SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from _____to_____
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
1-1443 Central and South West Corporation 51-0007707
(A Delaware Corporation)
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
(214) 777-1000
0-346 Central Power and Light Company 74-0550600
(A Texas Corporation)
539 North Carancahua Street
Corpus Christi, Texas 78401-2802
(512) 881-5300
0-343 Public Service Company of Oklahoma 73-0410895
(An Oklahoma Corporation)
212 East 6th Street
Tulsa, Oklahoma 74119-1212
(918) 599-2000
1-3146 Southwestern Electric Power Company 72-0323455
(A Delaware Corporation)
428 Travis Street
Shreveport, Louisiana 71156-0001
(318) 222-2141
0-340 West Texas Utilities Company 75-0646790
(A Texas Corporation)
301 Cypress Street
Abilene, Texas 79601-5820
(915) 674-7000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Registrant Title of Each Class on Which Registered
Central and South Common Stock, $3.50 Par Value New York Stock
West Corporation Exchange, Inc.
Chicago Stock
Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Central Power and Cumulative Preferred
Light Company Stock, $100 Par Value
Public Service Cumulative Preferred
Company of Oklahoma Stock, $100 Par Value
Southwestern Cumulative Preferred
Electric Power Stock, $100 Par Value
Company
West Texas Utilities Cumulative Preferred
Company Stock, $100 Par Value
Indicate by check mark whether the registrants (1) have filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) have been subject to such filing requirements for the past 90
days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K[X].
Aggregate market value of the Common Stock of Central and South
West Corporation at February 29, 1996 held by non-affiliates was
approximately $5.8 billion. Number of shares of Common Stock
outstanding at February 29, 1996:208,656,924. Central and South West
Corporation is the sole holder of the common stock of Central Power
and Light Company, Public Service Company of Oklahoma, Southwestern
Electric Power Company and West Texas Utilities Company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Notice of Annual Meeting and Proxy Statement of
Central and South West Corporation dated March 7, 1996 are
incorporated by reference into Part III hereof.
This combined Form 10-K is separately filed by Central and South
West Corporation, Central Power and Light Company, Public Service
Company of Oklahoma, Southwestern Electric Power Company and West
Texas Utilities Company. Information contained herein relating to
any individual registrant is filed by such registrant on its own
behalf. Each registrant makes no representation as to information
relating to the other registrants.
<PAGE> i
TABLE OF CONTENTS
PAGE
GLOSSARY OF TERMS........................................ ii
PART I
ITEM 1. BUSINESS
General......................................... 1-1
Domestic Utility Operations..................... 1-2
United Kingdom Utility Operations............... 1-27
Non-Utility Operations.......................... 1-29
Other Information............................... 1-33
ITEM 2. PROPERTIES...................................... 1-35
ITEM 3. LEGAL PROCEEDINGS............................... 1-35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS......................................... 1-35
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................. 2-1
ITEM 6. SELECTED FINANCIAL DATA......................... 2-1
Central Power and Light Company................. 2-69
Public Service Company of Oklahoma.............. 2-95
Southwestern Electric Power Company............. 2-115
West Texas Utilities Company.................... 2-136
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............. 2-2
Central Power and Light Company................. 2-70
Public Service Company of Oklahoma.............. 2-96
Southwestern Electric Power Company............. 2-116
West Texas Utilities Company.................... 2-137
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..... 2-2
Central Power and Light Company................. 2-81
Public Service Company of Oklahoma.............. 2-103
Southwestern Electric Power Company............. 2-124
West Texas Utilities Company.................... 2-146
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............. 2-158
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANTS..................................... 3-1
ITEM 11. EXECUTIVE COMPENSATION.......................... 3-8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................. 3-14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.. 3-17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K............................. 4-1
<PAGE> ii
GLOSSARY OF TERMS
The following abbreviations or acronyms used in this Form 10-K are
defined below:
Abbreviation or Acronym Definition
1996 Offering................... Stock Public offering of 15,525,000 shares of
CSW Common
ADPCE........................... Arkansas Department of Pollution Control and
Ecology
AFUDC........................... Allowance for funds used during construction
ALJ............................. Administrative Law Judge
AMAX............................ AMAX Coal Company
ANI............................. American Nuclear Insurance
APBO............................ Accumulated Postretirement Benefit Obligation
Arkansas Commission............. Arkansas Public Service Commission
Ash Creek....................... Ash Creek Mining Company, Tulsa, Oklahoma
Austin.......................... City of Austin, Texas
Bankruptcy Court................ United States Bankruptcy Court for the Western
District of Texas, Austin Division, before
which the El Paso bankruptcy reorganization
proceeding, Case No. 92-10148-FM, was pending
Bcf............................. Billion cubic feet
BREMCO.......................... Bossier Rural Electric Membership Corporation
Btu............................. British thermal unit
Burlington Northern............. Burlington Northern Railroad Company
Cajun........................... Cajun Electric Power Cooperative, Inc.
CEO............................. Chief Executive Officer
CERCLA.......................... Comprehensive Environmental Response,
Compensation and Liability Act of 1980
Cimmaron........................ Cimmaron Chemical Company
Cities.......................... Several cities in CPL's service territory
Clean Air Act................... Clean Air Act Amendments of 1990
COO............................. Chief Operating Officer
Court of Appeals................ Court of Appeals, Third District of Texas,
Austin, Texas
CPL............................. Central Power and Light Company, Corpus
Christi, Texas
CPL 1995 Agreement.............. Settlement Agreement filed by CPL with the
Texas Commission to settle certain CPL
regulatory matters
CSF............................. Customer Supplied Fuel Program
CSW............................. Central and South West Corporation, Dallas,
Texas
CSW Common...................... CSW common stock, $3.50 par value per share
CSW Communications.............. CSW Communications, Inc., Austin, Texas
CSW Credit...................... CSW Credit, Inc., Dallas, Texas
CSW Credit Agreement............ Credit $850 million senior credit agreement
entered into by CSW with a consortium of banks
to partially fund the SEEBOARD acquisition
CSW Energy...................... CSW Energy, Inc., Dallas, Texas
CSW International............... CSW International, Inc., Dallas, Texas
CSW Investments................. CSW Investments, an unlimited company
organized in the United Kingdom which is
wholly owned, indirectly though subsidiaries,
by CSW International
CSW Investments Credit Facility. 1.0 billion pounds senior credit facility
arranged by CSW Investments with a consortium
of banks to partially fund the SEEBOARD
acquisition
CSW Leasing..................... CSW Leasing, Inc., Dallas, Texas
CSW System...................... CSW and its subsidiaries (excluding SEEBOARD
Group)
CSW Services.................... Central and South West Services, Inc., Dallas,
Texas and Tulsa, Oklahoma
CSW Suit........................ Suit filed by CSW against El Paso in the
Bankruptcy Court
CSW (UK)........................ CSW (UK) plc., a public limited company
organized in the United Kingdom which is
wholly owned by CSW Investments
CWIP............................ Construction work in progress
DeSoto.......................... Parish of DeSoto, State of Louisiana pollution
control revenue bond issuing authority
DGES............................ Director General of Electricity Supply
DOE............................. United States Department of Energy
El Paso......................... El Paso Electric Company
El Paso Suit.................... Suit filed by El Paso against CSW in state
district court in El Paso, Texas
Electric Operating Companies.... CPL, PSO, SWEPCO and WTU
EMF............................. Electric and magnetic fields
Energy Policy Act............... National Energy Policy Act of 1992
EnerShop........................ EnerShopSM, Inc., Dallas, Texas
EPA............................. United States Environmental Protection Agency
EPS............................. Earnings per share
<PAGE> iii
GLOSSARY OF TERMS (continued)
The following abbreviations or acronyms used in this Form 10-K are
defined below:
ERCOT........................... Electric Reliability Council of Texas
ERISA........................... Employee Retirement Income Security Act of
1974, as amended
EWG............................. Exempt Wholesale Generators
FASB............................ Financial Accounting Standards Board
FCC............................. Federal Communications Commission
FERC............................ Federal Energy Regulatory Commission
FMB............................. First Mortgage Bond
FUSER........................... Fuel Supply Electricity Rider
Guadalupe....................... Guadalupe-Blanco River Authority pollution
control revenue bond issuing authority
GSU............................. Gulf States Utilities Company
HLP............................. Houston Lighting & Power Company, the Project
Manager of STP
Holding Company Act............. Public Utility Holding Company Act of 1935, as
amended
HVdc............................ High-voltage direct-current
IPP............................. Independent Power Producer
ITC............................. Investment tax credit
KV.............................. Kilovolt
KW.............................. Kilowatt
KWH............................. Kilowatt-hour
Lone Star....................... Lone Star Gas Company
Louisiana Commission............ Louisiana Public Service Commission
LTIP............................ Long-Term Incentive Plan
Matagorda....................... Matagorda County Navigation District Number
One (Texas) pollution control revenue bond
issuing authority
Mcf............................. 1,000 cubic feet
MCPC............................ Mid-Continent Power Company, Inc.
MD&A............................ Management's Discussion and Analysis of
Financial Condition and Results of Operations
MDEQ............................ Mississippi Department of Environmental
Quality
Merger.......................... The proposed merger whereby El Paso would have
become a wholly owned subsidiary of CSW
Merger Agreement................ Agreement and Plan of Merger between El Paso
and CSW, dated as of May 3, 1993, as amended
MGP............................. Manufactured gas plant or coal gasification
plant
Mirror CWIP..................... Mirror construction work in progress
Mississippi Power............... Mississippi Power Company
MMbtu........................... Million Btu
MMcf/d.......................... Million cubic feet of gas per day
Modified Plan................... Modified Third Amended Plan of Reorganization
for the proposed merger with El Paso
MTN............................. Medium-term note
MW.............................. Megawatt
MWH............................. Megawatt-hour
Named Executive Officers........ The CEO and the four most highly compensated
executive officers, as defined by regulation
National Grid................... National Grid Group plc
NEIL............................ Nuclear Electric Insurance Limited
NOPR............................ Notice of Proposed Rule Making
Notes........................... Notes to Financial Statements
NRC............................. Nuclear Regulatory Commission
Nueces.......................... Nueces County Navigation District pollution
control revenue bond issuing authority
OEFA............................ Oklahoma Environmental Finance Authority
pollution control revenue bond issuing
authority
Oklahoma Commission............. Corporation Commission of the State of
Oklahoma
Oklaunion....................... Oklaunion Power Station Unit No. 1
OMPA............................ Oklahoma Municipal Power Authority
OPEBs........................... Other Postretirement Employee Benefits
Operating Companies............. CPL, PSO, SWEPCO, WTU, and Transok
OPUC............................ Office of Public Utility Counsel of Texas
PCB............................. Polychlorinated biphenyl
PCRB............................ Pollution Control Revenue Bond
PFD............................. Proposal for Decision
PowerShare...................... CSW's PowerShareSM Dividend Reinvestment and
Stock Purchase Plan
Project Manager................. HLP, the Project Manager for STP
PRP............................. Potentially responsible party
PSO............................. Public Service Company of Oklahoma, Tulsa,
Oklahoma
<PAGE> iv
GLOSSARY OF TERMS (continued)
The following abbreviations or acronyms used in this Form 10-K are
defined below:
PURA............................ Public Utility Regulatory Act of the State of
Texas
RCRA............................ Federal Resource Conservation and Recovery Act
of 1976
Red River....................... Red River Authority of Texas pollution control
revenue bond issuing authority
RESCTA.......................... Rural Electric Supplier Certified Territory
Act
Sabine.......................... Sabine River Authority of Texas pollution
control revenue bond issuing authority
San Antonio..................... City of San Antonio, Texas
SAR............................. Stock appreciation right
SEEBOARD........................ SEEBOARD plc., Crawley, West Sussex, United
Kingdom
SEEBOARD Group.................. Consolidated SEEBOARD, CSW (UK) and CSW
Investments converted to U.S. Generally
Accepted Accounting Principles
SEC............................. Securities and Exchange Commission
SERP............................ Special Executive Retirement Plan
SFAS............................ Statement of Financial Accounting Standards
SFAS No. 71..................... Accounting for the Effects of Certain Types of
Regulation
SFAS No. 87..................... Employers' Accounting for Pensions
SFAS No. 106.................... Employers' Accounting for Postretirement
Benefits Other than Pensions
SFAS No. 109.................... Accounting for Income Taxes
SFAS No. 112.................... Employers' Accounting for Postemployment
Benefits
SFAS No. 121.................... Accounting for the Impairment of Long-Lived
Assets
SFAS No. 123.................... Accounting for Stock-Based Compensation
Siloam Springs.................. City of Siloam Springs, Arkansas pollution
control revenue bond issuing authority
Southern Pacific................ Southern Pacific Transportation Company
Staff........................... The Staff of the Texas Commission
STP............................. South Texas Project nuclear electric
generating station
STP Unit 1 Order................ October 1990 Texas Commission STP Unit 1 Final
Order
STP Unit 2 Order................ December 1990 Texas Commission STP Unit 2
Final Order
Supreme Court................... Supreme Court of Texas
SWEPCO.......................... Southwestern Electric Power Company,
Shreveport, Louisiana
Tender Offer.................... CSW (UK)'s approximately $2.12 billion tender
offer in the United Kingdom for all the
outstanding share capital of SEEBOARD
Texas Commission................ Public Utility Commission of Texas
Tex-La.......................... Tex-La Electric Cooperative of Texas, Inc.
TEX/CON......................... TEX/CON Oil and Gas Company
Titus County.................... Titus County Fresh Water Supply District No. 1
pollution control revenue bond issuing
authority
TNRCC........................... Texas Natural Resource Conservation Commission
Transok......................... Transok, Inc. and subsidiaries, Tulsa,
Oklahoma
TSCA............................ Toxic Substance Control Act of 1976
TU.............................. Texas Utilities Electric Company
UK RPI.......................... United Kingdom Retail Price Index
Union Pacific................... Union Pacific Railroad Company
Westinghouse.................... Westinghouse Electric Corporation
WTU............................. West Texas Utilities Company, Abilene, Texas
WTU Stipulation and Agreement... Stipulation and Agreement to settle certain
WTU regulatory matters
<PAGE> 1-1
PART I
ITEM 1. BUSINESS.
GENERAL
CSW, incorporated under the laws of Delaware in 1925, is a
Dallas-based public utility holding company registered under the
Holding Company Act. CSW owns all of the outstanding shares of
common stock of the Operating Companies, CSW Services, CSW Credit,
CSW Energy, CSW International, CSW Communications and EnerShop. In
addition, CSW owns 80% of the outstanding shares of common stock of
CSW Leasing.
On January 10, 1996, CSW's tender offer of approximately $2.12
billion in the United Kingdom for all of the outstanding share
capital of SEEBOARD was declared wholly unconditional. Through
February 29, 1996, CSW (UK) had acquired shares representing, or had
received valid acceptances in respect of, approximately 92.3% of the
outstanding share capital of SEEBOARD. CSW (UK) expects to acquire
the remaining 7.7% of the outstanding SEEBOARD share capital by the
end of the second quarter of 1996. SEEBOARD is a regional
electricity company in the United Kingdom headquartered in Crawley,
West Sussex, with approximately two million customers and a
distribution territory in southeast England that covers approximately
3,000 square miles, extending from the outlying areas of London to
the English Channel. In addition to the distribution and supply of
electricity, SEEBOARD is involved in gas supply, electricity
generation, electrical contracting and retailing. See UNITED KINGDOM
UTILITY OPERATIONS below, ITEM 7-MD&A and ITEM 8-NOTE 13. UNAUDITED
PRO FORMA INFORMATION.
The Electric Operating Companies are public utility companies
engaged in generating, purchasing, transmitting, distributing and
selling electricity. Information concerning the incorporation of
each of the Electric Operating Companies is presented in the
following table.
State of Year of
Registrant Incorporation Incorporation
CPL Texas 1945
PSO Oklahoma 1913
SWEPCO Delaware 1912
WTU Texas 1927
The Electric Operating Companies serve approximately 1.7 million
customers in one of the largest service territories in the United
States covering approximately 152,000 square miles in portions of
Texas, Oklahoma, Louisiana and Arkansas. CPL and WTU operate in
portions of south and central west Texas, respectively. PSO operates
in portions of eastern and southwestern Oklahoma and SWEPCO operates
in portions of northeastern Texas, northwestern Louisiana and western
Arkansas. The Electric Operating Companies' customer base includes a
mix of residential, commercial and diversified industrial customers.
Transok is an intrastate natural gas pipeline and gas marketing
company that gathers, processes and stores natural gas for, and
transports and markets natural gas to the Electric Operating
Companies, principally PSO, as well as other customers.
CSW is committed to expanding its electric utility business
through strategic domestic and international acquisitions and through
marketing initiatives within these territories. Acquisitions of
utility assets must meet defined criteria, including the potential to
lower costs, increase long-term efficiency and competitiveness and
provide an acceptable rate of return and benefit to CSW. CSW
believes that the SEEBOARD acquisition meets these criteria.
<PAGE> 1-2
CSW continues to seek opportunities to expand its non-utility
business in areas related to its core electric utility business.
Through CSW Energy, which develops and operates independent power and
cogeneration projects, CSW has completed four gas-fired cogeneration
plants. CSW International was formed to invest internationally
either alone or with local or other partners. CSW International will
also continue CSW's efforts in Mexico and will seek to expand into
other countries in Latin America, Europe and Asia that meet CSW's
investment criteria. CSW Communications provides communication
services to the Electric Operating Companies and non-affiliates,
including enhancement of services through fiber optic and other
telecommunications technologies. EnerShop was formed in 1995 to
provide commercial, industrial, institutional and governmental
customers with energy management services designed to control cost,
enhance productivity and improve convenience, safety and comfort.
CSW Services performs, at cost, various accounting, engineering,
tax, legal, financial, electronic data processing, centralized
economic dispatching of electric power and other services for the CSW
System. CSW Credit purchases accounts receivable of the Operating
Companies and non-affiliated utilities and CSW Leasing invests in
leveraged leases.
The CSW System is subject to the jurisdiction of the SEC under
the Holding Company Act with respect to the issuance, acquisition and
sale of securities, the acquisition and sale of certain assets or any
interest in any business and accounting practices and other matters.
See Regulation below, and ITEM 7-MD&A for additional information
regarding the Holding Company Act.
In 1995, the Operating Companies and SEEBOARD contributed the
following percentages to aggregate operating revenues, operating
income and net income for CSW Common.
SEEBOARD Total
CPL PSO SWEPCO WTU Group (1) Electic Transok Other Total
Operating
Revenues 29% 18% 22% 8% 6% 83% 16% 1% 100%
Operating
Income 44% 16% 24% 10% 2% 96% 6% (2%) 100%
Net Income
for CSW
Common 48% 20% 28% 9% 2% 107% 6% (13%) 100%
(1) Represents the SEEBOARD Group's 27.6% and 76.45% interest in
SEEBOARD's earnings for November and December 1995, respectively.
See ITEM 8-NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The relative contributions of the Operating Companies and
SEEBOARD to the aggregate operating revenues, operating income and
net income for CSW Common differ from year to year due to variations
in weather, fuel costs reflected in charges to customers, timing and
amount of rate changes and other factors, including changes in
business conditions and the results of non-utility businesses.
DOMESTIC UTILITY OPERATIONS
General
Information concerning the service territories of the Electric
Operating Companies at December 31, 1995, is set forth in the
following table.
<PAGE> 1-3
Company
and
Largest Approximate Rural
Cities Estimated Square Retail Electric
Served Population Miles Customers Municipalities Cooperatives
CPL 2,065,000 44,000 614,000 1 4
Corpus
Christi,
Texas 271,000
Laredo,
Texas 150,000
McAllen,
Texas 101,000
PSO 1,031,000 30,000 473,000 2 2
Tulsa,
Oklahoma 563,000
Lawton,
Oklahoma 90,000
Bartlesville,
Oklahoma 44,000
SWEPCO 870,000 25,000 409,000 3 8
Shreveport/
Bossier City,
Louisiana 285,000
Longview,
Texas 99,000
Texarkana,
Texas and
Arkansas 76,000
WTU 413,000 53,000 187,000 2 13
Abilene,
Texas 112,000
San Angelo,
Texas 90,000
CSW 4,379,000 152,000 1,683,000 8 27
In 1995, approximately 61% of the Electric Operating Companies'
electric revenues were earned in Texas, 24% in Oklahoma, 9% in
Louisiana and 6% in Arkansas.
CPL
The economic base of CPL's service territory includes
manufacturing, mining, agricultural, transportation and public
utilities sectors. Major contributing activities to these sectors
include oil and gas extraction, food processing, apparel, metal
refining, chemical and petroleum refining, plastics and machinery
equipment. In 1995, excluding the effects of the provisions for rate
refunds, industrial customers accounted for approximately 22% of
CPL's total operating revenues. Contracts with substantially all
large industrial customers provide for both demand and energy
charges. Demand charges continue under such contracts even during
periods of reduced industrial activity, thus mitigating the effect of
reduced activity on operating income.
PSO
The economic base of PSO's service territory includes mining,
petroleum products, manufacturing and agriculture. The principal
industries in the territory include natural gas and oil production,
oil refining, steel processing, aircraft maintenance, paper
manufacturing and timber products, glass, chemicals, cement and
aircraft components.
SWEPCO
The economic base of SWEPCO's service territory includes mining,
manufacturing, chemical products, petroleum products, agriculture and
tourism. The principal industries in the territory include natural
gas and oil production, petroleum refining, manufacturing of pulp and
paper, chemicals, food processing and metal refining. The territory
also includes several military installations, colleges and
universities.
WTU
The economic base of WTU's service territory includes
agricultural businesses, such as the production of cattle, sheep,
goats, cotton, wool, mohair and feed crops. Significant gains have
been made in economic diversification through value added processing
of these products. The natural resources of the territory include
<PAGE> 1-4
oil, natural gas, sulfur, gypsum and ceramic clays. Important
manufacturing and processing plants served by WTU produce cotton seed
products, oil products, electronic equipment, precision and consumer
metal products, meat products and gypsum products. The territory
also includes several military installations and state correctional
institutions.
Competition and Industry Challenges
Competitive forces at work in the electric utility industry are
impacting the CSW System and electric utilities generally.
Increased competition facing electric utilities is driven by complex
economic, political and technological factors. These factors have
resulted in legislative and regulatory initiatives that are likely
to result in even greater competition at both the wholesale and
retail level in the future. As competition in the industry
increases, the Electric Operating Companies will have the
opportunity to seek new customers and at the same time be at risk of
losing customers to other competitors. Additionally, the Electric
Operating Companies will continue to compete with suppliers of
alternative forms of energy, such as natural gas, fuel oil and coal,
some of which may be cheaper than electricity. The Electric
Operating Companies believe that their prices for electricity and
the quality and reliability of their service currently place them in
a position to compete effectively in the marketplace. For
additional information regarding competition and industry
challenges, see ITEM 7-MD&A.
PURA
Amendments to PURA, the legal foundation of electric regulation
in Texas, became effective on September 1, 1995. Among other things,
the amendments deregulate the wholesale bulk power market in ERCOT,
permit pricing flexibility for utilities facing competitive
challenges, provide for a market-driven integrated resource planning
process and mandate comparable open access transmission service.
On December 21, 1995, a preliminary order was issued by the
Texas Commission that expanded the scope of the CPL rate review to
address certain competitive issues facing the electric utility
industry. The competitive issues to be addressed by CPL in a
supplemental filing due April 1, 1996, are: (i) the calculation of
rates on an unbundled or functional basis (i.e., generation,
transmission and distribution); (ii) current value of CPL's
generating assets as compared to estimates of market value of such
assets under alternative future industry structures; (iii) the
application of performance based ratemaking; (iv) potential revisions
in the methodology of reconciling and recovering fuel costs; and (v)
the Texas Commission's authority to introduce competition in the
electric utility industry under existing law. For additional
information regarding PURA and the CPL rate review, see ITEM 7-MD&A.
Electric Service Areas in Texas
In Texas, electric service areas are approved by the Texas
Commission. A given tract in a utility's overall service area may be
singly certificated to a utility, to one of several competing
electric cooperatives or to one of the competing municipal electric
systems, or it may be dually or triply certificated to these
entities. These certificated areas have changed only slightly since
the formation of the Texas Commission in 1976.
CPL is generally singly certificated to serve inside most
municipalities, and cooperatives are singly certificated to serve
much of the rural areas. The suburban areas are mostly dually
certificated. Since 1990, in dually certificated areas, CPL's rates
have been higher than some competitors for some customers, especially
small commercial and industrial customers. However, most business
has been retained and some new business acquired, primarily because
of service reliability and other customer service advantages. The
availability of low cost natural gas and other alternative fuels,
including those used in cogeneration facilities, have resulted in
some losses of sales. Although there have been some losses,
electricity is still the fuel of choice for most air conditioning
installations. Renewable energy such as solar and wind is not now a
feasible economic choice for customers of CPL in most instances. CPL
believes that its rates, the quality and reliability of its service
and the relatively inelastic demand for electricity for certain end
uses should allow it to continue to compete in current retail
markets.
