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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____to_____
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
----------- ----------------------------------- -----------------
333-09033 Southern Investments UK plc None
(Registered in England & Wales)
800 Park Avenue
Aztec West
Almondsbury
Bristol
BS12 4SE, UK
(01144) 1454 201101
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
Description of Shares Outstanding
Registrant Common Stock at July 31, 1997
- ---------- -------------- -----------------
Southern Investments UK plc Par Value(pound)1 Per Share 500,400,587
1
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<TABLE>
<CAPTION>
SOUTHERN INVESTMENTS UK plc and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Millions)
<S> <C> <C>
For the Three Months Ended June 30,
-----------------------------------
1997 1996
---- ----
(Note F)
OPERATING REVENUES (pound) 172 $ 287 (pound) 181
COST OF SALES 111 185 122
---- ----- ----
GROSS MARGIN 61 102 59
---- ----- ----
OPERATING EXPENSES:
Maintenance 8 14 9
Depreciation and amortization 11 18 11
Selling, general, and administrative 15 25 12
---- ----- ----
Total operating expenses 34 57 32
----- ----- ----
Operating income 27 45 27
---- ----- ----
OTHER INCOME (EXPENSE):
Interest expense (13) (22) (13)
Gain on sale of investments - - 1
Other, net 5 8 2
---- ----- ----
Total other income (expense) (8) (14) (10)
---- ----- ----
INCOME BEFORE INCOME TAXES 19 31 17
PROVISION FOR INCOME TAXES 5 8 6
---- ----- ----
NET INCOME (pound) 14 $ 23 (pound) 11
==== ===== ====
The accompanying notes form an integral part of these condensed consolidated statements.
</TABLE>
2
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<TABLE>
<CAPTION>
SOUTHERN INVESTMENTS UK plc and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Millions)
<S> <C> <C>
For the Three Months Ended June 30,
-----------------------------------
1997 1996
---- ----
(Note F)
NET CASH PROVIDED BY OPERATING ACTIVITIES (pound) 51 $ 85 (pound) 34
--- ---- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (17) (28) (20)
Loans to related parties - - (3)
Proceeds from property sales - - 3
Disposal of current asset investments, net (1) (2) (1)
--- ---- ----
Net cash used in investing activities (18) (30) (21)
--- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of dividends (25) (42) (12)
Change in short-term borrowings (9) (15) (16)
--- ---- ----
Net cash used in financing activities (34) (57) (28)
--- ---- ----
NET DECREASE IN CASH AND CASH EQUIVALENTS (1) (2) (15)
CASH AND CASH EQUIVALENTS, beginning of period 3 5 20
--- ---- ----
CASH AND CASH EQUIVALENTS, end of period (pound) 2 $ 3 (pound) 5
=== ==== ====
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest (pound) (10) $(17) (pound) (14)
=== ==== ====
Cash paid for income tax (pound) - $ - (pound) (15)
=== ==== ====
The accompanying notes form an integral part of these condensed consolidated statements.
</TABLE>
3
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<TABLE>
<CAPTION>
SOUTHERN INVESTMENTS UK plc and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions)
ASSETS
<S> <C> <C>
June 30, 1997 March 31,
-------------- ---------
(Unaudited) 1997
--------- ----
(Note F)
PROPERTY, PLANT, AND EQUIPMENT: (pound) 1,326 $2,208 (pound) 1,312
Less accumulated depreciation 69 115 59
------ ------ ------
Property, plant, and equipment, net 1,257 2,093 1,253
------ ------ ------
OTHER ASSETS:
Investments 19 32 19
Prepaid pension cost 108 180 105
Goodwill, net of accumulated amortization of (pound)8 ($13) at June 30
and (pound)7 at March 31 175 291 176
------ ------ ------
Total other assets 302 503 300
------ ------ ------
CURRENT ASSETS:
Cash and cash equivalents 2 3 3
Investments 20 33 18
Receivables:
Customer accounts, less provision for uncollectables of (pound)11 ($18) at
June 30 and(pound)12 at March 31 80 133 120
Other 9 15 12
------ ------ ------
Receivables, net 89 148 132
Materials and supplies 3 5 3
Prepaid expenses 13 22 12
------ ------ ------
Total current assets 127 211 168
------ ------ ------
Total assets (pound) 1,686 $2,807 (pound) 1,721
====== ====== ======
The accompanying notes are an integral part of these condensed consolidated balance sheets.
