File No. 70-8979
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4
(POST-EFFECTIVE) TO
FORM U-1 APPLICATION-DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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CENTRAL AND SOUTH WEST CORPORATION
1616 Woodall Rodgers Freeway
Dallas, TX 75202
CENTRAL POWER AND LIGHT COMPANY
539 North Carancahua Street
Corpus Christi, Texas 78401-2802
PUBLIC SERVICE COMPANY OF OKLAHOMA
212 East Sixth Street
Tulsa, Oklahoma 74119-1212
SOUTHWESTERN ELECTRIC POWER COMPANY
428 Travis Street
Shreveport, Louisiana 71156-0001
WEST TEXAS UTILITIES COMPANY
301 Cypress Street
Abilene, Texas 79601-5820
(Names of companies filing this statement and addresses
of principal executive offices)
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CENTRAL AND SOUTH WEST CORPORATION
(Name of top registered holding company parent)
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Wendy G. Hargus, Treasurer
Central and South West Corporation
1616 Woodall Rodgers Freeway
Dallas, Texas 75202
Joris M. Hogan, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York. New York 10005-1413
(Names and addresses of agents for service)
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Central and South West Corporation ("CSW"), a Delaware corporation and
a registered holding company under the Public Utility Holding Company Act of
1935, as amended (the "Act"), and its subsidiary companies Central Power and
Light Company ("CPL"), Public Service Company of Oklahoma ("PSO"), Southwestern
Electric Power Company ("SWEPCO"), and West Texas Utilities Company ("WTU"),
each referred to as an "Operating Subsidiary" and collectively referred to as
the "Operating Subsidiaries", hereby amends and restates in its entirety its
Form U-1 Application- Declaration in File No. 70-8979 in the following respects.
Item 1. Description of the Proposed Transactions.
CSW and/or the Operating Subsidiaries propose to issue tax deductible
preferred securities ("Preferred Securities") as part of a restructuring of the
existing preferred stock component of the Operating Subsidiaries' capitalization
(the "Preferred Restructuring") which consists of (i) eliminating provisions in
the Operating Subsidiaries' articles restricting the amount of unsecured debt,
and Preferred Securities which may be treated as unsecured debt, issuable by
each Operating Subsidiary, (ii) acquiring or calling all or a portion of the
Operating Subsidiaries' outstanding preferred stock, and (iii) issuing at the
CSW and/or the Operating Subsidiary level Preferred Securities, all as described
in the following introduction to Item 1 and in more detail in Item 1, Sections A
through F, below.
The Operating Subsidiaries are soliciting proxies from the holders of
their outstanding shares of preferred stock and common stock ("Proxy
Solicitation") to approve a proposed amendment to CPL and WTU's Restated
Articles of Incorporation and PSO and SWEPCO's Restated Certificates of
Incorporation (collectively, the "Articles") that would eliminate a provision
restricting the amount of unsecured debt issuable by each Operating Subsidiary
(individually, a "Proposed Amendment" and collectively, the "Proposed
Amendments"). Proxies will be voted at special meetings of the Operating
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Subsidiaries' respective stockholders to be held on April 7, 1997 for CPL and
April 16, 1997 for PSO, SWEPCO and WTU (the "Special Meetings") for the purpose
of voting on the Proposed Amendments. If the Proposed Amendments are adopted,
the Operating Subsidiaries will make a special cash payment as specified below
to each preferred stockholder who voted in favor of the applicable Proposed
Amendment; provided that any such shares were not tendered in a concurrent cash
tender offer for such shares in the case of SWEPCO, PSO and WTU (described
below).
Concurrently with the Proxy Solicitation for SWEPCO, PSO and WTU, CSW
is making a cash tender offer for any and all shares of outstanding preferred
stock of SWEPCO, PSO and WTU. CSW is also making a cash tender offer for the
4.00% and 4.20% Series of CPL's cumulative preferred stock (together with the
SWEPCO, WTU and PSO offers, the "Offers" and each an "Offer") concurrently with
CPL's separate proxy solicitation. The CPL Offer coincides with the launch of
the other Offers and with the CPL proxy solicitation. However, unlike the
combined proxy solicitations and tender offers by SWEPCO, PSO and WTU, the
launch of and the documentation for the CPL Offer is entirely separate from
CPL's proxy solicitation materials. The CPL Offer is not conditioned, in any
way, upon the results of, or a vote cast pursuant to, the CPL proxy
solicitation. Additionally, CPL has called shares of its 8.72% and 7.12% Series
of outstanding cumulative preferred stock at the applicable call price (the
"Redemption"). The Offer for each series of preferred stock is independent of
the Offer for any other series. The Offer for each series of preferred stock,
including CPL, will terminate at 5 P.M. (Central Time) on the date of the
applicable Special Meetings for SWEPCO, PSO and WTU ("Expiration Date") but may
be extended beyond the Expiration Date or terminated early under certain
circumstances. A condition to the Offers, other than the CPL Offer, is that
preferred stockholders who tender their shares pursuant to the Offers vote in
favor of the applicable Proposed
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Amendment. Any shares not voted in favor of the Proposed Amendment will be
deemed withdrawn and not validly tendered. Consummation of each Offer, other
than the CPL Offer, is contingent upon the Proposed Amendment being approved and
adopted at the Special Meeting. CSW may, however, waive such condition as
described below.
CSW and the Operating Subsidiaries request that as soon as
practicable, but not later than April 9, 1997, the Securities and Exchange
Commission (the "Commission")issue an order authorizing: (i) the Proposed
Amendments and the proposed acquisition of the shares of the Operating
Subsidiaries' preferred stock pursuant to the Offers; (ii) the
reacquisition, retirement and cancellation by the Operating Subsidiaries of
shares tendered to CSW pursuant to the Offers; and (iii) the use by CSW of its
general funds and/or funds borrowed through its commercial paper program
previously authorized by order dated March 21, 1995 (HCAR No. 26254), on an
interim basis, to finance its purchase of shares tendered, accepted for
payment and paid for pursuant to the Offers, until such time as such shares are
reacquired by the Operating Subsidiaries.
CSW and the Operating Subsidiaries also request authorization to
deviate from the preferred stock provisions of the Statement of Policy Regarding
Preferred Stock Subject to the Public Utility Holding Company Act of 1935, HCAR
No. 13106 (Feb. 16, 1956), to the extent applicable with respect to the Proposed
Amendments.
CSW and the Operating Subsidiaries also request that the order grant
the Operating Subsidiaries authority to issue securities similar to the
Preferred Securities currently in the marketplace (i.e., tax deductible
preferred securities such as QUIPS, TOPRS, etc.), except that PSO will not
effectuate such issuance until proper authorization is received from the
Corporation Commission of the State of Oklahoma, for the purpose of retiring or
replacing outstanding first mortgage bonds and
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preferred stock at the Operating Subsidiaries, or any combination thereof, for
the payment of outstanding short-term borrowings and for other general corporate
purposes. In order to effectuate the issuance of the preferred securities, CSW
and the Operating Subsidiaries propose to issue and sell from time to time in
one or more series, directly, or indirectly through a special purpose financing
subsidiary (as hereinafter defined) or affiliate of CSW or an Operating
Subsidiary established for that purpose, Junior Subordinated Debentures (the
"Debentures") and/or Preferred Securities. Each series of Debentures and/or
Preferred Securities will mature in not more than 49 years. The Proxy
Solicitation, Redemption, Proposed Amendments, Offer and issuance of Debentures
and/or Preferred Securities are discussed in more detail below. CSW and the
Operating Subsidiaries request that the Commission reserve jurisdiction over the
issuance of Debentures and/or Preferred Securities by CSW.
In addition, CSW and the Operating Subsidiaries request authority to
manage interest rate risk, as appropriate, through the use of hedging products,
including interest rate swaps, forward swaps and caps and collars as described
in Item I.D. below. CSW and the Operating Subsidiaries request authority to
enter into the foregoing types of transactions from time to time in connection
with the issuance of Debentures and/or Preferred Securities.
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The preferred stock of each Operating Subsidiary, the number of shares
outstanding, their par value and dollar amount outstanding as of December 31,
1996 are listed below. None of the shares are listed on the New York Stock
Exchange ("NYSE") or any other exchange.
CPL
Money Market Preferred 750,000 shares $100 Par Value $ 75,000,000
Auction Rate Pref. Series A 425,000 shares $100 Par Value $ 42,500,000
Auction Rate Pref. Series B 25,000 shares $100 Par Value $ 42,500,000
8.72% Series 500,000 shares $100 Par Value $ 50,000,000
7.12% Series 260,000 Shares $100 Par Value $ 26,000,000
4.20% Series 75,000 Shares $100 Par Value $ 7,500,000
4.00% Series 100,000 Shares $100 Par Value $ 10,000,000
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Total $253,000,000
PSO
4.24% Series 100,000 Shares $100 Par Value $10,000,000
4.00% Series 97,900 Shares $100 Par Value $ 9,790,000
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Total $19,790,000
SWEPCO
6.95% Series 340,000 Shares $100 Par Value $34,000,000
5.00% Series 75,000 Shares $100 Par Value $ 7,500,000
4.65% Series 25,000 Shares $100 Par Value $ 2,500,000
4.28% Series 60,000 Shares $100 Par Value $ 6,000,000
-----------
Total $50,000,000
WTU
4.40% Series 60,000 Shares $100 Par Value $ 6,000,000
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All of the outstanding common stock of each Operating Subsidiary is
owned by CSW. Each share of common stock and preferred stock of each series is
entitled to one vote per share for purposes of the Proposed Amendments. Each
Operating Subsidiary's outstanding common stock and preferred stock constitute
its only outstanding securities entitled to vote on the applicable Proposed
Amendment. None of the Operating Subsidiaries has any other authorized class of
equity securities.
CSW and the Operating Subsidiaries undertake to comply with Rule 24
under the Act.
A. Proxy Solicitation and Proposed Amendments
1. Terms of Proxy Solicitation and Proposed Amendments
Each Operating Subsidiary's Articles currently provide that, without
the consent of the holders of at least a majority of the total number of such
Operating Subsidiary's shares of preferred stock of all series voting as one
class, it may not issue or assume any unsecured notes, debentures or other
securities representing unsecured indebtedness ("Unsecured Obligations"), for
any purpose other than (a) refunding or renewing outstanding Unsecured
Obligations resulting in later maturities or, (b) funding existing unsecured
indebtedness (not represented by Unsecured Obligations), if immediately after
such issue or assumption (1) the principal amount of all Unsecured Obligations
issued or assumed by the Operating Subsidiary and then outstanding would exceed
20% of the aggregate of (i) the principal amount of all bonds or other
securities representing secured indebtedness issued or assumed by the Operating
Subsidiary and then outstanding and (ii) the total capital stock and surplus of
the Operating Subsidiary as then recorded on its books (the "20% Provision"), or
(2) the principal amount of all Unsecured Obligations maturing in less than ten
years, issued or assumed by the Operating Subsidiary and then outstanding,
computed as herein provided, would exceed 10% of such aggregate amount (the "10%
Provision"). For purposes of subparagraph (2) of the previous sentence, the
principal amount of any Unsecured Obligations which had an original single
maturity of more than ten years from the date thereof, and the principal amount
of the final maturity of any serially-maturing Unsecured Obligations which had
one or more original maturities of more than ten years from the date
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thereof, may not be regarded as Unsecured Obligations maturing in less than ten
years until such principal amount is due or required to be paid within three
years. The Proposed Amendments would eliminate the 10% and 20% Provisions by
deleting them in their entirety from the Articles of each Operating Subsidiary.
Approval and adoption of the applicable Proposed Amendment by each
Operating Subsidiary's shareholders requires the affirmative vote of the holders
of not less than two-thirds of the outstanding shares of (1) the preferred stock
of all series, voting together as one class, and (2) the common stock. CSW has
advised the Operating Subsidiaries that it will vote its shares of common stock
of each Operating Subsidiary in favor of the Proposed Amendments. Abstentions
and broker non-votes in respect of the Proposed Amendments will have the effect
of voting against the Proposed Amendments.
Duly appointed inspectors of election will definitively count and
tabulate the votes and determine and announce the results.
The Operating Subsidiaries have engaged D.F. King & Co. Inc. ("D.F. King")
to act as information agent in connection with the Proxy Solicitation. D.F. King
will be paid a fee totaling approximately $75,000 which includes reimbursement
for its reasonable out-of-pocket expenses.
If a Proposed Amendment is adopted, the applicable Operating Subsidiary
will make a special cash payment of $1.00 per share in the case of SWEPCO, PSO
and WTU and $0.25 per share in the case of CPL out of its general funds (each, a
"Cash Payment") for each share of preferred stock not tendered pursuant to the
SWEPCO, PSO and WTU Offers that is properly voted in favor of the applicable
Proposed Amendment. Holders of CPL's 4.00% and 4.20% Series cumulative preferred
stock who vote in favor of the amendment will be entitled to receive the Cash
Payment regardless of whether they tender their shares. The applicable Operating
Subsidiary will disburse Cash Payments promptly after adoption of the applicable
Proposed Amendment.
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2. Benefits of the Proposed Amendments
CSW and the Operating Subsidiaries believe that adoption of the
Proposed Amendments is critical to maximizing their respective financial
flexibility and minimizing their financing costs for the benefit of utility
customers and, indirectly, the Operating Subsidiaries' investors. CSW estimates
that the ongoing financing flexibility and cost savings to be gained through the
elimination of the 10% and 20% Provisions outweigh the one-time cost of the
special Cash Payments and the other costs of the Proxy Solicitation. CSW and the
Operating Subsidiaries further believe that the terms of the Offers will be
attractive to tendering preferred stockholders (given the proposed per share
purchase price) and will also benefit CSW's investors and system utility
customers by (1) contributing to the elimination of the onerous Articles
provisions concerning unsecured indebtedness and (2) creating flexibility in
planning and financing business activities and (3) resulting in the acquisition
and subsequent retirement of outstanding shares of the Operating Subsidiaries'
preferred stock and their replacement with less expensive financing
alternatives.
Although historically the Operating Subsidiaries' debt financing has
been accomplished through the issuance of first mortgage bonds and short-term
debt, CSW and the Operating Subsidiaries believe that unsecured debt will
increase in importance over time as an option in financing construction
programs, refinancing first mortgage bonds and providing funds for other general
corporate purposes. The availability and flexibility of unsecured debt is
necessary to take full advantage of changing conditions in the securities
markets and the electric utility industry. For example, if the Operating
Subsidiaries were ever unable to meet the earnings coverage test in their
respective Articles, they would be unable to issue any additional preferred
stock. Thus, it is possible that the Operating Subsidiaries could face a
situation where they would be able to issue only first mortgage bonds (assuming
that the applicable earnings coverage test could be met) or additional common
stock.
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The Proposed Amendments will also allow the Operating Subsidiaries to
take greater advantage of Preferred Securities on which periodic payments are
tax deductible (which have a lower after-tax cost than traditional preferred
stock), the retail unsecured debt market, the institutional unsecured debt
market and the short-term unsecured debt market. Securities in each of these
areas are currently treated as unsecured debt for purposes of the 10% and 20%
Provisions.
The Operating Subsidiaries believe that the 10% and 20% Provisions
hamper their flexibility in planning and financing business activities and that
eventually they may be at a competitive disadvantage if those restrictions are
not removed. New competitors such as power marketers, independent power
producers and owners of cogeneration facilities generally are not subject to
similar financing restrictions. In recent years, a number of utilities
encumbered with charter restrictions similar to the 10% and 20% Provisions have
eliminated or relaxed such provisions through successful proxy solicitations.In
short, many potential competitors of the Operating Subsidiaries are not
constrained by unsecured debt restrictions.
Reference is made to Exhibit 2 (Offer to Purchase and Proxy Statement)
and Exhibit 3 (Notice of Special Meeting) for more detailed information with
respect to the Proxy Solicitation and Proposed Amendments.