<PAGE> 1-5
CSW is unable to predict the ultimate outcome or impact of
competitive forces on the electric utility industry or the CSW
System. As the wholesale and retail electricity markets become more
competitive, however, the principal factor determining success is
likely to be price and, to a lessor extent, reliability, availability
of capacity and customer service. See ITEM 7-MD&A for additional
discussion of competitive issues facing the utility industry.
Regulation
The CSW System is subject to the jurisdiction of the SEC under
the Holding Company Act. The Holding Company Act generally limits
the operations of a registered holding company to a single integrated
public utility system, plus such additional businesses as are
functionally related to such system.
The Electric Operating Companies have been classified as public
utilities under the Federal Power Act and accordingly the FERC has
jurisdiction in certain respects over their electric utility
facilities and operations, wholesale rates, and in certain other
matters.
The Electric Operating Companies are subject to the jurisdiction
of various state commissions as to rates, accounting matters,
standards of service and, in some cases, issuance of securities,
certification of facilities and extensions and division of service
territory.
Nuclear Regulation - CPL
Ownership of an interest in a nuclear generating unit exposes
CPL and, indirectly, CSW to regulation not common to a fossil
generating unit. Under the Atomic Energy Act of 1954 and the Energy
Reorganization Act of 1974, operation of nuclear plants is
intensively regulated by the NRC, which has broad power to impose
licensing and safety-related requirements. Along with other federal
and state agencies, the NRC also has extensive regulations pertaining
to the environmental aspects of nuclear reactors. The NRC has the
authority to impose fines and/or shut down a unit until compliance is
achieved, depending upon its assessment of the severity of the
situation. For a discussion of NRC regulation and other
considerations arising from the ownership of nuclear assets, see
NUCLEAR - CPL, below.
Environmental Regulation
For a discussion of regulation related to the various
environmental agencies that impact the CSW Electric Operating
Companies, see Environmental Matters below.
Rates
The retail rates of the Electric Operating Companies are subject
to regulation by the state utility commissions in the states in which
they operate. As discussed above the wholesale rates of the Electric
Operating Companies are subject to regulation by the FERC. In
addition, SWEPCO has agreements, which have been approved by the
FERC, with all of its wholesale customers under which rates are based
upon an agreed cost of service formula. These rates are adjusted
periodically to reflect the actual cost of providing service.
Texas Rates - CPL, SWEPCO and WTU
The Texas Commission has original jurisdiction over retail rates
in the unincorporated areas of Texas. The governing bodies of
incorporated municipalities have original jurisdiction over rates
within their incorporated limits. Municipalities may elect, and some
have elected, to surrender this jurisdiction to the Texas Commission.
The Texas Commission has appellate jurisdiction over rates set by
incorporated municipalities.
<PAGE> 1-6
Oklahoma Rates - PSO
PSO is subject to the jurisdiction of the Oklahoma Commission
with respect to retail prices. Pursuant to authority granted under
RESCTA, the Oklahoma Commission established service territorial
boundary maps in all unincorporated areas for all regulated retail
electric suppliers serving Oklahoma. In accordance with RESCTA, a
retail electric supplier may not extend retail electric service into
the certified territory of another supplier, except to serve its own
facilities or to serve a new customer with an initial full load of
1,000 KW or more. RESCTA provides that when any territory certified
to a retail electric supplier or suppliers is annexed and becomes
part of an incorporated city or town, the certification becomes null
and void. However, once established in the annexed territory, a
supplier may generally continue to serve within the annexed area.
Arkansas and Louisiana Rates - SWEPCO
SWEPCO is subject to the jurisdiction of the Arkansas Commission
and Louisiana Commission with respect to retail rates, as well as the
Texas Commission as described above.
Fuel Recovery
The recovery of fuel costs from retail customers by the Electric
Operating Companies is subject to regulation by the state utility
commissions in the states in which they operate. All of the Electric
Operating Companies' contracts with their wholesale customers contain
FERC approved fuel-adjustment provisions for recovery of fuel costs.
Texas Fuel Recovery - CPL, SWEPCO and WTU
Electric utilities in Texas, including CPL, SWEPCO and WTU, are
not allowed to make automatic adjustments to recover changes in fuel
costs from retail customers. A utility is allowed to recover its
known or reasonably predictable fuel costs through a fixed fuel
factor. The Texas Commission established procedures effective in
1993 whereby each utility under its jurisdiction may petition to
revise its fuel factor every six months according to a specified
schedule. Fuel factors may also be revised in the case of
emergencies or in a general rate proceeding. Fuel factors are in the
nature of temporary rates and the utility's collection of revenues by
such factors is subject to adjustment at the time of a fuel
reconciliation. Under these procedures, at its semi-annual
adjustment date, a utility will be required to petition the Texas
Commission for a surcharge or to make a refund when it has materially
under- or over-collected its fuel costs and projects that it will
continue to materially under- or over-collect. Material under- or
over-collections including interest are defined as four percent of
the most recent Texas Commission adopted annual estimated fuel cost
for the utility. A utility does not have to revise its fuel factor
when requesting a surcharge or refund. An interim emergency fuel
factor order must be issued by the Texas Commission within 30 days
after such petition is filed by the utility. Final reconciliation of
fuel costs is made through a reconciliation proceeding, which may
contain a maximum of three years and a minimum of one year of
reconcilable data, and must be filed with the Texas Commission no
later than six months after the end of the period to be reconciled.
In addition, a utility must include a reconciliation of fuel costs in
any general rate proceeding regardless of the time since its last
fuel reconciliation proceeding. Any fuel costs that are determined
unreasonably incurred in a reconciliation proceeding are not
recoverable from retail customers.
Oklahoma Fuel Recovery - PSO
All KWH sales to PSO's retail customers, except for sales
pursuant to FUSER and CSF, were made under rates which include a fuel
cost adjustment clause. Oklahoma law requires that an examination of
PSO's retail fuel cost adjustment clause be performed annually by the
Oklahoma Commission. The fuel cost adjustment is computed for each
month on the basis of the average cost of fuel consumed in the month.
The amount of any difference in such cost over or under a base rate
is applied on a KWH basis and reflected in adjustments to customers'
bills during the second month subsequent to the month in which the
difference occurred.
The FUSER program, for qualified commercial and industrial
customers, and the CSF program, for qualified wholesale customers,
were developed to allow program participants to purchase natural gas
directly from suppliers, at negotiated prices, to be delivered to and
burned in PSO's gas-fired power plants, resulting in reduced prices
because of the low cost spot gas fuel provided. Under these
programs, participants could deliver sufficient quantities of natural
gas to meet 70% of their generation requirements with the remaining
30% met with electricity generated by PSO's coal-fired plants. The
FUSER and CSF programs resulted in lower electric costs to all
classes of PSO's customers. The FUSER program was canceled effective
October 1, 1993 because changing market and supply conditions
eliminated the economic viability of the program.
<PAGE> 1-7
Arkansas and Louisiana Fuel Recovery - SWEPCO
SWEPCO's retail rates currently in effect in Louisiana are
adjusted based on SWEPCO's cost of fuel in accordance with a fuel
cost adjustment which is applied to each billing month based on the
second previous month's average cost of fuel. Provision for any over-
or under-recovery of fuel costs is allowed under an automatic fuel
clause. Under SWEPCO's fuel adjustment rider currently in effect in
Arkansas, the fuel cost adjustment is applied for each billing month
on a basis which permits SWEPCO to recover the level of fuel cost
experienced two months earlier.
Recoverability of Fuel
The inability of any Electric Operating Company to recover its
fuel costs under the procedures described above could have a material
adverse effect on such company's results of operations and financial
condition.
See ITEM 7-MD&A and ITEM 8-NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS for further information with respect to regulatory, rate
and fuel proceedings.
Nuclear - CPL
CPL owns 25.2% of STP, a two-unit nuclear power plant which is
located near Bay City, Texas. In addition, HLP, the Project Manager,
owns 30.8%; San Antonio owns 28.0%; and Austin owns 16.0% of STP.
STP Unit 1 was placed in service in August 1988 and STP Unit 2 was
placed in service in June 1989.
Nuclear Decommissioning
At the end of STP's service life, decommissioning is expected to
be accomplished using the decontamination method, which is one of the
techniques acceptable to the NRC. Using this method, the
decontamination activities occur as soon as possible after the end of
plant operations. Contaminated equipment is cleaned and removed to a
permanent disposal location, and the site is generally returned to
its pre-plant state.
CPL's decommissioning costs are accrued and funded to an
external trust over the expected service life of the STP units. The
existing NRC operating licenses will allow the operation of STP Unit
1 until 2027, and Unit 2 until 2028. The accrual for decommissioning
costs is an annual level cost based on the estimated future cost to
decommission STP, including escalations for expected inflation to the
expected time of decommissioning, and is net of expected earnings
from the trust fund. See ITEM 8-NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES for further information related to nuclear
decommissioning.
CPL Deferred Accounting
CPL was granted deferred accounting treatment for certain STP
Unit 1 and 2 costs by Texas Commission orders. These orders allowed
CPL to defer post-in-service operating and maintenance costs,
including taxes and depreciation, and carrying costs until these
costs were reflected in retail rates. Deferred accounting had an
immediate positive effect on net income in the years allowed, but
cash earnings were not increased until rates went into effect
reflecting STP in service. See ITEM 8-NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES and NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS, for additional information related to deferred
accounting at STP.
<PAGE> 1-8
Nuclear Insurance
See ITEM 8-NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES for
further information related to nuclear insurance for STP.
Operating Data
Facilities, Plants and Properties
At December 31, 1995, the Electric Operating Companies owned the
following electric generating plants, or portions thereof in the case
of jointly owned plants, substantially all of which were steam
electric units.
Net Dependable
Summer Rating
Principal Fuel Capability
Plant Name and Location Source (a) (MW) (b)
CPL
La Palma, San Benito, Texas Gas 205 (c)
Victoria, Victoria, Texas Gas 432 (c)
Nueces Bay, Corpus Christi, Texas Gas 529 (c)
Lon C. Hill, Corpus Christi, Texas Gas 550
Laredo, Laredo, Texas Gas 177
J. L. Bates, Mission, Texas Gas 182
E.S. Joslin, Point Comfort, Texas Gas 249
Barney M. Davis, Corpus Christi, Texas Gas 695
Coleto Creek, Goliad, Texas Coal 632
Oklaunion, Vernon, Texas (b) Coal 53
STP, Bay City, Texas (b) Nuclear 630
Eagle Pass, Eagle Pass, Texas Hydro 6
4,340
PSO
Tulsa, Tulsa, Oklahoma Gas 165 (c)
Oil 8
Riverside, Jenks, Oklahoma Gas 916
Oil 3
Northeastern, Oologah, Oklahoma Gas 637
Coal 883
Oil 4
Southwestern, Washita, Oklahoma Gas 475
Oil 2
Comanche, Lawton, Oklahoma Gas 273
Oil 4
Weleetka, Weleetka, Oklahoma Gas 151
Oil 4
Oklaunion, Vernon, Texas (b) Coal 106
3,631
SWEPCO
Arsenal Hill, Shreveport, Louisiana Gas 110
Lieberman, Mooringsport, Louisiana Gas 276
Knox Lee, Cherokee Lake, Texas Gas 497
Wilkes, Jefferson, Texas Gas 875
Lone Star, Daingerfield, Texas Gas 50
Welsh, Cason, Texas Coal 1,584
Flint Creek, Gentry, Arkansas (b) Coal 240
Henry W. Pirkey, Hallsville, Texas(b) Lignite 559
Dolet Hills, Mansfield, Louisiana (b) Lignite 262
4,453
<PAGE> 1-9
Net Dependable
Summer Rating
Principal Fuel Capability
Plant Name and Location Source (a) (MW) (b)
WTU
Paint Creek, Haskell, Texas Gas 237
Rio Pecos, Girvin, Texas Gas 137
San Angelo, San Angelo, Texas Gas 125
Fort Phantom, Abilene, Texas Gas (d) 362
Oak Creek, Bronte, Texas Gas 87
Abilene, Abilene, Texas Gas 12
Lake Pauline, Quanah, Texas Gas 46
Ft. Stockton, Ft. Stockton, Texas Gas 5
Vernon, Vernon, Texas Oil 9
Oklaunion, Vernon, Texas (b) Coal 370
Presidio, Presidio, Texas Oil 2
1,392
Total, excluding plant in storage 13,816
Plant in storage 392
CSW Total 14,208
(a) Some plants have the capability of burning oil in combination
with gas. Use of oil in facilities primarily designed to burn
gas results in increased maintenance expense and a reduction of
approximately 5% to 15% in capability. PSO and WTU have 25 MW
and 11 MW, respectively, of facilities primarily designed to burn
oil.
(b) Data reflects only CSW System's portion of plants which are
jointly owned with non-affiliates. For additional information
concerning jointly owned facilities see ITEM 8-NOTE 6. JOINTLY
OWNED ELECTRIC UTILITY PLANT.
(c) Excludes units in storage, consisting of 34 MW at Nueces Bay, 60
MW at Victoria, and 48 MW at La Palma for CPL and 250 MW at Tulsa
for PSO.
(d) Although both Fort Phantom units burn primarily gas, Unit 1 is
designed to burn fuel oil for extended periods of time before
maintenance is required and Unit 2 is designed to burn fuel oil
on a continuous basis.
All of the generating plants described above are located on
land owned by the Electric Operating Companies or, in the case of
jointly owned plants, jointly with other participants. The Electric
Operating Companies' electric transmission and distribution
facilities are mostly located over or under highways, streets and
other public places or property owned by others, for which permits,
grants, easements or licenses (which the Electric Operating
Companies believe to be satisfactory, but without examination of
underlying land titles) have been obtained. The principal plants
and properties of the Electric Operating Companies are subject to
the liens of the first mortgage indentures under which the Electric
Operating Companies' bonds are issued.
Construction Expenditures
The Electric Operating Companies maintain a continuing
construction program, the nature and extent of which is based upon
current and estimated demands upon the system. See ITEM 7-MD&A for
additional information related to construction expenditures.
<PAGE> 1-10
Peak Loads and System Capabilities of the Electric Operating
Companies
The following tables set forth for the last three years (i) the
net system capability, including the net amounts of contracted
purchases and contracted sales, at the time of peak demand, (ii) the
maximum coincident system demand on a one-hour integrated basis,
exclusive of sales to other electric utilities and (iii) the
respective amounts and percentages of peak demand generated by the
Electric Operating Companies and net purchases and sales.
CSW 1995 1994 1993
Net system capability (MW) 14,168 (2) 13,549 (2) 13,163 (1)(2)
Maximum coincident system
demand (MW) 12,314 11,434 11,464
Percentage increase (decrease)
in peak demand over prior period 7.7% (0.3)% 8.1%
Generation at time of peak (MW) 12,053 11,353 10,624
Percent of peak demand generated 97.9% 99.3% 92.7%
Net purchases (sales) at time
of peak (MW) 261 81 840
Percent of net purchases (sales)
at time of peak 2.1% 0.7% 7.3%
Date of maximum coincident
system demand July 28 June 27 August 18
(1) Does not include 630 MW of STP capability that was not
available at the 1993 peak due to the outage described in ITEM 7-
MD&A.
(2) Does not include 446 MW of system capability in storage in
1995 as described above in Facilities, Plants and Properties,
881 MW of system capability in storage in 1994 and 719 MW of
system capability in storage in 1993.
CPL 1995 1994 1993
Net system capability (MW) 4,200 (2) 3,969 (2) 3,850(1)(2)
Maximum coincident system demand (MW) 3,862 3,732 3,518
Percentage increase (decrease) in peak
demand over prior period 3.5% 6.1% 5.1%
Generation at time of peak (MW) 3,846 3,074 2,943
Percent of peak demand generated 99.6% 82.4% 83.7%
Net purchases (sales) at time of peak (MW) 16 658 575
Percent of net purchases (sales)
at time of peak 0.4% 17.6% 16.3%
Date of maximum coincident system demand July 26 August 18 August 25
(1) Does not include 630 MW of STP capability that was not
available at the 1993 peak due to the outage described in ITEM 7-
MD&A.
(2) Does not include 142 MW of system capability in storage in
1995 as described above in Facilities, Plants and Properties and
310 MW of system capability in storage in 1994 and 1993.
PSO 1995 1994 1993
Net system capability (MW) 3,759 (1) 3,664 (1) 3,649 (1)
Maximum coincident system demand (MW) 3,292 3,167 3,147
Percentage increase (decrease) in peak
demand over prior period 3.9% 0.6% 4.6%
Generation at time of peak (MW) 3,025 2,645 2,609
Percent of peak demand generated 91.9% 83.5% 82.9%
Net purchases (sales) at time of peak (MW) 267 522 538
Percent of net purchases (sales) at
time of peak 8.1% 16.5% 17.1%
Date of maximum coincident system demand August 28 June 27 August 18
(1) Does not include 250 MW of system capability in storage in
1995 as described above in Facilities, Plants and Properties,
247 MW of system capability in storage in 1994 and 409 MW of
system capability in storage in 1993.
<PAGE> 1-11
SWEPCO 1995 1994 1993
Net system capability (MW) 4,783 (1) 4,464 (2) 4,436
Maximum coincident system demand (MW) 3,932 3,526 3,651
Percentage increase (decrease) in
peak demand over prior period 11.5% (3.4%) 12.8%
Generation at time of peak (MW) 4,022 3,987 3,559
Percent of peak demand generated 102.3% 113.1% 97.5%
Net purchases (sales) at time of
peak (MW) (90) (461) 92
Percent of net purchases (sales)
at time of peak (2.3%) (13.1%) 2.5%
Date of maximum coincident system
demand July 28 June 27 August 18
(1) Does not include 54 MW of capability in 1995 that was not
available at the peak due to fuel procurement issues.
(2) Does not include 324 MW of capability in 1994 that was
unavailable due to inefficiencies as a result of slag build-ups
and fuel procurement issues.
WTU 1995 1994 1993
Net system capability (MW) 1,426 1,459 1,384
Maximum coincident system demand
(MW) 1,435 1,262 1,201
Percentage increase (decrease) in
peak demand over prior period 13.7% 5.1% 7.4%
Generation at time of peak (MW) 1,167 1,401 1,223
Percent of peak demand generated 81.3% 111.0% 101.8%
Net purchases (sales) at time
of peak (MW) 268 (139) (22)
Percent of net purchases (sales)
at time of peak 18.7% (11.0%) (1.8%)
Date of maximum coincident
system demand July 28 June 27 August 11
<PAGE> 1-12
Electric Operating Statistics
Central And South West Corporation and Subsidiary Companies
(excludes the SEEBOARD Group)
1995 1994 1993
Kilowatt-hour sales (millions)
Residential 16,872 16,368 15,903
Commercial 13,755 13,463 12,966
Industrial 19,321 18,869 18,205
Other retail 1,518 1,501 1,434
Sales to retail customers 51,466 50,201 48,508
Sales for resale 8,468 7,133 5,852
Total 59,934 57,334 54,360
Number of electric customers at
end of period (thousands)
Residential 1,437 1,417 1,396
Commercial 209 205 201
Industrial 24 24 24
Other 13 15 12
Total 1,683 1,661 1,633
Residential sales averages
KWH per customer 11,840 11,665 11,541
Revenue per customer (a), (b) $799 $824 $842
Revenue per KWH (a), (b) 6.75cents 7.06cents 7.29cents
Revenue per KWH on total
sales (a), (b) 4.81cents 5.35cents 5.62cents
Fuel cost data (a)
Average Btu per net KWH 10,193 10,344 10,391
Cost per million Btu $1.58 $1.82 $2.11
Cost per KWH generated 1.61cents 1.88cents 2.19cents
Cost as a percentage of
revenue (b) 35.0% 36.7% 38.7%
(a) These statistics reflect the outage at STP in 1993 and early
1994, and the impact of CSF in 1995 and FUSER and CSF in 1993.
For additional information about FUSER and CSF, see Fuel
Recovery above and Fuel Supply below
(b) These statistics reflect the refunds and fuel disallowance
that occurred as a result of both the CPL 1995 Agreement and the
WTU Stipulation and Agreement. For additional information, see
ITEM 7-MD&A.
<PAGE> 1-13
Operating Statistics
Central Power and Light Company
1995 1994 1993
Kilowatt-hour sales (millions)
Residential 6,223 5,954 5,612
Commercial 4,656 4,523 4,278
Industrial 7,250 6,910 6,406
Other retail 465 457 435
Sales to retail customers 18,594 17,844 16,731
Sales for resale 1,680 1,286 913
Total 20,274 19,130 17,644
Number of electric customers at
end of period
Residential 526,909 516,355 504,893
Commercial 77,743 76,739 74,767
Industrial (a) 5,731 5,864 6,156
Other 3,561 3,577 3,538
Total 613,944 602,535 589,354
Residential sales averages
KWH per customer 11,985 11,729 11,298
Revenue per customer (b), (c) $896 $935 $955
Revenue per KWH (b), (c) 7.48cents 7.97cents 8.45cents
Revenue per KWH on total
sales (b), (c) 5.29cents 6.37cents 6.93cents
Fuel cost data (b)
Average Btu per net KWH 10,175 10,289 10,296
Cost per million Btu $1.37 $1.75 $2.17
Cost per KWH generated 1.39cents 1.80cents 2.23cents
Cost as a percentage of revenue (c) 26.8% 27.0% 28.6%
(a) The customer decrease in 1994 was due primarily to the
combining of multiple customer accounts into single accounts and
a decline in customers due to economic and competitive
conditions.
(b) These statistics reflect the outage at STP in 1993 and early 1994.
(c) These statistics reflect the refund and fuel disallowance
that occurred as a result of the CPL 1995 Agreement. For
additional information, see ITEM 7-MD&A.
<PAGE> 1-14
Operating Statistics
Public Service Company of Oklahoma
1995 1994 1993
Kilowatt-hour sales (millions)
Residential 4,753 4,749 4,714
Commercial 4,427 4,434 4,352
Industrial 4,307 4,360 4,445
Other retail 80 89 87
Sales to retail customers 13,567 13,632 13,598
Sales for resale 1,617 1,509 563
Total 15,184 15,141 14,161
Number of electric customers at
end of period
Residential 412,765 409,675 406,847
Commercial 54,102 53,454 53,166
Industrial 5,205 5,156 5,087
Other 1,353 1,287 1,008
Total 473,425 469,572 466,108
Residential sales averages
KWH per customer 11,563 11,640 11,637
Revenue per customer $682 $726 $731
Revenue per KWH 5.89cents 6.24cents 6.28cents
Revenue per KWH on total sales (a) 4.55cents 4.89cents 5.00cents
Fuel cost data (a)
Average Btu per net KWH 10,151 10,231 10,220
Cost per million Btu $1.73 $1.96 $2.38
Cost per KWH generated 1.75cents 2.00cents 2.43cents
Cost as a percentage of revenue 42.3% 39.5% 43.7%
(a) These statistics reflect the impact of CSF in 1995 and FUSER
and CSF in 1993. See Fuel Recovery above and Fuel Supply below.
<PAGE> 1-15
Operating Statistics
Southwestern Electric Power Company
1995 1994 1993
Kilowatt-hour sales (millions)
Residential 4,406 4,157 4,114
Commercial 3,521 3,378 3,249
Industrial 6,531 6,357 6,122
Other retail 424 400 390
Sales to retail customers 14,882 14,292 13,875
Sales for resale 5,002 5,189 4,508
Total 19,884 19,481 18,383
Number of electric customers at
end of period
Residential 351,131 346,227 340,379
Commercial 49,123 48,153 46,728
Industrial 5,864 5,747 5,809
Other 2,615 2,609 2,605
Total 408,733 402,736 395,521
Residential sales averages
KWH per customer 12,627 12,107 12,357
Revenue per customer $798 $776 $822
Revenue per KWH 6.32cents 6.41cents 6.65cents
Revenue per KWH on total sales 4.21cents 4.24cents 4.60cents
Fuel cost data
Average Btu per net KWH 10,531 10,489 10,582
Cost per million Btu $1.61 $1.75 $1.94
Cost per KWH generated 1.70cents 1.84cents 2.05cents
Cost as a percentage of revenue 38.3% 40.6% 42.5%
<PAGE> 1-16
Operating Statistics
West Texas Utilities Company
1995 1994 1993
Kilowatt-hour sales (millions)
Residential 1,490 1,508 1,464
Commercial 1,152 1,128 1,087
Industrial 1,233 1,241 1,231
Other retail 549 556 522
Sales to retail customers 4,424 4,433 4,304
Sales for resale 2,268 2,051 2,288
Total 6,692 6,484 6,592
Number of electric customers at
end of period
Residential 146,235 144,966 143,453
Commercial 27,243 26,618 26,001
Industrial 7,317 7,392 7,453
Other 5,685 5,533 5,361
Total 186,480 184,509 182,268
Residential sales averages
KWH per customer 10,224 10,449 10,241
Revenue per customer (a) $784 $822 $811
Revenue per KWH (a) 7.67cents 7.86cents 7.92cents
Revenue per KWH on total sales (a) 4.78cents 5.29cents 5.24cents
Fuel cost data
Average Btu per net KWH 10,370 10,424 10,491
Cost per million Btu $1.83 $1.88 $1.91
Cost per KWH generated 1.90cents 1.96cents 2.00cents
Cost as a percentage of revenue (a) 38.7% 38.3% 39.1%
(a) These statistics reflect the refund and lower rates that
occurred as a result of the WTU Stipulation and Agreement.
