of the Company's common stock at 100% of the fair market value of the common stock at the dates the options were granted. The cost of the restricted stock awards, as measured by the market value of the common stock at the time of the grant, is recorded as compensation expense during the periods in which the restrictions on the common stock lapse. Had the Company accounted for the value of these awards after 1995 using an estimate of their "fair value," including the effect of historical volatility of the market price, rather than their intrinsic value, there would have been no significant change in net income or 20 23 earnings per share. The Company makes no charge to expense with respect to the granting of options. At December 31, 1996, all options were exercisable, while the number of shares of restricted stock previously granted for which restrictions had not lapsed totaled 42,291 shares. Changes in incentive shares for the three-year period ended December 31, 1996, were as follows:
Incentive Shares ---------------------------------------------- Option Price Unexercised Available for per Share Option Shares Future Grants ------------ ------------- ------------- Balance, January 1, 1994................ 70,430 771,315 ------- ------- Options exercised....................... $14.75 (6,500) $16.78 (4,700) Restricted stock granted................ (9,263) Incentive stock awarded................. (2,274) ------- ------- Balance, December 31, 1994.............. 59,230 759,778 ------- ------- Options exercised....................... $14.75 (18,230) $16.78 (6,800) Restricted stock granted................ (11,186) ------- ------- Balance, December 31, 1995.............. 34,200 748,592 ------- ------- Options exercised....................... $14.75 (1,250) $16.78 (13,800) Options lapsed.......................... $14.75 (750) Restricted stock granted................ (12,751) Restricted stock forfeited.............. 615 Incentive stock awarded................. (3,607) ------- ------- BALANCE, DECEMBER 31, 1996.............. 18,400 732,849 ======= =======
Various debt agreements of the Company contain covenants which restrict the amount of retained earnings that may be distributed as dividends to common shareholders. The most restrictive covenant requires that common shareholders' equity be not less than 30% of total capitalization, including short-term debt. At December 31, 1996, approximately $144.3 million of retained earnings was not restricted. NOTE G -- SUPPLEMENTARY PROFIT AND LOSS INFORMATION
For the years ended December 31 -------------------------------- 1996 1995 1994 -------- -------- -------- (In thousands) Operating revenue derived from one customer.............................. $33,359 $28,695 $28,259 ======= ======= ======= Other taxes included in the consolidated income statements..................... $29,595 $29,063 $28,899 Other taxes capitalized to plant........ 1,049 1,010 742 ------- ------- ------- Total other taxes....................... $30,644 $30,073 $29,641 ======= ======= ======= Other taxes consist of: State and municipal property.......... $16,302 $15,868 $15,406 State and municipal franchise......... 10,434 10,072 10,424 Other................................. 3,908 4,133 3,811 ------- ------- ------- Total other taxes....................... $30,644 $30,073 $29,641 ======= ======= =======
21 24 NOTE H -- PREFERRED STOCK In connection with the establishment of the ESOP, the Company sold 300,000 shares of 8.125% convertible preferred stock to the ESOP. Each share of preferred stock is convertible into 4.8 shares of common stock. The amount of total capitalization reflected in the consolidated financial statements has been reduced by an amount of deferred compensation expense related to the shares of convertible preferred stock which have not yet been allocated to ESOP participants. The amount shown in the consolidated financial statements for preferred dividend requirements in 1996, 1995 and 1994 has been reduced by $658,000, $716,000 and $771,000, respectively, to reflect the benefit of the income tax deduction for dividend requirements on unallocated shares held by the ESOP. Upon involuntary liquidation, preferred shareholders are entitled to receive par value for shares held before any distribution is made to common shareholders. Upon voluntary liquidation, preferred shareholders are entitled to receive the redemption price per share applicable at the time such liquidation occurs plus any accrued dividends. Information about the components of preferred stock capitalization is as follows:
Balance Balance Balance Balance Jan. 1, Dec. 31, Dec. 31, Dec. 31, 1994 Change 1994 Change 1995 Change 1996 --------- ------- --------- ------- --------- ------- --------- (In thousands, except share amounts) CUMULATIVE PREFERRED STOCK, $100 par value NOT SUBJECT TO MANDATORY REDEMPTION 4.50%............................... $ 1,029 $ 1,029 $ 1,029 $ 1,029 Convertible, Series of 1991, variable rate..................... 29,953 $ (234) 29,719 $ (229) 29,490 $ (239) 29,251 --------- ------- --------- ------- --------- ------- --------- $ 30,982 $ (234) $ 30,748 $ (229) $ 30,519 $ (239) $ 30,280 ========= ======= ========= ======= ========= ======= ========= SUBJECT TO MANDATORY REDEMPTION 4.50%, Series of 1955............... $ 480 $ (40) $ 440 $ (40) $ 400 $ (40) $ 360 4.65%, Series of 1964............... 3,500 (140) 3,360 (140) 3,220 (140) 3,080 4.75%, Series of 1965............... 3,262 (142) 3,120 (130) 2,990 (58) 2,932 --------- ------- --------- ------- --------- ------- --------- $ 7,242 $ (322) $ 6,920 $ (310) $ 6,610 $ (238) $ 6,372 ========= ======= ========= ======= ========= ======= ========= Deferred compensation related to convertible preferred stock held by the ESOP............................ $ (26,118) $ 1,714 $ (24,404) $ 1,809 $ (22,595) $ 1,844 $ (20,751) ========= ======= ========= ======= ========= ======= ========= CUMULATIVE PREFERRED STOCK, $100 par value Number of Shares Authorized.......................... 1,419,619 (2,819) 1,416,800 (2,700) 1,414,100 (1,975) 1,412,125 Issued and Outstanding.............. 382,238 (5,562) 376,676 (5,389) 371,287 (4,768) 366,519 ========= ======= ========= ======= ========= ======= ========= CUMULATIVE PREFERRED STOCK, $25 par value Number of Shares Authorized (None outstanding).................. 3,000,000 3,000,000 3,000,000 3,000,000 ========= ========= ========= =========
22 25 Preferred stock, other than the convertible preferred stock held by the ESOP, is redeemable at the Company's option, subject to 30 days' prior written notice to holders. Preferred stock subject to mandatory redemption is redeemable annually through sinking funds or purchase funds at prices of not more than $100 per share until all shares have been redeemed. The convertible preferred stock is redeemable at any time at the Company's option. If the Company were to elect to redeem the convertible preferred shares, shareholders may elect to receive the optional redemption price or convert the preferred shares into common stock. The redemption provisions for the various series of preferred stock are shown in the following table.
Optional Redemption Mandatory Redemption ------------------- ---------------------------- Price Number of Price Series per Share Shares Annually per Share ------ --------- --------------- --------- 4.50%................................... $101 4.50%, Series of 1955................... $102 400 $100 4.65%, Series of 1964................... $102 1,400 $100 4.75%, Series of 1965................... $100 1,300* $100 Convertible, Series of 1991 Through April 1, 1997................. $104.0625 Thereafter............................ $103.25 to $100
* The Company is required to offer holders of the Series of 1965 the opportunity to redeem 1,300 shares each year. The Company is required to redeem only shares actually tendered, if any. NOTE I -- PENSION PLAN AND EMPLOYEE BENEFITS Substantially all employees are covered by a noncontributory, defined benefit pension plan. Benefits under the plan reflect an employee's years of service, age at retirement and highest total average compensation for any consecutive five calendar years during the last ten years of employment with the Company. The Company's policy is to fund contributions to the employee pension plan based upon actuarial computations utilizing the projected unit credit method, subject to the Internal Revenue Service's full funding limitation. No contributions to the pension plan were required during the three-year period ended December 31, 1996. Effective January 1, 1993, the Company began accounting for its pension plan on an accrual basis for ratemaking purposes with the approval of the LPSC staff. A previously recorded regulatory credit with regard to the pension plan is being amortized to income over a five-year period, subject to review by the LPSC in future proceedings.