B. The Offer to Purchase
1. Terms of Offer
Concurrently with the commencement of the Proxy Solicitation for
SWEPCO, PSO, WTU and CPL and subject to the terms and conditions stated in the
Offer to Purchase and Proxy Statement for SWEPCO, PSO and WTU and the Offer to
Purchase for CPL (each, an "Offer to Purchase") and the accompanying Letters of
Transmittal and Proxy for SWEPCO, PSO and WTU and the Letter of Transmittal for
CPL (each, a "Letter of Transmittal") (see Exhibits 2(a)-(d) and 5(a)-(d))
(collectively, the "Offer Documents"), CSW is making the Offer, pursuant to
which it will offer to acquire from the
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holders of the preferred stock of all series of SWEPCO, PSO and WTU and the
4.00% and 4.20% series of CPL (each a "Series") any and all shares (the
"Shares") of such Series at the following cash purchase prices:
(i) SWEPCO - $103.13 per share, in the case of the 6.95% Series;
$78.53 per share, in the case of the 5.00% Series; $77.93 per
share, in the case of the 4.65% Series and $71.73 per share,
in the case of the 4.28% Series (each, a "SWEPCO Purchase
Price").
(ii) PSO - $71.06 per share, in the case of the 4.24% Series and
$62.82 per share, in the case of the 4.00% Series (each, a
"PSO Purchase Price").
(iii) WTU - $69.11 per share, in the case of the 4.40% Series (the
"WTU Purchase Price").
(iv) CPL - $70.39 per share, in the case of the 4.20% Series and
$62.82 per share, in the case of the 4.00% Series (each, a
"CPL Purchase Price" and together with the SWEPCO Purchase
Price, the PSO Purchase Price and the WTU Purchase Price, the
"Purchase Price").
A portion of the Purchase Price, except for the CPL Purchase Price,
will be treated as a Cash Payment for voting in favor of the Proposed Amendment.
The Offer for each Series of preferred stock, including CPL, will be scheduled
to expire at 5 P.M. (Central time) on the date of the applicable Special Meeting
for SWEPCO, PSO and WTU. The Offers may be extended or terminated earlier under
certain circumstances specified below.
The Offer for any one Series is independent of the Offer for any other
Series. The applicable Purchase Price and the other terms and conditions of the
Offers apply equally to all preferred stockholders of a respective Series. The
Offers are not conditioned upon any minimum number of Shares of the applicable
Series being tendered, but are conditioned, except for the CPL Offer, among
other things, on the Proposed Amendments being approved and adopted by the
requisite vote of the preferred stockholders.
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To tender shares in accordance with the terms of the Offer Documents,
the tendering preferred stockholder must either (1) send to The Bank of New
York, in its capacity as depositary for the Offers ("Depositary"), a properly
completed and duly executed Letter of Transmittal or, if sent by an eligible
institution, a facsimile thereof for that Series, together with any required
signature guarantees and any other documents required by the Letter of
Transmittal, and either (a) certificates for the Shares to be tendered must be
received by the Depositary at one of its addresses specified in the Offer
Documents, or (b) such Shares must be delivered pursuant to the procedures for
book-entry transfer described in the Offer Documents (and a confirmation of such
delivery must be received by the Depositary), in each case by the Expiration
Date; or (2) comply with a guaranteed delivery procedure specified in the Notice
of Guaranteed Delivery and Proxy for SWEPCO, PSO and WTU, or the Notice of
Guaranteed Delivery for CPL. Tenders of Shares made pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date. Thereafter, such tenders
will be irrevocable, subject to certain conditions identified in the Offer
Documents.
CSW's obligation to proceed with the Offers and to accept for payment
and to pay for any Shares tendered is subject to various conditions enumerated
in the Offer Documents, which include the Commission issuing an order under the
Act authorizing the proposed transactions, and which also include, among other
conditions, except in the case of the CPL Offer, that the Proposed Amendments be
adopted and that all tendering preferred stockholders vote in favor of the
applicable Proposed Amendment. Any tendered shares as to which a vote in favor
of the Proposed Amendment is not validly cast may be deemed withdrawn and not
validly tendered. The CPL Offer is subject to certain conditions enumerated in
the Offer Documents, but is not conditioned upon the Proposed Amendments being
adopted or upon a tendering preferred stockholder voting in favor of the
Proposed Amendment.
At any time or from time to time, CSW may extend the Expiration Date
applicable to any Series by giving notice of such extension to the Depositary,
without extending the Expiration Date for
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any other Series. During any such extension, all Shares of the applicable Series
previously tendered will remain subject to the Offer, and may be withdrawn at
any time prior to the Expiration Date, as extended. Conversely, CSW may elect in
its sole discretion to terminate the Offer prior to the scheduled Expiration
Date and not accept for payment and pay for any Shares tendered. In either case,
CSW will comply with applicable provisions of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules promulgated thereunder,
which require CSW either to pay the consideration offered or to return the
tendered Shares promptly after the termination or withdrawal of the Offer and
after giving notice of such termination to the Depositary and making a public
announcement thereof.
Subject to compliance with applicable law, CSW further reserves the
right in the Offer Documents, in its sole discretion, to amend the Offers in any
respect by making a public announcement thereof. If CSW materially changes the
terms of an Offer or the information concerning an Offer, or if it waives a
material condition of an Offer (such as, if applicable, the condition that the
Proposed Amendments be adopted), CSW will extend the Expiration Date to the
extent required by the applicable provisions of the Exchange Act and the rules
promulgated thereunder. Those provisions generally require that the minimum
period during which an issuer tender offer must remain open following material
changes in the terms of the offeror information concerning the offer (other than
a change in price, or change in percentage of securities sought or change in the
dealer's soliciting fee) will depend on the facts and circumstances, including
the relative materiality of such terms or information. However, if CSW notifies
Operating Subsidiary preferred stockholders that it will (a) increase or
decrease the price it will pay for Shares, (b) increase or decrease the
percentage of Shares it seeks or (c) increase or decrease the dealer's
soliciting fee, then the Expiration Date will be extended, if necessary, so that
the expiration of the Offer occurs at least ten business days after the
announced change.
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Shares validly tendered to the Depositary pursuant to the Offers and
not withdrawn in accordance with the procedures set forth in the Offer Documents
will be held by CSW until the Expiration Date (or returned promptly in the event
the Offer is terminated). Subject to the terms and conditions of the Offers, as
promptly as practicable after the Expiration Date, CSW will accept for payment
and pay for any and all Shares validly tendered and not withdrawn. CSW will pay
for Shares that it has purchased pursuant to the Offers by depositing the
applicable Purchase Price with the Depositary, which will act as agent for the
tendering preferred stockholders for the purpose of receiving payment from CSW
and transmitting payment to tendering preferred stockholders. CSW will pay all
stock transfer taxes, if any, payable on account of its acquisition of shares
pursuant to the Offers, except in certain circumstances where special payment or
delivery procedures are utilized in conformance with the applicable Letters of
Transmittal.
With respect to Shares validly tendered and accepted for payment by
CSW, each tendering preferred stockholder of SWEPCO, PSO and WTU will be
entitled to receive as consideration from CSW only the applicable Purchase
Price. Any such tendering stockholder will not be entitled to receive any
additional consideration in the form of a Cash Payment, although a portion of
the applicable Purchase Price will be attributable to the amount of the Cash
Payment. As stated above in Item 1.A.1., the latter payment will be payable by
SWEPCO, PSO and WTU solely in respect of Shares properly voted by preferred
stockholders in favor of the Proposed Amendments, provided that (a) such Shares
have not been tendered pursuant to the Offer and (b) the Proposed Amendments are
adopted. Tendering preferred stockholders of CPL will be entitled to the CPL
Purchase Price. Further, assuming a preferred stockholder of CPL votes for the
Proposed Amendment pursuant to the separate CPL Proxy Solicitation and the
Proposed Amendment is approved and adopted at the Special Meeting, the preferred
stockholder of CPL will be entitled to a Cash Payment.
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As noted immediately above, subject to the terms and conditions of the
Offers, Shares validly tendered and not withdrawn will be accepted for payment
and paid for by CSW as promptly as practicable after the Expiration Date. If the
Proposed Amendments are adopted, the Operating Subsidiaries propose to reacquire
all shares acquired by CSW pursuant to the Offers after the consummation of the
Offers at the Purchase Price. Upon such reacquisition the Operating Subsidiaries
will retire and cancel such Shares. The Operating Subsidiaries hereby request
authorization for such reacquisition.
The Offers for SWEPCO, PSO and WTU are conditioned upon the Proposed
Amendments being adopted at the Special Meetings, however, CSW may elect to
waive such condition. In that case, as promptly as practicable after CSW's
purchase of any Shares validly tendered pursuant to the Offers, each of SWEPCO,
PSO and WTU may call another special meeting or commence a consent solicitation
of its common and preferred stockholders and solicit proxies or consents for the
purpose of securing the requisite two-thirds affirmative vote of stockholders to
amend the Articles to eliminate the 10% and 20% Provisions and CSW may make open
market purchases of the Shares in connection therewith. Further, if CPL's
Proposed Amendment is not approved and adopted pursuant to CPL's separate Proxy
Solicitation, CPL may also call another Special Meeting for the purpose of
securing the requisite vote to amend the Articles and CSW may make open market
purchases of the Shares in connection therewith.
In any event, CSW has advised the Operating Subsidiaries that it
intends to vote any Shares acquired by it pursuant to the Offers or otherwise
(as well as all of its shares of common stock) in favor of the Proposed
Amendments to eliminate the 10% and 20% Provisions. If the Proposed Amendments
are approved and adopted, and in any event within one year from the Expiration
Date (including any extensions thereof), the Operating Subsidiaries will
reacquire all shares from CSW at
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the Purchase Price after such meetings or at the expiration of such one-year
period, as applicable, and the Operating Subsidiaries will thereupon retire and
cancel such Shares.
CSW requests authority to use its general funds and/or funds borrowed
through its commercial paper program previously authorized by order dated March
21, 1995 (HCAR No. 26254), on an interim basis, to finance its purchase of any
Shares tendered, accepted for payment and paid for pursuant to the Offers, until
such time as such shares are reacquired by the Operating Subsidiaries.
CSW has selected Goldman, Sachs & Co. and Smith Barney Inc. to act as
dealer managers in connection with the Offers (the "Dealer Managers"). The
Dealer Managers will be paid a combined fee of $0.50 per Share for any Shares
tendered, accepted for payment and paid for pursuant to the Offers. Each Dealer
Manager will also be reimbursed by CSW for its reasonable out-of-pocket
expenses, including attorney's fees, and will be indemnified against certain
liabilities, including certain liabilities under the federal securities laws, in
connection with the Offers. In addition, CSW will pay soliciting brokers and
dealers a separate fee of $1.50 per Share for Shares tendered, that are accepted
for payment and paid for pursuant to the Offer (except that for transactions
equal to or exceeding 2,500 Shares, CSW will pay a solicitation fee of $1.00 per
Share; provided that any fee payable pursuant to this parenthetical shall be
paid 80% to the Dealer Managers and 20% to any designated soliciting broker or
dealer (which may be a Dealer Manager)). As set forth in Item 2, CSW proposes to
pay the Depositary a fee of approximately $75,000.
2. Benefits of Offer; Utilization of CSW rather than the
Operating Subsidiaries as Offeror The proposed acquisition by CSW of
Shares pursuant to the Offers will benefit CSW's utility system customers and
shareholders and the Operating Subsidiaries' preferred stockholders. The Offers
allow preferred stockholders who may not favor the elimination of the 10% and
20% Provisions an option to tender their shares (assuming such stockholders vote
in favor of the Proposed Amendment pursuant to the terms of the applicable
Offer, other than the CPL Offer) at a premium to the market price and without
the usual transaction costs associated with such a sale. System utility
customers and CSW shareholders will benefit from the
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Operating Subsidiaries' increased flexibility and reduced financing costs in
issuing Preferred Securities and unsecured debt.
Specifically, assuming that 50% of all the Shares are purchased in the
Offers, the estimated savings to the Operating Subsidiaries are expected to
approximate $2.5 million each year (based on a dollar-for-dollar replacement of
the Shares subject to the Offers with Preferred Securities at prevailing rates
on the date hereof), after taxes. Further, assuming (x) 50% of the Shares are
tendered in the Offers, (and that holders of 100% of CPL's Money Market
Preferred Series, Auction Rate Preferred Series A and Auction Rate Preferred
Series B and 30% of the outstanding preferred stock of all other series of the
Operating Subsidiaries vote in favor of the Proposed Amendment resulting in
approval of and adoption of such amendment), (y) refinancing of Shares acquired
and paid for pursuant to the Offers with tax deductible Preferred Securities
(and assuming such rates do not change throughout the period), and (z) a
discount rate equal to the Operating Subsidiaries' after-tax weighted average
cost of capital, CSW anticipates that the proposed transactions may yield total
after-tax, present value cash savings totalling approximately $21.7 million over
the next 30 years, net of cash expenditures incurred in respect of the Offers
and Proxy Solicitation. The total present value cash savings of approximately
$21.7 million consists of approximately (i) $19.6 million in savings for CPL,
(ii) $0.2 million in savings for PSO, (iii) $1.6 million in savings for SWEPCO
and (iv) $0.3 million in savings for WTU. A higher success rate for the Offers
potentially could generate even greater cash savings. The preceding assumptions
also assume CPL's 8.72% Series and 7.12% Series Preferred Securities will no
longer be outstanding at the time of the CPL Proxy Solicitation.
As stated above in Item 1.B.1, if the Offer and Proxy Solicitation do
not result in the Proposed Amendments being adopted, as promptly as practicable
after completion of the Proxy Solicitation, each Operating Subsidiary may call
another special meeting of its common and preferred stockholders and solicit
proxies to obtain the requisite two-thirds affirmative vote of preferred stock
to approve and
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adopt the Proposed Amendments and CSW may make open market purchases of the
Shares in connection therewith. CSW has advised the Operating Subsidiaries that
it would vote any Shares previously acquired by it pursuant to the Offers or
otherwise (together with all of its shares of common stock) in favor of the
Proposed Amendments. By contrast, if the Operating Subsidiaries, rather than
CSW, had acquired Shares pursuant to the Offers, upon acquisition thereof by the
Operating Subsidiaries any such Shares would be deemed treasury shares under
Delaware, Oklahoma and Texas law and, as such, the Operating Subsidiaries would
be precluded from voting those Shares under any circumstances.
C. Issuance of Tax Deductible Securities
CSW and/or the Operating Subsidiaries propose to issue Preferred
Securities similar to the preferred securities currently in the marketplace for
the purpose of retiring outstanding first mortgage bonds, for the purpose of
retiring or replacing outstanding preferred stock, or any combination thereof,
for the payment of outstanding short-term borrowings and for other general
corporate purposes. In order to effectuate the issuance of Preferred Securities,
CSW and the Operating Subsidiaries propose to issue and sell from time to time
in one or more series, directly, or indirectly through a special purpose
financing subsidiary or affiliate of CSW or an Operating Subsidiary established
for that purpose, Junior Subordinated Debentures (the "Debentures") and/or
Preferred Securities. Each series of Debentures and Preferred Securities will
mature in not more than 49 years.
1. Debentures
CSW and/or the Operating Subsidiaries propose to issue and sell
the Debentures and Preferred Securities (as hereinafter defined) indirectly
through an SPE (as hereinafter defined) to the public through December 31, 2001
in aggregate principal amounts up to the following: $500,000,000 for CSW;
$350,000,000 for CPL; $100,000,000 for PSO; $150,000,000 for SWEPCO; and
$80,000,000 for WTU. Each such amount is herein referred to as an "Offering
Limit". If Debentures
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are issued to the public, the Debentures are expected to be sold through
negotiation with underwriters, agents or other entities. The Debentures will be
offered for sale at an initial public offering price resulting in a yield to
maturity which is not expected to exceed by more than 3.0% the yield to maturity
on United States Treasury bonds of similar maturity at the time of pricing of
the Debentures. The commission payable to agents or underwriters will not exceed
3.5% of the principal amount of the Debentures sold. CSW and the Operating
Subsidiaries request that the Commission reserve jurisdiction over the issuance
and sale of Debentures and/or Preferred Securities by CSW.
CSW and each Operating Subsidiary may have the right to defer
payment of interest on the Debentures for up to five years. However, CSW or an
Operating Subsidiary may not declare and pay dividends (except in common stock)
on its outstanding preferred or common stock if interest payments are so
deferred. The payment of principal, premium and interest on the Debentures will
be subordinated in right of payment to the prior payment in full of senior
indebtedness. CSW and each Operating Subsidiary will agree to specific
redemption provisions, if any, at the time of the pricing of the Debentures.