See ITEM 7-MD&A.
<PAGE> 1-17
Power Purchases and Sales
Various municipalities, electric cooperatives and public power
authorities are served by the Electric Operating Companies. The
Electric Operating Companies exchange power on an emergency or
economy basis with various neighboring systems and engage in economy
interchanges with each other. In addition, they contract with certain
suppliers for the purchase or sale of power on a unit capacity basis.
SWEPCO - BREMCO
As part of the agreement to acquire BREMCO, SWEPCO entered into
a long-term purchased power contract with Cajun, BREMCO's previous
full-requirements wholesale supplier. The contract covered the
purchase of energy at a fixed price for 1993 and 1994, and the
purchase of capacity and energy in subsequent years. See ITEM 7-MD&A
for information regarding SWEPCO's pending proposal to acquire all of
Cajun's non-nuclear assets.
SWEPCO and WTU - Tex-La
WTU sells 92 MW of power and energy to Tex-La. Tex-La has a
peak requirement of approximately 120 MW. WTU will serve Tex-La
until facilities are completed to connect Tex-La to SWEPCO, at which
time SWEPCO will provide 85 MW and WTU will retain 35 MW of the Tex-
La electric load.
PSO - MCPC
In 1989, PSO entered into certain long-term contracts with MCPC,
a cogeneration development company located in northeastern Oklahoma.
These contracts include: (i) an Interconnection and Interchange
Agreement providing terms and conditions under which MCPC could
connect its electric generating facilities to PSO's transmission
system and providing for future transmission by PSO of specified
amounts of MCPC's power to an unaffiliated utility; (ii) a
Stock/Asset Purchase Agreement which allows PSO under certain
conditions to acquire the stock or assets of MCPC; and (iii) an
Energy Conversion Agreement which required PSO to deliver natural gas
to MCPC for conversion to electrical energy to be delivered by MCPC
to PSO. Under the Energy Conversion Agreement, PSO had the right to
dispatch up to 60 MWH per hour of quick-start capability. See ITEM 8-
NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS, for information
regarding litigation arising out of PSO's contracts with MCPC.
SWEPCO - Other Wholesale
SWEPCO furnishes energy at wholesale to three municipalities and
also supplies electric energy at wholesale to eight electric
cooperatives operating in its territory.
WTU - Other Wholesale
WTU provides wholesale electricity to four electric cooperatives
and one municipality for all their respective electric energy
requirements. WTU also provides wholesale power to nine other
electric cooperatives, one other municipal customer and one investor
owned electric utility company. WTU's contractual obligations with
fifteen of its wholesale customers require a five-year notice of
termination, and one wholesale customer has a fourteen-year
obligation.
Other Operational Information
System Interconnection
The CSW System operates on an interstate basis to facilitate
exchanges of power. PSO and WTU are interconnected through the 200
MW North HVdc transmission interconnection. In 1992, SWEPCO and CPL
entered into an agreement with HLP and TU to construct and operate an
East Texas HVdc transmission interconnection to facilitate exchanges
of power for the CSW System. This interconnection consists of a back-
to-back HVdc converter station and 16 miles of 345 KV transmission
line connecting transmission substations at SWEPCO's Welsh Power
Plant and TU's Monticello Power Plant. In 1993, an application for a
<PAGE> 1-18
Certificate of Convenience and Necessity for the transmission
interconnection was approved by the Texas Commission, and in mid-
1995, the 600 MW East Texas HVdc project was completed. Transmission
charges paid to TU are recorded as transmission expenses and are then
recovered from customers through the fuel recovery mechanisms in
Texas.
CPL and WTU are members of ERCOT, which also includes TU, HLP,
Texas Municipal Power Agency, Texas Municipal Power Pool, Lower
Colorado River Authority, the municipal systems of San Antonio,
Austin and Brownsville, the South Texas and Medina Electric
Cooperatives, and several other interconnected systems and
cooperatives. PSO and SWEPCO are members of the Southwest Power
Pool, which is comprised of 43 members, including 17 investor-owned
utilities, 12 municipalities, 10 cooperatives, 3 state and 1 federal
agency operating in the states of Arkansas, Kansas, Louisiana,
Oklahoma and parts of Mississippi, Missouri, New Mexico and Texas.
ERCOT members interchange power and energy with one another on a
firm, economy and emergency basis, as do the members of the Southwest
Power Pool.
Seasonality
Sales of electricity by the Electric Operating Companies tend to
increase during warmer summer months and, to a lesser extent, cooler
winter months, because of higher demand for power.
Franchises
The Electric Operating Companies hold franchises to provide
electric service in various municipalities in their service areas.
These franchises have varying provisions and expiration dates
including, in some cases, termination and buy-out provisions. CSW
considers the Electric Operating Companies' franchises to be
adequate for the conduct of their business.
Fuel Supply
General
The CSW System's present net dependable summer rating power
generation capabilities and the type of fuel used are set forth in
Facilities, Plants and Properties above. Additional fuel supply data
is set forth in the tables presented below.
Aggregate
Capability (MW) CSW CPL PSO SWEPCO WTU
Natural Gas 8,455 3,019 2,617 1,808 1,011
Coal 3,868 685 989 1,824 370
Lignite 821 -- -- 821 --
Nuclear 630 630 -- -- --
Hydro and Oil 42 6 25 -- 11
13,816 4,340 3,631 4,453 1,392
Plant in Storage 392 142 250 -- --
Total 14,208 4,482 3,881 4,453 1,392
Generation Mix
(as a % of MWH) CSW CPL PSO SWEPCO WTU
Natural Gas 47 55 62 20 65
Coal 36 21 38 50 35
Lignite 9 -- -- 30 --
Nuclear 8 24 -- -- --
Hydro and Oil -- -- -- -- --
100 100 100 100 100
<PAGE> 1-19
Natural Gas
The Electric Operating Companies purchase their gas from a
number of suppliers operating in and around their service
territories. In 1995, approximately 43% of the Electric Operating
Companies' total gas purchases were made under long-term contracts
and approximately 57% came from short-term contracts and spot purchases.
CPL
CPL's eight gas-fired electric generating plants are supplied by
a portfolio of long-term and short-term natural gas purchase
agreements through multiple natural gas pipeline systems.
Approximately 59% of CPL's total gas requirements in 1995 were
purchased under long-term arrangements representing both purchase
obligations and discretionary purchases, while the balance of CPL's
requirements were acquired under short-term arrangements in the spot market.
PSO
PSO engages in a program to maintain adequate gas supplies
necessary for operation. Natural gas for generation is provided by
purchases under a number of long-term and spot market contracts.
Approximately 49% of PSO's natural gas requirements in 1995 were
provided for under firm contracts. Transok acts as an administrator
with respect to purchases of natural gas supplies. Gas is
transported by Transok to PSO facilities under agreements pursuant to
which PSO pays Transok for actual costs incurred in providing the
services as determined on an allocated cost of service basis,
including a rate of return on equity applicable between affiliates as
specified by the Oklahoma Commission in PSO's most recent Oklahoma
price review. See ITEM 7-MD&A and ITEM 8-NOTE 2. LITIGATION AND
REGULATORY PROCEEDINGS, for further information with respect to
Transok and the agreements between PSO and Transok.
SWEPCO
SWEPCO purchased approximately 100% of its gas requirements in
1995 pursuant to spot purchase contracts with no take-or-pay
obligations. Subject to market conditions, SWEPCO plans to continue
to enter into short-term contracts with various suppliers to provide
gas for peaking purposes.
WTU
WTU has gas purchase contracts with several suppliers. The
largest long-term contract, which is with Lone Star, provided
approximately 11% of WTU's total gas requirements in 1995. Lone Star
is obligated, except during curtailments, to have gas available for
125% of the estimated annual fuel requirements of each plant served,
provided the total of all plants does not exceed 110% of the
estimated annual fuel requirement. The Lone Star contract, which
expires in 2000, allows WTU considerable flexibility to purchase gas
from other sources. Utilizing this flexibility in 1995, WTU
purchased approximately 72% of its gas requirements on the spot
market from many different suppliers. The remaining 17% of WTU's
1995 gas requirements came from supplemental firm contracts with
several suppliers. The contracts with suppliers vary in their terms,
but generally provide for periodic or other price adjustments.
Coal and Lignite
The Electric Operating Companies purchase coal from a number of
suppliers. In 1995, approximately 74% of the Electric Operating
Companies' total coal purchases were supplied under long-term
contracts with the balance procured on the spot market. The coal for
the CSW System plants comes primarily from Wyoming or Colorado mines
which are located between 1,000 and 1,700 rail miles from the
generating plants.
Proposed Railroad Merger
On November 30, 1995, Union Pacific, Southern Pacific and
certain other affiliates of each filed an application with the
Interstate Commerce Commission to merge their rail operations. Union
Pacific and Southern Pacific currently compete for portions of the
coal transportation traffic to CPL's Coleto Creek Power Plant. In
addition, Southern Pacific controls the destination portion of
movements of coal from the Powder River Basin of Wyoming, where Union
Pacific competes with Burlington Northern for the origination portion
of the movements. Because of the potential elimination of such
<PAGE> 1-20
competition and other factors, CPL may be adversely affected by this
merger, if approved, unless conditions mitigating the impact are
included in the merger.
Oklaunion - CPL, PSO and WTU
The jointly owned Oklaunion plant purchases coal under a coal
supply contract with Caballo Coal Company. Approximately 99% of the
total 1995 Oklaunion coal requirements for WTU, 78% for CPL and 85%
for PSO were supplied under the Caballo Coal Company contract with
the balance procured on the spot market. As of December 31, 1995,
CPL's share of the coal inventory at Oklaunion was approximately
46,000 tons, representing approximately 83 days supply; PSO's share
was approximately 78,000 tons, representing approximately 71 days
supply; and WTU's share was approximately 205,000 tons, representing
approximately 67 days supply.
Prior to the expiration of a coal transportation contract in
October 1995, all coal used at Oklaunion was transported
approximately 1,100 miles to the plant by Burlington Northern.
Subsequently, coal has been transported in Burlington Northern
supplied rail cars pursuant to a tariff filed with the Interstate
Commerce Commission, whose authority in the matter was transferred to
the Surface Transportation Board of the U.S. Department of
Transportation effective January 1, 1996. In a case currently
pending before such board, WTU has challenged the rate filed by
Burlington Northern and requested prescription of a reasonable rate
by the Surface Transportation Board.
Coleto Creek - CPL
CPL acquired approximately 34% of the 1995 coal requirements for
its Coleto Creek plant pursuant to a long-term agreement with Colowyo
Coal Company, which expires in 1999. CPL's remaining purchase
obligation under the Colowyo agreement is for approximately 25% of
Coleto Creek's requirements. The coal is mined in northwestern
Colorado and is transported approximately 1,400 miles by Denver & Rio
Grande Western Railroad Company and Southern Pacific. Southern
Pacific is currently the only rail carrier with access to the Coleto
Creek plant. CPL owns sufficient railcars for operation of three
unit trains. CPL has instituted a proceeding at the Interstate
Commerce Commission, whose authority in the matter was transferred to
the Surface Transportation Board of the U.S. Department of
Transportation, effective January 1, 1996, requesting a reasonable
rate for the 16 mile movement from Victoria, Texas, a station served
by Missouri Pacific Railroad Company, to Coleto Creek. CPL has
entered into an agreement with Colowyo Coal Company for most of
Coleto Creek's coal requirements for 1996. Under this contract,
transportation charges are paid by Colowyo Coal Company. CPL has
also contracted for a test burn of coal from the Powder River Basin
of Wyoming during 1996. After 1996, CPL intends to utilize Powder
River Basin coal for a portion of the Coleto Creek plant requirements
and intends to negotiate rail transportation agreements for such
coal. Powder River Basin coal is transported approximately 1,700
miles, using either Burlington Northern or Union Pacific as the
originating carrier and Southern Pacific as the destination carrier.
See Proposed Railroad Merger above. At December 31, 1995, CPL had
approximately 531,000 tons of coal in inventory at Coleto Creek,
representing approximately 73 days supply.
Northeastern Station - PSO
PSO has a contract with Kerr-McGee Coal Corporation, which
substantially covers the coal supply for PSO's Northeastern Station
coal units through at least 2014. Coal delivery is by unit trains
from mines located in the Gillette, Wyoming vicinity, a distance of
about 1,100 rail miles from Northeastern Station. PSO owns
sufficient rail cars and spares for operation of six unit trains.
Coal is transported to Northeastern Station pursuant to a long-term
contract with Burlington Northern. At December 31, 1995, PSO had
approximately 438,000 tons of coal in inventory at Northeastern
representing approximately 41 days supply. See ITEM 8-NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS, for additional information.
Welsh and Flint Creek - SWEPCO
All of the long-term supply for SWEPCO's Welsh plant and its 50
percent-owned Flint Creek plant is provided under a contract with
<PAGE> 1-21
AMAX. Coal under the AMAX contract is mined near Gillette, Wyoming,
a distance of about 1,500 and 1,100 miles, respectively, from the
Welsh and Flint Creek plants. Coal is delivered to the plants under
rail transportation contracts with Burlington Northern and the Kansas
City Southern Railroad Company having expiration dates ranging
between 1996 and 2007. SWEPCO owns or leases under long-term leases
sufficient cars and spares for operation of twelve unit trains.
SWEPCO has supplemented its railcar fleet from time to time with
short-term leases. At December 31, 1995, SWEPCO had coal inventories
of approximately 1,552,000 tons at Welsh, representing 68 days
supply, and approximately 468,000 tons at Flint Creek, representing
68 days supply. See ITEM 8-NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS and ITEM 8-NOTE 3. COMMITMENTS AND CONTINGENT
LIABILITIES, for information additional information.
Pirkey and Dolet Hills - SWEPCO
SWEPCO has acquired lignite leases covering an aggregate of
about 27,000 acres near the Henry W. Pirkey power plant. Sabine
Mining Company is the contract miner of these reserves. At December
31, 1995, approximately 238,000 tons of lignite were in inventory at
the plant representing 22 days supply. Another 25,000 acres are
jointly leased in equal portions by SWEPCO and Central Louisiana
Electric Company in the Dolet Hills area of Louisiana near Dolet
Hills Power Plant. The Dolet Hills Mining Venture is the contract
miner for these reserves. At December 31, 1995, SWEPCO had
approximately 207,000 tons of lignite in inventory at the plant
representing 40 days supply. In the opinion of the management of
SWEPCO, the acreage under lease in these areas contains sufficient
reserves to cover the anticipated lignite requirements for the
estimated useful lives of the lignite-fired plants.
Nuclear Fuel - CPL
The supply of fuel for STP involves a complex process. This
process includes the acquisition of uranium concentrate, the
conversion of uranium concentrate to uranium hexafluoride, the
enrichment of uranium hexafluoride in the isotope U235 and the
fabrication of the enriched uranium into fuel rods and incorporation
of fuel rods into fuel assemblies. The fuel assemblies are the final
product loaded into the reactor core. The time associated with this
process requires that fuel decisions be made years in advance of the
actual need to refuel the reactor. Fuel requirements for STP are
being handled by the STP Management Committee, comprised of
representatives of all participants in STP.
Outages are necessary approximately every 18 months for
refueling. Because STP's fuel costs are significantly lower than any
of the other CPL units, CPL's average fuel costs are expected to be
higher whenever an STP unit is down for refueling or maintenance.
CPL and the other STP participants have entered into contracts
with suppliers for uranium concentrate and conversion service
sufficient for the operation of both STP units through November 1997.
Additional flexible contracts are in place to provide 50% of the
uranium concentrate and 100% of the conversion service needed for STP
from the end of 1997 through 2000. Enrichment contracts were secured
for a 30-year period from the initial operation of each unit. The
STP participants have canceled the enrichment requirements for the
period from October 2000 to September 2005 under a ten year no cost
termination provision of the enrichment contract. The STP
participants believe that other, lower cost options will be available
in the future. Also, fuel fabrication services have been contracted
for operation through 2005 for Unit 1 and 2006 for Unit 2. Although
CPL and the other STP owners cannot predict the availability of
uranium and related services, CPL and the other STP owners do not
currently expect to have difficulty obtaining uranium and related
services required for the remaining years of STP operation.
The Energy Policy Act has provisions for the recovery of a
portion of the costs associated with the decommissioning and
decontamination of the gaseous diffusion plants used in the
enrichment process. These costs are being recovered on the basis of
enrichment services purchased by utilities from the DOE prior to
October of 1992. The total annual assessment for all domestic
<PAGE> 1-22
utilities is limited to $150 million per federal fiscal year and
assessable until October 2007. The STP assessment will be
approximately $2.0 million each year with CPL's share being 25.2% of
the annual STP assessment.
The Nuclear Waste Policy Act of 1982, as amended, requires the
DOE to develop a permanent high level waste disposal facility for the
storage of spent nuclear fuel by 1998. The DOE last estimated that
the permanent facility will not be available until 2010. The DOE
will be taking possession of all spent fuel generated at STP as a
result of a contract CPL and other STP participants have entered into
with the DOE. STP has on-site storage facilities with the capability
to store all the spent nuclear fuel generated by the STP units over
their lives. Therefore, the DOE delay in providing the disposal
facility will not impact the operation of the STP units. Under
provisions of the Nuclear Waste Policy Act of 1992, a one-mill per
KWH assessment on electricity generated and sold from nuclear
reactors funds the DOE waste disposal program.
Risks of substantial liability could arise from the operation of
STP and from the use, handling, disposal and possible radioactive
emissions associated with nuclear fuel. While CPL carries insurance,
the availability, amount and coverage thereof is limited and may
become more limited in the future. The available insurance may not
cover all types or amounts of loss or expense which may be
experienced in connection with the ownership of STP. See ITEM 8-NOTE
3. COMMITMENTS AND CONTINGENT LIABILITIES for information relating to
nuclear insurance.
Governmental Regulation
The price and availability of each of the foregoing fuel types
are significantly affected by governmental regulation. Any inability
in the future to obtain adequate fuel supplies, or adoption of
additional regulatory measures restricting the use of such fuels for
the generation of electricity might affect the CSW System's ability
to economically meet the needs of its customers, and could require
the Electric Operating Companies to supplement or replace, prior to
normal retirement, existing generating capability with units using
other fuels. This would be impossible to accomplish quickly, would
require substantial additional expenditures for construction and
could have a material adverse effect on CSW's and/or the Electric
Operating Companies' financial condition and results of operations.
<PAGE> 1-23
Fuel Costs and Consumption
Additional fuel cost data for the CSW System appears under
Operating Statistics above. Average fuel costs and consumption by
fuel type for 1995 are presented in the following table.
1995 Average
Cost per 1995 Consumption
Fuel Type MMbtu (million)
Btus Mcfs Tons
CPL
Natural gas $1.62 118 114
Coal $1.71 41 2
Nuclear $0.51 50
Composite $1.37
PSO
Natural gas $2.01 91 88
Coal $1.31 62 4
Composite $1.73
SWEPCO
Natural gas $1.68 38 38
Coal $1.85 99 6
Lignite $1.19 61 5
Composite $1.61
WTU
Natural gas $1.88 44 44
Coal $1.70 23 1
Composite $1.83
CSW
Natural gas $1.79
Coal $1.66
Lignite $1.19
Nuclear $0.51
Composite $1.58
The registrants are unable to reliably predict the future cost
of fuel. See ITEM 7-MD&A for further information concerning fuel
costs.
Environmental Matters
The Operating Companies and CSW Energy are subject to regulation
with respect to air and water quality and solid waste standards and
other environmental matters by various federal, state and local
authorities. These authorities have continuing jurisdiction in most
cases to require modifications in the Electric Operating Companies'
facilities and operations. Changes in environmental statutes or
regulations could require substantial additional expenditures to
modify the Electric Operating Companies' facilities and operations
and could have a material adverse effect on CSW's and each of the
Electric Operating Companies' results of operations and financial
condition. Violations of environmental statutes or regulations can
result in fines and other costs.
Air Quality
Air quality standards and emission limitations are subject to
the jurisdiction of state regulatory authorities in each state in
which the CSW System operates, with oversight by the EPA. In
accordance with regulations of these state authorities, permits are
required for all generating units on which construction is commenced
or which are substantially modified after the effective date of the
applicable regulations.
<PAGE> 1-24
In 1990, the United States Congress passed the Clean Air Act
which places restrictions on the emission of sulfur dioxide from gas-
, coal- and lignite-fired generating plants. Beginning in the year
2000, the Electric Operating Companies will be required to hold
allowances in order to emit sulfur dioxide. The EPA issues
allowances to owners of existing generating units based on historical
operating conditions. Based on the CSW System facilities plan, CSW
believes that the Electric Operating Companies' allowances are
adequate to meet their needs at least through 2008. Public and
private markets are developing for trading of excess allowances.
The Clean Air Act also directs the EPA to issue regulations
governing nitrogen oxide emissions and require government studies to
determine what controls, if any, should be imposed on utilities to
control air toxics emissions. The impact that the nitrogen oxide
emission regulations and the air toxics study will have on CSW and
the Electric Operating Companies cannot be determined at this time.
As a result of requirements imposed by the Clean Air Act, CSW
expects to spend approximately $1.7 million over a three year period
from 1995 to 1997 for annual testing of, software modifications to,
and maintenance of continuous emission monitoring equipment. Of
this, approximately $0.5 million was spent in 1995. The expected
expenditures and the 1995 expenditures for each of the Electric
Operating Companies are presented in the following table.
CPL PSO SWEPCO WTU
(thousands)
Total expected expenditures (1995-1997) $540 $329 $488 $309
Expenditures in 1995 $146 $98 $131 $86
Water Quality
Water quality is subject to the jurisdiction of each of the
state regulatory authorities in which the CSW System operates as well
as the EPA. These authorities have jurisdiction over all wastewater
discharges into state waters and also for establishing water quality
standards and issuing waste control permits covering discharges which
might affect the quality of state waters. The EPA has jurisdiction
over point source discharges through the National Pollutant Discharge
Elimination System provisions of the Clean Water Act.
RCRA and CERCLA
The RCRA and the Arkansas, Louisiana, Oklahoma and Texas solid
waste rules provide for comprehensive control of all solid wastes
from generation to final disposal. The appropriate state regulatory
authorities in the states in which the CSW System operates have
received authorization from the EPA to administer the RCRA solid
waste control program for their respective states.
The operations of the CSW System, like those of other utility
systems, generally involve the use and disposal of substances subject
to environmental laws. CERCLA, the federal "Superfund" law,
addresses the cleanup of sites contaminated by hazardous substances.
Superfund requires that PRPs fund remedial actions regardless of
fault or the legality of past disposal activities. PRPs include
owners and operators of contaminated sites and transporters and/or
generators of hazardous substances. Many states have similar laws.
Theoretically, any one PRP can be held responsible for the entire
cost of a cleanup. Typically, however, cleanup costs are allocated
among PRPs.
CSW's subsidiaries incur significant costs for the handling,
transportation, storage and disposal of hazardous and non-hazardous
waste materials. Unit costs for waste classified as hazardous exceed
by a substantial margin unit costs for waste classified as non-
hazardous.
The Electric Operating Companies, like other electric utilities,
produce combustion and other generation by-products, such as ash
sludge, slag, low-level radioactive waste and spent nuclear fuel.
The Electric Operating Companies own distribution poles treated with
<PAGE> 1-25
creosote or related substances. The EPA currently exempts coal
combustion by-products from regulation as hazardous wastes.