</TABLE>
4
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<TABLE>
<CAPTION>
SOUTHERN INVESTMENTS UK plc and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions)
STOCKHOLDER'S EQUITY AND LIABILITIES
<S> <C> <C>
June 30, 1997 March 31,
------------- --------
(Unaudited) 1997
------------- -----
(Note F)
STOCKHOLDER'S EQUITY:
Common stock, (pound)1 par value, 500,400,587 shares authorized, issued
and outstanding (pound) 500 $ 832 (pound) 500
Retained earnings (deficit) (125) (208) (114)
------ ------ -----
Total stockholder's equity 375 624 386
------ ------ -----
COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SOUTHERN INVESTMENTS
UK CAPITAL TRUST I HOLDING COMPANY JUNIOR
SUBORDINATED DEBENTURES 50 83 50
NON-CURRENT LIABILITIES:
Long-term debt 301 501 301
Deferred income taxes 379 631 377
Provision for loss contracts 70 117 69
Other 57 95 59
------ ------ -----
Total non-current liabilities 807 1,344 806
------ ------ -----
CURRENT LIABILITIES:
Commercial paper 222 370 250
Short-term borrowings 53 88 34
Accounts payable 32 53 46
Accrued income taxes 34 56 31
Unearned revenue 4 7 5
Common dividend declared 25 42 25
Accrued interest 12 20 9
Other 72 120 79
------ ------ -----
Total current liabilities 454 756 479
------ ------ -----
Total stockholder's equity and liabilities (pound) 1,686 $2,807 (pound) 1,721
====== ====== =====
The accompanying notes are an integral part of these condensed consolidated balance sheets.
</TABLE>
5
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SOUTHERN INVESTMENTS UK plc and SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
(A) The condensed consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and in conformity with accounting principles
generally accepted in the United States. In the opinion of the Company's
management, the information furnished herein reflects all adjustments
(which included only normal recurring adjustments) necessary to present
fairly the results of the three-month periods ended June 30, 1997 and 1996.
The Company's fiscal year end is March 31. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
(B) The condensed consolidated balance sheet at March 31, 1997 included herein
has been extracted from audited financial statements; all other figures are
unaudited. The condensed financial statements included herein have been
reviewed by the Company's independent public accountants and their report
is included herein as Exhibit 15.
The Company's sole investment and only significant asset is the entire
share capital of South Western Electricity plc ("SWEB"), which is
headquartered in Bristol, England. The Company shows a retained
earnings deficit primarily due to the dividends in the amount of
(pound)191 million being declared and paid by the Company during the
fiscal year 1996 as proceeds from the sale of SWEB's shares in The
National Grid Holding plc ("NGH") provided cash in addition to that
provided from operations. Dividends in the amount of
(pound)37 million for fiscal year 1997 and an interim dividend of
(pound)25 million for 1998 were declared by the Company.
(C) SWEB has entered into a contract relating to the purchase of 200
megawatts of capacity from a 7.69% owned related party, Teesside Power
Limited ("Teesside"), for a period of 15 years beginning April 1, 1993.
The contract sets escalating electricity purchase prices at predetermined
levels. The Company has recognized an accrual at the acquisition date for
the excess of these Teesside power purchase costs in each year over an
estimate of the equivalent wholesale electricity trading market (the
"Pool") costs in that respective year. These costs have been discounted
at an appropriate rate to their present value of (pound)68 million ($113
million) at June 30, 1997 and (pound)67 million at March 31, 1997.
SWEB has additional contracts with unaffiliated parties relating to the
purchase of electricity, which expire by March 31, 1998, and contracts
relating to the purchase of gas which expire by September 30, 1998, the
terms of which are immaterial with respect to quantity and price, both
annually and in the aggregate.
(D) The Company and SWEB utilize certain financial derivative contracts for
the purpose of risk management. The Company's and SWEB's participation in
derivative contracts has been to hedge business exposure in connection
with fluctuations in interest rates, currency rates related to certain of
the Company liabilities, and electricity purchase costs. At June 30,
1997, the status of outstanding derivative contracts was as follows:
(i) Interest rate swaps are used by the Company and SWEB to hedge their
exposure to fluctuations in interest rates by allowing them to
effectively convert their outstanding variable-rate debt into fixed rates.