Additionally, CSW and each Operating Subsidiary may have the option to extend
the maturity up to 49 years if the original maturity is less than 49 years and
certain other conditions are met.
The Debentures will be issued under Indentures to be entered into
between CSW or the respective Operating Subsidiary and a Trustee thereunder
(each, an "Indenture"), as may be supplemented and amended by one or more
supplemental indentures (each, a "Supplemental Indenture"). Copies of the forms
of Indenture and Supplemental Indenture for Debentures proposed to be utilized
by CSW and each Operating Subsidiary for one or more series of the Debentures
(except for provisions such as interest rate, maturity, redemption terms and
certain administrative matters) are attached hereto as Exhibits 8 and 9,
respectively. Such forms of Indenture and Supplemental Indenture contain a more
complete description of the terms of the Debentures.
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2. Preferred Securities
If CSW or any Operating Subsidiary determines that it is not
advisable to sell the Debentures directly to the public, it may organize a
separate special purpose entity (each, an "SPE") as either (i) a statutory
business or other form of trust under the Delaware Business Trust Act or another
similar statute ("Trust"), (ii) a limited liability company under the Delaware
Limited Liability Company Act or another similar statute ("LLC") or (iii) a
limited partnership under the Delaware Revised Uniform Limited Partnership Act
or another similar statute ("LP").
In the event that CSW or any Operating Subsidiary organizes an SPE
as an LLC, CSW or such Operating Subsidiary may also organize a second special
purpose wholly-owned subsidiary ("Investment Sub"), for the purpose of acquiring
and holding SPE membership interests so as to comply with the requirement under
any applicable LLC Act that an LLC have at least two members.
In the event that CSW or any Operating Subsidiary organizes its SPE
as an LP, CSW or such Operating Subsidiary may also organize an Investment Sub
for the purpose of acting, or may itself act, as the general partner of such SPE
and may acquire, either directly or indirectly through such Investment Sub, a
limited partnership interest in such SPE to ensure that such SPE will at all
times have a limited partner to the extent required by applicable law.
The respective SPEs may then issue and sell at any time or from
time to time in one or more series through December 31, 2001 (i) limited
partnership interests if the SPE is an LP, (ii) preferred membership interests
if the SPE is an LLC, or (iii) senior trust certificates or preferred interests
if the SPE is a Trust (collectively, the "Preferred Securities"), in amounts up
to the Offering Limit for CSW or each Operating Subsidiary. The Preferred
Securities will have aggregate par or stated value or liquidation preference not
exceeding the Offering Limit, with a par or stated value or liquidation
preference of up to $1,000 per security.
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CSW and each Operating Subsidiary and/or their respective
Investment Subs will acquire all of the general partnership interests or common
membership interests, as the case may be, or will become the grantors and
holders of the junior trust certificates, of the SPE in an amount not to exceed
10% of the total equity capitalization or deposits from time to time of such SPE
(the aggregate of such investment or deposits by CSW or an Operating Subsidiary
and its Investment Sub being herein referred to in each case as the "Equity
Contribution"). CSW and each Operating Subsidiary may issue and sell to their
respective SPE the Debentures, at any time or from time to time, in one or more
series, and such SPE will apply both the Equity Contribution made to it and the
proceeds from the sale of Preferred Securities by it from time to time to
purchase Debentures of CSW and/or such Operating Subsidiary. CSW and/or the
Operating Subsidiaries may sell Debentures to and utilize the same SPE to issue
Preferred Securities. The payment rate, terms, redemption and other similar
provisions of the Preferred Securities will correspond to those of the
Debentures purchased from CSW and/or the Operating Subsidiaries, as the case may
be.
In order for the SPE to sell Preferred Securities up to the maximum
Offering Limit, CSW or an Operating Subsidiary will be required to issue
Debentures to such SPE in an amount equal to the maximum Offering Limit plus the
total Equity Contribution. CSW or the Operating Subsidiary selling such
Debentures to an SPE may or may not be the owner of the general partnership
interests or common member interests or the grantor or holder of the junior
trust certificates of such SPE. For example, CSW may own the common membership
interests of an SPE that purchases Debentures from WTU and PSO.
CSW or the Operating Subsidiary may redeem the Debentures held by
an SPE which is required to redeem the related series of Preferred Securities at
a price equal to their par or stated value or liquidation preference, as the
case may be, plus any accrued and unpaid dividends or distributions, upon the
occurrence of certain events, including the following: (i) the withholding or
deducting of
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certain amounts by the SPE in connection with distributions or other payments or
if the SPE may become subject to federal income tax with respect to interest
received on the Debentures issued to such SPE; or (ii) it is determined that
there is a risk that the interest payments by CSW or such Operating Subsidiary
on its Debentures are not deductible by CSW or the Operating Subsidiary for
income tax purposes; or (iii) the SPE becomes subject to regulation as an
"investment company" under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). The Preferred Securities of any series may also be
subject to mandatory redemption upon the occurrence of certain events. CSW and
each Operating Subsidiary also may have the right in certain cases to exchange
the Preferred Securities of their respective SPE for the related Debentures of
CSW or such Operating Subsidiary.
3. Guarantees
CSW and each Operating Subsidiary may also guarantee (individually,
a "Guarantee" and collectively, the "Guarantees") (i) the payment of dividends
or distributions on the Preferred Securities of their respective SPE if and only
to the extent such SPE has declared dividends or distributions out of funds
legally available therefor; (ii) payments to the holder of Preferred Securities
of amounts due upon liquidation of such SPE or redemption of the Preferred
Securities; and/or (iii) payments of certain additional amounts that may be
payable in respect of such Preferred Securities.
4. Taxation
It is expected that for Federal income tax purposes CSW's and each
Operating Subsidiary's interest payments on the Debentures issued by them will
be deductible and that their respective SPEs will be treated for tax purposes as
a grantor trust if organized as a trust or a partnership if organized as an LP
or LLC. Consequently, the SPEs will not be subject to Federal income tax as
entities. Holders of the Preferred Securities, CSW and each Operating Subsidiary
(and its respective Investment Sub), will be deemed to have received either
payments in respect of the Debentures or partnership
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distributions from their respective SPE and will not be entitled to any
"dividends received deductions" under the Internal Revenue Code.
In the event that any SPE is required to withhold or deduct certain
amounts in connection with dividends, distributions or other payments, the SPE
may have the obligation to "gross up" such payments so that the holders of the
Preferred Securities issued by such SPE will receive the same payment after
withholding or deduction as they would have received if no withholding or
deduction were required. CSW or the related Operating Subsidiary would be
required to make corresponding payments under the Debentures that would provide
SPE with sufficient funds to make the additional payment.
If any SPE is required to pay taxes with respect to income derived
from interest payments on the Debentures issued to it, CSW or the related
Operating Subsidiary may be required to pay such additional interest on the
Debentures as shall be necessary in order that net amounts received and retained
by such SPE, after the payment of such taxes, shall result in the SPEs having
such funds as it would have had in the absence of such payment of taxes.
5. Liquidation, Dissolution or Winding Up
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of any SPE, the holders of the Preferred Securities of
such SPE will be entitled to receive, out of the assets of such SPE available
for distribution to its members, partners or certificate holders, before any
distribution of assets to the common membership interest holders, general
partner, grantor or junior trust certificate holder of such SPE, an amount equal
to the par or stated value or liquidation preference of such Preferred
Securities plus any accrued and unpaid dividends or distributions.
6. Constituent Instruments
The constituent instruments of each SPE, including its Trust
Agreement, Limited Liability Company Agreement or Limited Partnership Agreement,
as the case may be, will provide, among
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other things, that such SPE's activities will be limited to (i) the issuance and
sale of Preferred Securities from time to time, (ii) the lending to CSW, an
Operating Subsidiary or an Investment Sub of (a) the proceeds thereof and (b)
the Equity Contribution to such SPE, and (iii) certain other related activities.
Accordingly it is proposed that no SPE's constituent instruments include any
interest or dividend coverage or capitalization ratio restrictions on its
ability to issue and sell Preferred Securities because each such issuance will
be supported by CSW or an Operating Subsidiary Debenture and Guarantee and such
restrictions would therefore not be relevant or necessary for any SPE to
maintain an appropriate capital structure.
Each SPE's constituent instruments will further state that its
common membership interests, general partnership interests or junior trust
certificates are not transferable (except to certain permitted successors), that
its business and affairs will be managed and controlled by CSW or the respective
Operating Subsidiary and/or their respective Investment Sub (or permitted
successor), and that CSW or such Operating Subsidiary (or permitted successor)
will pay all expenses of its SPE.
7. Benefits of Financing Program
CSW and the Operating Subsidiaries believe that the proposed
financing programs will provide substantial benefits over traditional perpetual
preferred stock issuances. While CSW and the Operating Subsidiaries expect that
a new issue of the Debentures will carry a somewhat higher interest rate than
the dividend on a new issue of perpetual preferred stock, the fact that the
interest or dividend payments are tax deductible will mean increased cash flow
and net income and then ultimately lower cost of service. Moreover, CSW and the
Operating Subsidiaries have been informed by investment bankers that the market
for securities comparable to the Debentures or Preferred Securities currently is
the dominant market, thus affording potential benefits in the form of more
competitive pricing.
Cost savings for issuing Debentures or Preferred Securities in
place of traditional perpetual preferred stock are significant. CSW and each
Operating Subsidiary could currently issue Debentures
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or Preferred Securities with a coupon rate ranging from approximately 8.00% to
8.25%. This translates to an after tax cost of approximately 5.20% to 5.36%,
assuming a 35% tax rate. This compares to an approximate current coupon rate for
traditional perpetual preferred stock ranging from 6.875% to 7.125% which is not
tax deductible.
The Debentures, if issued to the public, would be classified in the
debt capitalization section as subordinated debt on CSW's and the Operating
Subsidiaries' balance sheets. The Debentures, if issued to the SPE, will not
appear on CSW's or the Operating Subsidiaries' balance sheets since they are
inter-company obligations. The Preferred Securities would be carried in the
non-debt capitalization section of CSW's and the respective Operating
Subsidiary's consolidated balance sheets as "Company Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary SPE Holding Solely Parent Junior
Subordinated Debentures". In the event that CSW or an Operating Subsidiary sells
Debentures to an SPE that it does not own the general partnership interests or
common membership interests of or is not the grantor or holder of the junior
trust certificates of, the Debentures would be classified in the debt
capitalization section as subordinated debt on CSW's or the Operating
Subsidiary's balance sheet and the preferred securities would be carried in the
non-debt capitalization section of the balance sheet as "Company Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary SPE Holding Solely
Parent Junior Subordinated Debentures" for the owner of the SPE.
CSW and each Operating Subsidiary requests authority to enter into
negotiations with underwriters with respect to the interest rate, redemption
provisions and other terms and conditions applicable to the Debentures and/or
Preferred Securities and to set the terms of the Debentures and Preferred
Securities subject to the receipt of an order under the Act if an order has not
been issued when CSW the Operating Subsidiary or SPE enters into an Underwriting
Agreement.
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8. Use of Proceeds
Each Operating Subsidiary, individually, expects to apply the net
proceeds of the Debentures to finance the replacement or retirement, through
redemption, repurchase or otherwise, of one or more series of outstanding first
mortgage bonds or preferred stock at the Operating Subsidiaries, or any
combination thereof (collectively, the "Old Securities"), for the payment of
outstanding short-term borrowings and for other general corporate purposes. CSW
expects to apply the net proceeds of the Debentures to lend or make equity
contributions to the Operating Subsidiaries, for the payment of outstanding
short-term borrowings and for other general corporate purposes. At December 31,
1996, CSW, CPL, PSO, SWEPCO and WTU had short-term debt of approximately $171
million, $44 million, $59 million, $70 million and $29 million, respectively.
All of the series of preferred stock for CPL, PSO, SWEPCO and WTU are currently
callable at prices ranging from 109% to 100%. Construction costs for CPL, PSO,
SWEPCO and WTU during 1996 (inclusive of allowance for funds used during
construction) were $139 million, $85 million, $95 million and $44 million,
respectively. The SPE, if any, will use all the proceeds from any sale of
Preferred Securities and Equity Contribution to purchase a corresponding amount
of Debentures.
If Debentures are issued by CSW, CSW requests authority to lend or
make equity contributions of the proceeds to the Operating Subsidiaries. The
Operating Subsidiaries would evidence such loans or equity contributions by the
issuance of notes, preferred stock and/or common stock to CSW. Such notes and
preferred stock would have substantially the same terms as the Debentures issued
by CSW.
9. Compliance with Rule 54
No proceeds from the sale of the Debentures will be used by CSW or
any subsidiary thereof for the direct or indirect acquisition of an interest in
an exempt wholesale generator, as defined in Section 32 of the Act ("EWG"), or a
foreign utility company, as defined in Section 33 of the Act
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("FUCO"). Rule 54 promulgated under the Act states that in determining whether
to approve the issue or sale of a security by a registered holding company for
purposes other than the acquisition of an EWG or a FUCO, or other transactions
by such registered holding company or its subsidiaries other than with respect
to EWGs or FUCOs, the Commission shall not consider the effect of the
capitalization or earnings of any subsidiary which is an EWG or a FUCO upon the
registered holding company system if Rule 53(a), (b) and (c) are satisfied. As
set forth below, all applicable conditions set forth in Rule 53(a) are, and,
assuming the consummation of the transactions proposed herein, will be,
satisfied and none of the conditions set forth in Rule 53(b) exist or will exist
as a result of the transactions proposed herein thereby satisfying such
provision and making Rule 53(c) inapplicable.
CSW's "aggregate investment" (as defined under Rule 53(a) of the Act)
in EWGs and FUCOs as of September 30, 1996 was approximately $864 million, or
approximately 45% of CSW's "consolidated retained earnings" as of September 30,
1996. CSW thus satisfies Rule 53(a)(1). CSW will maintain and make available the
books and records required by Rule 53(a)(2). No more than 2% of the employees of
the Operating Subsidiaries will, at any one time, directly or indirectly, render
services to an EWG or FUCO in which CSW directly or indirectly owns an interest,
satisfying Rule 53(a)(3). And lastly, CSW will submit a copy of Item 9 and
Exhibits G and H of CSW's Form U5S to each of the public service commissions
having jurisdiction over the retail rates of CSW's operating utility
subsidiaries, satisfying Rule 53(a)(4).
D. Managing Interest Rates
In addition, CSW and the Operating Subsidiaries request authority
to manage interest rate risk, as appropriate, through the use of hedging
products, including interest rate swaps, forward swaps and caps and collars. CSW
and the Operating Subsidiaries request authority to enter into the foregoing
types of transactions from time to time in connection with the issuance of
Debentures and Preferred Securities.
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In order for CSW or an Operating Subsidiary to enter into any hedging
products associated with the Preferred Securities or Debentures, the corporate
finance staff of CSW must analyze the different products available and the
economics, benefits and risks associated with those products. The Director,
Finance of CSW will then make a recommendation to the Treasurer of CSW or an
Operating Subsidiary, or to the Chief Financial Officer of CSW. Before any
hedging transaction associated with the Preferred Securities or Debentures can
be entered into, the Treasurer of CSW or an Operating Subsidiary, or the Chief
Financial Officer of CSW must give approval for such transaction.
CSW and the Operating Subsidiaries could use the interest rate swap
market to hedge against changes in the interest rates of variable rate
Debentures by entering into a fixed-for-floating swap arrangement (CSW and/or
the Operating Subsidiaries pay a fixed rate to a counterparty and receive, in
return, a floating rate). In addition, CSW and the Operating Subsidiaries may be
able to realize a lower all-in rate in the synthetic fixed market than in the
natural cash fixed market. A synthetic fixed rate issuance is achieved by
issuing variable rate securities and simultaneously entering into a
fixed-for-floating interest rate swap. The variable rate amounts received by CSW
and/or the Operating Subsidiaries on the swap are used to pay the variable rate
interest on the Debentures, thereby leaving CSW and/or the Operating
Subsidiaries with a fixed rate payment. A natural cash fixed rate issuance is
achieved by simply issuing fixed rate securities.