For the years ended December 31 -------------------------------- 1996 1995 1994 -------- -------- -------- (In thousands) Service costs for benefits earned during the period............................ $ 3,010 $ 2,498 $ 2,648 Interest costs on projected benefit obligation............................ 6,768 6,542 6,269 Actual gain on assets................... (9,572) (8,920) (8,730) Net amortization and deferral........... (1,037) (1,037) (1,037) ------- ------- ------- Net pension benefit cost................ $ (831) $ (917) $ (850) ======= ======= ======= Actuarial assumptions Weighted average discount rate........ 7.50% 7.00% 7.50% Rate of increase in future compensation....................... 5.00% 5.00% 5.00% Rate of return on plan assets......... 9.50% 9.50% 9.50%
Employee pension plan assets are invested in the Company's common stock, other publicly traded domestic common stocks, U.S. government, federal agency and corporate obligations, an international equity fund, commercial real estate funds and pooled temporary investments. 23 26 The employee pension plan's funded status as determined by the actuary at December 31, 1996 and 1995 is presented in the following table.
1996 1995 -------- --------- (In thousands) Actuarial present value of benefit obligation Vested benefits........................................... $(77,769) $ (77,427) Nonvested benefits........................................ (3,648) (3,479) -------- --------- Accumulated benefit obligation............................ (81,417) (80,906) Effect of projected future compensation levels............ (16,307) (19,352) -------- --------- Projected benefit obligation for service rendered to date... (97,724) (100,258) Plan assets at fair market value............................ 138,672 121,801 -------- --------- Plan assets in excess of projected benefit obligation....... 40,948 21,543 Unamortized transition asset................................ (9,261) (10,578) Unrecognized net gain....................................... (26,226) (6,336) -------- --------- Prepaid pension asset....................................... $ 5,461 $ 4,629 ======== =========
Substantially all employees are eligible to participate in a savings and investment plan (401(k) Plan). The Company makes matching contributions to 401(k) Plan participants by allocating shares of convertible preferred stock held by the ESOP. Compensation expense related to the 401(k) Plan is based upon the value of shares of preferred stock allocated to ESOP participants, and the amount of interest incurred by the ESOP, less dividends on unallocated shares held by the ESOP. At December 31, 1996 and 1995, the ESOP had allocated to employees 89,655 and 71,761 shares, respectively. The table below contains information about the 401(k) Plan and the ESOP:
For the years ended December 31 -------------------------------- 1996 1995 1994 -------- -------- -------- (In thousands) 401(k) Plan expense.................................... $1,490 $1,542 $1,537 ------ ------ ------ Dividend requirements to ESOP on convertible preferred stock................................................ $2,378 $2,396 $2,415 ------ ------ ------ Interest incurred by ESOP on its indebtedness.......... $1,746 $1,905 $2,008 ------ ------ ------ Company contributions to ESOP.......................... $1,239 $1,071 $1,205 ------ ------ ------
The Company's retirees and their dependents are eligible to receive health, dental and life insurance benefits. The Company recognizes the expected cost of these benefits during the periods in which the benefits are earned. The components of net postretirement benefit cost for 1996, 1995 and 1994, were as follows:
1996 1995 1994 ------ ------ ------ (In thousands) Service costs for benefits earned...................... $ 596 $ 639 $ 640 Interest costs......................................... 934 1,066 1,025 Amortization of transition obligation.................. 513 513 567 ------ ------ ------ Net postretirement benefit cost........................ $2,043 $2,218 $2,232 ====== ====== ======
24 27 The financial status of the postretirement benefit plan at December 31, 1996 and 1995, as determined by the actuary, is presented in the following table.