At June 30, 1997, sterling interest rate swaps expiring between 2001 and
2012 with notional amounts totalling (pound)500 million ($832 million),
resulted in an unrealized loss of (pound)15 million ($25 million).
6
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SOUTHERN INVESTMENTS UK plc and SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Foreign currency swaps contracts are used by the Company to hedge
exposure to US dollar liabilities in respect of outstanding debt. At June
30, 1997, currency swaps expiring between 2001 and 2007 with notional
amounts totalling (pound)350 million ($582 million), resulted in an
unrealized loss of (pound)7 million ($12 million).
(ii) SWEB has contracts for differences ("CFDs") to mitigate its exposure
to volatility in the prices of electricity purchased through the Pool.
CFDs are in place to hedge electricity purchases on approximately 23,451
GWh through the year 2008. Accordingly, the gains or losses on such
contracts are deferred and recognized as electricity is purchased. It is
not possible to estimate the fair value of these contracts at present as
the contract prices are based on future events, the effects of which
currently are not estimable.
(E) The Company and SWEB are routinely party to legal proceedings arising in
the ordinary course of business which are not material, either
individually or in aggregate. Neither the Company nor SWEB is a party to
any material legal proceedings nor is it currently aware of any
threatened material legal proceedings. As described below, the Company is
aware of an issue which could subsequently impact on SWEB.
The Pensions Ombudsman (a UK statutorily appointed independent
arbitrator) has issued a determination in favor of complaints made by
members of the Electricity Supply Pension Scheme ("ESPS") relating to
another employer's use of ESPS surplus to offset the employer's costs of
providing early pensions on redundancies and certain other items. Under
that determination the Pensions Ombudsman directed the employer to pay
into ESPS the amount of that use of the surplus plus interest. The
determination was challenged in the High Court by the employer, and the
High Court upheld the employer's appeal in a judgment delivered on June
10, 1997. The High Court also granted the complainants leave to appeal to
a higher court. No date has yet been set for any hearing in the higher
court. If the complainants' appeal is successful either at the higher
court or on a subsequent appeal to the House of Lords, it will have an
adverse effect on SWEB. No payments are required until such challenge has
been heard. It is not practical to make an estimate of the exposure at
the present time.
(F) Solely for the convenience of the reader, pounds sterling amounts have
been translated into US dollars at the exchange rate of $1.6650 =
(pound)1.00, the noon buying rate in New York City for cable transfers in
pounds sterling as certified for customs purposes by the Federal Reserve
Bank of New York on June 30, 1997.
(G) On May 1, 1997 a new Labour government was elected in the UK. On July 2,
1997 the Labour government presented its first budget which includes a
"one-off windfall levy on the excess profits of the privatized
utilities." Based upon the method determined by which the government will
calculate the levy, SWEB estimates its liability to be approximately
(pound)97 million ($162 million). The levy is payable in two equal
installments on or before December 1, 1997 and December 1, 1998. The
budget received Royal assent, and thus became effective, on July 31,
1997.
The budget also reduced the UK corporation tax rate from 33% to 31%. Such
a decrease will result in an accounting credit reducing SWEB's provision
for deferred income taxes by approximately (pound)22 million ($37
million).
7
<PAGE>
SOUTHERN INVESTMENTS UK plc and SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(H) The condensed consolidated financial statements included herein have not
been prepared in accordance with the policies of Statement of Financial
Accounting Standards No. 71 "Accounting for the Effects of Certain Types
of Regulation" ("SFAS No. 71"). This pronouncement, under which most US
electric utilities report financial statements, applies to entities which
are subject to cost-based rate regulation. By contrast, SWEB is not
subject to rate regulation, but, rather, is subject to price cap
regulation and therefore the provisions of SFAS No. 71 do not apply.
Financial statements presented in accordance with SFAS No. 71 often
contain certain deferred items which have not been included in rates
charged to customers in compliance with the respective regulatory
authority rulings, but which would have been included in the income
statement of enterprises in general under US GAAP. The accompanying
financial statements of the Company do not contain such deferrals.