CSW and the Operating Subsidiaries may also issue fixed rate
Debentures and then seek to effectively lower its interest costs on such
Debentures by entering into a floating-for-fixed interest rate swap arrangement
(CSW and/or the Operating Subsidiaries pay a floating rate to a counterparty and
receive, in return, a fixed rate). In this manner, CSW and/or the Operating
Subsidiaries would hope to take advantage of interest cost savings associated
with short-term interest rates. The floating rate payable by CSW and/or the
Operating Subsidiaries would be based upon a market index, such as LIBOR (London
Interbank Deposit Offered Rate), Federal Funds, reserve-adjusted certificate of
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deposit or commercial paper rates.
CSW and the Operating Subsidiaries may be required to pay a margin in
additions to such floating rate, which margin shall not be greater than 5%. In
such event, the fixed interest rate payable by the counterparty would include
the amount of such margin.
None of the interest rate swaps would be "leveraged". This means
that changes in interest payments or receipts under any interest rate swap due
to changes in the floating rate index used in the swap will not exceed the
product of the change in such index and the notional amount of that swap. In no
event would the aggregate notional amount of the interest rate swaps, at any one
time, exceed the respective Offering Limits for CSW and the Operating
Subsidiaries.
The interest rate swaps mentioned above may also be forward swaps,
whereby a swap agreement is entered into but the exchange of fixed and floating
payments does not begin until a future date, which is generally the call date on
outstanding Debentures.
CSW and the Operating Subsidiaries will only enter into swaps
permitting termination at the option of CSW and/or the Operating Subsidiaries
and CSW and/or the Operating Subsidiaries would exercise any such option for a
corresponding notional amount upon the redemption, reacquisition or maturation
of the corresponding Debentures. CSW's and/or the Operating Subsidiaries'
termination of its obligations under an interest rate swap agreement may require
CSW and/or the Operating Subsidiaries to pay an additional amount under the
terms of the swap agreement, which may be substantial depending upon market
conditions at the time of the termination.
In order to obtain flexibility in the event that market conditions
with respect to interest rates change after CSW and/or the Operating
Subsidiaries have entered into an interest rate swap agreement as described
herein, CSW and the Operating Subsidiaries also request authorization to enter
into reverse (or offsetting) interest rate swap agreements, or other contractual
arrangements, in order to limit the impact of anticipated movements in interest
rates or offset the effect of existing interest rate swap agreements.
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If CSW and the Operating Subsidiaries issue variable rate
Debentures, they propose to manage interest rate risk through the use of
interest rate caps ("Caps") and interest rate collars ("Collars"). CSW and the
Operating Subsidiaries therefore request authority from time to time during the
life of the Debentures to purchase Caps and Collars in respect of outstanding
Debentures. Caps and Collars are designed to mitigate and/or transfer interest
rate risk and, from CSW's and the Operating Subsidiaries' perspective, are not
for speculative purposes. CSW and/or the Operating Subsidiaries may elect to
purchase a Cap to limit its exposure to rising interest rates. CSW and/or the
Operating Subsidiaries may also elect to enter into a Collar, which consists of
purchasing a Cap together with the sale of an interest rate floor ("Floor"). CSW
and the Operating Subsidiaries will only sell a Floor if it is part of a Collar.
The parties to a Cap agree upon a set interest rate, or "strike rate"
that will apply to series of Debentures. If the interest rate on the capped
Debentures exceeds the strike rate during the term of the Cap, the Cap provider
pays to CSW and/or the Operating Subsidiaries the difference between the strike
rate and the actual interest rate of the Debentures. CSW and/or the Operating
Subsidiaries, however, continue to make interest payments on the Debentures at
the actual interest rate.
A Floor is essentially the opposite of a Cap. As with a Cap, the
parties to a Floor agree on a strike rate. When the actual interest rate on the
Debentures subject to a Floor falls below the Floor strike rate, CSW and/or the
Operating Subsidiaries must pay to the Floor provider the difference between the
actual interest rate and the Floor strike rate. CSW and/or the Operating
Subsidiaries would continue to make interest payments on the Debentures at the
actual interest rate.
Caps and Collars are purchased from a Cap or Collar "provider", at
a purchase price based on a percentage of the aggregate principal amount of the
Debentures to be capped or collared. The cost of a Cap or a collar is determined
by reference to prevailing interest rates, the proposed duration of the Cap or
Collar and the proposed Cap and Floor strike rates. The longer the duration of a
Cap or
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Collar, the higher the price. The lower the Cap strike rate, the more expensive
the Cap is and the higher the Floor strike rate, the greater the offset from the
Cap price. The maximum CSW and/or the Operating Subsidiaries would spend on a
ten year Cap would be 10% of the aggregate principal amount of the Debentures
then outstanding, and the actual cost would be expected to be less than 10%.
Caps and Collars are designed to mitigate interest rate risk and do
not expose CSW and the Operating Companies to financial or other risks. If the
actual interest rate on the Debentures does not exceed the Cap strike rate at
any time during the term of the Cap, then CSW and/or the Operating Subsidiaries
will neither benefit from nor be exposed to risk by the Cap or Collar. If the
actual interest rate falls below and remains below the Floor strike rate, CSW
and/or the Operating Subsidiaries will be required to pay interest at the Floor
strike rate. Also, CSW and the Operating Subsidiaries are subject to the credit
risk on the Cap provider's ability to make payments on the Cap.
While Caps and Collars purchased for the Debentures may remain
outstanding when the underlying Debentures are retired, CSW and/or the Operating
Subsidiaries propose to terminate any Caps or Collars upon retirement of the
corresponding Debentures. If CSW and/or the Operating Subsidiaries wish to
terminate a Cap or Collar when interest rates on the Debentures are between the
Floor strike rate and Cap strike rate, they would receive a portion of the
original cost of the Cap or Collar in return, or receive nothing, depending on
interest rates and the remaining term of the Cap or Collar. If CSW and/or the
Operating Subsidiaries seek to terminate a Collar when the actual interest rate
is below the Floor strike rate, CSW and/or the Operating Subsidiaries may be
required to pay a termination fee based upon the value of the Collar to the
Floor provider at the time.
Under Rule 24 of the Act, within 45 days after the end of each
quarter in which CSW and/or the Operating Subsidiaries have outstanding any Caps
or Collars as described herein relating to the Debentures, CSW and/or the
Operating Subsidiaries shall file a certificate with the Commission
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disclosing the following information with respect to each such Cap or Collar:
(a) the transaction date, (b) the type of transaction (either a Cap or Collar),
(c) the notional amount, (d) the name of the counterparty and (e) a description
of the material terms, including the maturity or termination date and the Cap
and/or Floor strike rates. Such certificate shall also disclose the market value
of all open Cap or Collar positions at the end of each quarter and any gains or
losses realized from the liquidation of any Cap or Collar positions during such
quarter.
E. Repurchase of Old Securities
The Operating Subsidiaries may also acquire any or all of one or
more series of the Old Securities from time to time through December 31, 2001 in
open market and negotiated transactions. Any such acquisitions will be made with
internally generated funds or short-term borrowings. Acquisitions would only be
made if the Operating Subsidiary determined that it would be in the best
interest of the Operating Subsidiary to do so based on, among other things, the
interest rate or dividends payable on the securities, the Operating Subsidiary's
financing plans and capital structure and the Operating Subsidiary's then
current cash position. The Operating Subsidiary may make purchases of Old
Securities in light of opportunities which arise to make such purchases at a
time when the respective Operating Subsidiary is not engaged in a refinancing or
to purchase Old Securities which are not redeemable pursuant to terms of an
indenture.
F. Tender Offer for the Old Securities
If an Operating Subsidiary determines to acquire some or all of the
Old Securities, it may do so through a tender offer (the "Tender Offer") to the
holders of the Old Securities to purchase all or a portion of one or more series
of the Old Securities for cash. The Tender Offer may be conditioned upon receipt
of a certain percentage of the outstanding Old Securities. The Tender Offer
price would be based on a number of factors, including the coupon rate or
dividend payable on the Old Securities, the date of expiration of the refunding
protection of the Old Securities (on which date
32
<PAGE>
the Operating Subsidiary, depending on the prevailing interest rates, may be
presumed to redeem the Old Securities), the redemption price on such expiration
date and the then current market rates for similar securities, all of which are
relevant to the decision of an informed holder of the Old Securities as to
whether to hold or sell the Old Securities. A holder of an Old Security may be
offered a fixed price for their Old Securities, or the Tender Offer may be a
"fixed spread" offer pursuant to which the Operating Subsidiary will offer a
price based upon a fixed spread over comparable treasuries. The Tender Offer
will be conducted in accordance with standard market practice, i.e., the length
of time the offer will be held open, the method of solicitation, etc., at the
time of the Tender Offer. The Operating Subsidiary may commence a Tender Offer
to holders of Old Securities prior to the receipt of an order under the Act,
provided that completion of the Tender Offer is subject to receipt of an order.
Each Operating Subsidiary proposes to retain an investment banking
firm (to be chosen) experienced in such matters to act as the Operating
Subsidiary's tender agent and dealer manager for any Tender Offer. The dealer
manager will act as the Operating Subsidiary's agent in disseminating the Tender
Offer and receiving responses thereto. As a dealer manager, the investment
banking firm will not itself become obligated to purchase or sell any of the Old
Securities. The dealer manager's fee will be determined following negotiation
and investigation of fees in similar transactions and will include reasonable
out-of-pocket expenses and attorney's fees. It is anticipated that the Operating
Subsidiary will be required, as is customary, to indemnify the dealer manager
for certain liabilities. The Operating Subsidiary may also retain a depositary
to hold the tendered Old Securities pending the purchase thereof and/or an
information agent to assist in the Tender Offer. In the event that an agreement
with any of the aforementioned parties is negotiated, the Operating Subsidiary
will file by amendment drafts of the dealer manager agreement, depositary
agreement and/or information agent agreement.
33
<PAGE>
Item 2. Fees, Commissions and Expenses.
Assuming an issue of one series of Debentures, Preferred Securities
and Guarantees for CSW and each Operating Subsidiary, other than the Cash
Payments and the applicable Purchase Prices described in Item 1, an estimate of
the fees and expenses, other than underwriting discounts and commissions, to be
paid or incurred by CSW and the Operating Subsidiaries in connection with the
proposed transactions is set forth below:
<TABLE>
<CAPTION>
CSW CPL PSO SWEPCO WTU
<S> <C> <C> <C> <C>
Holding Company Act * * * * *
filing fees
Securities Act 151,516 106,061 30,304 45,455 24,243
Registration fees
Printing 20,000 20,000 20,000 20,000 20,000
Fees of Trustees 10,000 10,000 10,000 10,000 10,000
Fees of Rating Agencies 50,000 30,000 15,000 20,000 10,000
Blue Sky Fees and Expenses 1,250 1,250 1,250 1,250 1,250
Expenses of Central and 3,000 3,000 3,000 3,000 3,000
South West Services, Inc.
Outside Counsel Fees:
Proxy Solicitation and Offer 150,000 50,000 50,000 50,000 50,000
Each Offering 80,000 80,000 80,000 80,000 80,000
Information Agent 15,000 15,000 15,000 15,000 15,000
Dealer Manager Fees N/A 233,750 49,475 125,000 15,000
Depositary Fees 75,000 N/A N/A N/A N/A
Broker/Dealer Fees N/A 701,250 148,425 375,000 45,000
Miscellaneous 4,234 4,689 2,546 5,295 1,507
----- ----- ----- ----- -----
Total 560,000 1,255,000 422,454 750,000 275,000
------- --------- ------- -------
</TABLE>
- ----------------------
* A $2,000 fee has been paid with respect to the filing requirement under
the Act. The fees and expenses include those charges incurred for the services
of Central and South West Services, Inc. ("CSWS"), an affiliated service company
of CSW operating pursuant to Section 13 of the Act and the rules thereunder. The
services of CSWS will consist principally of services performed by the Treasury
Department and the Accounting Department. Item 3.
Applicable Statutory Provisions.
34
<PAGE>
Section 12(e) of the Act and Rules 62 and 65 thereunder are applicable
to the Proxy Solicitation. Section 12(e) and Rule 65 are, and Section 6(a)(2)
may be, deemed applicable to Cash Payments. Section 6(a)(2) is applicable to the
Proposed Amendments. Sections 9(a) and 10 and Rule 51 are applicable to the
acquisition by CSW of Shares pursuant to the Offer; CSW hereby represents that
the conditions of Rule 51 will be satisfied in respect of the acquisition by CSW
of Shares pursuant to the Offer. Sections 9(a), 10 and 12(c) are applicable to
the reacquisition by the Operating Subsidiaries of the Shares tendered to CSW
pursuant to the Offer. Rule 42 of the Act may also be deemed applicable to the
reacquisition.
Sections 6(a) and 7 of the Act are applicable to the issuance of the
Debentures and Guarantees by each Operating Subsidiary. Sections 9(a), 10 and
12(b) of the Act and Rule 45 under the Act are or may be applicable to the
acquisition by each Operating Subsidiary of shares of capital stock, membership
interests, partnership interests or trust certificates of its SPE and any shares
of the capital stock of its respective Investment Sub, the acquisition by each
Operating Subsidiary's respective Investment Sub of shares of the capital stock,
membership interests, partnership interests or trust certificates of the SPE,
and the acquisition by the SPE of the Debentures and Guarantees. Sections 6(a)
and 7 of the Act are applicable to the issue and sale of the Preferred
Securities by each SPE. Rule 54 is also applicable to the proposed transactions.
To the extent that the Commission determines that any other provision of the Act
or rule thereunder is applicable to the proposed transactions, CSW and the
Operating Subsidiaries request an order or orders thereunder.
The Commission has previously approved registered holding company
solicitations of consents from preferred stockholders to eliminate charter
restrictions on unsecured debt as well as the payment of monetary consideration
in connection with the consent of security holders. See, e.g., Cinergy Corp.,
et. al., 62 S.E.C. 2212 (1996), HCAR No. 26569; Alabama Power Company, 57 S.E.C.
1448 (1994), HCAR No. 26118; The Cincinnati Gas and Electric Company, 60 S.E.C.
829 (1995), HCAR No.
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<PAGE>
26381; and Middle South Utilities, Inc., et.al., 39 S.E.C. 629 (1987), HCAR No.
24482. Under the standards of the Act, the Commission's test in reviewing
alterations of the rights of preferred stockholders is fairness and equity. See,
e.g., Commonwealth & Southern Corporation, 25 S.E.C. 505 (1947), HCAR No. 7337.
In the present instance, each preferred stockholder of the Operating
Subsidiaries has available to it a range of options in connection with the
proposal to abolish the 20% and 10% Provisions, including in certain
circumstances the ability to tender Shares and (if the proposed Amendment is
adopted) receive payment at a premium price above market. In addition, preferred
stockholders who do not wish to participate in the Offer may retain their
shares, vote in favor of the Proposed Amendment, and, if it is adopted, receive
a special cash payment. This "option package" which may be granted to each and
every Operating Subsidiary preferred stockholder in connection with the
transactions clearly is fair and equitable under the circumstances.
Item 4. Regulatory Approval.
The issuance of Debentures by PSO will have been authorized by the
Corporation Commission of the State of Oklahoma prior to any issuance of
Debentures by PSO.
No other state regulatory authority and no federal regulatory
authority, other than the Commission, has jurisdiction over the proposed
transactions.
The Operating Subsidiaries consider that the SPE will be exempt from
regulation under the Investment Company Act of 1940, as amended, pursuant to the
"finance company" exemption afforded by Rule 3a-5 or the Rule 3a-7 exemption
under such Act.
Item 5. Procedure.
CSW and the Operating Subsidiaries request that the Commission release
jurisdiction over the matters reserved by the Commission in HCAR No. 26687
(March 17, 1997) ("Proxy Order") <F1>and issue a supplemental order to this
application-declaration, as amended, not later than April 9, 1997, but continue
to reserve jurisdiction over the proposal for (a) CSW to issue and sell
Debentures and/or Preferred Securities through December 31, 2001; (b) CSW to
guarantee the payment of dividends and distributions and other payments in
respect of Preferred Securities; (c) CSW and the Operators Subsidiaries to enter
into hedging products in connection with the issuance of Debentures and/or
Preferred Securities; and (d) CSW to invest in financing entities through which
CSW intends to issue and sell Preferred Securities and related transactions,
pending completion of the record.