1996 1995 ------- ------- (In thousands) Accumulated benefit obligation Retirees.................................................. $ 8,169 $10,255 Fully eligible participants............................... 2,581 1,958 Other active participants................................. 2,591 3,954 ------- ------- Total accumulated benefit obligation........................ 13,341 16,167 Unamortized transition obligation........................... (8,213) (8,726) Unrecognized gain (loss).................................... 3,005 (630) ------- ------- Accrued unfunded postretirement benefit liability........... $ 8,133 $ 6,811 ======= =======
The assumed health care cost trend rate used to measure the expected cost of benefits was 10% in 1996, declining to 5.5% by 2008 and remaining at 5.5% thereafter. The initial health care cost trend rate was reduced from 10.5% in 1995 to 8.5% in 1996 and resulted in an unrecognized gain. If the health care cost trend rate assumptions were increased by 1%, the accumulated benefit obligation would be $13.8 million at December 31, 1996, and the aggregate of the service and interest cost components of the net periodic cost of health care benefits would be $1.6 million annually. The weighted average assumed discount rate used to measure the accumulated benefit obligation in 1996 was changed from 7% to 7.5% and together with a decrease in per capita claims cost, resulted in an unrecognized gain. The weighted average assumed discount rate used to measure the accumulated benefit obligation in 1995 was changed from 7.5% to 7% and resulted in an unrecognized loss. In 1994 the Company announced a plan to consolidate 25 customer service offices into ten regional offices by June 1995. This plan resulted in a restructuring charge to 1994 earnings of $1.2 million. This charge consisted mainly of voluntary severance benefits and customer service office lease commitment costs. 25 28 NOTE J -- INCOME TAX EXPENSE Federal income tax expense is less than the amount computed by applying the statutory federal rate to book income before tax as follows:
For the years ended December 31 --------------------------------------------------- 1996 1995 1994 --------------- --------------- --------------- Amount % Amount % Amount % ------- ----- ------- ----- ------- ----- (In thousands, except for %) Book income before tax................ $78,289 100.0 $73,932 100.0 $64,944 100.0 ------- ----- ------- ----- ------- ----- Tax at statutory rate on book income before tax.......................... $27,401 35.0 $25,876 35.0 $22,730 35.0 Increase (decrease): Tax effect of AFUDC................. (185) (0.2) (1,029) (1.4) (805) (1.2) Amortization of investment tax credits.......................... (1,809) (2.3) (1,814) (2.5) (1,819) (2.8) Tax effect of prior-year tax benefits not deferred............ 921 1.1 900 1.2 537 0.8 Other, net.......................... (3,296) (4.2) (1,435) (1.9) (3,219) (5.0) ------- ----- ------- ----- ------- ----- Total federal income tax expense...... 23,032 29.4 22,498 30.4 17,424 26.8 ------- ----- ------- ----- ------- ----- Current state income tax expense...... 3,122 4.0 2,731 3.7 2,477 3.8 ------- ----- ------- ----- ------- ----- Total federal and state income tax expense............................. $26,154 33.4 $25,229 34.1 $19,901 30.6 ======= ===== ======= ===== ======= =====
Information about current and deferred income tax expense is as follows:
1996 1995 1994 ------- ------- ------- (In thousands) Current federal income tax expense.................. $21,023 $21,458 $16,798 Deferred federal income tax expense................. 3,818 2,854 2,445 Amortization of accumulated deferred investment tax credits........................................... (1,809) (1,814) (1,819) ------- ------- ------- Total federal income tax expense.................... 23,032 22,498 17,424 Current state income tax expense.................... 3,122 2,731 2,477 ------- ------- ------- Total federal and state income tax expense.......... $26,154 $25,229 $19,901 ======= ======= ======= Deferred federal income tax expense attributable to: Depreciation...................................... $ 4,834 $ 3,746 $ 4,466 Storm damages..................................... 70 (15) (340) Asset basis differences........................... 425 (1,213) (352) Employee benefits................................. (504) (558) (455) Fuel costs........................................ (481) 890 (244) Other............................................. (526) 4 (630) ------- ------- ------- Total deferred federal income tax expense........... $ 3,818 $ 2,854 $ 2,445 ======= ======= =======