8
<PAGE>
SOUTHERN INVESTMENTS UK plc and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST FISCAL QUARTER 1998 vs. FIRST FISCAL QUARTER 1997
INTRODUCTION
The Company is a wholly-owned subsidiary of Southern Investments UK
Holdings Limited, of which 75% is owned indirectly by Southern Company and 25%
is owned indirectly by PP&L Resources, Inc. The Company was incorporated as a
public limited company under the laws of England and Wales on June 23, 1995, as
a vehicle for the acquisition of SWEB, one of the 12 regional electricity
companies in England and Wales licensed to distribute, supply and, to a limited
extent, generate electricity. In September 1995, the Company gained effective
control of SWEB. The Company's sole investment and only significant asset is the
entire share capital of SWEB, which is headquartered in Bristol, England.
SWEB's two main business lines are the distribution of electricity and the
supply of electricity to approximately 1.3 million customers primarily in its
franchise area in southwest England. This area covers approximately 5,560 square
miles and has a resident population of approximately 2.8 million. It also has
ancillary business activities, including electricity generation and gas supply.
RESULTS OF OPERATIONS
Earnings
Operating income for the first quarter fiscal year 1998 at (pound)27
million was at the same level as the corresponding quarter fiscal year 1997. The
split of operating income between the distribution and supply businesses also
remained constant at (pound)21 million and (pound)6 million, respectively.
Net income for the first quarter fiscal year 1998 was (pound)14 million,
compared to (pound)11 million for the corresponding quarter fiscal year 1997.
This increase of (pound)3 million was primarily due to an increase in other
income of (pound)2 million, and a fall in the provision for income taxes of
(pound)1 million.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
--------------------
(in millions) %
Operating revenues................................ (pound) (9) (5)
Cost of sales..................................... (11) (9)
Selling, general, and administrative expense...... 3 25
Other income, net................................. 2 67
Operating revenues
Revenue decreases were primarily within the supply business where revenues
decreased by (pound)14 million for the quarter. This is due mainly to a
reduction in the fossil fuel levy which is passed through to customers. Revenues
from ancillary businesses increased by (pound)2 million in the quarter,
reflecting an increase in activity largely within gas supply.
9
<PAGE>
SOUTHERN INVESTMENTS UK plc and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Cost of sales
Cost of sales primarily relate to the purchase cost of electricity. The
decrease is largely due to the decrease in the fossil fuel levy, as mentioned
above.
Selling, general, and administrative expense
The increase in selling, general and administrative expenses resulted
mainly within the ancillary businesses, including the increased gas supply
activities.
Other income, net
The increase is primarily due to additional dividends from an investment in
generating plant, offset by a gain on sale of investments in the prior period.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including the level of energy sales and customer growth. More specific
major impacts on future earnings are the windfall levy and the resultant
interest charges from funding requirements to meet the windfall levy payments.
An item that could also result in additional funding requirements relates to the
outcome of a court ruling related to a pension matter. See Notes (G) and (E),
respectively, in the "Notes to the Condensed Consolidated Financial Statements",
and also "Financial Condition" herein for discussion of these matters.
The largest portion (approximately 78%) of SWEB's operating income, in the
first quarter fiscal year 1998, is derived from its distribution business -
essentially the operation and maintenance of the electricity network in its
franchise area of the southwest of England. SWEB is the only distributor of
electricity in this area, and management believes that economic, environmental
and regulatory factors are likely to prevent competitors from entering this
business in SWEB's service area.
The Director General of Electricity Supply (the "Regulator") controls the
revenues generated by SWEB in its distribution and supply businesses by applying
a price control formula, P + RPI -X, where P is the price level at the beginning
of each new regulatory period, RPI is the change in the Retail Price Index and X
is an adjustment factor determined by the Regulator. X is currently 3% for
distribution and 2% for supply.
In the distribution business, the Distribution Price Control Formula
("DPCR") is usually set for a five-year period, subject to more frequent
adjustments as determined necessary by the Regulator. At each review, the
Regulator can require a one-time price reduction. An initial review by the
Regulator of allowable income in the distribution business led to a reduction of
the price level by 14% for SWEB starting April 1, 1995, followed by efficiency
factors of X = 2% for each year until March 2000 (before an allowed increase for
inflation). On July 6, 1995, the Regulator announced the result of a further
distribution price review which was precipitated by certain market events in the
UK electric utility industry. For SWEB, such announcement meant a further real
reduction of 11% in allowable distribution income for the twelve months from
April 1, 1996, followed by an efficiency factor of X = 3% for each year until
March 31, 2000, before an allowed increase for inflation. It is expected that
the Regulator will undertake the next DPCR review starting in 1998, which should
become effective from April 1, 2000.