________________
<F1> In the Proxy Oder, the Commission authorized the Operating
Subsidiaries, pursuant to rule 62(d), to solicit proxies from their
shareholders to approve amendments to their respective Articles. The
Commission also reserved jurisdiction over the proposal for (a) CSW to
acquire shares of preferred stock of the Operating Subsidiaries pursuant
to a cash tender offer; (b) the Operating Subsidiaries to purchase shares
of their respective preferred stock sold to CSW pursuant to a cash tender
offer; (c) CSW and the Operating Subsidiaries to issue and sell Debentures
and/or Preferred Securities through December 31, 2001; (d) CSW and the
Operating Subsidiaries to guarantee the payment of dividends and
distributions and other payments in respect of Preferred Securities; (e)
CSW and the Operating Subsidiaries to enter into interst rate management
instruments in connection with the issuance of Debentures and/or Preferred
Securities; and (f) CSW and the Operating Subsidiaries to invest in
financing entities through which CSW and the Operating Subsidiaries intend
to issue and sell Preferred Securities and related transactions, pending
completion of the record.
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<PAGE>
Item 6. Exhibits and Financial Statements.
Exhibit 1(a) - Restated Articles of Incorporation, as
amended, of CPL (incorporated herein by reference to
Exhibit 4(a) to CPL's Registration Statement No.
33-4897, Exhibits 5 and 7 to Form U-1, File No.
70-7171, Exhibits 5, 8.1, 8.2 and 19 to Form U-1,
File No. 70-7472 and CPL's Form 10-Q for the
quarterly period ended September 30, 1992, ITEM 6,
Exhibit 1).
Exhibit 1(b) - Restated Certificate of Incorporation of PSO
(incorporated herein by reference to Exhibit 3 to
PSO's 1987 Form 10-K, File No. 0-343).
Exhibit 1(c) - Restated Certificate of Incorporation, as
amended, of SWEPCO (incorporated herein by reference
to Exhibit 3 to SWEPCO's 1980 Form 10-K, File No.
1-3146, Exhibit 2 to Form U-1, File No. 70-6819,
Exhibit 3 to Form U-1, File No. 70-6924 and Exhibit 4
to Form U-1, File
No. 70-7360).
Exhibit 1(d) - Restated Articles of Incorporation, as
amended, of WTU (incorporated herein by reference to
Exhibit 3(e) 1 to WTU's 1994 Form 10-K, File No.
0-340).
Exhibit 2(a) - Offer to Purchase and Proxy Statement for
SWEPCO, dated March 18, 1997, filed as Exhibit
99(a)(1) to CSW's Issuer Tender Offer Statement on
Schedule 13E-4, SWEPCO as Issuer.
Exhibit 2(b) - Offer to Purchase and Proxy Statement for PSO,
dated March 18, 1997, filed as Exhibit 99(a)(1) to
CSW's Issuer Tender Offer Statement on Schedule
13E-4, PSO as Issuer.
Exhibit 2(c) - Offer to Purchase and Proxy Statement for WTU,
dated March 18, 1997, filed as Exhibit 99(a)(1) to
CSW's Issuer Tender Offer Statement on Schedule
13E-4, WTU as Issuer.
Exhibit 2(d) - Offer to Purchase for CPL, dated March 18,
1997, filed as Exhibit 99(a)(1) to CSW's Issuer
Tender Offer Statement on Schedule 13E-4, CPL as
Issuer.
Exhibit 3 - Notice of Special Meeting (attached as part of
Exhibit 2(a) (SWEPCO), 2(b) (PSO), 2(c) (WTU) and 4
(CPL)).
Exhibit 4 - Form of proxy solicitation materials for CPL
(previously filed).
Exhibit 5(a) - Letters of Transmittal and Proxy for SWEPCO,
filed as Exhibit 99(a)(2) to CSW's Issuer Tender
Offer Statement on Schedule 13E-4, SWEPCO as Issuer.
Exhibit 5(b) - Letters of Transmittal and Proxy for PSO,
filed as Exhibit 99(a)(2) to CSW's Issuer Tender
Offer Statement on Schedule 13E-4, PSO as Issuer.
Exhibit 5(c) - Letter of Transmittal and Proxy for WTU, filed
as Exhibit 99(a)(2) to CSW's Issuer Tender Offer
Statement on Schedule 13E-4, WTU as Issuer.
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<PAGE>
Exhibit 5(d) - Letters of Transmittal for CPL, filed as
Exhibit 99(a)(2) to CSW's Issuer Tender Offer
Statement on Schedule 13E-4, CPL as Issuer.
Exhibit 6(a) - Form of Limited Partnership Agreement of
Special Purpose Subsidiary (to be filed with
Certificate of Notification).
Exhibit 6(b) - Form of Trust Agreement of Special Purpose Subsidiary
(Incorporated by reference from Registration
Statement No. 333-21149, Exhibit 4(g)).
Exhibit 6(c) - Form of Limited Liability Company Agreement of
Special Purpose Subsidiary (to be filed with
Certificate of Notification).
Exhibit 7 - Form of Action of General Partner (to be filed
with Certificate of Notification).
Exhibit 8 - Form of Indenture (incorporated by reference from
Registration Statement No. 333-21149, Exhibit 4(a)).
Exhibit 9 - Form of Supplemental Indenture including Form of
Debenture (incorporated by reference from
Registration Statement No. 333-21149, Exhibit 4(b)
and Exhibit 4(c)).
Exhibit 10 - Form of Guarantee (incorporated by reference from
Registration Statement No. 333-21149, Exhibit 4(i)).
Exhibit 11 - Form of Underwriting Agreement (incorporated by
reference from Registration Statement No. 333-21149,
Exhibit 1(a) and Exhibit 1(b)).
Exhibit 12(a)- Registration Statement filed by CSW under the
Securities Act of 1933, as amended, relating to the
various securities which are the subject hereof (to
be filed by amendment).
Exhibit 12(b)- Registration Statement filed by CPL under the
Securities Act of 1933, as amended, relating to the
various securities which are the subject hereof
(incorporated by reference to Registration Statement
No. 333-21149).
Exhibit 12(c)- Registration Statement filed by PSO under the
Securities Act of 1933, as amended, relating to the
various securities which are the subject hereof
(incorporated by reference to Registration Statement
No. 333-21153).
Exhibit 12(d)- Registration Statement filed by SWEPCO under the
Securities Act of 1933, as amended, relating to the
various securities which are the subject hereof
(incorporated by reference to Registration Statement
No. 333-21155).
Exhibit 12(e)- Registration Statement filed by WTU under the
Securities Act of 1933, as amended, relating to the
various securities which are the subject hereof (to
be with Certificate of Notification).
38
<PAGE>
Exhibit 13 - Preliminary Opinion of Milbank, Tweed, Hadley &
McCloy, counsel to CSW and the Operating
Subsidiaries.
Exhibit 14 - Proposed Notice of Proceeding (previously filed).
Exhibit 15 - Financial Statements per books and pro forma as
of December 31, 1996 of CSW and Operating
Subsidiaries.
Financial Statements are only submitted with respect
to the amount of Preferred Securities for which
Registration Statements on Form S-3 are currently on
file ($335 million). Financial Statements are not
submitted with respect to the additional amount of
Preferred Securities ($845 million) for which
authorization is herein sought due to (i) the
extended period for which authorization is sought and
(ii) the impracticality of knowing the type and
extent of financing transactions that may occur
during such period. However, CSW and the Operating
Subsidiaries will furnish any financial information
that the Commission shall request.
Exhibit 16 - Final or "past tense" opinion of Milbank, Tweed,
Hadley & McCloy, Counsel to the Operating
Subsidiaries (to be filed with Certificate of
Notification).
Exhibit 17 - Application to the Corporation Commission of the
State of Oklahoma for authority to issue and sell the
debentures (to be filed with Certificate of
Notification).
Exhibit 18 - Order of State Commission referred to in Exhibit 17
(to be filed with Certificate of Notification).
Item 7. Information as to Environmental Effects.
As described in Item 1, the proposed transactions are of a routine and
strictly financial nature in the ordinary course of the respective Operating
Subsidiary's business. Accordingly, the Commission's action in this matter will
not constitute any major federal action having a significant effect on the human
environment. To the best of CSW's and the Operating Subsidiaries' knowledge, no
federal agency has prepared or is preparing an environmental impact statement
with respect to the proposed transactions.
39
<PAGE>
S I G N A T U R E
- - - - - - - - -
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, as amended, the undersigned company has duly caused this document
to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: April 9, 1997
CENTRAL AND SOUTH WEST CORPORATION
By:/s/ Wendy G. Hargus
Wendy G. Hargus
Treasurer
CENTRAL POWER AND LIGHT COMPANY
By: /s/ Wendy G. Hargus
Wendy G. Hargus
Treasurer
PUBLIC SERVICE COMPANY OF OKLAHOMA
By: /s/ Wendy G. Hargus
Wendy G. Hargus
Treasurer
SOUTHWESTERN ELECTRIC POWER COMPANY
By: /s/ Wendy G. Hargus
Wendy G. Hargus
Treasurer
WEST TEXAS UTILITIES COMPANY
By: /s/ Wendy G. Hargus
Wendy G. Hargus
Treasurer
40
<PAGE>
INDEX OF EXHIBITS
The Index of Exhibits is amended as follows:
TRANSMISSION
NUMBER EXHIBITS METHOD
1(a) Restated Articles of Incorporation, as Incorporated By
amended, of CPL (incorporated herein Reference
by reference to Exhibit 4(a) to CPL's
Registration Statement No. 33-4897,
Exhibits 5 and 7 to Form U-1, File No.
70-7171, Exhibits 5, 8.1, 8.2 and 19 to
Form U-1, File No. 70-7472 and CPL's Form
10-Q for the quarterly period ended
September 30, 1992, ITEM 6, Exhibit 1).
1(b) Restated Certificate of Incorporation of Incorporated By
PSO (incorporated herein by reference Reference
to Exhibit 3 to PSO's 1987 Form 10-K,
File No. 0-343)
1(c) Restated Certificate of Incorporation, Incorporated By
as amended, of SWEPCO (incorporated Reference
herein by reference to Exhibit 3 to
SWEPCO's 1980 Form 10-K, File No. 1-3146,
Exhibit 2 to Form U-1, File No. 70-6819,
Exhibit 3 to Form U-1, File No. 70-6924
and Exhibit 4 to Form U-1, File No.
70-73660).
1(d) Restated Articles of Incorporation, Incorporated By
by reference to Exhibit 3(e) 1 to WTU's Reference
as amended, of WTU (incorporated herein
1994 Form 10-K, File No. 0-340).
2(a) Offer to Purchase and Proxy Statement ___________
for SWEPCO, dated March 18, 1997, filed
as Exhibit 99(a)(1) to CSW's Issuer
Tender Offer Statement on Schedule 13E-4,
SWEPCO as Issuer.
2(b) Offer to Purchase and Proxy Statement for ___________
PSO, dated March 18, 1997, filed as
Exhibit 99(a)(1) to CSW's Issuer Tender
Offer Statement on Schedule 13E-4, PSO
as Issuer.
2(c) Offer to Purchase and Proxy Statement ___________
for WTU, dated March 18, 1997, filed
as Exhibit 99(a)(1) to CSW's Issuer
Tender Offer Statement on Schedule 13E-4,
WTU as Issuer.
2(d) Offer to Purchase for CPL, dated March 18, ___________
1997, filed as Exhibit 99(a)(1) to CSW's
Issuer Tender Offer Statement on
Schedule 13E-4, CPL as Issuer.
3 Notice of Special Meeting (attached as part ___________
of Exhibit 2(a) (SWEPCO), 2(b)(PSO), 2(c)
(WTU) and 4 (CPL)).
4 Form of proxy solicitation material for ___________
CPL (previously filed).
5(a) Letters of Transmittal and Proxy for ___________
SWEPCO, filed as Exhibit 99(a)(2) to CSW's
Issuer Tender Offer Statement on Schedule
13E-4, SWEPCO as Issuer.
41
<PAGE>
5(b) Letters of Transmittal and Proxy ___________
for PSO, filed as Exhibit 99(a)(2) to
CSW's Issuer Tender Offer Statement
on Schedule 13E-4, PSO as Issuer.
5(c) Letter of Transmittal and Proxy for WTU, ___________
filed as Exhibit 99(a)(2) to CSW's Issuer
Tender Offer Statement on Schedule
13E-4, WTU as Issuer.
5(d) Letters of Transmittal for CPL, filed ___________
as Exhibit 99(a)(2) to CSW's Issuer Tender
Offer Statement on Schedule 13E-4, CPL
as Issuer.
6(a) Form of Limited Partnership Agreement of ___________
Special Purpose Subsidiary (to be filed
with Certificate of Notification).
6(b) Form of Trust Agreement of Special Incorporated By
Purpose Subsidiary (Incorporated by Reference
reference from Registration Statement
No. 333-21149, Exhibit 4(g)).
6(c) Form of Limited Liability Company ___________
Agreement of Special Purpose Subsidiary
(to be filed with Certificate of
Notification).
7 Form of Action of General Partner ___________
(to be filed with Certificate of
Notification).
8 Form of Indenture (incorporated by Incorporated By
reference from Registration Statement Reference
No. 333-21149, Exhibit 4(a)).
9 Form of Supplemental Indenture Incorporated By
including Form of Debenture (incorporated Reference
by reference from Registration Statement
No. 333-21149, Exhibit 4(b) and
Exhibit 4(c)).
10 Form of Guarantee (incorporated by Incorporated By
reference from Registration Statement Reference
No. 333-21149, Exhibit 4(i)).
11 Form of Underwriting Agreement Incorporated By
(incorporated by reference from Reference
Registration Statement No. 333-21149,
Exhibit 1(a) and Exhibit 1(b)).
12(a) Registration Statement filed by CSW ___________
under the Securities Act of 1933, as
amended, relating to the various securities
which are the subject hereof (to be filed
by amendment).
12(b) Registration Statement filed by CPL Incorporated by
under the Securities Act of 1933, as Reference
amended, relating to the various securities
which are the subject hereof (incorporated
by reference to Registration Statement
No. 333-21149).
12(c) Registration Statement filed by PSO Incorporated by
under the Securities Act of 1933, as Reference
amended, relating to the various securities
which are the subject hereof (incorporated
by reference to Registration Statement
No. 333-21153).
42
<PAGE>
12(d) Registration Statement filed by Incorporated by
SWEPCO under the Securities Act of 1933, Reference
as amended, relating to the various
securities which are the subject hereof
(incorporated by reference to
Registration Statement No. 333-21155).
12(e) Registration Statement filed by WTU under ___________
the Securities Act of 1933, as amended,
are the subject hereof (to be filed with
Certificate of Notification).
13 Preliminary Opinion of Milbank, Tweed, Electronic
Hadley & McCloy, counsel to CSW and the
Operating Subsidiaries.
14 Proposed Notice of Proceeding __________
(previously filed).
15 Financial Statements per books and pro
forma as of____________ of CSW and Electronic
Operating Subsidiaries.
Financial Statements are only submitted with respect to the
amount of Preferred Securities for which Registration
Statements on Form S-3 are currently on file ($335 million).
Financial Statements are not submitted with respect to the
additional amount of Preferred Securities ($845 million) for
which authorization is herein sought due to (i) the extended
period for which authorization is sought and (ii) the
impracticality of knowing the type and extent of financing
transactions that may occur during such period. However, CSW
and the Operating Subsidiaries will furnish any financial
information that the Commission shall request.
16 Final or "past tense" opinion of ___________
Milbank, Tweed, Hadley & McCloy, Counsel
to the Operating Subsidiaries (to be filed
with Certificate of Notification).
17 Application to the Corporation Commission ___________
of the State of Oklahoma for authority to
issue and sell the debentures (to be filed
by amendment).
18 Order of State Commission referred to in ___________
Exhibit 17 (to be filed by amendment).
43
<PAGE>
EXHIBIT 13
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
April 9, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Central and South West Corporation, et al.