26 29 The balance of accumulated deferred federal and state income tax assets and liabilities at December 31, 1996 and 1995 was comprised of the tax effect of the following:
1996 1995 -------------------- -------------------- Asset Liability Asset Liability ------- --------- ------- --------- (In thousands) Depreciation and property basis differences......................... $ 6,851 $129,710 $ 6,311 $125,494 Allowance for funds used during construction........................ 41,564 42,038 Investment tax credits................ 19,617 20,844 FASB 109 adjustments.................. 38,897 101,287 34,126 93,383 Postretirement benefits other than pension............................. 3,007 2,414 Other................................. 5,859 9,123 2,763 5,958 ------- -------- ------- -------- Accumulated deferred federal and state income taxes........................ $74,231 $281,684 $66,458 $266,873 ======= ======== ======= ========
Regulatory assets recorded for deferred taxes at December 31, 1996 and 1995 were $103.8 million and $119 million, respectively. Regulatory liabilities recorded for deferred taxes at December 31, 1996 and 1995 were $60.1 million and $79.3 million, respectively. Regulatory assets and liabilities will be realized over the accounting lives of the related properties to the extent past ratemaking practices are continued by regulators. An audit of the Company's 1991 and 1992 tax returns was completed by agents of the Internal Revenue Service (IRS) in January 1995. A settlement of these audit assessments totaling $0.9 million has been proposed by IRS appeals officer. Deferred federal income taxes have been provided for all temporary differences, and reserves have been provided for other issues. In October 1996, the IRS agents completed an audit of the 1993 and 1994 tax returns. The assessments in this audit totaling $1.3 million were agreed to and paid at the conclusion of the audit. Interest has not been paid in either settlement but all interest through December 31, 1996, has been accrued. NOTE K -- COMMITMENTS AND CONTINGENCIES Construction expenditures for 1997 are estimated to be $67.5 million, excluding AFUDC, and for the five-year period ending 2001 are expected to total $280 million, excluding AFUDC. Scheduled maturities of debt and preferred stock will total about $15.3 million for 1997 and approximately $111.6 million for the five-year period ending 2001. The Company has entered into various long-term contracts for the procurement of coal and lignite to fuel certain of its generating stations. These contracts contain provisions for price changes, minimum purchase levels and other financial commitments. The Company purchases, as an additional fuel source for generation, natural gas under short-term contracts on the spot market. The Company has accrued for liabilities to third parties, environmental claims, employee medical benefits, storm damages and deductibles under insurance policies which it maintains on major properties, primarily generating stations and transmission substations. Consistent with regulatory treatment, annual charges to operating expense to provide a reserve for future storm damages are based upon the average amount of noncapital, uninsured storm damages experienced by the Company during the previous five years. In early 1995, the Company and Teche Electric Cooperative, Inc. (Teche) executed a purchase and sale agreement regarding a purchase of all of the assets of Teche by the Company for a purchase price, including the Company's assumption or other discharge of Teche's liabilities, of approximately $22.4 million. Closing of the transaction is subject to a number of conditions, 27 30 including approval by the LPSC and the Rural Utilities Service, successful resolution of Teche's power supply contract with Cajun Electric Cooperative, Inc. (Cajun) and certain other conditions. The Teche members approved the sale at their annual meeting in March 1995. On March 31, 1996, the board of directors of Teche voted to extend the Purchase and Sale Agreement with the Company for an additional twelve months until March 31, 1997 to allow for the Teche wholesale power contract with Cajun to be resolved through Cajun's bankruptcy process. Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121), establishes accounting standards for determining if long-lived assets are impaired, and when and how losses, if any, should be recognized. The Company believes that the net cash flows that will result from the operation of its assets are sufficient to cover the carrying value of the assets. The Company has recorded regulatory assets and liabilities, primarily for the effects of income taxes, as a result of past rate actions of the Company's regulators, pursuant to Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). The effects of potential deregulation of the industry or possible future changes in the method of rate regulation of the Company could require that the Company discontinue the application of SFAS 71, pursuant to Statement of Financial Accounting Standards No. 101, "Regulated Enterprises -- Accounting for the Discontinuation of Application of FASB Statement No. 71" (SFAS 101). At December 31, 1996, the Company had recorded $43.8 million of regulatory assets, net of regulatory liabilities, because of the regulatory requirement to flow through the tax benefits of accelerated deductions to current customers and an implied regulatory compact that future customers would pay when the Company paid the additional taxes. These differences occur over the lives of relatively long-lived assets, up to 30 years or more. Under the current regulatory and competitive environment, the Company believes that these regulatory assets are fully recoverable. However, if in the future, as a result of regulatory changes or increased competition, the Company's ability to recover these regulatory assets would not be probable, then to the extent that such regulatory assets were determined not to be recoverable, the Company would be required to write off or write down such assets. NOTE L -- MISCELLANEOUS FINANCIAL INFORMATION (UNAUDITED) Quarterly information for 1996 and 1995 is shown in the following table.
1996 ------------------------------------------ 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter ------- -------- -------- ------- (In thousands, except per share amounts) Operating revenues.......................... $98,606 $112,867 $130,054 $93,889 Operating income............................ $16,747 $ 21,566 $ 27,190 $12,918 Net income applicable to common stock....... $ 9,516 $ 14,026 $ 20,379 $ 6,140 Primary net income per average common share..................................... $ 0.42 $ 0.63 $ 0.91 $ 0.27 Fully diluted net income per average common share..................................... $ 0.41 $ 0.61 $ 0.87 $ 0.27 Dividends paid per common share............. $ 0.375 $ 0.385 $ 0.385 $ 0.385 Market price per share High...................................... $27 3/4 $ 27 3/8 $ 27 1/4 $29 1/4 Low....................................... $25 3/8 $ 25 1/8 $ 25 3/8 $26 1/8
28 31
1995 ------------------------------------------ 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter ------- -------- -------- ------- (In thousands, except per share amounts) Operating revenues.......................... $79,872 $100,599 $123,383 $90,572 Operating income............................ $14,589 $ 20,295 $ 27,444 $12,374 Net income applicable to common stock....... $ 7,582 $ 13,490 $ 20,556 $ 5,023 Primary net income per average common share..................................... $ 0.34 $ 0.60 $ 0.92 $ 0.22 Fully diluted net income per average common share..................................... $ 0.33 $ 0.58 $ 0.88 $ 0.22 Dividends paid per common share............. $ 0.365 $ 0.375 $ 0.375 $ 0.375 Market price per share High...................................... $24 1/2 $ 24 1/2 $ 25 5/8 $28 1/8 Low....................................... $ 22 $ 22 1/8 $ 22 1/4 $25 1/4
The Company's common stock is listed for trading on the New York and Pacific stock exchanges under the ticker symbol "CNL." The Company's preferred stock is not listed on any stock exchange. On December 31, 1996, the Company had 11,765 common and 184 preferred shareholders, as determined from the records of the transfer agent. On January 24, 1997, the Company's Board of Directors declared a quarterly dividend of 38 1/2 cents per share payable February 15, 1997, to common shareholders of record on February 3, 1997. Preferred dividends were also declared, payable March 1, 1997, to preferred shareholders of record on February 15, 1997. 29 32 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Central Louisiana Electric Company, Inc. We have audited the accompanying consolidated balance sheets of Central Louisiana Electric Company, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of income, cash flows and changes in common shareholders' equity for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Central Louisiana Electric Company, Inc. as of December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. COOPERS & LYBRAND L.L.P. New Orleans, Louisiana January 29, 1997 30 -----END PRIVACY-ENHANCED MESSAGE-----