Distribution poles treated with creosote or similar substances are
not expected to exhibit characteristics that would cause them to be
hazardous waste. In connection with their operations, the Electric
Operating Companies also have used asbestos, PCBs and materials
classified as hazardous waste. If additional by-products or other
materials generated or used by companies in the CSW System were
reclassified as hazardous wastes, or other new laws or regulations
concerning hazardous wastes or other materials were put in effect,
CSW System disposal and remedial costs could increase materially.
The EPA is expected to issue new regulations stating whether certain
other materials will be classified as hazardous.
TSCA Violation - CPL
Under the TSCA, the storage, use and disposal, among other
things, of PCBs are regulated. Violations of the TSCA may lead to
fines and penalties. CPL was inspected by the EPA in 1992 and found
to have TSCA record-keeping and other violations for PCBs. During
1995, CPL negotiated a settlement, signed a consent agreement and
paid a penalty of approximately $76,000.
Sol Lynn Superfund Site - CPL
The Sol Lynn salvage yard was declared a Superfund site by the
EPA after it was found to contain a number of contaminants including
PCBs. Gulf States Utilities Company remediated the site for
approximately $2 million and attempted to recover a portion of the
remediation costs from alleged PRPs, including CPL. During 1995, CPL
and Gulf States Utilities Company reached an agreement whereby CPL
paid $50,000 as its share of the remediation costs.
Rose Chemical Site - SWEPCO, WTU and CPL
SWEPCO, WTU and CPL were named PRPs in the cleanup of the Rose
Chemical Site, in Missouri, along with 750 other companies. A
cleanup fund was established through payments by PRPs who agreed to a
"buyout settlement," and the site remediation was undertaken. The
site buildings were removed and the grounds cleaned to standards
acceptable to the EPA. The court settlement became final in July
1994, and during 1995, SWEPCO, WTU and CPL received refunds of
$225,000, $235,000 and $60,000, respectively, from the previously
collected cleanup fund.
PCB Storage Facilities - PSO
PSO investigated and identified PCB contamination at one of its
PCB storage facilities in Sand Springs, Oklahoma. PSO made proper
notification to the EPA of the contamination that was caused by
spills prior to the adoption of PCB spill regulations. PSO
negotiated a remediation plan with the EPA. Remediation of the PCB
storage site began in November 1994 and was completed in 1995 at a
cost of approximately $235,000. As part of the remediation plan,
however, the EPA requested PSO to sample the land surrounding the PCB
storage building site. The land includes an active PSO substation
and a privately owned industrial area. Testing of the PSO property
conducted during 1995 revealed minor contamination, and a resulting
cleanup of the substation was completed at a cost of $73,000. PSO
has not been able to test the adjoining industrial area, so it has
been unable to determine the extent of any PCB contamination.
Compass Industries Superfund Site - PSO
PSO has received notice from the EPA that it is a PRP under
CERCLA and may be required to share in the reimbursement of cleanup
costs for the Compass Industries Superfund site which has been
remediated. PSO has been named defendant in a lawsuit filed in
Federal District Court in Tulsa, Oklahoma on August 29, 1994, for
reimbursement of the cleanup costs. PSO's degree of responsibility,
if any, as a de minimis party appears to be insignificant and
management expects that PSO will have an opportunity to pay its share
of costs and remove itself from the case. Accordingly, in 1995, PSO
accrued a $100,000 liability for this expected settlement in 1996.
Coal Mine Reclamation - PSO
In August 1994, PSO received approval from the Wyoming
Department of Environmental Quality to begin reclamation of a coal
mine in Sheridan, Wyoming, owned by Ash Creek, a wholly owned
<PAGE> 1-26
subsidiary of PSO. Ash Creek recorded a $3 million liability in 1993
for the estimated reclamation costs and subsequently accrued an
additional $500,000 in 1995. Actual reclamation work commenced in
September 1995, with completion expected in late 1996. Surveillance
monitoring will continue for ten years after final reclamation.
Management believes that ultimate resolution of this matter will not
have a material adverse effect on CSW's or PSO's consolidated results
of operations or financial condition.
Suspected Biloxi, Mississippi MGP Site - SWEPCO
In 1994, SWEPCO was notified by Mississippi Power that it may be
a PRP at a MGP site in Biloxi, Mississippi, formerly owned and
operated by a predecessor of SWEPCO. SWEPCO worked with Mississippi
Power to investigate the extent of contamination at this site. The
MDEQ approved a site investigation work plan and, in January 1995,
SWEPCO and Mississippi Power initiated sampling pursuant to that work
plan. Contamination at the site was identified as a result of the
investigation of the property and adjacent properties. Soil and
grounds water test results were sent to the MDEQ for review and
comment. The test results confirmed the contamination on the
property and indicated the possibility of contamination of an
adjacent property. A risk assessment has been performed to assist
SWEPCO and Mississippi Power in determining remediation alternatives.
A final range of cleanup costs has not been determined, but based on
preliminary estimates, SWEPCO has accrued approximately $2 million
for its portion of the cleanup of this site.
Suspected MGP Sites in Texarkana, Arkansas and Shreveport,
Louisiana - SWEPCO
SWEPCO owns a suspected former MGP site in Texarkana, Arkansas.
The EPA ordered an initial investigation of this site, as well as a
site in Shreveport, Louisiana, which is no longer owned by SWEPCO.
The contractor who performed the investigations of these two sites
recommended to the EPA that no further action be taken at this time.
SWEPCO discovered that an underground storage tank was in place at the
Texarkana site and that it was leaking. SWEPCO removed the tank in
early 1995 and has made a request for closure from the ADPCE based on
soil and ground water quality results. SWEPCO does not believe that
any further action will be required for either of these sites.
Suspected MGP Site in Marshall, Texas - SWEPCO
SWEPCO owns a suspected former MGP site in Marshall, Texas.
SWEPCO notified the TNRCC that evidence of contamination has been
found at the site. Sampling was conducted at the end of 1993 and
early 1994, to evaluate the extent, if any, to which contamination has
impacted soil, groundwater and other conditions in the area. SWEPCO
later conducted another round of groundwater sampling from the site's
groundwater monitor wells. Sample results from each of the nine
monitor wells indicate that there were no drinking water standards
exceeded for RCRA metals. In April 1995, additional off-site soil
samples were collected and were analyzed for metals concentrations to
provide for statistical comparison of on-site soils metals
concentrations with off-site or background levels. Metal
concentrations were determined to be comparable to background levels,
so SWEPCO proceeded with closure of the site with the TNRCC. Cleanup
work at the site was completed for substantially less than the
preliminary $2 million estimate that was accrued in 1993.
EMFs
Research is ongoing whether exposure to EMFs may result in
adverse health effects. Although a few of the studies to date have
suggested certain associations between EMFs and some types of
effects, the research to date has not established a cause-and-effect
relationship between EMFs and adverse health effects. CSW cannot
predict the impact on CSW or the electric utility industry if
further investigations or proceedings were to establish that the
present electricity delivery system is contributing to increased
risk or incidence of health problems.
Other Environmental Matters
From time to time the registrants are made aware of various
other environmental issues or are named as a party to various other
legal claims, actions, complaints or other proceedings related to
environmental matters. Management does not expect disposition of
any such pending environmental proceedings to have a material
adverse effect on CSW's or any of the Electric Operating Companies'
results of operations or financial condition.
<PAGE> 1-27
See ITEM 7-MD&A, ITEM 8-NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS and NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES, for
additional information relating to environmental matters.
UNITED KINGDOM UTILITY OPERATIONS
Background and Overview
On November 6, 1995, CSW, indirectly through CSW (UK), announced
its intention to commence the Tender Offer in the United Kingdom to
acquire all of the outstanding share capital of SEEBOARD, a regional
electricity company in the United Kingdom, for an aggregate adjusted
purchase price of approximately $2.12 billion. Through February 29,
1996, CSW (UK) had acquired shares representing, or had received
valid acceptances in respect of, approximately 92.3% of the
outstanding share capital of SEEBOARD. CSW (UK) expects to acquire
the remaining 7.7% of the outstanding SEEBOARD share capital by the
end of the second quarter of 1996.
SEEBOARD is one of the 12 regional electricity companies which
came into existence as a result of the restructuring and subsequent
privatization of the United Kingdom electricity industry in 1990.
SEEBOARD's primary regulated businesses are the distribution and
supply of electricity within its southeast England service area.
SEEBOARD is also involved in other activities, including gas supply,
electricity generation, electrical contracting and retailing.
SEEBOARD serves an affluent suburban and rural area in the United
Kingdom. SEEBOARD is also one of the lowest cost suppliers of below
100 KV customers among the United Kingdom's regional electricity
companies.
Distribution and Supply Businesses
Service Area
SEEBOARD's service area covers approximately 3,000 square miles
in southeast England, extending from the outlying areas of London to
the English Channel. SEEBOARD's service area includes large towns
such as Kingston-upon-Thames, Croydon, Crawley, Maidstone, Ashford
and Brighton, as well as substantial rural areas. The area has a
population of approximately 4.6 million people with significant
portions of the area, such as south London, having a high population
density. Over the past 25 years, the services sector of the area's
economy has become increasingly important, while the industrial
sector has been in decline. There has been considerable commercial
development in a number of towns in the area over the last ten years,
in particular in the areas around Gatwick Airport and the English
Channel ports.
Distribution Business
Distribution is the core business of SEEBOARD and involves the
distribution of electricity to consumers over SEEBOARD's distribution
system. Electricity is transported from generating plants across the
United Kingdom, typically at 400 KV or at 275 KV via the National
Grid, to points within SEEBOARD's geographical area. It is then
transformed to 132 KV and enters SEEBOARD's distribution system.
Almost all of the electricity that enters SEEBOARD's system is
received at these National Grid supply points. However, a small
amount of electricity is received from power stations within
SEEBOARD's geographical area. At December 31, 1995, SEEBOARD's
distribution system contained approximately 7,655 miles of overhead
lines and approximately 19,874 miles of underground cables. The bulk
of SEEBOARD's tangible fixed assets are currently employed in the
distribution business.
Supply Business
SEEBOARD's supply business consists of the bulk purchase of
electricity and its sale to customers. The majority of electricity
<PAGE> 1-28
sold by SEEBOARD in its supply business is purchased through a pool
created in 1990 for the bulk trading of electricity. Pool prices are
variable and difficult to predict. Accordingly, in an effort to
control exposure to prices, SEEBOARD has a portfolio of contracts
with major generators as a means of hedging price fluctuations in the
pool. The physical delivery of electricity via SEEBOARD's
distribution network results in a cost to the supply business and
income to the distribution business.
SEEBOARD currently has the sole right to supply substantially
all of the consumers in its authorized area, except where demand is
above 100 KW. As a part of the restructuring of the electricity
industry, competition is being introduced into the market for
electricity supply on a phased basis. The threshold for competitive
supply was reduced from 1 MW to 100 KW effective April 1, 1994.
SEEBOARD, as well as other licensed suppliers, are permitted to
supply electricity to customers whose peak demand exceeds 100 KW in
the areas of other regional electricity companies. All holders of a
second-tier license, including SEEBOARD, who supply electricity to
non-franchise customers (i.e., demand of 100 KW or above) must pay
charges to the host regional electricity company for the use of its
distribution network. It is currently intended that, effective April
1, 1998, the regional electricity companies' supply businesses
(including SEEBOARD's) will no longer be protected by a franchise.
SEEBOARD has always been a strong supporter of extending competition
in electricity whenever feasible and practicable. To date, SEEBOARD
has established a profitable business in supplying customers outside
of its franchise area. While SEEBOARD is currently unable to predict
the impact that the transition in 1998 to full competition will have
on its electricity supply business, its primary objective is one of
profit and not market share.
Regulation
The distribution and supply businesses of SEEBOARD are
principally regulated by the Electricity Act of 1989 and by the
conditions contained in SEEBOARD's public electricity supply license.
The public electricity supply license generally continues until at
least 2025, although it may be revoked upon 25 years prior notice.
The Secretary of State for Trade and Industry and the DGES are the
principal regulators of SEEBOARD's business.
Most of the income of the distribution business is regulated by
a formula set by the DGES based upon, among other factors, the UK
RPI. The formula generally sets a cap on the average price per unit
distributed, with allowed annual increases based upon changes in the
UK RPI plus a percentage factor set from time to time by the DGES
(which was initially set at 0.75%). In August 1994, the DGES
announced that SEEBOARD's allowed per unit price would be reduced by
14% effective April 1, 1995 and that increases (or, if applicable,
decreases) in the allowed per unit price in subsequent years would be
based upon changes in the UK RPI minus 2%. In July 1995, the DGES
proposed a further revision to SEEBOARD's price controls which would
further reduce the allowed per unit price by 13%, effective April 1,
1996, and restrict increases (or, if applicable, require decreases)
in the allowed per unit price in each of the three subsequent years
based upon changes in the UK RPI minus 3%. The DGES is not scheduled
to review the allowed distribution charges for the regional
electricity companies, including SEEBOARD, until 2000, although the
DGES may reopen the review before such time under certain
circumstances.
The prices charged by SEEBOARD in its franchise supply business
are also determined from a formula set from time to time by the DGES.
The formula generally provides for the pass through to customers of
certain costs incurred by SEEBOARD in supplying the electricity,
which include electricity purchase costs, transmission charges, and
distribution costs, together with an allowed margin as determined by
the DGES. Under the current formula, SEEBOARD is permitted annual
increases (or, if applicable, decreases) in its allowed margin by an
amount equal to the UK RPI minus 2%. The DGES is not scheduled to
review the allowed supply charges for the regional electricity
companies, including SEEBOARD, until 1998, although the DGES may
reopen the review before such time under certain circumstances.
<PAGE> 1-29
Other Businesses
In addition to its distribution and supply businesses, SEEBOARD
is also engaged in other activities, including gas supply,
electricity generation, electrical contracting and retailing.
SEEBOARD's gas supply business was established in 1993 to compete in
the competitive commercial and industrial markets. In 1995, a joint
venture was entered into with Amoco to take advantage of the
extension of competition into the United Kingdom natural gas domestic
market, and will result in the supply by SEEBOARD of natural gas
throughout the United Kingdom. SEEBOARD's electricity generation
business is conducted through its 37.5% interest in Medway Power
Ltd's 660 MW gas fired power plant located on the Isle of Grain.
SEEBOARD also provides electrical contracting services as both a
primary contractor and subcontractor to a variety of industrial,
commercial and domestic customers. These operations are primarily in
Southeast England but include a growing national element. Finally,
SEEBOARD conducts an electrical retailing business through its chain
of retail electrical appliance shops and superstores. Although the
retail business remains concentrated in SEEBOARD's authorized service
area, a small number of superstores have been developed successfully
outside of the region.
Financial Information
For the year ended December 31, 1995, SEEBOARD had electricity
sales of approximately 18 billion KWH and, excluding exceptional
items, net earnings of approximately $118 million on revenues of
approximately $1.9 billion (1.00 pound=$1.58). SEEBOARD's results for the
year ended December 31, 1995 are not indicative of the results that
will be experienced by SEEBOARD as a subsidiary of CSW due, in part,
to the debt incurred in connection with the financing of the
acquisition, the purchase accounting adjustments and the other
accounting adjustments made to adjust SEEBOARD's results for U.S.
Generally Accepted Accounting Principles. See ITEM 7-MD&A and ITEM 8-
NOTE 13. UNAUDITED PRO FORMA INFORMATION for more information
regarding SEEBOARD.
Environmental Regulation
SEEBOARD's operations are subject to regulation with respect to
water quality standards and other environmental matters by various
authorities within the United Kingdom. Under certain circumstances,
these authorities may require modifications to SEEBOARD's facilities
and operations or impose fines and other costs for violations of
applicable statutes and regulations. From time to time SEEBOARD is
made aware of various environmental issues or is named as a party to
various other legal claims, actions, complaints or other proceedings
related to environmental matters. Management does not expect
disposition of any such pending environmental proceedings to have a
material adverse effect on CSW's results of operations or financial
condition.
NON-UTILITY OPERATIONS
Transok
Transok, is an intrastate natural gas pipeline and gas
marketing company that gathers, processes and stores natural gas
for, and transports and markets natural gas to, the Electric
Operating Companies and other customers. Transok, which was
incorporated in Oklahoma in 1955, was acquired by CSW in 1961 to
supply natural gas to PSO's power stations. Transok's operations in
recent years have included the marketing and transportation of
natural gas for third parties, as well as the supply of gas and
services to the other Electric Operating Companies and CSW Energy.
Transok provides a variety of services to the Electric Operating
Companies including acquiring and transporting natural gas to meet
certain of their power generation needs. Transok's largest customer
is PSO. The contract between PSO and Transok provides (i) for the
transportation of PSO's natural gas fuel supply through Transok's
pipeline system and (ii) for Transok to act as PSO's supply
<PAGE> 1-30
administrator in acquiring natural gas and negotiating and
administering supply contracts. PSO pays Transok for such services
at cost, including a return on equity applicable between affiliates
as specified by the Oklahoma Commission in PSO's most recent Oklahoma
price review. The contract expires on January 1, 2003. Under the
contract, PSO has the right to require delivery of up to 165,000
MMbtu per day of natural gas through Transok's pipeline system. PSO
has the option, exercisable on or before July 1, 1997, to increase
delivery of natural gas under the contract up to 255,000 MMbtu per
day effective January 1, 1998. Transok's current delivery rate to
PSO is approximately 98 Bcf of natural gas annually, which is
projected to increase in the future.
Natural Gas Transportation and Gathering
Transok provides natural gas suppliers and shippers with
pipeline interconnects for access to the Electric Operating Companies
and other end-users throughout the United States. At December 31,
1995, Transok's pipeline system consisted of approximately 6,504
miles of gathering and transmission lines which include approximately
4,030 miles of gathering lines in Oklahoma, 276 miles in Louisiana
and 214 miles in Texas. At December 31, 1995, Transok's pipeline
system consisted of 205 compressors with 228,300 horsepower to
provide both gathering and transmission line compression. Transok's
pipeline facilities are located in the major natural gas producing
basins in Oklahoma, including the Anadarko and Arkoma basins, and in
the major Louisiana corridor of pipelines transporting natural gas to
the northeast from the Gulf Coast and mid-continent areas. The
Transok pipeline system has numerous connections with major
interstate pipelines through which natural gas is transported to
markets throughout the United States. In 1995, the Transok pipeline
system had a throughput of 511 Bcf of natural gas.
Transok transported approximately 89 Bcf of natural gas for PSO
in 1995 and provided administrative services to PSO to manage its
supply of natural gas. Transok has been active in the development of
joint gas purchase arrangements with its other CSW affiliates as
well. Transok's access to diverse natural gas markets combined with
the natural gas fuel needs of the Electric Operating Companies allow
for natural gas opportunities at high load factors, reducing the cost
of natural gas fuel for the CSW System.
Natural Gas Processing
Transok also owns and operates eight natural gas processing
plants, including the Cox City plant which began operations in
January 1996, for the production of natural gas liquids. The plants
have an aggregate capacity of 564 MMcf/d. Transok is the largest
natural gas processor in Oklahoma and ranks eighteenth among natural
gas liquids producers nationwide. In 1995, Transok's plants produced
344 million gallons of natural gas liquids while revenue from the
sale of natural gas liquids amounted to $135 million for the year.
Natural Gas Storage
Transok owns and operates an underground natural gas storage
reservoir in Oklahoma with an aggregate storage capacity of
approximately 26 Bcf. Operational capabilities include injection
into storage at a rate of 200 MMcf/d and a withdrawal rate in excess
of 300 MMcf/d. The FERC has approved market-based storage rates for
Transok which enables it to sell storage services to interstate
customers at negotiated fees based on the value of those services in
the competitive marketplace. Transok's gas storage field also allows
Transok to offer peaking services, accommodate volume swings on its
pipeline system and support the natural gas requirements of the
Electric Operating Companies.
Natural Gas Marketing
In 1989, Transok began its natural gas marketing program and
sold 26 Bcf to a variety of customers including local distribution
companies, end-users and other pipelines. In 1995, Transok's natural
gas sales volumes were 326 Bcf with a sales revenue of $529 million.
Off-system sales of natural gas accounted for 164 Bcf of the natural
gas sold in 1995. This increase was the result of pipeline
acquisition and construction activities combined with new customers.
Transok aggregates natural gas supply into various supply pools,
which provide Transok with reliable sources of natural gas at market
sensitive prices, allowing Transok to meet its natural gas supply
needs. Transok offers various gas supply services to provide
<PAGE> 1-31
customers with peaking and balancing alternatives utilizing Transok's
gas supplies and facilities. In addition, Transok's customers have
the opportunity to select various pricing options including: (i)
fixed or variable pricing; (ii) indexed to New York Mercantile
Exchange pricing; or (iii) cash quotes.
Transok uses natural gas futures, options and basis swaps to
reduce its price risk exposure arising from the purchase and sale of
natural gas. Natural gas futures and options allow Transok to
protect against volatility in supply costs in fulfilling fixed price
contracts, meeting storage requirements and purchasing natural gas
for processing operations. Natural gas futures and options also are
used to protect Transok against price exposure on sales of natural
gas from storage or anticipated purchases. In addition, basis swaps
protect Transok against volatility in price differentials between
geographic areas in matching anticipated supply and demand prices.
In 1992, FERC Order 636 went into effect to deregulate the
natural gas industry and increase competition. Although Transok
operations were not directly affected by Order 636, Transok has
developed tariff services, flexible contracts and other natural gas
related services in order to meet customers' needs and take advantage
of new competitive opportunities.
Services for CSW Energy
Transok provides natural gas fuel planning and management
services for CSW Energy. Transok assists CSW Energy in developing
natural gas supply and transportation strategies for CSW Energy's non-
utility electric generation projects.
Regulation
As a subsidiary of CSW, Transok is subject to regulation under
the Holding Company Act. The Holding Company Act, among other
things, requires that regulated companies seek prior SEC approval
before entering into certain transactions, including the acquisition
or issuance of securities.
Transok's pipelines are considered gathering systems or
intrastate pipelines. Transok is therefore exempt from regulation by
the FERC under the Natural Gas Act. However, Transok's rates for
transporting gas in interstate commerce are subject to FERC
regulation under the Natural Gas Policy Act of 1978. The FERC
approves Transok's rates for transportation of gas in interstate
commerce through Transok's pipelines in Oklahoma and Louisiana and
the Texas Railroad Commission approves the rates for such
transportation through pipelines in Texas. The FERC also has given
Transok approval to charge market-based rates for storage of gas
using Transok's storage facility in Oklahoma.
While Transok is not subject to direct regulation by any state
public utility commission, the costs that result from transactions
with the Electric Operating Companies are subject to review by the
state commissions regulating affiliates and are required to meet
standards for affiliate transactions to be recoverable by the
Electric Operating Companies.
Transok's compressor engines and other emission sources are
subject to air permit requirements, including monitoring. As a
result of new requirements under the Clean Air Act, seven of
Transok's facilities will be subject to additional permit
requirements. The Clean Air Act may also impose additional enhanced
monitoring requirements on these seven facilities.
Strategic Alternatives for Transok
In January 1996, CSW announced it was exploring strategic
alternatives for its investment in Transok. The alternatives for
Transok, which include a possible sale, are a part of CSW's
continuous strategic asset review. Although it is not presently
possible to predict the terms upon which any sale of Transok would be
effected, CSW does not expect that the sale of Transok to an
unaffiliated third party would have a material adverse effect on the
price or availability of natural gas for PSO or any of the other
Electric Operating Companies.
<PAGE> 1-32
CSW Energy
CSW Energy is authorized to develop various independent power
and cogeneration facilities and to own and operate such non-utility
projects, subject to regulatory approval. CSW Energy's participation
in projects as of the end of 1995 is presented in the following
table.
<TABLE>
<CAPTION>
Capacity Commercial
(in Mw) Operation Ownership Thermal
Project Location Total Sold Date Interest Host Host Utility
<S> <C> <C> <C> <C> <C> <C> <C>
Brush II Brush,CO 68 68 January 1994 47% Greenhouse Public Service
Company of Colorado
Ft. Lupton Ft. Lupton, CO 272 272 June 1994 50% Greenhouse Public Service
Company of Colorado
Mulberry Polk County, FL 120 110 August 1994 50% Distilled Florida Power Corporation
water/ ethanol
plant
Orange Polk County, FL 103 97 June 1995 50% Orange juice Florida Power Corporation
processor Tampa Electric Company
Phillips Sweeny Sweeny,TX 300 90* Mid 1998 50% Refinery Undetermined*
Newgulf Wharton, TX 85 -- Mid 1996 100% IPP Undetermined
* The Phillips Sweeny project has the unexercised option to sell 90 MW
of capacity to Phillips Petroleum Company.