Form U-1 Application-Declaration
(File No. 70-8979)
Ladies and Gentlemen:
We refer to the Form U-1 Application-Declaration (the "Application") under
the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"),
filed by Central and South West Corporation ("CSW"), a Delaware corporation and
a registered holding company, and Central Power and Light Company ("CPL"),
Public Service Company of Oklahoma ("PSO"), Southwestern Electric Power Company
("SWEPCO") and West Texas Utilities Company ("WTU"). CPL, PSO, SWEPCO and WTU
are sometimes hereinafter referred to as the "Operating Subsidiaries". The
Application relates to the request of CSW and the Operating Subsidiaries for
authority (i) to issue certain tax-deductible securities, including unsecured
junior subordinated debentures ("Debentures") and/or preferred securities
("Preferred Securities"), pursuant to an Indenture, as supplemented (the
"Indenture") and/or an Amended and Restated Trust Agreement (the "Trust
Agreement") and certain guarantees in relation to such issuance (the
"Guarantees"), (ii) for the Operating Subsidiaries to solicit proxies from the
preferred and common shareholders of the Operating Subsidiaries to remove
certain unsecured debt limitations in the Operating Subsidiaries' charters (the
"Solicitations"), (iii) for CSW to purchase shares of certain series of
preferred stock of the Operating Subsidiaries pursuant to cash tender offers
(the "Offers") and (iv) to enter into one or more hedging products, including
interest rate swaps, forward swaps, caps, collars and
44
<PAGE>
floors, and forward transactions (the "Instruments") to manage interest rate
risk or effectively lower CSW or the Operating Subsidiaries' interest cost on
one or more series of Debentures and/or Preferred Securities (all as more fully
described in the Application, the "Proposed Transactions"). The Preferred
Securities, if issued, would be issued by one or more special purpose entities
("SPEs"), the common interests of which would be acquired by the respective
Operating Subsidiary. We have acted as special counsel for CSW and the Operating
Subsidiaries in connection with the filing of the Application.
We have examined originals, or copies certified to our satisfaction, of
such corporate records of CSW and the Operating Subsidiaries, certificates of
public officials, certificates of officers and representatives of CSW and the
Operating Subsidiaries and other documents as we have deemed it necessary to
require as a basis for the opinions hereinafter expressed. In such examination
we have assumed the genuineness of all signatures and the authenticity of all
documents submitted to us as originals and the conformity with the originals of
all documents submitted to us as copies. As to various questions of fact
material to such opinions we have, when relevant facts were not independently
established, relied upon certificates by officers of CSW and the Operating
Subsidiaries and other appropriate persons and statements contained in the
Application.
Based upon the foregoing, and having regard to legal considerations which
we deem relevant, we are of the opinion that, in the event that the Proposed
Transactions are consummated in accordance with the Application, as it may be
amended, and subject to the assumptions and conditions set forth below:
1. CSW, the Operating Subsidiaries and the SPEs are or will be
validly organized and duly existing under the laws of the
jurisdictions of their organization.
2. All state laws applicable to the issue of the Debentures and/or
Preferred Securities and the Guarantees (other than so-called
"blue-sky" or state securities laws as to which we express no
opinion), the Solicitations, the Offers and, to the extent they
are deemed to be securities within the meaning of the 1935 Act,
the entering into of the Instruments, as described in the
Application, will have been complied with.
3. The Debentures and the Guarantees will be valid and binding
obligations of CSW or the respective Operating Subsidiary in
accordance with their terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium or other
similar laws of general applicability
45
<PAGE>
relating to or affecting the enforcement of creditors' rights
generally and to the effects of general principles of equity
(regardless of whether enforceability is considered in a
proceeding in equity or at law), including without limitation (a)
the possible unavailability of specific performance, injunctive
relief or any other equitable remedies and (b) concepts of
materiality, reasonableness, good faith and fair dealing.
4. The Preferred Securities will be valid and binding obligations of
the SPEs in accordance with their terms, subject to the
qualifications stated in paragraph 3 above.
5. CSW will lawfully acquire any shares of the Operating
Subsidiaries' preferred stock acquired by CSW pursuant to the
Offers.
6. The Operating Subsidiaries will lawfully acquire from CSW any
shares of preferred stock acquired by CSW pursuant to the Offers.
7. CSW or the Operating Subsidiaries will lawfully acquire any
common interests of their respective SPE.
8. The Instruments, to the extent they are deemed to be securities
within the meaning of the 1935 Act, will be valid and binding
obligations of CSW or the Operating Subsidiaries in accordance
with their terms, subject to the qualifications stated in
paragraph 3 above, and subject to such other qualifications as
are customary and appropriate to the particular nature of any
Instrument entered into.
9. The consummation by CSW, the Operating Subsidiaries and the SPEs
of the Proposed Transactions will not violate the legal rights of
the holders of any securities issued by CSW or the Operating
Subsidiaries or any "associate" company, as such term is defined
in the 1935 Act, thereof.
The opinions expressed above in respect of the Proposed Transactions as
described in the Application are subject to the following assumptions or
conditions:
a. Appropriate action by the Boards of Directors of CSW and
the Operating Subsidiaries with respect to the transactions
described in said Application;
b. Appropriate action by the Securities and Exchange
Commission and, in the case of PSO, the Corporation
Commission of the State of Oklahoma, with respect to the
issuance and sale of the
46
<PAGE>
Debentures and/or Preferred Securities as described in said
Application;
c. Due execution and delivery of the proposed Indenture
and/or Trust Agreement pursuant to which the Debentures
and/or Preferred Securities will be issued by each of the
parties thereto;
d. The Proposed Transactions will be consummated in
accordance with required approvals, authorizations,
consents, certificates and orders of any state commission or
regulatory authority with respect thereto;
e. Any Instruments, to the extent they are deemed to be
securities within the meaning of the 1935 Act, shall have
been duly authorized, executed and delivered by the party
thereto other than CSW or the Operating Subsidiaries and
such party is duly organized and validly existing under the
laws of its jurisdiction of organization and has full power
and authority to make and perform any of the Instruments.
f. Any acquisition of preferred stock by CSW pursuant to the
Offers or by the Operating Subsidiaries from CSW as
described in paragraph 6 above, shall be made in accordance
with (i) the authorization of such company's Board of
Directors, (ii) any applicable provisions of the Securities
Exchange Act of 1934, as amended and the rules and
regulations thereunder, (iii) such order or orders as may be
issued by the Commission pursuant to the 1935 Act and (iv)
any applicable state law.
g. The consummation of the Proposed Transactions shall be
conducted under our supervision and all legal matters
incident thereto shall be satisfactory to us, including the
receipt in satisfactory form of opinions of other counsel
qualified to practice in jurisdictions pertaining to the
Proposed Transactions in which we are not admitted to
practice.
h. No act or event other than as described herein shall have
occurred subsequent to the date hereof which would change
the opinions expressed above.
47
<PAGE>
In rendering the opinions hereinabove expressed, we have relied and will
rely upon opinions of other counsel to CSW and the Operating Subsidiaries who
are qualified to practice in jurisdictions pertaining to the transactions
described above in which we are not admitted to practice. We do not express any
opinion as to matters governed by any laws other than the Federal laws of the
United States of America, the laws of the State of New York, and in connection
with opinion 1 above as it relates to CSW and SWEPCO, the General Corporation
Law of the State of Delaware, and, to the extent hereinabove stated, the laws of
other jurisdictions pertaining to the transactions described above in reliance
upon said opinions of counsel to CSW and the Operating Subsidiaries.
Further, we express no opinion as to (i) the subject matter jurisdiction of
a Federal court to consider any dispute arising out of any Instrument or (ii)
any provision of any Instrument to the extent such provision waives any
objection by any party to the laying of venue of any action or proceeding
brought in any court and any claim that any such action or proceeding has been
brought in any inconvenient forum.
We hereby consent to the use of this opinion as an exhibit to the
Application.
Very truly yours,
/s/MILBANK, TWEED, HADLEY & MCCLOY
Milbank, Tweed, Hadley & McCloy
RBW/DBB
48
<PAGE>
Financial statements are not submitted with respect to all of the
authorizations herein sought due to (i) the extended period for which
authorizations are sought and (ii) the impracticality of knowing the type and
extent of financing transactions that may occur during such period. However, CSW
and the Operating Subsidiaries will furnish all financial information that the
Commission shall request.
CSW and the Operating Subsidiaries are submitting financial statements
that represent transactions that tare currently occurring and which will occur
in the near future. The financial statements for CPL reflect the call by
CPL of its 8.72% and 7.12% Series and assume: (i) that 50% of the 4.20% Series
tender ; (ii) that 30% of the 4.20% and 4.00% Series consent and receive the
$0.25/Share; (iii) that 100% of the Money Market Preferred Stock and Auction
Preferred Stock Series A and B consent and receive the $0.25/share; (iv) that
$150 million of Preferred Securities is issued to fund the tender and call of
preferred stock and to repay a portion of the Series BB first mortgage bond;
and (v) that additional short-term debt is issued to repay the remaining
portion of Series BB first mortgage bond. The financial statements for PSO,
SWEPCO and WTU assume: (i) 50% of all the outstanding preferred stock tenders;
(ii) that 30% of all non-tendering preferred stock consents and receives the
$1/share; (iii) that PSO and SWEPCO issue $75 million and $110 million of
Preferred Securities, respectively, to fund the tender offer and to repay
short-term debt; and (iv) that WTU issues additional short-term debt sufficient
to fund the tender offer.
<PAGE> 1
INDEX EXHIBIT 15
TO
FINANCIAL STATEMENTS Page
Number
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets - Per Books and Pro Forma
as of December 31, 1996 3 - 4
Consolidated Statement of Income for the Twelve Months Ended
December 31, 1996 5
Consolidated Statement of Retained Earnings for the Twelve Months
Ended December 31, 1996 6
Statements of Long-Term Debt Outstanding as of December 31, 1996 7 - 10
Statements of Preferred Stock Outstanding as of December 31, 1996 11
CENTRAL AND SOUTH WEST CORPORATION (CORPORATE)
Balance Sheets - Per Books and Pro Forma as of December 31, 1996 12
Statement of Income for the Twelve Months Ended December 31, 1996 13
CENTRAL POWER AND LIGHT COMPANY
Balance Sheets - Per Books and Pro Forma as of December 31, 1996 14 - 15
Statement of Income for the Twelve Months Ended December 31, 1996 16
Statement of Retained Earnings for the Twelve Months Ended
December 31, 1996 17
PUBLIC SERVICE COMPANY OF OKLAHOMA
Balance Sheets - Per Books and Pro Forma as of December 31, 1996 18 - 19
Statement of Income for the Twelve Months Ended December 31, 1996 20
Statement of Retained Earnings for the Twelve Months Ended
December 31, 1996 21
SOUTHWESTERN ELECTRIC POWER COMPANY
Balance Sheets - Per Books and Pro Forma as of December 31, 1996 22 - 23
Statement of Income for the Twelve Months Ended December 31, 1996 24
Statement of Retained Earnings for the Twelve Months Ended
December 31, 1996 25
<PAGE> 2
INDEX
TO
FINANCIAL STATEMENTS
Page
(CONTINUED) Number
WEST TEXAS UTILITIES COMPANY
Balance Sheets - Per Books and Pro Forma as of December 31, 1996 26 - 27
Statement of Income for the Twelve Months Ended December 31, 1996 28
Statement of Retained Earnings for the Twelve Months Ended
December 31, 1996 29
PRO FORMA ADJUSTMENTS TO BALANCE SHEETS 30 - 35
STATEMENT OF CHANGES 36
CAPITALIZATION RATIOS - Per books and Pro forma 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 38
<PAGE> 3
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
ASSETS
FIXED ASSETS
Electric utility plant
Production $5,830 $5,830
Transmission 1,538 1,538
Distribution 4,237 4,237
General 1,318 1,318
Construction work in progress 230 230
Nuclear fuel 184 184
Other Diversified 84 84
-------------------------------
13,421 13,421
Less - Accumulated depreciation 4,940 4,940
-------------------------------
8,481 8,481
-------------------------------
CURRENT ASSETS
Cash and temporary cash investments 254 8 262
Accounts receivable 861 861
Materials and supplies, at average cost 185 185
Electric fuel inventory, substantially at
average cost 102 102
Under-recovered fuel costs 46 46
Prepayments and other 85 85
-------------------------------
1,533 8 1,541
-------------------------------
DEFERRED CHARGES AND OTHER ASSETS
Deferred plant costs 509 509
Mirror CWIP asset - net 299 299
Other non-utility investments 347 347
Income tax related regulatory assets, net 236 236
Goodwill 1,525 1,525
Other 402 11 413
-------------------------------
3,318 11 3,329
-------------------------------
$13,332 $19 $13,351
===============================
<PAGE> 4
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity -
Common stock, $3.50 par value,
authorized 350,000,000 shares;
issued and outstanding 211,500,000 shares $740 $740
Paid-in capital 1,022 1,022
Retained earnings 1,963 6 1,969
Foreign currency translation and other 77 77
-------------------------------
Total Common Stock Equity 3,802 6 3,808
-------------------------------
Preferred stock
Not subject to mandatory redemption 292 (105) 187
Subject to mandatory redemption 33 (17) 16
Company obligated manditorily redeemable of
subsidiary trust holding solely
parent junior subordinated debentures 335 335
Long-term debt 4,024 4,024
-------------------------------
Total Capitalization 8,151 219 8,370
-------------------------------
CURRENT LIABILITIES
Long-term debt/preferred stock
due within twelve months 204 (200) 4
Short-term debt 364 364
Short-term debt - CSW Credit 579 579
Loan Notes 76 76
Accounts payable 630 630
Accrued taxes 324 324
Accrued interest 82 82
Other 166 166
-------------------------------
2,425 (200) 2,225
-------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes 2,272 2,272
Investment tax credits 291 291
Other 193 193
-------------------------------
2,756 0 2,756
-------------------------------
$13,332 $19 $13,351
===============================
<PAGE> 5
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
(Millions)
Per
Books
----------
OPERATING REVENUES $5,155
----------
OPERATING EXPENSES AND TAXES
U.S. Electric fuel 1,151
U.S. Electric purchased power 77
United Kingdom Cost of Sales 1,331
Other operating 785
Maintenance 150
Depreciation and amortization 464
Taxes, other than income 178
Income taxes 224
----------
4,360
----------
OPERATING INCOME 795
----------
OTHER INCOME AND DEDUCTIONS (61)
----------
INCOME BEFORE INTEREST CHARGES 734
----------
INTEREST CHARGES
Interest on long-term debt 325
Interest on short-term debt and other 94
----------
419
----------
INCOME FROM CONTINUING OPERATIONS 315
----------
DISCONTINUED OPERATIONS
Income from discontinued operations, net
of tax 12
Gain on the sale of discontinued
operations, net of tax 120
----------
132
----------
NET INCOME 447
Preferred stock dividends 18
----------
NET INCOME FOR COMMON STOCK $429
==========
<PAGE> 6
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
(Millions)
Per
Books
----------
RETAINED EARNINGS AT DECEMBER 31, 1995 $1,893
Add: Net income for common stock 429
----------
2,322
----------
Deduct: Common stock dividends 358
Retained earnings adjustment 1
----------
RETAINED EARNINGS AT DECEMBER 31, 1996 $1,963
==========
<PAGE> 7
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
STATEMENT OF LONG-TERM DEBT OUTSTANDING
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
CENTRAL POWER AND LIGHT COMPANY
First mortgage bonds -
Series J, 6-5/8%, due January 1, 1998 $28
Series L, 7%, due February 1, 2001 36
Series T, 7-1/2%, due December 15, 2014 112
Series AA, 7-1/2%, due March 1, 2020 50
Series BB, 6%, due October 1, 1997 200
Series CC, 7-1/4%, due October 1, 2004 100
Series DD, 7-1/8%, due December 1, 1999 25
Series EE, 7-1/2%, due December 1, 2002 115
Series FF, 6-7/8%, due February 1, 2003 50
Series GG, 7-1/8%, due February 1, 2008 75
Series HH, 6%, due April 1, 2000 100
Series II, 7-1/2%, due April 1, 2023 100
Series JJ, 7-1/2%, due May 1, 1999 100
Series KK, 6-5/8%, due July 1, 2005 200
Installment sales agreements -
Pollution control bonds
Series 1993, 6%, due July 1, 2028 120
Series 1995, 6-1/10%, due July 1, 2028 101
Series 1995, variable, due November 1, 2015 41
Series 1996, 6 1/8%, due June 1, 2020 6
Series 1996, 6 1/2%, due May 1, 2030 60
Unamortized discount (5)
Unamortized costs of reacquired debt (91)
Amount to be redeemed within one year (200)
----------
$1,323
----------
<PAGE> 8
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
STATEMENT OF LONG-TERM DEBT OUTSTANDING (Continued)
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
PUBLIC SERVICE COMPANY OF OKLAHOMA
First mortgage bonds -
Series K, 7-1/4%, due January 1, 1999 $25
Series L, 7-3/8%, due March 1, 2002 30
Series S, 7-1/4%, due July 1, 2003 65
Series T, 7-3/8%, due December 1, 2004 50
Series U, 6-1/4%, due April 1, 2003 35
Series V, 7-3/8%, due April 1, 2023 100
Series W, 6-1/2%, due June 1, 2005 50
Long-term note
Series A-1, 5.89%, due December 15, 2000 10
Series A-2, 5.91%, due March 1, 2001 6
Series A-3, 6.02%, due March 1, 2001 5
Series A-4, 6.02%, due March 1, 2001 9
Series A-5, 6.43%, due March 30, 2000 10
Installment sales agreements -
Pollution control bonds
Series A, 5.9%, due December 1, 2007 35
Series 1996 6.0%, due June 1, 2020 12 *
Unamortized discount (4)
Unamortized costs of reacquired debt (18)
----------
* Rounded down from 12,660,000 $420
----------
<PAGE> 9
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
STATEMENT OF LONG-TERM DEBT OUTSTANDING (Continued)
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
SOUTHWESTERN ELECTRIC POWER COMPANY
First mortgage bonds -
Series V, 7-3/4%, due June 1, 2004 $40
Series W, 6-1/8%, due September 1, 1999 40
Series X, 7%, due September 1, 2007 90
Series Y, 6-5/8%, due February 1, 2003 55
Series Z, 7-1/4%, due July 1, 2023 45
Series AA, 5-1/4%, due April 1, 2000 45
Series BB, 6-7/8%, due October 1, 2025 80
1976 Series A, 6.2%, due November 1, 2006 7
1976 Series B, 6.2%, due November 1, 2006 1
Installment sales agreements -
Pollution control bonds
1978 Series A, 6%, due January 1, 2008 14
1991 Series A, 8.2%, due August 1, 2011 17
1991 Series B, 6.9%, due November 1, 2004 12
Series 1992, 7.6%, due January 1, 2019 54
Series 1996, 6.1%, due April 1, 2018 82
Bank loan, variable rate, due June 15, 2000 50
Railcar lease obligations 10
Unamortized premium 1
Unamortized costs of reacquired debt (43)
Amount to be redeemed within one year (3)
----------
$597
----------
WEST TEXAS UTILITIES COMPANY
First mortgage bonds -
Series P, 7-3/4%, due July 1, 2007 25
Series Q, 6-7/8%, due October 1, 2002 35
Series R, 7%, due October 1, 2004 40
Series S, 6-1/8%, due February 1, 2004 40
Series T, 7-1/2%, due April 1, 2000 40
Series U, 6-3/8%, due October 1, 2005 80
Installment sales agreement -
Pollution control bonds
Series 1996, 6%, due June 1, 2020 44
Unamortized discount and premium (1)
Unamortized costs of reacquired debt (28)
----------
$275
----------
<PAGE> 10
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
STATEMENT OF LONG-TERM DEBT OUTSTANDING (Continued)
AS OF DECEMBER 31, 1996
UNAUDITED
(millions)
CSW U.K. GROUP
Long-term fixed rate loan, 8.25%, due December 23, 2003 $298
Long-term revolving credit facility, 6.35%, due
December 12, 2001 68
Eurobond, 8-1/2%, due October 3, 2005 171
Eurobond, 8-7/8%, due September 27, 2006 171
Notes, 7.98%, due August 1, 2001 221
Notes, 8.75%, due August 1, 2006 221
Unamortized discount and premium (1)
----------
$1,149
----------
CENTRAL AND SOUTH WEST SERVICES, INC.