10
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SOUTHERN INVESTMENTS UK plc and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In the supply business, which is progressively being opened to
competition, price regulation currently applies to the market for customers with
a demand of not more than 100kW. The calculation of the maximum supply charge is
based on a Supply Price Control Formula, similar to the DPCR and is set for a
four-year period. In 1993, the Regulator announced the supply franchise market
(i.e. customers with demand of not more than 100kW) income entitlement for the
four-year period ending March 1998. An efficiency factor of X = 2% (before an
allowed increase for inflation) was applied to SWEB and is being offset by an
allowance for both unit and customer growth. The Regulator is currently
undertaking a further Supply Price Control Formula review, effective from April
1, 1998; the result of this review is expected to be announced by October, 1997.
The non-franchise markets above 1MW were opened to full competition
during privatization in 1990; the non-franchise markets above 100kW were opened
to full competition in April 1994. The exclusive right to supply Franchise
Supply Customers (largely domestic and small commercial) is scheduled to be
phased out over a six-month period commencing April 1, 1998, after which all
supply customers will have the ability to choose their electricity supplier.
SWEB intends to maintain a significant share of these customers by providing
superior service and competitive pricing.
SWEB's risk management efforts are focused on the supply business which
is exposed to Pool price volatility. Regulations governing the franchise supply
market permit the pass-through to customers of prudent costs which include the
cost of arrangements such as contracts for differences ("CFDs") to hedge against
Pool price volatility. CFDs are contracts predominantly between generators and
suppliers which fix the price of electricity for a contracted quantity of
electricity over a specific time period. Differences between the actual price
set by the Pool and the agreed prices give rise to difference payments between
the parties to the particular CFD. At the present time, SWEB's forecast
franchise supply market demand for fiscal year 1998 is substantially hedged
through various types of agreements including CFDs. See Note (D) in the "Notes
to the Condensed Consolidated Financial Statements".
The most common contracts for supply to Non-Franchise Supply Customers
are for a twelve-month term and contain fixed rates. SWEB is exposed to two
principal risks associated with such contracts: load shape risk (the risk
associated with a shift in the customer's usage pattern, including absolute
amounts demanded and timing of amounts demanded) and purchasing price risk (the
cost of purchased electricity relative to the price received from the supply
customer). SWEB employs risk management methods to maximize its return
consistent with an acceptable level of risk. Generally load shape risk decreases
as SWEB's portfolio of supply customers in the non-franchise supply market
increases. SWEB hedges purchasing price risk by employing a variety of risk
management tools, including management of its supply contract portfolio, hedging
contracts, and other means which mitigate risk of future Pool price volatility.
SWEB's ability to manage its purchasing price risk depends, in part, on
the future availability of properly priced risk management mechanisms such as
CFDs. No assurance can be given that an adequate, transparent market for such
products will in fact be available.
SWEB is also investigating whether owning its own source of generation or
contracting for such source or sources would be an appropriate method for
partially managing purchase price risk, but no assurance can be given that such
methods would be available to, or economically appropriate for, SWEB.
11
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SOUTHERN INVESTMENTS UK plc and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
The major change in the Company's financial condition during the three
months to June, 1997 was the addition by SWEB of approximately (pound)17 million
in property, plant, and equipment, largely in respect of the distribution
network. The funds for these additions were derived primarily from operations.
It is expected that SWEB's capital requirements in the foreseeable future for
its investment in property, plant, and equipment will be met by cash generated
from its operating activities. However, the significant requirements of the
windfall levy and possible requirements of a pension matter, both discussed
above, will require external financing, and result in increased interest
expense.
In addition to the windfall levy introduced by the Labour government in
its first budget, the government also removed the ability of pension schemes to
obtain a refund of tax credits previously allowed on dividends received. This
could result in an increase to the pension cost charged against Net Income and
result in additional funding requirements to meet the pension plan requirements.
Demand for electricity in Great Britain, in general, and in SWEB's
franchise area, in particular, is seasonal, with demand being higher in the
winter months and lower in the summer months. SWEB balances the effect of this
and other cyclical influences on its working capital needs with drawings under
its available credit facilities.