</TABLE>
In addition to these projects, CSW Energy has another six
projects totaling approximately 2,000 MW in various stages of
development, mostly in affiliation with other developers. See ITEM 7-
MD&A for additional discussion of the settlement of certain issues
between CSW Energy and a former business partner that resulted in a
new business partner for the Mulberry and Orange projects.
CSW International
CSW International was formed in 1994 to engage in international
activities, including developing, acquiring, financing and owning
EWGs and foreign utility companies. CSW International's most
significant activity to date is the acquisition, indirectly through
CSW (UK), of the outstanding share capital of SEEBOARD pursuant to
the Tender Offer. See UNITED KINGDOM UTILITY OPERATIONS above, and
ITEM 7-MD&A. CSW International also intends to continue its efforts
in Mexico, with a stated goal of participating in providing Mexico's
future electricity needs. Although the recent devaluation of the
Mexican peso has slowed previously projected power demand, CSW
International continues to believe that the geographic location of
the CSW System offers opportunities to provide bulk power to Mexico.
CSW International continues to seek to expand into other countries
in Latin America, Europe and Asia that meet its investment criteria.
CSW Credit
CSW Credit was formed to purchase, without recourse, the
accounts receivables from the Operating Companies. This helps
provide liquidity to the Operating Companies due to the seasonal
nature of the electric utility industry. CSW Credit's business has
been expanded to include the purchase, without recourse, of accounts
receivables for certain non-affiliated parties as well. In
addition, CSW Credit's capital structure contains greater leverage
than that of the Operating Companies, consequently lowering CSW's
overall cost of capital. CSW Credit, as a subsidiary of CSW, is
subject to the Holding Company Act. As such, CSW Credit must comply
with a restriction whereby no more than 50% of the average
outstanding accounts receivable balances held may be from non-
affiliated parties.
<PAGE> 1-33
CSW Communications
CSW Communications was formed to provide communication services
to the Operating Companies and non-affiliates. One important goal
of CSW Communications is to enhance services to CSW System customers
through fiber optics and other telecommunications technologies. In
Laredo, Texas, a project has been undertaken to install fiber optic
lines and coaxial cable to CPL residential customers. The project,
a network of over 3,000 homes with approximately 700 customers
currently participating, will demonstrate the energy efficiency and
cost savings that result from giving customers greater choice and
control over their electric service. CSW Communications offers
similar energy efficiency services to other parties, including
affiliates as well as non-affiliates. In the future, CSW
Communications may, subject to any required regulatory approvals,
seek to lease or otherwise use the remaining capacity for other
services including possibly telephone service, cable television and
home security systems. CSW Communications presently owns and
manages a 185 mile fiber-optic line connecting the south Texas
cities of Corpus Christi, Harlingen and McAllen, and anticipates the
construction of another fiber-optic line, connecting Shreveport,
Louisiana and Longview, Texas, to begin in mid-1996.
CSW Communications filed for "exempt telecommunications
company" status with the FCC on February 8, 1996, subsequent to
legislation that introduced competition to telephone and other
communications industries that operated within regulated
environments. The filing with the FCC automatically qualifies CSW
Communications as an exempt telecommunications company, pending the
FCC's review of the application (which is required to be completed
within 60 days). CSW believes that CSW Communications' exempt
telecommunications company status will enable it to compete more
effectively with other telecommunications companies.
EnerShop
In September 1995, EnerShop was formed to provide energy
services to customers throughout the Southwest. EnerShop offers
services that help reduce customers' operating costs through
increased energy efficiencies and improved equipment operations.
EnerShop utilizes the skills of local trade allies in offering
services that include energy and facility analysis, project
management, engineering design and equipment procurement and
construction, third party financing and equipment leasing, savings
and performance guarantees and performance monitoring. EnerShop
recently secured its first major contract and has bids outstanding
for several additional projects in 1996.
OTHER INFORMATION
Employees
The number of employees at December 31, 1995, is presented in
the following table.
CSW Services 1,109
CPL 1,896
PSO 1,477
SWEPCO 1,747
WTU 1,063
Transok 546
CSW Energy 87
SEEBOARD 4,139
12,064
Approximately 550 employees at PSO and 750 employees at SWEPCO
are covered under collective bargaining agreements with the
International Brotherhood of Electrical Workers. Approximately 3,300
employees at SEEBOARD are covered by collective agreements with
<PAGE> 1-34
several different unions. These unions include the Amalgamated
Electrical and Engineering Union, GMB, Electrical Power Engineers
Association, Unison and the Transport and General Workers Union.
Executive Officers of CSW
The following information is included in Part I pursuant to
Regulation S-K, Item 401(b), Instruction 3.
Age at March
Name 16, 1996 Present Position
E. R. Brooks 58 Chairman, President
and CEO, Director
Harry D. Mattison (1) 59 Executive Vice President
of CSW, President and CEO
of CSW Electric, Director
T. V. Shockley, III 51 Executive Vice President
of CSW, President and CEO
of CSW Enterprises, Director
Ferd. C. Meyer, Jr. 56 Senior Vice President and
General Counsel
Glenn D. Rosilier 48 Senior Vice President and
Chief Financial Officer
Frederic L. Frawley 53 Corporate Secretary and
Senior Attorney
Stephen J. McDonnell 45 Treasurer
Wendy G. Hargus 38 Controller
(1) Mr. Mattison will retire as a director and executive officer of CSW
effective April 18, 1996 and April 30, 1996, respectively.
Each of the executive officers of CSW is elected to hold office
until the first meeting of CSW's Board of Directors after the next
annual meeting of stockholders. CSW's next annual meeting of
stockholders is scheduled to be held April 18, 1996. Each of the
executive officers listed in the table above has been employed by CSW
or an affiliate of CSW in an executive or managerial capacity for
more than the last five years.
<PAGE> 1-35
ITEM 2. PROPERTIES.
See ITEM 1. BUSINESS for a description of the CSW System and
SEEBOARD properties.
ITEM 3. LEGAL PROCEEDINGS.
The registrants are party to various legal claims, actions and
complaints arising in the normal course of business that are not
described herein. Management does not expect disposition of these
matters to have a material adverse effect on any of the registrants'
results of operations or financial condition.
See ITEM 1-BUSINESS, ITEM 7-MD&A and ITEM 8-NOTE 2. LITIGATION
AND REGULATORY PROCEEDINGS for information relating to pending legal,
environmental and regulatory proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
CSW None.
CPL None.
PSO None.
SWEPCO None.
WTU None.
<PAGE> 2-1
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
CSW COMMON STOCK INFORMATION
1995 1994
Market Price Dividends Market Price Dividends
High Low Paid High Low Paid
First Quarter $24 7/8 $22 3/8 43.0 cents $30 7/8 $24 1/8 42.5 cents
Second Quarter 26 5/8 23 7/8 43.0 26 1/4 20 1/8 42.5
Third Quarter 26 3/8 24 1/8 43.0 23 1/4 20 7/8 42.5
Fourth Quarter 28 1/2 24 3/4 43.0 23 3/4 20 1/8 42.5
CSW's common stock is traded under the ticker symbol CSR and
listed on the New York Stock Exchange, Inc. and Chicago Stock
Exchange, Inc. Market prices for CSW Common were obtained from the
composite listing of all CSW Common trades as reported on Bloomberg
Financial Commodities News.
Dividends of 43 cents a share were paid in each quarter of
1995. All dividends paid by CSW represent taxable income to
stockholders for federal income tax purposes.
In January 1996, CSW's board of directors increased the
quarterly dividend to 43.5 cents per share, payable on February 29,
1996, to stockholders of record on February 8, 1996. Future cash
dividends will be dependent upon the policies of CSW's board of
directors and CSW's earnings, financial condition and other factors.
Traditionally, the CSW board of directors has declared dividends to
be payable on the last business day of February, May, August, and
November.
On February 27, 1996, CSW sold 15,525,000 shares of CSW Common
in the 1996 Stock Offering. CSW received net proceeds of
approximately $398 million. These proceeds were used to repay a
portion of the indebtedness incurred by CSW under the CSW Credit
Agreement to fund the acquisition of SEEBOARD.
There were approximately 74,000 record holders of CSW's common
stock as of February 29, 1996.
CPL, PSO, SWEPCO AND WTU COMMON STOCK INFORMATION
All of the outstanding shares of common stock of CPL, PSO,
SWEPCO and WTU are owned by CSW.
ITEM 6. SELECTED FINANCIAL DATA.
Reference is made to the page numbers noted in the following table
for the location of ITEM 6. SELECTED FINANCIAL DATA, which is
included in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page Number
CSW CPL PSO SWEPCO WTU
Selected Financial Data 2-5 2-69 2-95 2-115 2-136
CSW
<PAGE> 2-2
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Reference is made to the page numbers noted in the following table
for the location of ITEM 7. MD&A which is included in ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page Number
CSW CPL PSO SWEPCO WTU
MD&A 2-6 2-70 2-96 2-116 2-137
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CSW Page
Central and South West Corporation 2-4
Selected Financial Data 2-5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 2-6
Consolidated Statements of Income 2-27
Consolidated Statements of Retained Earnings 2-28
Consolidated Balance Sheets 2-29
Consolidated Statements of Cash Flows 2-31
Notes to Consolidated Financial Statements 2-32
Report of Independent Public Accountants 2-66
Report of Management 2-67
CPL
Central Power and Light Company 2-68
Selected Financial Data 2-69
Management's Discussion and Analysis of Financial
Condition and Results of Operations 2-70
Statements of Income 2-81
Statements of Retained Earnings 2-82
Balance Sheets 2-83
Statements of Cash Flows 2-85
Statements of Capitalization 2-86
Notes to Financial Statements 2-87
Report of Independent Public Accountants 2-92
Report of Management 2-93
CSW
<PAGE> 2-3
PSO
Public Service Company of Oklahoma 2-94
Selected Financial Data 2-95
Management's Discussion and Analysis of Financial
Condition and Results of Operations 2-96
Consolidated Statements of Income 2-103
Consolidated Statements of Retained Earnings 2-104
Consolidated Balance Sheets 2-105
Consolidated Statements of Cash Flows 2-107
Consolidated Statements of Capitalization 2-108
Notes to Consolidated Financial Statements 2-109
Report of Independent Public Accountants 2-112
Report of Management 2-113
SWEPCO
Southwestern Electric Power Company 2-114
Selected Financial Data 2-115
Management's Discussion and Analysis of Financial
Condition and Results of Operations 2-116
Statements of Income 2-124
Statements of Retained Earnings 2-125
Balance Sheets 2-126
Statements of Cash Flows 2-128
Statements of Capitalization 2-129
Notes to Financial Statements 2-130
Report of Independent Public Accountants 2-133
Report of Management 2-134
WTU
West Texas Utilities Company 2-135
Selected Financial Data 2-136
Management's Discussion and Analysis of Financial
Condition and Results of Operations 2-137
Statements of Income 2-146
Statements of Retained Earnings 2-147
Balance Sheets 2-148
Statements of Cash Flows 2-150
Statements of Capitalization 2-151
Notes to Financial Statements 2-152
Report of Independent Public Accountants 2-155
Report of Management 2-156
CSW
<PAGE> 2-4
CENTRAL AND SOUTH WEST
CORPORATION
CSW
<PAGE> 2-5
SELECTED FINANCIAL DATA
The following selected financial data for each of the five
years ended December 31 is provided to highlight significant trends
in the financial condition and results of operations for CSW. All
common stock data have been adjusted to reflect the two-for-one
common stock split, effected by a 100% stock dividend paid on March
6, 1992. Certain financial statement items for prior years have
been reclassified to conform to the most recent period presented.
1995 (1) 1994 1993 (2) 1992 1991
(millions, except per share and ratio data)
INCOME STATEMENT DATA
Revenues $3,735 $3,623 $3,687 $3,289 $3,047
Operating expenses and taxes 3,079 3,029 3,230 2,701 2,481
Operating income 656 594 457 588 566
Other income and deductions 99 111 93 82 105
Interest charges 334 293 269 266 270
Net income 421 412 327 404 401
Net income for common stock 402 394 308 382 375
EPS of common stock $2.10 $2.08 $1.63 $2.03 $1.99
Dividends paid per share of
common stock $1.72 $1.70 $1.62 $1.54 $1.46
Average common shares
outstanding 191.7 189.3 188.4 188.3 188.3
BALANCE SHEET DATA
Assets 13,869 11,066 10,604 9,829 9,396
Common stock equity 3,178 3,052 2,930 2,927 2,834
Preferred stock
Not subject to mandatory
redemption 292 292 292 292 292
Subject to mandatory 34 35 58 75 97
redemption
Long-term debt 3,914 2,940 2,749 2,647 2,518
Current liabilities 3,425 2,188 2,143 1,562 1,304
Capitalization ratios
Common stock equity 43% 48% 49% 49% 49%
Preferred stock 4 5 6 6 7
Long-term debt 53 47 45 45 44
(1) Earnings in 1995 include the SEEBOARD Group's equity earnings
for November and full consolidation for December. See NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(2) Earnings in 1993 were significantly affected by restructuring
charges, the $46 million cumulative effect of changes in
accounting principles, the establishment of reserves for fuel and
other properties and prior year tax adjustments.
CSW
<PAGE> 2-6
CENTRAL AND SOUTH WEST CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to CSW's Consolidated Financial Statements
and related Notes to Financial Statements and Selected Financial
Data. The information contained therein should be read in
conjunction with, and is essential in understanding, the following
discussion and analysis.
OVERVIEW
The electric utility industry is changing rapidly as it is
becoming more competitive. Several years ago, in anticipation of
increasing competition and fundamental changes in the industry,
CSW's management developed the following four-part strategic plan
designed to help position CSW to be competitive in this rapidly
changing environment:
* Enhance CSW's core electric utility business
* Expand CSW's core electric utility business
* Expand CSW's non-utility business
* Pursue financial initiatives
Since the introduction of CSW's strategic plan in 1990, CSW has
undertaken key initiatives in each of these areas that are important
steps in the implementation of the overall strategy. These
initiatives were marked by the restructuring of CSW's core business
in 1993 and 1994, the recent SEEBOARD acquisition and, although it
was not consummated, the proposed acquisition of El Paso. These
events are discussed below and elsewhere in this report.
CSW believes that, compared to other electric utilities, the
CSW System is well positioned to capitalize on the opportunities and
challenges of an increasingly deregulated and competitive market for
the generation, transmission and distribution of electricity. The
CSW System benefits from economies of scale by virtue of its size
and is a reliable and relatively low-cost provider of electric
power. More specifically, CSW seeks competitive advantages through
its diverse and stable customer base, competitive prices for
electricity, diversified fuel mix, extensive transmission
interconnections, diversity of regulation and financial flexibility.
See RECENT DEVELOPMENTS AND TRENDS.
SEEBOARD ACQUISITION
On November 6, 1995, CSW, indirectly through CSW (UK),
announced its intention to commence the Tender Offer in the United
Kingdom to acquire all of the outstanding share capital of SEEBOARD,
a regional electricity company in the United Kingdom, for an
aggregate adjusted purchase price of approximately $2.12 billion.
SEEBOARD is one of the 12 regional electricity companies which came
into existence as a result of the restructuring and subsequent
privatization of the United Kingdom electric industry in 1990. Its
principal businesses are the distribution and supply of electricity
in southeast England. SEEBOARD is also involved in other
activities, including gas supply, electricity generation, electrical
contracting and retailing.
SEEBOARD serves an affluent suburban and rural area in the
United Kingdom. SEEBOARD is also one of the lowest cost suppliers
among the United Kingdom's regional electricity companies.
Approximately 91% of SEEBOARD's customers are residential. For the
year ended December 31, 1995, SEEBOARD had electricity sales of
approximately 18 billion KWH and, excluding exceptional items, net
CSW
<PAGE> 2-7
earnings of approximately $118 million on revenues of approximately
$1.9 billion (1.00 pound=$1.58). SEEBOARD's results for the year ended
December 31, 1995 are not indicative of the results that will be
experienced by SEEBOARD as a subsidiary of CSW due, in part, to the
debt incurred in connection with the financing of the acquisition,
the purchase accounting adjustments and the accounting adjustments
made to adjust SEEBOARD's results for U.S. Generally Accepted
Accounting Principles. See LIQUIDITY AND CAPITAL RESOURCES and NOTE
13. UNAUDITED PRO FORMA INFORMATION.
On January 10, 1996, CSW's Tender Offer was declared wholly
unconditional. Through February 29, 1996, CSW (UK) had acquired
shares representing, or had received valid acceptances in respect
of, approximately 92.3% of the outstanding share capital of
SEEBOARD. CSW (UK) expects to acquire the remaining 7.7% of the
outstanding share capital of SEEBOARD by the end of the second
quarter of 1996.
TERMINATION OF EL PASO MERGER
In May 1993, CSW entered into a Merger Agreement pursuant to
which El Paso would emerge from bankruptcy as a wholly owned
subsidiary of CSW. El Paso is an electric utility company
headquartered in El Paso, Texas, which filed a voluntary petition
for reorganization under Chapter 11 of the Bankruptcy Code on
January 8, 1992. On June 9, 1995, CSW notified El Paso that CSW
would not extend the termination date under the Merger Agreement as
had been requested by El Paso and, accordingly, that it was
terminating the Merger Agreement. CSW also informed El Paso on June
9, 1995 that it was withdrawing the Modified Plan for the proposed
Merger with El Paso by a contemporaneous filing with the Bankruptcy
Court. On June 9, 1995, following CSW's notification that it was
terminating the Merger and withdrawing the Modified Plan, El Paso
filed suit against CSW. On June 15, 1995, CSW filed suit against El
Paso. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for a
discussion of the legal proceedings surrounding this termination.
RESTRUCTURING
During 1993, CSW announced a restructuring under which the CSW
System restructured the Electric Operating Companies under a new
business unit called CSW Electric and centralized many common
service functions into CSW Services in order to reduce costs and
improve efficiency and productivity. The restructuring included
restaffing positions throughout the CSW System and a reduction in
the workforce by more than 7% system-wide. The restructuring costs
were initially estimated to be $97 million and were expensed in
1993. The actual costs of the restructuring, approximately $86
million, were incurred primarily during 1994. CSW has realized a
number of benefits from the restructuring, including increased
efficiencies and synergies through the elimination of previously
duplicated functions.
RATES AND REGULATORY MATTERS
CPL Rate Review
On November 6, 1995, CPL filed with the Texas Commission a
request to increase its retail base rates by $71 million and reduce
its annual retail fuel factors by $17 million. The net effect of
these proposals would be an increase of $54 million, or 4.6%, in
total annual retail revenues based on a test year ended June 30,
1995. CPL is not seeking interim rate relief, but will implement
bonded rates in May 1996, the earliest date permitted by law. CPL
also is seeking to reconcile $229 million of fuel costs incurred
during the period July 1, 1994 through June 30, 1995. CPL's previous
request to reconcile fuel costs from March 1, 1990 to June 30, 1994
in Docket No. 13650 was consolidated with the current rate review.
CSW
<PAGE> 2-8
If the requested increase and other adjustments in rate structure are
approved, CPL has committed not to increase its base rates prior to
January 1, 2001, subject to certain force majeure events.
CPL is requesting this rate review in large part as a result of
the expiration of the amortization of its Mirror CWIP liability. The
Mirror CWIP liability was amortized to income in declining amounts
over a five-year period from 1991 through 1995 pursuant to rate
settlements reached by CPL in 1990 and 1991. In 1995, Mirror CWIP
provided $41 million in non-cash earnings at CPL. Also included in
the request are proposals by CPL to accelerate recovery of nuclear
and regulatory assets as a way to proactively address certain assets
that could possibly be unrecoverable or stranded in a more
competitive electric utility industry. In a preliminary order issued
December 21, 1995, the Texas Commission expanded the scope of the
rate review to address certain competitive issues facing the electric
utility industry. The competitive issues to be addressed by CPL in a
supplemental filing due April 1, 1996, are: (i) the calculation of
rates on an unbundled or functional basis (i.e., generation,
transmission and distribution); (ii) the current value of CPL's
generating assets as compared to estimates of the market value of
such assets under alternate future industry structures; (iii) the
application of performance based ratemaking; (iv) potential revisions
in the methodology of reconciling and recovering fuel costs; and (v)
the Texas Commission's authority to introduce competition in the
electric utility industry under existing law.
On February 13, 1996, intervening parties filed testimony in the
revenue requirements phase of CPL's base rate case. Among the
parties that filed testimony were the OPUC which recommended a base
rate decrease of approximately $75 million on a total company basis
and the Cities which recommended a base rate reduction of
approximately $52 million on a total company basis.
On February 20, 1996, the Staff filed testimony recommending an
increase in total company base rates of approximately $30 million.
Certain elements of the Staff's proposal are described below.
The Staff recommended a return on common stock equity of 11.35%
compared to the 12.25% return on common equity requested by CPL. The
Staff recommended a disallowance of $16 million in costs billed for
administrative services by CSW Services to CPL on the basis that the
specific benefits to CPL were not clearly identified. Additionally,
the Staff recommended a $7 million reduction in CPL's current annual
depreciation accrual and a $3 million reduction in CPL's requested
accrual for decommissioning STP. A comparison of the Staff's
recommendation for a base rate increase, compared to CPL's claimed
revenue deficiency is provided in the CPL RATE REVIEW COMPARISON
table.
CPL RATE REVIEW COMPARISON
(millions)
CPL revenue deficiency (1) $103
Return on common equity (21)
CSW Services expenses (16)
Depreciation expense (7)
Decommissioning expense (3)
Miscellaneous items (26)
Staff recommended revenue increase (2) $30
(1) The total company rate increase requested
by CPL was reduced from $103 million to $78
million ($71 million allocated to the Texas
retail jurisdiction) in accordance with rate
settlements entered into by CPL in 1990 and
1991.
(2) The Staff recommended that CPL be granted a
$23 million base rate increase and an annual
increase of $7 million in customer service
charges.
CSW
<PAGE> 2-9
The Staff and Cities recently filed testimony on the fuel
portion of the rate case recommending a reduction to CPL's eligible
fuel costs of $16 million and $32 million, respectively.
After completion of hearings in all phases of the rate case,
which began in late February 1996 and are expected to conclude during
the third quarter of 1996, the ALJs assigned to hear the case will
issue a proposal for decision for consideration by the Texas
Commission. Testimony filed by parties to the rate case, including
the Staff, is not binding on either the ALJs or the Texas Commission.
A final decision on the rate request is not anticipated from the
Texas Commission prior to December 1996.
Management of CSW and CPL cannot predict the ultimate outcome of
CPL's rate case, although management believes that the ultimate
resolution will not have a material adverse effect on CPL's or CSW's
consolidated results of operations or financial condition. However,
if CPL ultimately is unsuccessful in obtaining adequate rate relief,
CPL and CSW could experience a material adverse effect on their
results of operations and financial condition.
CPL 1995 Agreement
On April 5, 1995, CPL reached an agreement in principle with
other parties to pending regulatory proceedings involving base rate,
fuel and prudence issues relating to an outage experienced at STP
during 1993 and 1994. On May 16, 1995, CPL filed the CPL 1995
Agreement with the Texas Commission. Pursuant to the CPL 1995
Agreement, base rate refunds, fuel refunds and the reduction of CPL's
fuel factors were implemented on an interim basis during the summer
of 1995. Under the CPL 1995 Agreement, CPL provided customers a one-
time base rate refund of $50 million. In addition, CPL refunded
approximately $30 million in over-recovered fuel costs through April
1995. Furthermore, CPL did not charge customers for $62.25 million
in replacement power costs and related interest primarily associated
with the 1993-1994 STP outage. The CPL 1995 Agreement did not result
in any ongoing change in base rate levels and provided that there
would be no new rate review requests filed prior to September 28,
1995. CPL also reduced its fuel factors, effective in July 1995, by
approximately $55 million on an annual basis due to projections of
lower fuel costs. Hearings on the CPL 1995 Agreement were held on
July 19, 1995, and the final written Texas Commission order approving
the CPL 1995 Agreement was received on October 4, 1995. See NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS.
WTU Stipulation and Agreement
WTU has been the subject of several pending regulatory matters,
including the following: (i) a retail rate proceeding and fuel
reconciliation before the Texas Commission in Docket No. 13369; (ii)
Writ of Error to the Supreme Court - review of WTU's 1987 Texas rate
case in Docket No. 7510; and (iii) the Texas Commission's proceeding
on remand in Docket No. 13949 regarding deferred accounting treatment
for Oklaunion Power Station Unit No. 1 originally authorized in the
Texas Commission's order in Docket No. 7289.