Term loan facility, Variable rate, due
December 1, 2001 $60
----------
$60
----------
CSW ENERGY, INC.
Senior Notes, 6.875%, due 2001 $200
----------
$200
----------
TOTAL CONSOLIDATED $4,024
==========
<PAGE> 11
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
STATEMENT OF PREFERRED STOCK OUTSTANDING
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
NOT SUBJECT TO MANDATORY REDEMPTION
CENTRAL POWER AND LIGHT COMPANY
4.00% Series, 100,000 shares $10
4.20% Series, 75,000 shares 8
7.12% Series, 260,000 shares 26
8.72% Series, 500,000 shares 50
Auction Money Market, 750,000 shares 75
Auction Series A, 425,000 shares 42
Auction Series B, 425,000 shares 42
Issuance expense (3)
----------
$250
----------
PUBLIC SERVICE COMPANY OF OKLAHOMA
4.00% Series, 97,900 shares $10
4.24% Series, 100,000 shares 10
----------
$20
----------
SOUTHWESTERN ELECTRIC POWER COMPANY
5.00% Series, 75,000 shares $8
4.65% Series, 25,000 shares 2
4.28% Series, 60,000 shares 6
----------
$16
----------
WEST TEXAS UTILITIES COMPANY
4.40% Series, 60,000 shares 6
----------
Total Consolidated $292
==========
SUBJECT TO MANDATORY REDEMPTION
SOUTHWESTERN ELECTRIC POWER COMPANY
6.95% Series, 340,000 shares $34
Amount to be redeemed within one year (1)
----------
Total Consolidated $33
==========
<PAGE> 12
CENTRAL AND SOUTH WEST CORPORATION
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
ASSETS
FIXED ASSETS
Electric utility plant
General $1 $1
Less - Accumulated depreciation (1) (1)
-------------------------------
NET PLANT 0 0
INVESTMENTS IN COMMON STOCK
OF SUBSIDIARY COMPANIES (at equity) 3,933 3,933
-------------------------------
CURRENT ASSETS
Cash and temporary cash investments 90 8 98
Advances to affiliates 208 (8) 200
Accounts receivable - Affiliated 139 139
Accounts receivable - Non-affiliated 9 9
Prepayments and other 4 4
-------------------------------
450 450
-------------------------------
DEFERRED CHARGES AND OTHER ASSETS 53 53
-------------------------------
$4,436 $0 $4,436
===============================
CAPITALIZATION
Common Stock Equity -
Common stock, $3.50 par value;
authorized 350,000,000 shares;
issued and outstanding 210,800,000 shares $740 $740
Paid-in capital 1,022 1,022
Retained earnings 1,963 1,963
Foreign currency translation and other 2 2
-------------------------------
Total Common Stock Equity 3,727 3,727
-------------------------------
Long-term debt 0 0
-------------------------------
Total Capitalization 3,727 3,727
-------------------------------
CURRENT LIABILITIES
Short-term debt 364 364
Accounts payable and other 299 299
-------------------------------
663 663
-------------------------------
DEFERRED CREDITS 46 46
-------------------------------
$4,436 $0 $4,436
===============================
<PAGE> 13
CENTRAL AND SOUTH WEST CORPORATION
STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
(Millions)
INCOME
Equity in earnings of subsidiaries
Central Power and Light Company $133
Public Service Company of Oklahoma 31
Southwestern Electric Power Company 64
West Texas Utilities Company 16
SEEBOARD plc 103
Transok, Inc. 12
CSW Credit, Inc. 8
CSW Energy, Inc. (11)
CSW Leasing, Inc. 1
CSW International, Inc. (1)
CSW Communications, Inc. (4)
Enershop Inc. (2)
Central and South West Services, Inc. 0
Other Income 46
----------
$396
----------
EXPENSES AND TAXES
General and administrative expenses 40
Interest expense 50
Federal income taxes (3)
----------
87
----------
DISCONTINUED OPERATIONS
Gain on sale of discontinued operations, net of tax 120
----------
NET INCOME $429
==========
<PAGE> 14
CENTRAL POWER AND LIGHT COMPANY
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
ASSETS
FIXED ASSETS
Electric utility plant
Production $3,103 $3,103
Transmission 506 506
Distribution 957 957
General 272 272
Construction work in progress 95 95
Nuclear fuel 184 184
-------------------------------
5,117 5,117
Less - Accumulated depreciation
and amortization 1,698 1,698
-------------------------------
3,419 3,419
-------------------------------
CURRENT ASSETS
Cash and temporary cash investments 3 0 3
Accounts receivable 53 53
Under-recovered fuel costs 26 26
Materials and supplies, at average cost 76 76
Fuel inventory, at average cost 15 15
Prepayments and other 5 5
-------------------------------
178 0 178
-------------------------------
DEFERRED CHARGES AND OTHER ASSETS
Deferred STP costs 487 487
Mirror CWIP asset 299 299
Income tax related regulatory assets, net 335 335
Other 110 5 115
-------------------------------
1,231 5 1,236
-------------------------------
$4,828 $5 $4,833
===============================
<PAGE> 15
CENTRAL POWER AND LIGHT COMPANY
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustment Forma
-------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, $25 par value;
authorized 12,000,000 shares;
issued and outstanding 6,755,535 shares $169 $169
Paid-in capital 405 405
Retained earnings 869 2 871
-------------------------------
Total common stock equity 1,443 2 1,445
Preferred stock
Not subject to mandatory redemption 250 (85) 165
Company obligated manditorily redeemable of
subsidiary trust holding solely
parent junior subordinated debentures 150 150
Long-term debt 1,323 1,323
-------------------------------
Total capitalization 3,016 67 3,083
-------------------------------
CURRENT LIABILITIES
Long-term debt due within twelve months 200 (200) 0
Advances from affiliates 53 138 191
Accounts payable 70 70
Accrued taxes 64 64
Accumulated deferred income taxes 7 7
Accrued interest 32 32
Refund due customers 43 43
Other 19 19
-------------------------------
488 (62) 426
-------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes 1,162 1,162
Investment tax credits 147 147
Other 15 15
-------------------------------
1,324 1,324
-------------------------------
$4,828 $5 $4,833
===============================
<PAGE> 16
CENTRAL POWER AND LIGHT COMPANY
STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
(Millions) Per
Books
----------
ELECTRIC OPERATING REVENUE $1,301
----------
OPERATING EXPENSES AND TAXES
Fuel 341
Purchased power 60
Other operating 236
Maintenance 53
Depreciation and amortization 153
Taxes, other than income 74
Income taxes 99
----------
1,016
----------
OPERATING INCOME 285
----------
OTHER INCOME AND DEDUCTIONS
Other (11)
----------
(11)
----------
INCOME BEFORE INTEREST CHARGES 274
----------
INTEREST CHARGES
Interest on long-term debt 110
Interest on short-term debt and other 17
----------
127
----------
NET INCOME 147
PREFERRED STOCK DIVIDENDS 14
----------
NET INCOME FOR COMMON STOCK $133
==========
<PAGE> 17
CENTRAL POWER AND LIGHT COMPANY
STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
(Millions)
Per
Books
----------
RETAINED EARNINGS AT DECEMBER 31, 1995 $864
Add: Net income (loss) for common stock 133
----------
997
Deduct: Common stock dividends 128
----------
RETAINED EARNINGS AT DECEMBER 31, 1996 $869
==========
<PAGE> 18
PUBLIC SERVICE COMPANY OF OKLAHOMA
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
ASSETS
FIXED ASSETS
Electric utility plant
Production $903 $903
Transmission 368 368
Distribution 774 774
General 186 186
Construction work in progress 59 59
-------------------------------
2,290 2,290
Less - Accumulated depreciation 987 987
-------------------------------
1,303 1,303
-------------------------------
CURRENT ASSETS
Cash and temporary cash investments 1 0 1
Accounts receivable 11 11
Materials and supplies, at average cost 35 35
Fuel inventory, at LIFO cost 14 14
Accumulated deferred income taxes 3 3
Prepayments 3 3
-------------------------------
67 67
-------------------------------
DEFERRED CHARGES AND OTHER ASSETS 62 3 65
-------------------------------
$1,432 $3 $1,435
===============================
<PAGE> 19
PUBLIC SERVICE COMPANY OF OKLAHOMA
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, $15 par value;
authorized 11,000,000 shares;
issued 10,482,000 shares;
outstanding 9,013,000 shares $157 $157
Paid-in capital 180 180
Retained earnings 146 3 149
-------------------------------
Total common stock equity 483 3 486
Preferred stock 20 (10) 10
Company obligated manditorily redeemable of
subsidiary trust holding solely
parent junior subordinated debentures 75 75
Long-term debt 420 420
-------------------------------
Total capitalization 923 68 991
-------------------------------
CURRENT LIABILITIES
Long-term debt due within twelve months 0 0
Advances from affiliates 43 (43) 0
Payable to affiliates 27 (22) 5
Accounts payable 48 48
Payables to customers 14 14
Accrued taxes 12 12
Accrued interest 9 9
Other 8 8
-------------------------------
161 (65) 96
-------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes 251 251
Investment tax credits 44 44
Income tax related regulatory
liabilities, net 46 46
Other 7 7
-------------------------------
348 0 348
-------------------------------
$1,432 $3 $1,435
===============================
<PAGE> 20
PUBLIC SERVICE COMPANY OF OKLAHOMA
STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
(Millions) Per
Books
----------
ELECTRIC OPERATING REVENUE $735
----------
OPERATING EXPENSES AND TAXES
Fuel 290
Purchased power 41
Other operating 121
Maintenance 38
Depreciation and amortization 78
Taxes, other than income 27
Income taxes 38
----------
633
----------
OPERATING INCOME 102
----------
OTHER INCOME AND DEDUCTIONS
Other (36)
----------
(36)
----------
INCOME BEFORE INTEREST CHARGES 66
----------
INTEREST CHARGES
Interest on long-term debt 30
Interest on short-term debt and other 4
----------
34
----------
NET INCOME 32
PREFERRED STOCK DIVIDENDS 1
----------
NET INCOME FOR COMMON STOCK $31
==========
<PAGE> 21
PUBLIC SERVICE COMPANY OF OKLAHOMA
STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
(Millions)
Per
Books
----------
RETAINED EARNINGS AT DECEMBER 31, 1995 $150
Add: Net income (loss) for common stock 31
----------
181
Deduct: Common stock dividends 35
----------
RETAINED EARNINGS AT DECEMBER 31, 1996 $146
==========
<PAGE> 22
SOUTHWESTERN ELECTRIC POWER COMPANY
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
ASSETS
FIXED ASSETS
Electric utility plant
Production $1,407 $1,407
Transmission 463 463
Distribution 845 845
General 284 284
Construction work in progress 45 45
-------------------------------
3,044 3,044
Less - Accumulated depreciation 1,192 1,192
-------------------------------
1,852 1,852
-------------------------------
CURRENT ASSETS
Cash and temporary cash investments 2 0 2
Accounts receivable 68 68
Materials and supplies, at average costs 29 29
Fuel inventory, at average cost 56 56
Accumulated deferred income taxes 0 0
Under-recovered fuel costs 9 9
Prepayments and other 14 14
-------------------------------
178 178
-------------------------------
DEFERRED CHARGES AND OTHER ASSETS 69 4 73
-------------------------------
$2,099 $4 $2,103
===============================
<PAGE> 23
SOUTHWESTERN ELECTRIC POWER COMPANY
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, $18 par value;
authorized 7,600,000 shares;
issued and outstanding 7,536,640 shares $136 $136
Paid-in capital 245 245
Retained earnings 322 1 323
-------------------------------
Total common stock equity 703 1 704
Preferred stock
Not subject to mandatory redemption 16 (8) 8
Subject to mandatory redemption 33 (17) 16
Company obligated manditorily redeemable of
subsidiary trust holding solely
parent junior subordinated debentures 110 110
Long-term debt 597 597
-------------------------------
Total capitalization 1,349 86 1,435
-------------------------------
CURRENT LIABILITIES
Long-term debt and preferred stock due
within twelve months 4 4
Advances from affiliates 57 (57) 0
Accounts payable 49 49
Payable to affiliates 69 (25) 44
Customer deposits 10 10
Accrued taxes 25 25
Accumulated deferred income taxes 4 4
Accrued interest 15 15
Other 27 27
-------------------------------
260 (82) 178
-------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes 373 373
Investment tax credits 71 71
Income tax related regulatory
liabilities, net 36 36
Other 10 10
-------------------------------
490 0 490
-------------------------------
$2,099 $4 $2,103
===============================
<PAGE> 24
SOUTHWESTERN ELECTRIC POWER COMPANY
STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
(Millions) Per
Books
----------
ELECTRIC OPERATING REVENUE $921
----------
OPERATING EXPENSES AND TAXES
Fuel 388
Purchased power 27
Other Operating 142
Maintenance 44
Depreciation and amortization 92
Taxes, other than income 50
Income taxes 40
----------
783
----------
OPERATING INCOME 138
----------
OTHER INCOME AND DEDUCTIONS
Other (21)
----------
(21)
----------
INCOME BEFORE INTEREST CHARGES 117
----------
INTEREST CHARGES
Interest on long-term debt 44
Interest on short-term debt and other 6
----------
50
----------
NET INCOME 67
PREFERRED STOCK DIVIDENDS 3
----------
NET INCOME FOR COMMON STOCK $64
==========
<PAGE> 25
SOUTHWESTERN ELECTRIC POWER COMPANY
STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
(Millions)
Per
Books
----------
RETAINED EARNINGS AT DECEMBER 31, 1995 $302
Add: Net income (loss) for common stock 64
----------
366
Deduct: Common stock dividends 44
----------
RETAINED EARNINGS AT DECEMBER 31, 1996 $322
==========
<PAGE> 26
WEST TEXAS UTILITIES COMPANY
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
ASSETS
FIXED ASSETS
Electric utility plant
Production $417 $417
Transmission 201 201
Distribution 347 347
General 93 93
Construction work in progress 30 30
-------------------------------
1,088 1,088
Less - Accumulated depreciation 415 415
-------------------------------
673 673
-------------------------------
CURRENT ASSETS
Cash and temporary cash investments 1 0 1
Accounts receivable 24 24
Materials and supplies, at average cost 16 16
Fuel inventory, at average cost 8 8
Coal inventory, at LIFO cost 9 9
Accumulated deferred income taxes 1 1
Under-recovered fuel costs 8 8
Prepayments and other 2 2
-------------------------------
69 69
-------------------------------
DEFERRED CHARGES AND OTHER ASSETS
Deferred Oklaunion costs 22 22
Regulatory assets 11 11
Other 35 35
-------------------------------
68 68
-------------------------------
$810 $0 $810
===============================
<PAGE> 27
WEST TEXAS UTILITIES COMPANY
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF DECEMBER 31, 1996
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, $25 par value;
authorized 7,800,000 shares;
issued and outstanding 5,488,560 shares $137 $137
Paid-in capital 2 2
Retained earnings 123 1 124
-------------------------------
Total common stock equity 262 1 263
Preferred stock