The Company's sole investment and only significant asset is the entire
share capital of SWEB. The Company is therefore dependent upon dividends from
SWEB for its cash flow. SWEB can make distribution of dividends to the Company
under English law to the extent that it has distributable reserves, subject to
the retention of sufficient financial resources to conduct its supply and
distribution businesses as required by its regulatory license. The Company
believes that currently sufficient distributable reserves will exist at SWEB to
allow for reasonable and necessary dividends from SWEB, through operations, to
be distributed to the Company. In the UK, the Accounting Standards Board
currently has a discussion paper reviewing the treatment of deferred income tax
accounting to be required in the future. SWEB's distributable reserves could be
significantly reduced by this matter.
Financing Activities
SWEB has established a commercial paper program in the US, first utilized
in February 1997 to reduce short-term bank loans. The maximum available under
the program, which is fully supported by a swingline facility provided by a
syndicate of banks, is $520 million. The amount not utilized at June 30, 1997
was $153 million. SWEB enters into foreign currency contracts to hedge the
currency risk associated with the interest and principal of each issue under
this program.
Sources of Capital
To meet short-term cash needs and contingencies, the Company and SWEB
together had at June 30, 1997 approximately (pound)2 million of cash and cash
equivalents and (pound)240 million of other unused committed lines of credit
with banks. Also undrawn is $520 million of committed lines of credit, which are
reserved for use as standby for the commercial paper program. Subsequent to June
30, 1997, SWEB has increased the amount of committed lines of credit with banks.
At June 30, 1997 the Company and SWEB together had short-term debt of (pound)275
million outstanding, largely payable to investors in the commercial paper
program in the US. The Company currently has sufficient liquidity to meet the
required payments of the windfall levy and the pension matter.
12
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
15 - Report of Independent Public Accountants
27 - Financial Data Schedule
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the Company during the quarter for which
this report is being filed.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN INVESTMENTS UK plc
/s/ Gale E. Klappa
By Gale E. Klappa
Director
/s/ C. B. (Mike) Harreld
By C. B. (Mike) Harreld
Director, Chief Financial and Accounting Officer
August 12, 1997
14
<PAGE>
ARTHUR ANDERSEN
Exhibit 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO : the Board of Directors of Southern Investments UK plc
We have reviewed the accompanying condensed consolidated balance sheet of
SOUTHERN INVESTMENTS UK plc (a company incorporated in England and Wales) as of
June 30, 1997, and the related condensed consolidated statements of income for
the three-month periods ended June 30, 1997 and 1996, and the condensed
consolidated statements of cash flows for the three-month periods ended June 30,
1997 and 1996. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles in the United States.
We have previously audited, in accordance with generally accepted auditing
standards in the United States, the consolidated balance sheet of SOUTHERN
INVESTMENTS UK plc as of March 31, 1997, and, in our report dated June 24, 1997,
we expressed an unqualified opinion on that consolidated balance sheet. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of March 31, 1997, is fairly stated, in all material respects,
in relation to the consolidated balance sheet from which it has been derived.
/s/ ARTHUR ANDERSEN
ARTHUR ANDERSEN
Bristol, England
August 12, 1997
<PAGE>
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<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from Southern
Investments UK plc Form 10-Q for the quarter ended June 30, 1997, and is
qualified in its entirety by reference to such financial statements. Values
are in (pound) sterling.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> British Pounds Sterling
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.6650
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1239
<OTHER-PROPERTY-AND-INVEST> 320
<TOTAL-CURRENT-ASSETS> 127
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,686
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 500
<RETAINED-EARNINGS> (125)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 375
0
0
<LONG-TERM-DEBT-NET> 351
<SHORT-TERM-NOTES> 222
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 738
<TOT-CAPITALIZATION-AND-LIAB> 1,686
<GROSS-OPERATING-REVENUE> 172
<OTHER-OPERATING-EXPENSES> 145
<TOTAL-OPERATING-EXPENSES> 145
<OPERATING-INCOME-LOSS> 27
<OTHER-INCOME-NET> 5
<INCOME-TAX-EXPENSE> 5
<INCOME-BEFORE-INTEREST-EXPEN> 27
<TOTAL-INTEREST-EXPENSE> 13
<NET-INCOME> 14
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 25
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 51
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