On September 22, 1995, WTU, along with other major parties to
the above described matters, filed with the Texas Commission a joint
stipulation and agreement to resolve all of these matters. The WTU
Stipulation and Agreement is a unified package that included: (i) a
retail base rate reduction of approximately $13.5 million annually
starting with WTU's October 1995 revenue month billing cycle; (ii) a
$21 million retail refund which was not attributed to any specific
cause but was inclusive of all claims related to the three above
described litigation and regulatory matters and included the effect
of the rate reduction retroactive to October 1, 1994; (iii) a
reduction of reduced fixed fuel factors by approximately 2%; (iv)
various rate and accounting treatments including a reasonable return
on equity for retail operations of 11.375%; and (v) a retail base
rate freeze until October 1, 1998, subject to certain force majeure
provisions.
CSW
<PAGE> 2-10
On November 9, 1995, the Texas Commission rendered a final order
that implemented the joint stipulation and agreement. The WTU
Stipulation and Agreement is expected to impact WTU's results of
operations for the next several years, reducing annual earnings by
approximately $8 million beginning in 1996. The WTU Stipulation and
Agreement also eliminated several significant risks that have been
the subject of regulatory proceedings relating to deferred accounting
plant costs and rates and will enable WTU's rates to remain at
competitive levels for the foreseeable future. See NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS.
See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for
information regarding other regulatory matters.
TRANSOK
In January 1996, CSW announced it was exploring strategic
alternatives for Transok, CSW's wholly owned intrastate natural gas
gathering, transmission, marketing and processing subsidiary. The
alternatives for Transok, which include a possible sale, are a part
of CSW's continuous strategic review of its business. See NON-
UTILITY INITIATIVES.
SOUTH TEXAS PROJECT
CPL owns 25.2% of STP, a two-unit nuclear power plant which is
located near Bay City, Texas. In addition, HLP, the Project Manager
of STP, owns 30.8%, San Antonio owns 28.0%, and Austin owns 16.0% of
STP. STP Unit 1 was placed in service in August 1988 and STP Unit 2
was placed in service in June 1989.
From February 1993 until May 1994, STP experienced an
unscheduled outage resulting from mechanical problems. The outage
resulted in significant rate and regulatory proceedings involving
CPL, including a base rate case and fuel reconciliation proceedings
as previously discussed. Unit 1 restarted on February 25, 1994 and
reached 100% power on April 8, 1994 and Unit 2 resumed operation on
May 30, 1994 and reached 100% power on June 16, 1994. During the
last six months of 1994, the STP units operated at capacity factors
of 98.6% for Unit 1 and 99.2% for Unit 2. For a discussion of
regulatory matters surrounding the STP outage, see RATES AND
REGULATORY MATTERS above and NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS.
Both STP units were removed from service during 1995 for
scheduled refueling outages. The fueling outages lasted 41 days for
Unit 1 and 26 days for Unit 2. For the year 1995, Unit 1 and Unit 2
operated at net capacity factors of 84.9% and 90.6%, respectively.
For additional information regarding STP and the accounting for
the decommissioning of STP, see NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES and NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The historical capital requirements of the CSW System have been
primarily for the construction of electric utility plant. Based on
projections of growth in peak demand, CSW does not anticipate that
large capital expenditures for the construction of new generating
capacity will be required through the end of this decade.
CSW
<PAGE> 2-11
Accordingly, future capital expenditures for the Electric Operating
Companies, as well as SEEBOARD, are anticipated to be primarily for
existing distribution systems. Primary sources of capital are long-
term debt and preferred stock issued by the Electric Operating
Companies, long-term and short-term debt and common stock issued by
CSW and internally generated funds. CSW Energy and CSW
International typically use various forms of non-recourse project
financing to provide a portion of the capital required for their
respective projects. In addition, CSW, in order to strengthen its
capital structure and support growth from time to time, may issue
additional shares of CSW Common.
Internally generated funds should meet most of the capital
requirements of the Electric Operating Companies. However, CSW's
strategic initiatives, including expanding CSW's core electric
utility and non-utility businesses through acquisitions or
otherwise, may require additional capital from external sources. As
of February 29, 1996, CSW Investments had borrowed approximately
$1.0 billion to fund a portion of the SEEBOARD acquisition purchase
price pursuant to a credit facility for which neither CSW nor CSW
International is subject to recourse. On February 27, 1996, CSW
sold 15,525,000 shares of CSW Common pursuant to the 1996 Stock
Offering and received approximately $398 million in net proceeds,
which it used to repay a portion of the indebtedness incurred by CSW
to finance the acquisition of SEEBOARD.
Productive investment of net funds from operations in excess of
capital expenditures and dividend payments are necessary to enhance
the long-term value of CSW for its investors. CSW is continually
evaluating the best use of these funds. Subject to certain
exceptions, CSW is required to obtain authorization from various
regulators in order to invest in any additional business activities.
See RECENT DEVELOPMENTS AND TRENDS - Holding Company Act below.
SEEBOARD Acquisition Financing
The aggregate adjusted purchase price to be paid for SEEBOARD in
the Tender Offer is approximately $2.12 billion. As of February 29,
1996, CSW had contributed approximately $829 million of the purchase
price to complete the acquisition of SEEBOARD shares in connection
with the Tender Offer. CSW obtained such funds through borrowings
under the $850 million CSW Credit Agreement. Borrowings under the
CSW Credit Agreement are unsecured and mature on November 6, 2000,
subject to prepayment by CSW at any time. On February 28, 1996, CSW
used the $398 million net proceeds from the 1996 Stock Offering to
repay a portion of these borrowings. CSW anticipates that the
remaining amounts owed under the CSW Credit Agreement will be repaid
through a combination of internally generated funds, additional sales
of CSW Common (including sales through CSW's Thrift Plan and
PowerShare) or strategic sales of assets, including possibly Transok.
See TRANSOK, and 1996 Stock Offering, ThriftPlus Plan and PowerShare
below.
CSW (UK) has obtained or will obtain the remaining funds
necessary to consummate the Tender Offer, approximately $1.29
billion, from capital contributions or loans to be made to CSW (UK)
by its sole shareholder, CSW Investments, which has arranged the CSW
Investment Credit Facility for that purpose. Neither CSW nor CSW
International, the indirect parent of CSW Investments and CSW (UK),
has guaranteed or is otherwise subject to recourse for amounts
borrowed under the CSW Investments Credit Facility. As of February
29, 1996, CSW Investments had borrowed approximately $1.0 billion
under the CSW Investments Credit Facility. CSW Investments
anticipates that amounts borrowed under the CSW Investments Credit
Facility will be repaid through dividends and other amounts
received, indirectly through CSW (UK), from SEEBOARD.
Capital Expenditures
Total capital expenditures for CSW, including the Electric
Operating Companies, SEEBOARD, Transok and other diversified
operations (but excluding capital that may be required for
acquisitions), are estimated to be approximately $636 million, $671
million and $563 million for the years 1996 through 1998. The
foregoing consists of forward looking information and, accordingly,
actual results may differ materially from such projected information
due to changes in the underlying assumptions. Such assumptions are
CSW
<PAGE> 2-12
based on numerous factors, including factors such as the rate of
load growth, escalation of construction costs, changes in lead times
in manufacturing, inflation, the availability and pricing of
alternatives to construction, nuclear, environmental and other
regulation, delays from regulatory hearings, adequacy of rate relief
and the availability of necessary external capital. In addition,
actual results may differ materially from the projected information
due to changes in the nature and scope of CSW's diversified
operations and the capital requirements that may be required to fund
such operations.
CSW periodically revaluates its capital spending policies and
generally seeks to fund only those construction projects and
investments that management believes will offer satisfactory returns
in the current environment. Consistent with this strategy, the CSW
System is likely to continue to make additional investments in
energy-related and non-utility businesses and will continue to
search for electric utility companies or other electric utility
properties to acquire. CSW expects to fund the majority of its
construction expenditures through internally generated funds.
However, for any significant investment or acquisition, additional
funds from the capital markets, including from the issuance and sale
of additional CSW Common and short-term and long-term borrowings,
may be required.
Construction Expenditures
The Electric Operating Companies maintain a continuing
construction program, the nature and extent of which is based upon
current and estimated future demands upon the system. Planned
construction expenditures for the Electric Operating Companies for
the next three years are primarily to improve and expand distribution
facilities and will be funded primarily through internally generated
funds. These improvements will be required to meet the anticipated
needs of new customers and the growth in the requirements of existing
customers. Construction expenditures for the Electric Operating
Companies were approximately $398 million in 1995, $492 million in
1994 and $445 million in 1993. The estimated total construction
expenditures for the Electric Operating Companies for the years 1996
through 1998 are presented in the following CONSTRUCTION EXPENDITURES
table.
CONSTRUCTION EXPENDITURES
1996 1997 1998 Total
(millions)
Generation $40 $68 $42 $150
Transmission 38 46 55 139
Distribution 168 172 174 514
Fuel 18 11 15 44
Other 68 59 57 184
$332 $356 $343 $1,031
Information in the foregoing table is a forward looking
statement and, accordingly, actual results may differ materially
from such projected information due to changes in the underlying
assumptions based on numerous factors, including those factors
enumerated above under Capital Expenditures. Changes in those and
other factors could cause each of the Electric Operating Companies
to defer or accelerate construction or to sell or buy more power,
which would affect its cash position, revenues and income to an
extent that cannot now be reliably predicted.
Although CSW does not believe that the Electric Operating
Companies will require substantial additions of generating capacity
through the end of the decade, the CSW System's internal resource
plan presently anticipates that any additional capacity needs will
come from a variety of sources including projected coal- and lignite-
fired generating plants for which the CSW System has invested
approximately $135 million in prior years for plant sites,
engineering studies and lignite reserves. Should future plans
exclude these plants for environmental, economical or other
reasons, CSW would evaluate the probability of recovery of these
investments and may record appropriate reserves.
CSW
<PAGE> 2-13
Long-Term Financing
As of December 31, 1995, the capitalization ratios of CSW were
43% common stock equity, 4% preferred stock and 53% long-term debt.
CSW continues to be committed to maintaining financial flexibility
through maintaining a strong capital structure and favorable
securities ratings in order to access capital markets
opportunistically or when required. The 1995 capitalization ratios
were significantly impacted when compared to 1994 due to the amount
of indebtedness utilized to finance the SEEBOARD acquisition, a
portion of which was repaid on February 28, 1996, with the $398
million net proceeds from the 1996 Stock Offering.
CSW continually monitors the capital markets for opportunities
to lower its cost of capital through refinancing. Since 1991, CSW
has refinanced nearly $2.0 billion of outstanding securities and has
lowered its embedded cost of debt from approximately 9.0% to 7.2% at
the end of 1995. CSW's significant long-term financing activity for
1995 and 1996 through February 29, 1996 is summarized in the
following table.
ISSUED/UTILIZED REACQUIRED
Financing Amount Financial Amount
Instrument (millions) Rate Maturity Instrument (millions) Rate Maturity
CPL FMB(1) $200.0 6 5/8% 2005 FMB $139.2 9 3/8% 2019
PCRB 100.6 6.1% 2028 PCRB 68.9 10 1/8% 2014
PCRB(2) 31.8 9 3/4% 2015
PCRB 40.9 floating 2015 PCRB(3) 8.4 7 1/8% 2004
PCRB(3) 34.2 6.0% 2007
PSO MTN(4) 30.0 various 2000-
2001
WTU FMB(5) 40.0 7 1/2% 2000
FMB(6) 80.0 6 3/8% 2005 FMB 53.3 9 1/4% 2019
CSW Credit
Facility(7) 431.0 floating 2000
CSW
Invest-
ments Credit
Facility(8) 1,024.7 floating 2001
(1) The balance of proceeds not used to redeem higher cost FMBs
were used to repay a portion of CPL's short-term borrowings, to
provide working capital and for other general corporate purposes.
(2) Collateralized PCRB (secured by a FMB).
(3) The additional funds required to redeem these issues were
provided through internal funds and short-term borrowings.
(4) Proceeds were used to repay a portion of PSO's short-term
borrowings and to reimburse PSO's treasury for the scheduled
maturity of $25 million FMBs on March 1, 1996. The MTNs are a
series of PSO's Senior Notes. The rates on the MTNs range from
5.89% to 6.03%.
(5) Proceeds were used to repay a portion of WTU's short-term
borrowings and to reimburse WTU's treasury for the reacquisition
of FMBs.
(6) The balance of proceeds not used to redeem higher cost FMBs
were used to repay a portion of WTU's short-term borrowings.
(7) Represents the amount outstanding of the CSW Credit Agreement
on February 29, 1996. Proceeds were used to purchase capital
shares of SEEBOARD. Approximately $731 million was outstanding
under the CSW Credit Agreement and is included in Long-Term Debt
on the balance sheet at December 31, 1995. See SEEBOARD
Acquisition Financing above. On February 28, 1996, CSW repaid
$398 million under borrowings under the CSW Credit Agreement from
the net proceeds of the 1996 Stock Offering. See 1996 Stock
Offering, below.
(8) Represents the amount outstanding of the CSW Investments
Credit Facility on February 29, 1996. Proceeds were used to
purchase additional capital shares under SEEBOARD in 1996. See
SEEBOARD Acquisition Financing above.
1996 Stock Offering
On February 27, 1996, CSW sold 15,525,000 shares of CSW Common
in the 1996 Stock Offering and received net proceeds of
approximately $398 million. These proceeds were used to repay a
portion of the indebtedness incurred by CSW under the CSW Credit
Agreement to fund the acquisition of SEEBOARD.
CSW
<PAGE> 2-14
Shelf Registration Statements
CSW and the Electric Operating Companies may issue additional
securities subject to market conditions and other factors. CPL and
PSO have filed shelf registration statements with the SEC for the
issuance of securities from time to time based upon market
conditions. CPL has shelf registration statements on file for up to
$60 million of FMBs and up to $75 million of preferred stock. PSO
has a shelf registration statement on file for the sale of up to $75
million of Senior Notes, $45 million of which was remaining as of
February 29, 1996.
Short-Term Financing
The Electric Operating Companies utilize short-term debt to
meet fluctuations in working capital requirements due to the
seasonal nature of electric sales and other interim capital needs.
The CSW System has established a money pool to coordinate short-term
borrowings by the Electric Operating Companies, Transok and CSW
Services, which is funded through CSW's issuance of commercial
paper. At December 31, 1995, the CSW System had two credit
facilities in place aggregating $1.2 billion to back up the CSW
commercial paper program.
During 1995, the maximum amount of consolidated short-term debt
outstanding for the CSW System was $1.65 billion in March 1995,
which represented 22% of the total capitalization at December 31,
1995. The average amount of short-term debt during 1995 was $1.47
billion, of which $667 million was attributable to CSW Credit. The
weighted average cost of short-term debt was 6.64% in 1995.
PowerShare
CSW's PowerShare plan is available to all CSW shareholders,
employees, eligible retirees, utility customers and other residents
of the four states where the Electric Operating Companies operate.
Under this dividend reinvestment and stock purchase plan,
participants are able to make optional cash payments and reinvest all
or any portion of their dividends in additional CSW Common.
In February 1996, CSW filed a registration statement with the
SEC relating (i) to the issue and sale of an additional five million
shares of CSW Common through the PowerShare plan and (ii) proposed
amendments to the plan that would, among other things, make the plan
available to the residents of all fifty states and the District of
Columbia. During 1995 and 1994, CSW raised approximately $57 million
and $50 million, respectively, in new equity through PowerShare. CSW
expects to use the proceeds from sales of CSW Common made pursuant to
PowerShare to reduce short-term and long-term debt and for other
general corporate purposes.
ThriftPlus Plan
CSW's ThriftPlus plan permits eligible employees to contribute
up to 12% of their annual compensation to the plan, subject to
certain exceptions. Funds contributed to the plan are invested by
the plan trustee, at the employee's direction, in any of five
investment options, including an option consisting of CSW Common.
Historically, funds allocated to the CSW Common option under the plan
have been used by the trustee to purchase shares of CSW Common in the
open market. In order to provide the plan with the flexibility to
acquire shares of CSW Common directly from CSW rather than on the
open market, CSW filed a registration statement with the SEC during
1995 with respect to the issue and sale of up to an additional five
million shares of CSW Common. In the event the ThriftPlus plan
trustee elects, on behalf of the plan, to purchase CSW Common
directly from CSW, CSW expects to use the proceeds from such sales to
reduce short-term and long-term debt and for other general corporate
purposes.
Internally Generated Funds
Internally generated funds consist of cash flows from operating
activities less common and preferred stock dividends. The Electric
Operating Companies utilize short-term debt to meet fluctuations in
CSW
<PAGE> 2-15
working capital requirements due to the seasonal nature of energy
sales. Information concerning internally generated funds is presented
in the following table.
1995 1994 1993
($ in millions)
Internally generated funds $451 $424 $369
Capital expenditures provided by
internally generated funds (1) 37% 63% 58%
(1) Capital expenditures include construction and
acquisition expenditures, equity investments in
CSW Energy projects and amounts invested by CSW to
finance the SEEBOARD acquisition.
CSW Energy
At December 31, 1995, CSW had loaned $66 million to CSW Energy
on an interim basis for the purpose of developing and constructing
independent power and cogeneration facilities. Repayment of these
amounts to CSW is expected to be made through funds obtained from
third party non-recourse project financing. During 1995, CSW
Energy secured such financing for its Ft. Lupton and Mulberry
projects and reimbursed CSW for the interim loans. In addition to
the amounts already expended for the development of projects, CSW
Energy has, subject to certain limitations in the case of EWG and
foreign utility investments, authority from the SEC to expend up to
$250 million on future projects. The following table summarizes
CSW's investments and commitments in CSW Energy projects at December
31, 1995.
Letters of Credit
Equity and Guarantees Loans
(millions)
Brush $15.3 $-- $--
Orange Cogeneration 53.2 2.3 --
Ft. Lupton 44.0 58.9 36.5
Mulberry 23.6 32.3 --
Phillips Sweeny -- 3.0 4.2
Newgulf 10.5 -- --
Various developmental
projects 8.1 7.1 9.5
CSW Energy through CSW Development-I, Inc., a wholly owned
subsidiary of CSW Energy, entered into a fixed price contract of $14
million to construct the Mulberry thermal host. At November 2, 1995,
the thermal host was substantially completed for an aggregate cost of
approximately $43 million and CSW Energy reached an agreement and
settlement with its business partner regarding the $29 million cost
overruns for the host facility. These negotiations also resulted in
a change in the business partner for the Mulberry and Orange
Cogeneration projects. Under the terms of the settlement, the newly
admitted partner paid to CSW Energy 50%, or $53.2 million, of the
outstanding obligations of Orange Cogeneration and assumed 50%, or
$2.3 million, of the letters of credit and guarantees of the project.
Concurrently, CSW Energy contributed as partners capital the
remaining debt of $53.2 million to Orange Cogeneration. On the same
date, CSW Energy obtained its term financing for the Mulberry
project.
CSW Credit
CSW Credit purchases, without recourse, the accounts receivable
of the Operating Companies and certain non-affiliated electric
companies. CSW Credit's capital structure contains greater leverage
than that of the Operating Companies, consequently lowering CSW's
cost of capital. CSW Credit issues commercial paper, secured by the
assignment of its receivables, to meet its financing needs. CSW
Credit maintains a secured revolving credit agreement which
aggregated $900 million at December 31, 1995 to back up its
commercial paper program. The sale of these accounts receivables
provides the Operating Companies with cash immediately, thereby
reducing working capital needs and revenue requirements.
CSW
<PAGE> 2-16
RECENT DEVELOPMENTS AND TRENDS
Competition and Industry Challenges
Competitive forces at work in the electric utility industry are
impacting the CSW System and electric utilities generally.
Increased competition facing electric utilities is driven by complex
economic, political and technological factors. These factors have
resulted in legislative and regulatory initiatives that are likely
to result in even greater competition at both the wholesale and
retail level in the future. As competition in the industry
increases, the Electric Operating Companies will have the
opportunity to seek new customers and at the same time be at risk of
losing customers to other competitors. Additionally, the Electric
Operating Companies will continue to compete with suppliers of
alternative forms of energy, such as natural gas, fuel oil and coal,
some of which may be cheaper than electricity. The Electric
Operating Companies believe that their prices for electricity and
the quality and reliability of their service currently place them in
a position to compete effectively in the marketplace.
The Energy Policy Act, which was enacted in 1992, significantly
alters the way in which electric utilities compete. The Energy
Policy Act creates exemptions from regulation under the Holding
Company Act and permits utilities, including registered utility
holding companies and non-utility companies, to form EWGs. EWGs are
a new category of non-utility wholesale power producers that are
free from most federal and state regulation, including the principal
restrictions of the Holding Company Act. These provisions enable
broader participation in wholesale power markets by reducing
regulatory hurdles to such participation. The Energy Policy Act
also allows the FERC, on a case-by-case basis and with certain
restrictions, to order wholesale transmission access and to order
electric utilities to enlarge their transmission systems. A FERC
order requiring a transmitting utility to provide wholesale
transmission service must include provisions generally that permit
the utility to recover from the FERC applicant all of the costs
incurred in connection with the transmission services and any
enlargement of the transmission system and associated services.
Wholesale energy markets, including the market for wholesale
electric power, have been extremely competitive since the enactment
of the Energy Policy Act. The Electric Operating Companies must
compete in the wholesale energy markets with other public utilities,
cogenerators, qualifying facilities, EWGs and others for sales of
electric power. While CSW believes that the Energy Policy Act will
continue to make the wholesale markets more competitive, CSW is
unable to predict the extent to which the Energy Policy Act will
impact CSW System operations.
On March 29, 1995, consistent with the direction of the Energy
Policy Act, the FERC announced in a NOPR a requirement that each
public utility that owns and controls transmission facilities in
interstate commerce must unbundle its services and file open access
transmission tariffs under which such utility will offer comparable
open access transmission services to its transmission customers. In
addition, the FERC revised its proposed mechanisms by which utilities
will be permitted to recover stranded investment costs expected to be
brought about by the proposed changes. On August 7, 1995, CSW filed
comments on the proposed approach in the NOPR with the FERC.
Although CSW supports the concept of comparable open access for the
nation's transmission service, CSW believes that certain changes must
be made in the FERC's proposed approach of implementing the open
transmission system. First, with respect to the issue of stranded
investments, the FERC proposed that customers who left the utility
company pay for a portion, but not all, of the costs incurred by the
owner of existing facilities that are not utilized as a result of the
loss of such customers. CSW raised concerns about the FERC's proposed
methodology for addressing stranded investment because it did not, in
CSW's view, provide for the fair recovery of the full amount
previously invested. Second, CSW proposed that the FERC adopt a
"power flow pricing" approach whereby all electric systems that incur
costs because of a transmission transaction are compensated, as
opposed to the traditional "postage stamp" method whereby only the
companies that are directly involved in the actual purchase and sale
of the electricity are compensated or charged.
CSW
<PAGE> 2-17
On February 9, 1996, the Electric Operating Companies filed at
the FERC complete sets of open access transmission tariffs for both
the companies that are members of the Southwest Power Pool as well as
the companies that are members of ERCOT. These tariffs substantially
reflect the pro forma tariffs attached to the FERC's March 29, 1995
NOPR. Open access and market pricing should increase marketing
opportunities for the Electric Operating Companies, but may also
expose them to the risk of loss of load or reduced revenues due to
competition with alternate suppliers.
Increasing competition in the utility industry brings an
increased need to stabilize or reduce rates. The retail regulatory
environment is beginning to shift from traditional rate base
regulation to incentive regulation. Incentive rate and performance-
based plans encourage efficiencies and increased productivity while
permitting utilities to share in the results. Retail wheeling, a
major industry issue which may require utilities to "wheel" or move
power from third parties to their own retail customers, is evolving
gradually. Many states throughout the country currently have
preliminary legislation introduced to investigate the issue. For
example, in Oklahoma (portions of which are served by PSO), a
legislative task force is examining state laws affecting retail
electric companies. Issues being addressed include retail wheeling,
territorial boundaries, taxes and condemnations.
CSW believes that retail competition would harm the best
interests of CSW's and the Electric Operating Companies' customers
and security holders unless CSW receives fair recovery of the full
amounts previously invested to finance power plants. These
investments, which were reasonably incurred, were made by the CSW
System to meet their obligation to serve the public interest,
necessity and convenience. This obligation has existed for nearly a
century and remains in force under current law. CSW intends to
strongly oppose attempts to impose retail competition without just
compensation for the risks and investments CSW undertook to serve
the public's demand for electricity.
CSW is unable to predict the ultimate outcome or impact of
competitive forces on the electric utility industry or the CSW
System. As the wholesale and retail electricity markets become more
competitive, however, the principal factor determining success is
likely to be price, and to a lesser extent, reliability,
availability of capacity, and customer service.