Not subject to mandatory redemption 6 (3) 3
Long-term debt 275 275
-------------------------------
Total capitalization 543 (2) 541
-------------------------------
CURRENT LIABILITIES
Long-term debt due within twelve months 0 0
Advances from affiliates 15 2 17
Payables to affiliates 14 14
Accounts payable 20 20
Accrued taxes 13 13
Accrued interest 5 5
Other 4 4
-------------------------------
71 2 73
-------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes 144 144
Investment tax credits 30 30
Investment tax related regulatory
liabilities, net 17 17
Other 5 5
-------------------------------
196 0 196
-------------------------------
$810 $0 $810
===============================
<PAGE> 28
WEST TEXAS UTILITIES COMPANY
STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
(Millions) Per
Books
----------
ELECTRIC OPERATING REVENUE $377
----------
OPERATING EXPENSES AND TAXES
Fuel 132
Purchased power 32
Other Operating 69
Maintenance 14
Depreciation and amortization 40
Taxes, other than income 23
Income taxes 16
----------
326
----------
OPERATING INCOME 51
----------
OTHER INCOME AND DEDUCTIONS (10)
----------
INCOME BEFORE INTEREST CHARGES 41
----------
INTEREST CHARGES
Interest on long-term debt 21
Interest on short-term debt and other 4
----------
25
----------
NET INCOME 16
PREFERRED STOCK DIVIDENDS 0
----------
NET INCOME FOR COMMON STOCK $16
==========
<PAGE> 29
WEST TEXAS UTILITIES COMPANY
STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
(Millions)
Per
Books
----------
RETAINED EARNINGS AT DECEMBER 31, 1995 $126
Add: Net income (loss) for common stock 16
----------
142
Deduct: Common stock dividends 19
----------
RETAINED EARNINGS AT DECEMBER 31, 1996 $123
==========
<PAGE> 30
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS TO BALANCE SHEETS
DECEMBER 31, 1996
UNAUDITED
DR CR
---------------------
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES (millions)
1)Cash and temporary cash investments 335
Company obligated manditorily redeemable
preferred securities of subsidiary trust
holding solely parent junior subordinated
debentures 335
To record the issuance and sale of company obligated
manditorily redeemable preferred securities of
subsidiary trust holding solely parent junior
subordinated debentures
2)Deferred charges - other 11
Cash and temporary cash investments 11
To record estimated expenses of issuance
3)Preferred stock - not subject to mandatory
redemption 105
Preferred stock - subject to mandatory redemption 17
Retained earnings 8
Cash and temporary cash investments 114
To record stock reacquisition with gain on
reacquisition closed to retained earnings
4)Retained earnings 1
Cash and temporary cash investments 1
To record estimated costs of stock reacquisition
5)Retained earnings 1
Cash and temporary cash investments 1
To record cash payment to shareholders who consent
6)Long-term debt/preferred stock due within twelve
months 62
Cash and temporary cash investments 62
To record the funding of a portion of the CPL
maturing Series BB FMB with proceeds of preferred
securities issuance
7)Long-term debt/preferred stock due within twelve
months 138
Cash and temporary cash investments 138
To record the funding of a portion of the CPL
maturing Series BB FMB with proceeds of issuance
<PAGE> 31
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS TO BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1996
UNAUDITED
DR CR
---------------------
CENTRAL AND SOUTH WEST CORPORATION (CORPORATE) (millions)
1)Advances to affiliates 140
Cash and temporary cash investments 140
To advance money to fund a portion of the CPL
maturing series BB FMB and to fund the WTU stock
reacquisition
2)Cash and temporary cash investments 148
Advances to affiliates 148
To record repayment of advanced funds to PSO and SWEPCO
<PAGE> 32
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS TO BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1996
UNAUDITED
DR CR
---------------------
CENTRAL POWER AND LIGHT COMPANY (thousands)
1)Cash and temporary cash investments 150,000
Company obligated manditorily redeemable
preferred securities of subsidiary trust
holding solely parent junior subordinated
debentures 150,000
To record the issuance and sale of company obligated
manditorily redeemable preferred securities of
subsidiary trust holding solely parent junior
subordinated debentures
2)Deferred charges - other 4,965
Cash and temporary cash investments 4,965
To record estimated expenses of issuance
3)Preferred stock - not subject to mandatory redemption 84,750
Retained earnings 2,305
Cash and temporary cash investments 82,041
Preferred stock - not subject to mandatory
redemption (Gain, premium, expense) 404
To record stock reacquisition with gain on
reacquisition closed to retained earnings
4)Retained earnings 255
Cash and temporary cash investments 255
To record estimated costs of stock reacquisition
5)Retained earnings 413
Cash and temporary cash investments 413
To record cash payment to shareholders who consent
6)Long-term debt due within twelve months 62,326
Cash and temporary cash investments 62,326
To record the funding of a portion of the CPL
maturing Series BB FMB with proceeds of preferred
securities issuance
7)Cash and temporary cash investments 137,674
Advances from affiliates 137,674
Issuance of short-term debt to fund the remainder
of the CPL maturing Series BB FMB
8)Long-term debt due within twelve months 137,674
Cash and temporary cash investments 137,674
To record the funding of a portion of the CPL
maturing Series BB FMB with proceeds of
short-term debt issuance
<PAGE> 33
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS TO BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1996
UNAUDITED
DR CR
---------------------
PUBLIC SERVICE COMPANY OF OKLAHOMA (thousands)
1)Cash and temporary cash investments 75,000
Company obligated manditorily redeemable
preferred securities of subsidiary trust
holding solely parent junior subordinated
debentures 75,000
To record the issuance and sale of company obligated
manditorily redeemable preferred securities of
subsidiary trust holding solely parent junior
subordinated debentures
2)Deferred charges and other assets 2,513
Cash and temporary cash investments 2,513
To record estimated expenses of issuance
3)Preferred stock 9,895
Preferred stock (Gain, premium, expense) 18
Retained earnings 3,285
Cash and temporary cash investments 6,628
To record stock reacquisition with gain on
reacquisition closed to retained earnings
4)Retained earnings 275
Cash and temporary cash investments 275
To record estimated costs of stock reacquisition
5)Retained earnings 59
Cash and temporary cash investments 59
To record cash payment to shareholders who consent
6)Advances from affiliates 43,525
Payable to affiliates 22,000
Cash and temporary cash investments 65,525
To record the retirement of short-term debt with the
remaining proceeds from preferred securities
issuance
<PAGE> 34
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS TO BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1996
UNAUDITED
DR CR
---------------------
SOUTHWESTERN ELECTRIC POWER COMPANY (thousands)
1)Cash and temporary cash investments 110,000
Company obligated manditorily redeemable
preferred securities of subsidiary trust
holding solely parent junior subordinated
debentures 110,000
To record the issuance and sale of company obligated
manditorily redeemable preferred securities of
subsidiary trust holding solely parent junior
subordinated debentures
2)Deferred charges and other assets 3,635
Cash and temporary cash investments 3,635
To record estimated expenses of issuance
3)Preferred stock - not subject to mandatory redemption 8,000
Preferred stock - subject to mandatory redemption 17,000
Preferred stock - not subject to mandatory redemption
(Gain, premium, expense) 16
Retained earnings 1,247
Cash and temporary cash investments 23,603
Preferred stock - subject to mandatory
redemption (Gain, premium, expense) 166
To record stock reacquisition with gain on reacquisition
closed to retained earnings
4)Retained earnings 580
Cash and temporary cash investments 580
To record estimated costs of stock reacquisition
5)Retained earnings 150
Cash and temporary cash investments 150
To record cash payment to shareholders who consent
6)Advances from affiliates 57,032
Payable to affiliates 25,000
Cash and temporary cash investments 82,032
To record the retirement of short-term debt with the
remaining proceeds from preferred securities
issuance
<PAGE> 35
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS TO BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1996
UNAUDITED
DR CR
---------------------
WEST TEXAS UTILITIES COMPANY (thousands)
1)Preferred stock - not subject to mandatory redemption 3,000
Preferred stock - not subject to mandatory redemption
(Gain, premium, expense) 146
Retained earnings 1,073
Cash and temporary cash investments 2,073
To record stock reacquisition with gain on
reacquisition closed to retained earnings
2)Retained earnings 137
Cash and temporary cash investments 137
To record estimated costs of stock reacquisition
3)Retained earnings 18
Cash and temporary cash investments 18
To record cash payment to shareholders who consent
4)Cash and temporary cash investments 2,228
Advances from affiliates 2,228
Issuance of short-term debt to fund the WTU stock
reacquisition
<PAGE> 36
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
STATEMENT OF CHANGES
There has been a significant change in the financial statements of Central
and South West Corporation and subsidiary companies subsequent to December 31,
1996. Central and South West Corporation's subsidiary, CPL, received the final
order related to its rate case from the Public Utility Commission of Texas. The
final order reduced CPL's rates by approximately $27 million for 1997 with
approximate reductions of $16 million for 1998 and 1999. See Central and South
West Corporation's Current Reports on Form 8-K dated March 31, 1997 for details
pertaining to the final order. For additional disclosure for the year ended
December 31, 1996, see Central and South West Corporation's Combined Annual
Report on Form 10-K.
<PAGE> 37
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
CAPITALIZATION RATIOS
PER BOOKS AND PRO FORMA
AS OF DECEMBER 31, 1996
Common Hybrid
Stock Preferred Preferred Long-term
Equity Stock Securities(1) Debt
--------------------------------------------
Central and South West Corporation
and Subsidiary Companies
(Consolidated) Per books 46.6% 4.0% 0.0% 49.4%
Central and South West Corporation
and Subsidiary Companies
(Consolidated) Pro forma 45.5% 2.4% 4.0% 48.1%
Central and South West Corporation
(Corporate)
Per books 100.0% 0.0% 0.0% 0.0%
Central and South West Corporation
(Corporate)
Pro forma 100.0% 0.0% 0.0% 0.0%
Central Power and Light Company
Per books 47.8% 8.3% 0.0% 43.9%
Central Power and Light Company
Pro forma 46.9% 5.3% 4.9% 42.9%
Public Service Company of Oklahoma
Per books 52.3% 2.2% 0.0% 45.5%
Public Service Company of Oklahoma
Pro forma 49.0% 1.0% 7.6% 42.4%
Southwestern Electric Power Company
Per books 52.1% 3.6% 0.0% 44.3%
Southwestern Electric Power Company
Pro forma 49.0% 1.7% 7.7% 41.6%
West Texas Utilities Company
Per books 48.3% 1.1% 0.0% 50.6%
West Texas Utilities Company
Pro forma 48.6% 0.6% 0.0% 50.8%
(1) Company obligated manditorily redeemable preferred securities of
subsidiary trust holding solely parent junior subordinated debentures
<PAGE> 38
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The notes to consolidated financial statements included in Central and
South West Corporation's 1996 Combined Annual Report on Form 10-K are hereby
incorporated by reference and made a part of this report.
Page
Reference
1996 Combined Annual Report on Form 10-K pages 2-39 through 2-71
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<TABLE> <S> <C>
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<PERIOD-END> Dec-31-1996 Dec-31-1996
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<TOT-CAPITALIZATION-AND-LIAB> 4,828 4,833
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14 14
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<TABLE> <S> <C>
<ARTICLE> OPUR1
<SUBSIDIARY>
<NUMBER> 004
<NAME> PUBLIC SERVICE COMPANY OF OKLAHOMA
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<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> Dec-31-1996 Dec-31-1996
<BOOK-VALUE> PER-BOOK PRO-FORMA
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0 0
20 10
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<OTHER-INCOME-NET> (36) (36)
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1 1
<EARNINGS-AVAILABLE-FOR-COMM> 31 31
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<SUBSIDIARY>
<NUMBER> 005
<NAME> SOUTHWESTERN ELECTRIC POWER COMPANY
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<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> Dec-31-1996 Dec-31-1996
<BOOK-VALUE> PER-BOOK PRO-FORMA
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<OTHER-ASSETS> 36 40
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<CAPITAL-SURPLUS-PAID-IN> 245 245
<RETAINED-EARNINGS> 322 323
<TOTAL-COMMON-STOCKHOLDERS-EQ> 703 704
33 16
16 8
<LONG-TERM-DEBT-NET> 539 539
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1 1
<CAPITAL-LEASE-OBLIGATIONS> 8 8
<LEASES-CURRENT> 2 2
<OTHER-ITEMS-CAPITAL-AND-LIAB> 690 718
<TOT-CAPITALIZATION-AND-LIAB> 2,099 2,103
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<OPERATING-INCOME-LOSS> 138 138
<OTHER-INCOME-NET> (21) (21)
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3 3
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<EPS-PRIMARY> 0.31 0.31
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<SUBSIDIARY>
<NUMBER> 006
<NAME> WEST TEXAS UTILITIES COMPANY
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> Dec-31-1996 Dec-31-1996
<BOOK-VALUE> PER-BOOK PRO-FORMA
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 262 263
0 0
6 3
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0 0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 252 254
<TOT-CAPITALIZATION-AND-LIAB> 810 810
<GROSS-OPERATING-REVENUE> 377 377
<INCOME-TAX-EXPENSE> 16 16
<OTHER-OPERATING-EXPENSES> 310 310
<TOTAL-OPERATING-EXPENSES> 326 326
<OPERATING-INCOME-LOSS> 51 51
<OTHER-INCOME-NET> (10) (10)
<INCOME-BEFORE-INTEREST-EXPEN> 41 41
<TOTAL-INTEREST-EXPENSE> 25 25
<NET-INCOME> 16 16
0 0
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<CASH-FLOW-OPERATIONS> 71 71
<EPS-PRIMARY> 0.08 0.08
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</TABLE>