PURA
Amendments to PURA, the legal foundation of electric regulation
in Texas, became effective on September 1, 1995. Among other things,
the amendments deregulate the wholesale bulk power market in ERCOT,
permit pricing flexibility for utilities facing competitive
challenges, provide for a market-driven integrated resource planning
process and mandate comparable open access transmission service.
PURA also requires that the Texas Commission adopt a rule on
comparable open transmission access by March 1, 1996. In
conjunction with this rulemaking proceeding (Project No. 14045),
Texas Commission Chairman Pat Wood issued a proposal on September 6,
1995, for the purpose of maximizing competition in the ERCOT
wholesale bulk power market. The proposal calls for the functional
unbundling of integrated utilities where distribution entities could
purchase their power requirements from any generator or set of
generators in ERCOT. Those generators which are currently regulated
would be deregulated after provisions are in place to recover
stranded costs. The proposal has been assigned to a separate
proceeding (Project No. 15000). CSW expects this project to provide
the vehicle for the Texas Commission and other interested parties to
develop positions on industry restructuring before the Texas
Legislature convenes in January 1997. A schedule has been developed
for Project No. 15000 that includes a series of workshops and
technical conferences during the first half of 1996. The schedule
contemplates that the Texas Commission will develop legislative
recommendations on restructuring and stranded costs during the
second half of 1996.
On February 7, 1996, the Texas Commission adopted a rule
governing transmission access and pricing (Project No. 14045). The
pricing method tentatively adopted by the Texas Commission is a
hybrid combination of an ERCOT-wide postage stamp rate covering 70%
of total ERCOT transmission costs and a distance-sensitive component
CSW
<PAGE> 2-18
referred to as a vector-absolute megawatt mile which recovers the
remaining 30% of ERCOT transmission costs. Although the open access
tariffs filed with the FERC on February 9, 1996 do not reflect
Project No. 14045 pricing, CSW anticipates filing tariffs with the
FERC that do conform to the Texas Commission's rule in the second
quarter of 1996.
Regulatory Accounting
Consistent with industry practice and the provisions of SFAS
No. 71, which allows for the recognition and recovery of regulatory
assets, the Electric Operating Companies have recognized significant
regulatory assets and liabilities. Management believes that the
Electric Operating Companies will continue to meet the criteria for
following SFAS No. 71. However, in the event the Electric Operating
Companies no longer meet the criteria for following SFAS No. 71, a
write-off of regulatory assets and liabilities would be required.
For additional information regarding SFAS No. 71 reference is made
to NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Holding Company Act
The Holding Company Act generally has been construed to limit
the operations of a registered holding company to a single
integrated public utility system, plus such additional businesses as
are functionally related to such system. Among other things, the
Holding Company Act requires CSW and its subsidiaries to seek prior
SEC approval before effecting mergers and acquisitions or pursuing
other types of non-utility initiatives. Pervasive regulation under
the Holding Company Act may impede or delay CSW's efforts to achieve
its strategic and operating objectives, including its pursuit of non-
utility initiatives. During 1995, a bill was introduced in the
United States Senate which, if adopted, would repeal the Holding
Company Act and replace it with a new, less restrictive, holding
company law administered by the FERC. CSW cannot predict if or when
Holding Company Act repeal legislation will be enacted or what form
such legislation will take if adopted. However, CSW intends to
continue its efforts to repeal or modify the Holding Company Act in
order to provide the flexibility to compete within the changing
environment.
Consolidated Taxes
Prior to 1992, the Texas Commission allowed income taxes to be
recovered in rates based on the federal income tax incurred by a
utility as if it were a stand-alone company. This "stand-alone"
approach treated the regulated activities of a utility as a separate
entity and considered only those revenues and expenses that are
included in the utility's cost of service to calculate the federal
income tax liability for ratemaking purposes. However, in 1992 the
Texas Commission changed its method of calculating the federal income
tax component of rates to the "actual tax approach." This approach
reduces rates by the tax benefits of deductions which are not
considered for or included in setting rates for the utility.
On April 13, 1995, the Supreme Court issued a decision which
holds that the Texas Commission is not required to use the tax
benefits associated with the losses of unregulated affiliates to
reduce tax expense in cost of service. The Supreme Court also ruled
that the Texas Commission cannot include the income tax deductions
taken by the utility for disallowed expenses when determining the
utility's federal income tax liability. This decision will allow
CSW, and indirectly its shareholders, to retain the tax benefits
associated with disallowed expenditures.
ENVIRONMENTAL MATTERS
The operations of the CSW System, like those of other utility
systems, generally involve the use and disposal of substances
subject to environmental laws. CERCLA, the federal "Superfund" law,
addresses the cleanup of sites contaminated by hazardous substances.
Superfund requires that PRPs fund remedial actions regardless of
fault or the legality of past disposal activities. PRPs include
owners and operators of contaminated sites and transporters and/or
generators of hazardous substances. Many states have similar laws.
CSW
<PAGE> 2-19
Legally, any one PRP can be held responsible for the entire cost of
a cleanup. Usually, however, cleanup costs are allocated among
PRPs.
The Electric Operating Companies are subject to various pending
claims alleging that they are PRPs under federal or state remedial
laws for investigating and cleaning up contaminated property. CSW
anticipates that resolution of these claims, individually or in the
aggregate, will not have a material adverse effect on CSW's or any
Electric Operating Company's results of operations or financial
condition. Although the reasons for this expectation differ from
site to site, factors that are the basis for the expectation for
specific sites include the volume and/or type of waste allegedly
contributed by the Electric Operating Company, the estimated amount
of costs allocated to the Electric Operating Company and the
participation of other parties. See ITEM 1-. BUSINESS, NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS and NOTE 3. COMMITMENTS AND
CONTINGENT LIABILITIES for additional discussion regarding
environmental matters.
NON-UTILITY INITIATIVES
As indicated above, one component of CSW's four-part strategy
to meet the increasing competition and fundamental changes in the
electric utility industry is to expand CSW's non-utility and energy-
related business. While CSW believes that such initiatives are
necessary to maintain its competitiveness and to supplement its
growth in the future, the Holding Company Act may impede or delay
its ability to successfully pursue such initiatives. See RECENT
DEVELOPMENTS AND TRENDS above.
Transok
Transok is an intrastate natural gas gathering, transmission,
marketing and processing company that provides natural gas services
to CSW System companies, predominately PSO, and to non-affiliated
gas customers throughout the United States. Transok's natural gas
facilities are located in Oklahoma, Louisiana and Texas. It
operates gas processing plants and markets natural gas liquids
produced from those plants to various markets. During 1995, a new
processing plant was completed that increased Transok's processing
capacity by approximately 27%. In addition, during the second
quarter of 1996, two new natural gas compression units are scheduled
to be completed. These units will increase Transok's west to east
transport capacity by approximately 22%.
In January 1996, CSW announced it was exploring strategic
alternatives for its investment in Transok. The alternatives, which
include a possible sale, are a part of CSW's ongoing strategic
review of its business.
CSW Energy
CSW Energy is authorized to develop various independent power
and cogeneration facilities and to own and operate such non-utility
projects, subject to regulatory approval. The table below summarizes
CSW Energy's participation in projects as of the end of 1995.
CSW
<PAGE> 2-20
<TABLE>
<CAPTION>
Capacity Commercial
(in MW) Operation Ownership Thermal
Project Location Total Sold Date Interest Host Host Utility
<S> <C> <C> <C> <C> <C> <C> <C>
Brush II Brush, CO 68 68 January 1994 47% Greenhouse Public Service Company
of Colorado
Ft. Lupton Ft. Lupton, CO 272 272 June 1994 50% Greenhouse Public Service Company
of Colorado
Mulberry Polk County, FL 120 110 August 1994 50% Distilled Florida Power Corporation
water/ ethanol
plant
Orange Polk County, FL 103 97 June 1995 50% Orange juice Florida Power Corporation
processor Tampa Electric Company
Phillips Sweeny Sweeny, TX 300 90* Mid 1998 50% Refinery Undetermined*
Newgulf Wharton, TX 85 -- Mid 1996 100% IPP Undetermined
*The Phillips Sweeny project has the unexercised option to sell 90 MW
of capacity to Phillips Petroleum Company.
</TABLE>
In addition to these projects, CSW Energy has another six
projects totaling approximately 2,000 MW in various stages of
development, mostly in affiliation with other developers.
CSW International
CSW International was formed in 1994 to engage in international
activities, including developing, acquiring, financing and owning
EWGs and foreign utility companies. CSW International's most
significant activity to date is the acquisition, indirectly through
CSW (UK), of the outstanding share capital of SEEBOARD pursuant to
the Tender Offer. See SEEBOARD ACQUISITION above. CSW International
also intends to continue its efforts in Mexico, with a stated goal
of participating in providing Mexico's future electricity needs.
Although the recent devaluation of the Mexican peso has slowed
previously projected power demand, CSW International continues to
believe that the geographic location of the CSW System offers
opportunities to provide bulk power to Mexico. CSW International
continues to seek to expand into other countries in Latin America,
Europe and Asia that meet its investment criteria.
CSW Communications
CSW Communications was formed in 1994 to provide communication
services to the Electric Operating Companies and non-affiliates.
One important goal of CSW Communications is to enhance services to
CSW System customers through fiber optics and other
telecommunications technologies. In Laredo, Texas, a project has
been undertaken to install fiber optic lines and coaxial cable to
CPL customers. The project, a network of over 3,000 homes with
approximately 700 customers currently participating, will
demonstrate the energy efficiency and cost savings that result from
giving customers greater choice and control over their electric
service. CSW Communications offers similar utility management
services to other parties, including affiliates as well as non-
affiliates. In the future, CSW Communications may, subject to any
required regulatory approvals, seek to lease or otherwise use the
reserve capacity for other services including telephone service,
cable television and home security systems. CSW Communications
presently owns and manages a 185 mile fiber-optic line connecting
the south Texas cities of Corpus Christi, Harlingen and McAllen, and
anticipates the construction of another fiber-optic line, connecting
Shreveport, Louisiana and Longview, Texas, to begin in mid-1996.
CSW Communications filed for "exempt telecommunications
company" status with the FCC on February 8, 1996, subsequent to
legislation that introduced competition to telephone and other
communications industries that operated within regulated
environments. The filing with the FCC automatically qualifies CSW
Communications as an exempt telecommunications company, pending the
FCC's review of the application (which is required to be completed
within 60 days). CSW believes that CSW Communications' exempt
telecommunications company status will enable it to compete more
effectively with other telecommunications companies.
CSW
<PAGE> 2-21
EnerShop
In September 1995, EnerShop was formed to provide energy
services to customers throughout the Southwest. EnerShop offers
services that help reduce customers' operating costs through
increased energy efficiencies and improved equipment operations.
EnerShop utilizes the skills of local trade allies in offering
services that include energy and facility analysis, project
management, engineering design and equipment procurement and
construction, third party financing and equipment leasing, savings
and performance guarantees and performance monitoring. EnerShop
recently secured its first major contract and has bids outstanding
for several additional projects in 1996.
NEW ACCOUNTING STANDARDS
SFAS No. 121
In March 1995, the FASB issued SFAS No. 121 to be effective for
financial statements for fiscal years beginning after December 15,
1995. The statement establishes a two-fold test for identification
and quantification of an impaired asset. The first test in
determining an impairment is to compare the sum of expected future
cash flows (undiscounted and without interest charges) related to an
asset to the carrying amount of the asset. If the sum of expected
cash flows is not sufficient to recover the carrying value of the
asset, then an impairment is recognized. Once an impairment is
identified, the second part of the test is applied to quantify the
amount of the impairment. The statement lists several alternative
methods of establishing fair market value and quantifying the
impairment. Cash flows used to measure possible impairment of an
asset are grouped at the lowest level for which there are
identifiable cash flows that are largely independent of the cash
flows of other groups of assets. For the Electric Operating
Companies, the lowest independently identifiable cash flow level
used for this analysis is jurisdictional rates charged to customers.
CSW will adopt SFAS No. 121 in the first quarter of 1996.
Under the current regulatory environment, CSW does not expect the
adoption of SFAS No. 121 to have a significant impact on CSW's
consolidated results of operations or financial condition. However,
future developments in the electric industry and utility regulation
could jeopardize the full recovery of the carrying cost of certain
investments. Consequently, CSW is monitoring the changing
conditions facing the electric utility industry.
SFAS No. 123
SFAS No. 123 was issued in October 1995 with an effective date
for transactions entered into after December 15, 1995. This
statement requires the use of an option pricing model to calculate
the value of stock-based compensation transactions where such value
cannot otherwise be determined, but then allows for two alternative
methods of reporting the transactions. One method recognizes this
value as a cost of compensation and as an expense for the current
period. The alternative method permits footnote disclosure of the
compensation cost, without charging the amount against current
earnings.
As provided by the provisions of SFAS No. 123, CSW will
continue to apply the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of SFAS
No. 123 in 1996. Accordingly, the adoption of SFAS No. 123 will not
impact CSW's consolidated results of operations or financial
condition.
CSW
<PAGE> 2-22
RESULTS OF OPERATIONS
Overview of Results
CSW's earnings increased to $402 million or $2.10 per share in
1995 as compared to $394 million or $2.08 per share in 1994 and $308
million or $1.63 per share in 1993. The return on average common
stock equity was 13.1% in 1995 compared to 13.4% in 1994 and 10.6%
in 1993. Electric operations contributed approximately 105% of
total earnings in 1995 and approximately 100% of total earnings in
1994 and 1993. In 1995, corporate expenses, including $42 million
of expenses related to the termination of the El Paso Merger, were
offset in part by earnings at Transok, CSW Energy, SEEBOARD and CSW
Credit, totaling $51 million in the aggregate.
Earnings increased in 1995 compared to 1994 due primarily to
higher electric revenues from customer growth and increased usage
and lower operation and maintenance expenses. In addition, earnings
from SEEBOARD contributed to the increase. Partially offsetting
these factors were higher depreciation and interest and lower
earnings from Mirror CWIP. Significant one time items impacting
1995 earnings are set forth in the SIGNIFICANT ITEMS table.
Earnings increased in 1994 compared to 1993 due primarily to
higher KWH sales and natural gas margins and decreased costs
associated with the end of the outage at STP. In addition, CSW
Energy, which had three projects become operational during 1994,
contributed $2 million to earnings in 1994. These items were
partially offset by increased interest and depreciation and
amortization expense. In addition, earnings in 1993 were
significantly affected by several items set forth in the SIGNIFICANT
ITEMS table.
SIGNIFICANT ITEMS
(millions, after-tax)
1995
CPL 1995 Agreement $(16)
Merger termination (27)
Tax adjustments 30
1993
Restructuring charges $(63)
Recognition of unbilled revenues 49
Early adoption of SFAS No. 112 (9)
Adoption of SFAS No. 109 6
Establishment of reserves for fuel
and other properties (11)
Tax adjustments (18)
Operating Revenues
Revenues increased $112 million or 3% in 1995, after a decrease
of $64 million or 2% in 1994. The variances in the different
revenue categories are shown in the REVENUE VARIANCE table.
CSW
<PAGE> 2-23
REVENUE VARIANCE
Increase (decrease) from prior year
1995 1994
(millions)
U.S. Electric
CPL 1995 Agreement $(112) $--
WTU Stipulation and Agreement (22) --
Base rates (8) 7
Fuel costs (106) (49)
KWH sales 62 61
Other electric and diversified 16 2
Natural gas 74 (85)
SEEBOARD 208 --
$112 $(64)
Electric Revenues
Electric revenues decreased $182 million or 6% in 1995 compared
to 1994. The acquisition of SEEBOARD contributed $208 million in
revenues for the month of December 1995 and total U.S. Electric KWH
sales increased approximately 5%, with increases in sales among all
customer classes. During 1995, the average number of customers
increased approximately 2%. In addition to customer growth, there
was increased usage during 1995 as compared to 1994. However,
offsetting the increases in revenue due to SEEBOARD and increased
KWH sales were customer refunds made by CPL and WTU resulting from
the resolution of rate proceedings during 1995 and lower fuel costs.
Electric revenues increased $10 million in 1994 as compared to
1993 due primarily to increased KWH sales offset in part by
decreased fuel revenues. Base rates increased in 1994 from 1993 due
to a rate increase implemented by PSO in February 1994, offset in
part by a 3.2% interim rate reduction implemented by WTU during the
fourth quarter of 1994.
The percentage changes in U.S. ElectricUtility KWH sales from
the previous year for 1995 and 1994 are presented in the U.S.
ELECTRIC KWH SALES VARIANCE table. KWH sales to retail customers
increased in 1995 as a result of increased customer usage and
customer growth. KWH sales to retail customers in 1994 increased as
a result of more favorable weather and increased residential
customers. SWEPCO acquired BREMCO in July 1993, and accordingly,
there were twelve months of KWH sales to these customers in 1994
compared to only six months in 1993. Weather was more favorable in
1994 than in 1993.
U.S. ELECTRIC KWH SALES VARIANCE
Increase from prior year
1995 1994
Residential 3.1% 2.9%
Commercial 2.2 3.8
Industrial 2.4 3.6
Sales for resale 18.7 21.9
Total sales 4.5 5.5
The continued increases in industrial sales over the last two
years reflect the increased marketing efforts by the Electric
Operating Companies and the continued improvement in the economy
throughout their service areas. Sales for resale increased in 1995
because STP was operational for the full year as compared to most of
1994, thereby eliminating the need for plants in the CSW System to
produce power to replace the power normally produced at STP. In
addition, during 1995, WTU began supplying a major new wholesale
CSW
<PAGE> 2-24
customer. The Electric Operating Companies have maintained
relatively low competitive rates in an increasingly competitive
marketplace. Efforts have increased at each of the Electric
Operating Companies to attract new customers while efficiently
serving all customers.
Natural Gas Revenues
Revenues from natural gas increased 14% to $592 million in 1995
from $518 million in 1994 due primarily to an increase in natural
gas sales volumes which was partially offset by a reduction in sales
prices. Also contributing to the increase in 1995 natural gas
revenues were increased natural gas liquids sales volumes and
prices. The 14% decrease in revenues in 1994 from $603 million in
1993 was due to a decrease in natural gas prices which was partially
offset by an increase in volumes.
Other Diversified Revenues
Other diversified revenues increased 30% to $52 million in 1995
as compared to $40 million in 1994 due primarily to two CSW Energy
projects that went into operation during the second and third
quarter of 1994 and increased factoring revenues at CSW Credit.
Other diversified revenues increased 38% in 1994 from $29 million in
1993 due to the reclassification of CSW Energy's operating revenues
as discussed below under Other Income and Deductions.
Revenues from SEEBOARD
CSW's operating revenues includes $208 million of revenues from
SEEBOARD for the month of December 1995. During the month of
December 1995, pursuant to its effective control of SEEBOARD through
its 76.45% ownership interest, CSW began full consolidation
accounting for SEEBOARD in its consolidated financial statements.
Operating Expenses
Fuel and Purchased Power Expense
During 1995, the Electric Operating Companies generated
approximately 98% of their electric energy requirements. During
1994 and 1993, they generated 95% and 92%, respectively. Total fuel
and purchased power expenses increased $58 million or 5% from 1994,
due primarily to SEEBOARD's December 1995 power purchases. Without
including such purchases, total fuel and purchased power decreased
$116 million during 1995 due mainly to a decrease in natural gas
prices and an increased usage of lower cost nuclear fuel. The
average unit cost of fuel was $1.58 per MMbtu during 1995, compared
to $1.82 in 1994 and $2.11 in 1993. Purchased power decreased $8
million during 1995 due primarily to increased generation from STP
which replaced power that had been purchased during the first six
months of 1994 when STP was out of service. During 1995 STP was
operational for the entire year allowing the use of lower cost
nuclear fuel. The decrease in fuel and purchased power expense in
1994 compared to 1993 was attributable to a decrease in fossil fuel
costs and increased usage of lower cost nuclear fuel.
Gas Purchased for Resale/Gas Extraction and Marketing
Gas purchased for resale increased 20% in 1995 from 1994, while
it decreased 27% in 1994 from 1993. The increase in 1995 was caused
by higher sales volumes, which more than offset the relatively low
average cost of gas which prevailed during 1995 compared to 1994.
Lower gas prices caused the decrease in 1994, including a
significant reduction in prices attributable to sales made on
natural gas drawn from storage. Gas extraction and marketing
expenses increased 11% in 1995 from 1994 and 14% in 1994 from 1993.
The 1995 and 1994 increases were both due to increases in natural
gas liquids purchased for resale.
Other Operating and Maintenance Expenses and Taxes
Other operating and maintenance expenses in 1995 increased $18
million or 2% from 1994 due primarily to the establishment of a $42
million reserve for expenses incurred in association with the
terminated El Paso Merger and the inclusion of SEEBOARD's December
1995 operating and maintenance expenses, offset in part by the
CSW
<PAGE> 2-25
benefits that were realized from a cost-reduction initiative whereby
CSW System employees received a portion of the operating and
maintenance expense savings. In 1994, the 2% decrease in other
operating and maintenance expenses from 1993 was due primarily to
the absence of $29 million in maintenance expenses that were
incurred during the 1993 STP outages, expenses associated with the
1993 adoption of SFAS No. 106 and reserves taken in 1993 on fuel and
other properties, offset in part by the reclassification of CSW
Energy's operating costs as discussed below under Other Income and
Deductions.
Income taxes were lower in 1995 than 1994 due to prior year
adjustments, the reserve established in connection with the
termination of the El Paso Merger as well as both the tax
adjustments and the tax effects of the CPL 1995 Agreement and the
WTU Stipulation and Agreement. In 1994, income taxes were higher
than 1993 due to higher pre-tax income. Taxes other than income
decreased in 1995 due to prior year adjustments but remained
approximately the same in 1994 as in 1993.
Restructuring Charges
Restructuring charges reflect the original accrual of $97
million in 1993, which was subsequently reduced by $9 million in
1994 and $2 million in 1995. In addition, during 1995, $34 million
in regulatory assets were capitalized in accordance with the CPL
1995 Agreement and the WTU Stipulation and Agreement for costs
associated with the restructuring that had previously been charged
to expense.
Depreciation and Amortization
Depreciation and amortization expense increased in 1995 and
1994 when compared to the prior year due primarily to increases in
depreciable plant.
Other Items
Other Income and Deductions
Other income and deductions decreased $12 million or 11% in
1995 compared to 1994, as a result of decreased Mirror CWIP
liability amortization offset in part by approximately $11 million
in previously deferred factoring income recognized as income by CPL
beginning in 1995 pursuant to the CPL 1995 Agreement, increased
interest income of $4 million and a $3 million gain on PSO's sale of
non-utility fiber optic telecommunication property.
Other income and deductions increased $18 million or 19% in
1994 compared to 1993 as a result of the reclassification of CSW
Energy's operating activities offset partially by decreased Mirror
CWIP liability amortization and the absence of adjustments recorded
in 1993 associated with Transok's 1991 acquisition of TEX/CON.
Prior to 1994, CSW Energy was in the developmental stage of its
business and, as a result, its operating activities were classified
in CSW's Other Income and Deductions. However, in conjunction with
the completion of three projects in 1994, CSW Energy's revenues and
expenses were classified as operating activities in CSW's Operating
Revenues and Other Operating Expenses. The net amount of these
components had negative earnings impacts classified in Other Income
and Deductions in 1993.
Interest Charges
Interest expense on long-term debt increased 30% in 1995 from
1994 due to higher levels of debt outstanding, whereas interest
expense on long-term debt in 1994 was comparable to 1993. CSW's
embedded cost of long-term debt decreased to 7.2% in 1995 from 7.7%
in 1994. Short-term interest expense increased in 1994 due
primarily to higher short-term interest rates combined with higher
general corporate borrowings.
Cumulative Effect of Changes in Accounting Principles
In 1993, CSW implemented SFAS No. 112, SFAS No. 109, and
changed the method of accounting for unbilled revenues. These
changes had a cumulative effect of increasing net income
approximately $46 million.
<PAGE> 2-26
Inflation
Annual inflation rates, as measured by the national Consumer
Price Index, have averaged approximately 2.8% during the three years
ended December 31, 1995. Management believes that inflation, at
this level, does not materially affect CSW's consolidated results of
operations or financial position. However, under existing
regulatory practice, only the historical cost of plant is
recoverable from customers. As a result, cash flows designed to
provide recovery of historical plant costs may not be adequate to
replace plant in future years.
CSW
<PAGE> 2-27
CSW
Consolidated Statements of Income
Central and South West Corporation
For the Years Ended December 31,
1995 1994 1993
($ in millions, except share amounts)
Operating Revenues $3,735 $3,623 $3,687
Operating Expenses and Taxes
Fuel and purchased power 1,184 1,126 1,181
Gas purchased for resale 372 311 424
Gas extraction and marketing 109 98 86
Other operating 629 596 593
Restructuring charges (36) (9) 97
Maintenance 161 176 197
Depreciation and amortization 384 356 330
Taxes, other than income 171 186 191
Income taxes 105 189 131
3,079 3,029 3,230
Operating Income 656 594 457
Other Income and Deductions
Mirror CWIP liability amortization 41 68 76
Other 58 43 17
99 111 93
Income Before Interest Charges 755 705 550
Interest Charges
Interest on long-term debt 284 218 219
Interest on short-term debt and other 50 75 50
334 293 269
Income Before Cumulative Effect of
Changes in Accounting Principles 421 412 281
Cumulative Effect of Changes in Accounting
Principles -- -- 46
Net Income 421 412 327
Preferred stock dividends 19 18 19
Net Income for Common Stock $402 $394 $308
Average Common Shares Outstanding 191.7 189.3 188.4
Earnings per Share of Common Stock
before Cumulative
Effect of Changes in Accounting
Principles $2.10 $2.08 $1.39
Cumulative Effect of Changes in
Accounting Principles -- -- 0.24
Earnings per Share of Common Stock $2.10 $2.08 $1.63
Dividends Paid per Share of Common Stock $1.72 $1.70 $1.62
The accompanying notes to consolidated financial statements
are an integral part of these statements.
CSW
<PAGE> 2-28
CSW
Consolidated Statements of Retained Earnings
Central and South West Corporation
For the Years Ended December 31,
1995 1994 1993
(millions)
Retained Earnings at Beginning of Year $1,824 $1,753 $1,751
Net income for common stock 402 394 308
Deduct: Common stock dividends 329 322 306
Deduct: Preferred stock and other
adjustments 4 1 --
Retained Earnings at End of Year $1,893 $1,824 $1,753
The accompanying notes to consolidated financial statements
are an integral part of these statements.
CSW
<PAGE> 2-29
CSW
Consolidated Balance Sheets
Central and South West Corporation
As of December 31,
1995 1994
(millions)
ASSETS
Electric
Production $5,888 $5,802
Transmission 1,484 1,377
Distribution 3,799 2,539
General 1,209 764
Construction work in progress 346 412
Nuclear fuel 165 161
Total Electric 12,891 11,055
Gas 869 798
Other diversified 18 15
13,778 11,868
Less - Accumulated depreciation 4,761 3,870
9,017 7,998
Current Assets
Cash and temporary cash
investments 401 108
National Grid assets held for sale 100 --
Accounts receivable 1,093 837
Materials and supplies, at average
cost 188 162
Electric utility fuel inventory,
substantially at average cost 129 118
Gas inventory/products for resale 13 23
Under-recovered fuel costs -- 54
Prepayments and other 115 44
2,039 1,346
Deferred Charges and Other Assets
Deferred plant costs 514 516
Mirror CWIP asset 312 322
Other non-utility investments 296 394
Income tax related regulatory assets,
net 253 216
Goodwill 1,074 --
Other 364 274
2,813 1,722
$13,869 $11,066
The accompanying notes to consolidated financial statements
are an integral part of these statements.
CSW
<PAGE> 2-30
CSW
Consolidated Balance Sheets
Central and South West Corporation
As of December 31,
1995 1994
CAPITALIZATION AND LIABILITIES (millions)
Capitalization
Common stock: $3.50 par value
Authorized shares: 350.0 million shares
Issued and outstanding: 192.9 million
shares in 1995 and 190.6 million
shares in 1994 $675 $667
Paid-in capital 610 561
Retained earnings 1,893 1,824
Total Common Stock Equity 3,178 3,052
Preferred stock
Not subject to mandatory redemption 292 292
Subject to mandatory redemption 34 35
Long-term debt 3,914 2,940
Total Capitalization 7,418 6,319
Minority Interest 202 --
Current Liabilities
Long-term debt and preferred stock
due within twelve months 30 7
Short-term debt 692 910
Short-term debt - CSW Credit, Inc. 646 654
Accounts payable 595 286
Accrued taxes 228 111
Accrued interest 77 61
Provision for SEEBOARD acceptances 1,001 --
Other 156 159
3,425 2,188
Deferred Credits
Income taxes 2,306 2,048
Investment tax credits 306 320
Mirror CWIP liability -- 41
Other 212 150
2,824 2,559
$13,869 $11,066
The accompanying notes to consolidated financial statements
are an integral part of these statements.
CSW
<PAGE> 2-31
CSW
Consolidated Statements of Cash Flows
Central and South West Corporation
For the Years Ended December 31,
1995 1994 1993
(millions)
OPERATING ACTIVITIES
Net Income $421 $412 $327
Non-cash Items Included in Net
Income
Depreciation and amortization 425 402 366
Deferred income taxes and investment
tax credits (11) 87 94
Mirror CWIP liability amortization (41) (68) (76)
Restructuring charges (2) (9) 97
Cumulative effect of changes in
accounting principles -- -- (46)
Charges for terminated Merger 42 -- --
Regulatory assets established for
previously incurred restructuring
charges (34) -- --
Changes in Assets and Liabilities
Accounts receivable (36) 29 (52)
Unrecovered fuel costs 76 16 (63)
Accounts payable (32) (27) 34
Accrued taxes 25 21 37
Accrued restructuring charges (2) (57) --
Other (32) (42) (24)
799 764 694
INVESTING ACTIVITIES
Capital expenditures (474) (578) (508)
Acquisitions excluding SEEBOARD (6) (21) (106)
Net cash paid on SEEBOARD acquisition (415) -- --
Non-affiliated accounts receivable
collections/(purchases), net 2 11 (314)
CSW Energy projects (includes $2, $73 and
$19 of equity investments for 1995,
1994 and 1993, respectively) 109 (115) (127)
Other (28) (13) (14)
(812) (716) (1,069)
FINANCING ACTIVITIES
Common stock sold 57 50 1
Proceeds from issuance of long-term
debt 1,187 199 904
Retirement of long-term debt (8) (4) (50)
Reacquisition of long-term debt (355) (27) (987)
Special deposits for reacquisition
of long-term debt -- -- 199
Redemption of preferred stock (1) (33) (17)
Change in short-term debt (226) 153 602
Payment of dividends (348) (340) (325)
306 (2) 327
Net Change in Cash and Cash Equivalents 293 46 (48)
Cash and Cash Equivalents at Beginning
of Year 108 62 110
Cash and Cash Equivalents at End of Year $401 $108 $62
SUPPLEMENTARY INFORMATION
Interest paid less amounts
capitalized $301 $280 $260
Income taxes paid $77 $93 $53
The accompanying notes to consolidated financial statements
are an integral part of these statements.
CSW
<PAGE> 2-32
CENTRAL AND SOUTH WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
CSW is a registered holding company under the Holding
Company Act subject to regulation by the SEC. CSW's four Electric
Operating Companies are also regulated by the SEC under the
Holding Company Act.
The principal business of CSW's four Electric Operating
Companies, CPL, PSO, SWEPCO and WTU, is the generation,
transmission, and distribution of electric power and energy.
These four companies are subject to regulation by the FERC under
the Federal Power Act and follow the Uniform System of Accounts
prescribed by the FERC. They are subject to further regulation
with regard to rates and other matters by state regulatory
commissions as follows: CPL and WTU are subject to the Texas
Commission; PSO is subject to the Oklahoma Commission; and SWEPCO
is subject to the Arkansas Commission, Louisiana Commission,
Oklahoma Commission and the Texas Commission.
The principal business of CSW's United Kingdom electric
operating subsidiary, SEEBOARD, is the distribution of electric
power and energy in southeast England. SEEBOARD is subject to
regulation of rates by the United Kingdom Office of Electricity
Regulation.
In addition to the electric utility operations, CSW has
subsidiaries involved in a variety of business activities.
Transok is an Oklahoma natural gas company, CSW Energy and CSW
International pursue cogeneration and other energy-related
ventures, CSW Credit purchases the accounts receivable of
affiliates and non-affiliates, CSW Communications pursues
telecommunications projects, CSW Leasing invests in leveraged
leases and EnerShop offers energy-management services.
The more significant accounting policies of the CSW System
are summarized below:
Principles of Consolidation
The consolidated financial statements include the accounts
of CSW and its subsidiary companies. The consolidated financial
statements for PSO include the accounts of its wholly owned
subsidiary, Ash Creek. All significant intercompany items and
transactions system have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fixed Assets
Electric fixed assets are stated at the original cost of
construction, which includes the cost of contracted services,
direct labor, materials, overhead items and allowances for
borrowed and equity funds used during construction. SEEBOARD's
fixed assets are stated at fair market value based on the
preliminary allocation of the purchase price CSW paid for
SEEBOARD. Transok's gas plant acquisitions are stated at fair
market value based on the purchase price while other gas plant is
stated at original cost of construction, which includes the cost
of contracted services, direct labor, materials, overhead items
CSW
<PAGE> 2-33
and capitalized interest. See SEEBOARD Acquisition below for
additional information, including the allocation of purchase price
to the SEEBOARD Group's fixed asset accounts.
Depreciation
Provisions for depreciation of plant are computed using the
straight-line method, generally at individual rates applied to the
various classes of depreciable property. The annual average
consolidated composite rates are presented in the following table.
CSW CPL PSO SWEPCO WTU
1995 3.4% 2.9% 3.6% 3.2% 3.2%
1994 3.2% 3.0% 3.5% 3.2% 3.2%
1993 3.2% 3.0% 3.5% 3.2% 3.2%
CPL Nuclear Decommissioning of the STP Plant
At the end of STP's service life, decommissioning is
expected to be accomplished using the decontamination method,
which is one of the techniques acceptable to the NRC. Using this
method, the decontamination activities occur as soon as possible
after the end of plant operations. Contaminated equipment is
cleaned and removed to a permanent disposal location, and the site
is generally returned to its pre-plant state.
CPL's decommissioning costs are accrued and funded to an
external trust over the expected service life of the STP units.
The existing NRC operating licenses will allow the operation of
STP Unit 1 until 2027 and Unit 2 until 2028. The accrual for
decommissioning costs is an annual level cost based on the
estimated future cost to decommission STP, including escalations
for expected inflation to the expected time of decommissioning,
and is net of expected earnings on the trust fund.
CPL's portion of the costs of decommissioning STP were
estimated to be $85 million in 1986 dollars based on a site
specific study completed in 1986. CPL is recovering these
decommissioning costs through rates based on the service life of
STP at a rate of $4.2 million per year. The $4.2 million annual
cost of decommissioning is reflected on the income statement in
other operating expense. Decommissioning costs are paid to an
irrevocable external trust and as such are not reflected on CPL's
balance sheet. At December 31, 1995, the trust balance was $28.0
million.
In August 1995, CPL received a new decommissioning study
updating the cost estimates to decommission STP that indicated
that CPL's share of such costs would increase from $85 million, as
stated in 1986 dollars, to $258 million, as stated in 1995
dollars. The increase in costs occurred primarily as a result of
extended on-site storage of high level waste, much higher
estimates of low-level waste disposal costs and increased labor
costs since the prior study. These costs are expected to be
incurred during the years 2027 through 2062. While this is the
best estimate available at this time, these costs may change
between now and when the funds are actually expended because of
changes in the assumptions used to derive the estimates, including
the prices of the goods and services required to accomplish the
decommissioning. Additional studies will be completed
periodically to update this information.
Based on this projected cost to decommission STP, CPL
estimates that its annual funding level should increase to $10.5
million. CPL has requested this amount as part of its cost of
service in its current rate filing. Other parties to the
proceeding have filed annual projections ranging from $1.4 million
to $8.2 million. CPL expects to fund at the level ultimately
ordered by the Texas Commission although CPL cannot predict that
level. Historically, the Texas Commission has allowed full
recovery of nuclear decommissioning costs. For further
information on CPL's current rate filing, see NOTE 2. LITIGATION
AND REGULATORY PROCEEDINGS.
CSW
<PAGE> 2-34
Electric Revenues and Fuel
Prior to 1993, electric revenues were recorded at the time
billings were made to customers on a cycle-billing basis.
Electric service provided subsequent to billing dates through the
end of each calendar month became part of operating revenues of
the next month. To conform to general industry standards, the
Electric Operating Companies changed their method of accounting to
accrue for estimated unbilled revenues. The effect of this change
on 1993 net income was pre-tax increase of $75 million, and an
after-tax increase of $49 million, included in cumulative effect
of changes in accounting principles. See the effects of this
change under Accounting Changes below.
CPL, SWEPCO and WTU recover fuel costs in Texas as a fixed
component of base rates whereby over-recoveries of fuel are
payable to customers and under-recoveries may be billed to
customers after Texas Commission approval. The cost of fuel is
charged to expense as consumed. PSO recovers fuel costs in
Oklahoma and SWEPCO recovers fuel costs in Arkansas and Louisiana
through automatic fuel recovery mechanisms. The application of
these mechanisms varies by jurisdiction. See NOTE 2. LITIGATION
AND REGULATORY PROCEEDINGS, for further information about fuel
recovery.
CPL, PSO and WTU recover fuel costs applicable to wholesale
customers, which are regulated by the FERC, through an automatic
fuel adjustment clause. SWEPCO recovers fuel costs applicable to
wholesale customers through formula rates.
CPL amortizes direct nuclear fuel costs to fuel expense on
the basis of a ratio of the estimated energy used in the core to
the energy expected to be derived from such fuel assembly over its
life in the core. In addition to fuel amortization, CPL also
records nuclear fuel expense as a result of other items, including
spent fuel disposal fees assessed on the basis of net KWHs sold
from STP and DOE special assessment fees for decontamination and
decommissioning of the enrichment facilities on the basis of prior
usage of enrichment services.
Accounts Receivable
CSW Credit, as a wholly owned subsidiary of CSW, purchases,
without recourse, the billed and unbilled accounts receivable of
the Electric Operating Companies, Transok and certain non-
affiliated companies.
Regulatory Assets and Liabilities
For their regulated activities, each of the Electric Operating
Companies follows SFAS No. 71, which defines the criteria for
establishing regulatory assets and regulatory liabilities.
Regulatory assets represent probable future revenue to the company
associated with certain costs which will be recovered from customers
through the ratemaking process. Regulatory liabilities represent
probable future refunds to customers. The significant regulatory
assets and liabilities that have been recorded by the CSW System are
presented in the following table.
CSW
<PAGE> 2-35
CSW CPL PSO SWEPCO WTU
(millions) (thousands)
As of December 31, 1995
Regulatory Assets
Deferred plant costs $514 $488,047 $-- $-- $26,092
Mirror CWIP asset 312 311,804 -- -- --
Income tax related
regulatory assets, net 253 346,993 -- -- --
Deferred restructuring
and rate case costs 46 28,025 -- -- 17,577
Deferred storm costs 4 -- 3,623 -- --
Demand side management
costs 14 7,465 6,419 -- --
OPEBs 7 -- 4,008 2,794 --
Other 10 5,384 4,798 -- 431
Regulatory Liabilities
Income tax related
regulatory liabilities,
net -- -- 41,820 37,363 14,464
As of December 31, 1994
Regulatory Assets
Deferred plant costs $516 $488,987 $-- $-- $26,914
Mirror CWIP asset 322 321,825 -- -- --
Income tax related
regulatory assets, net 216 288,444 -- -- --
Deferred storm costs 5 -- 4,798 -- --
Demand side management
costs 11 5,635 5,411 -- --
OPEBs 6 -- 4,504 1,949 --
Other 11 5,989 4,945 -- --
Regulatory Liabilities
Mirror CWIP liability 41 41,000 -- -- --
Income tax related
regulatory liabilities,
net -- -- 18,611 44,836 9,217
Deferred Plant Costs at CPL and WTU
In accordance with orders of the Texas Commission, CPL and
WTU deferred carrying costs, as well as operating, depreciation
and tax costs incurred for STP and Oklaunion, respectively. These
deferrals were for the period beginning on the date when the
plants began commercial operation until the date the plants were
included in rate base. CPL is amortizing and recovering these
deferred costs through rates over the life of the plant. WTU is
amortizing and recovering such costs over seven years. See NOTE
2. LITIGATION AND REGULATORY PROCEEDINGS, for further discussion
of the deferred accounting proceedings.
CPL Mirror CWIP
In accordance with Texas Commission orders, CPL previously
recorded a Mirror CWIP asset, which is being amortized over the
life of STP. For further information regarding Mirror CWIP,
reference is made to NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS.
SEEBOARD Acquisition
The acquisition of SEEBOARD was accounted for as a purchase
combination. A preliminary allocation of the purchase price has
been performed and is reflected in the consolidated financial
statements. This includes an allocation of approximately $1.0
billion to goodwill at December 31, 1995, which will increase to
approximately $1.4 billion when CSW reaches its eventual 100%
ownership interest in SEEBOARD. While the allocation of the
purchase price may be revised at a later date, the goodwill is
expected to be amortized on a straight-line basis over 40 years.
SEEBOARD's results of operations are included in the consolidated
CSW results in the following manner. Equity earnings representing
the 27.6% CSW ownership interest in SEEBOARD during November 1995
were recorded in Other Income and Deductions. During December
1995, pursuant to its effective control of SEEBOARD through its
76.45% ownership interest, CSW began full consolidation accounting
CSW
<PAGE> 2-36
for SEEBOARD in its consolidated financial statements. At that
time, CSW recorded a current liability of approximately $1.0
billion representing the obligation to purchase the controlled
shares for which CSW had received acceptances but had not actually
purchased.
National Grid Assets Held for Sale
Pursuant to a December 11, 1995 distribution by SEEBOARD,
CSW (UK), as a shareholder of SEEBOARD, received 32,492,966 shares
of National Grid common stock. At December 31, 1995, the carrying
value of the National Grid assets held for sale, when converted to
U.S. dollars, was approximately $100 million. On February 2,
1996, all of the shares of National Grid that CSW (UK) held were
sold. On February 29, 1996, the proceeds from the sale of the
National Grid shares were used to repay a portion of the CSW
Investments Credit Facility.
Price Risk Management Activities
Transok periodically uses natural gas futures, options and
basis swap contracts to manage the impact of price fluctuations on
its inventory of natural gas, fuel and shrinkage requirements for
its processing plants and certain fixed price purchase and sales
contracts. Such contracts are designated at inception as a hedge
when there is a direct relationship to the price risk associated
with Transok's operations. Gains and losses on hedge contracts
are deferred until the effect of the corresponding hedged
transaction is recognized. For those contracts that are not
designated as hedges, changes in the fair value of those contracts
are recognized as gains or losses in income currently and are
recorded in the balance sheet at fair value at the reporting date.
Transok determines the fair value of its contracts based upon
settlement prices for exchange traded contracts, market-related
indexes or by obtaining quotes from brokers. Transok's trading
gains and losses, either from its hedging or its speculative
trading, did not have a material impact upon CSW's consolidated
results of operations. Transok's open trade positions at December
31, 1995, were not material to CSW's financial position.
Accounting Changes
Effective January 1, 1993, the CSW System adopted SFAS No.
106, SFAS No. 112 and SFAS No. 109. In addition, the Electric
Operating Companies also changed their method of accounting for
unbilled revenues. See Electric Revenues and Fuel above for
further information regarding the change in method of accounting
for unbilled revenue. See NOTE 4. INCOME TAXES for further
information regarding the adoption of SFAS No. 109 and see NOTE 5.
BENEFIT PLANS for further information regarding the adoption of
SFAS No. 106.
In 1993, the change in accounting for unbilled revenues and
the adoption of both SFAS No. 109 and SFAS No. 112 were presented
as a cumulative effect of changes in accounting principles for CSW
and the Electric Operating Companies as presented in the following
table.
CSW CPL PSO SWEPCO WTU
(millions,
except EPS) (thousands)
Unbilled Revenues
Pre-tax effect $75 $45,363 $13,758 $8,286 $8,347
Tax effect (26) (15,877) (5,321) (2,900) (2,921)
Net income effect $49 $29,486 $8,437 $5,386 $5,426
EPS effect (CSW only) $0.26
CSW
<PAGE> 2-37
CSW CPL PSO SWEPCO WTU
(millions,
except EPS) (thousands)
SFAS No. 109
Pre-tax effect $-- $-- $-- $-- $--
Tax effect 6 -- (268) -- --
Net income effect $6 $-- $(268) $-- $--
EPS effect (CSW only) $0.03
SFAS No. 112
Pre-tax effect $(13) $(3,371) $(3,173) $(3,047) $(2,534)
Tax effect 4 1,180 1,227 1,066 887
Net income effect $(9) $(2,191) $(1,946) $(1,981) $(1,647)
EPS effect (CSW only) $(0.05)
Total Cumulative Effect of
Changes in Accounting
Principles
Pre-tax effect $62 $41,992 $10,585 $5,239 $5,813
Tax effect (16) (14,697) (4,362) (1,834) (2,034)
Net income effect $46 $27,295 $6,223 $3,405 $3,779
EPS Effect (CSW only) $0.24
Statements of Cash Flows
Cash equivalents are considered to be highly liquid debt
instruments purchased with a maturity of three months or less.
Accordingly, temporary cash investments are considered cash
equivalents.
Reclassification
Certain financial statement items for prior years have been
reclassified to conform to the 1995 presentation.
2.LITIGATION AND REGULATORY PROCEEDINGS
Termination of El Paso Merger
In May 1993, CSW entered into a Merger Agreement pursuant to
which El Paso would emerge from bankruptcy as a wholly owned
subsidiary of CSW. El Paso is an electric utility company
headquartered in El Paso, Texas, which filed a voluntary petition
for reorganization under Chapter 11 of the Bankruptcy Code on
January 8, 1992.
On June 9, 1995, CSW notified El Paso that CSW would not
extend the termination date under the Merger Agreement as had been
requested by El Paso and, accordingly, that it was terminating the
Merger Agreement. CSW also informed El Paso on June 9, 1995, that
it was withdrawing the Modified Plan for the proposed Merger with
El Paso by a contemporaneous filing with the United States
Bankruptcy Court for the Western District of Texas, Austin
Division, before which the El Paso bankruptcy reorganization
proceeding was pending.
On June 9, 1995, following CSW's notification that it was
terminating the Merger and withdrawing the Modified Plan, El Paso
filed the El Paso Suit against CSW in state district court in El
Paso, Texas, claiming breach of contract, breach of duty of good
faith and fair dealing, breach of fiduciary duty, business
disparagement, tortious interference with contract and fraud in
the inducement. The El Paso Suit seeks a $25 million termination
fee from CSW, certain costs related to the Modified Plan,
CSW
<PAGE> 2-38
additional unspecified damages, punitive damages, interest as
permitted by law, reasonable attorneys' fees and court costs. On
June 15, 1995, CSW filed the CSW Suit against El Paso in the
United States Bankruptcy Court for the Western District of Texas,
Austin Division, seeking a $25 million termination fee from El
Paso due to El Paso's breach of the Merger Agreement, at least
$3.6 million in rate case expenses incurred by CSW on behalf of El
Paso related to state regulatory merger proceedings and a
declaratory judgment that CSW properly terminated the Merger
Agreement. CSW also removed the El Paso Suit from state district
court to the United States Bankruptcy Court for the Western
District of Texas, El Paso Division. The El Paso Suit was then
transferred to the United States Bankruptcy Court in Austin,
Texas.
On August 4, 1995, El Paso filed motions with the Austin
bankruptcy court to remand the El Paso Suit back to the state
district court in El Paso and abstain from hearing the CSW Suit.
The bankruptcy court denied El Paso's motions, and in connection
therewith the judge presiding over El Paso's bankruptcy proceeding
recused himself from hearing the El Paso Suit and the CSW Suit.
Both lawsuits have since been assigned to another judge of the
United States Bankruptcy Court for the Western District of Texas,
Austin Division. On October 19, 1995, El Paso filed motions (i)
to withdraw the reference of both lawsuits from the United States
Bankruptcy Court for the Western District of Texas to the United
States District Court for the Western District of Texas and (ii)
to change venue in both lawsuits to the El Paso Division. El
Paso's motion to withdraw the reference was denied on November 15,
1995, by the United States District Court for the Western District
of Texas, Austin Division, and El Paso's motion for
reconsideration of this ruling was denied on December 11, 1995.
On January 26, 1996, El Paso filed a petition for writ of mandamus
in the United States Court of Appeals for the Fifth Circuit
seeking an order directing the withdrawal of the reference of both
lawsuits from the Bankruptcy Court. On February 26, 1996, El
Paso's motion to transfer venue was denied by the United States
Bankruptcy Court for the Western District of Texas, Austin
Division, and the court consolidated the El Paso Suit and the CSW
Suit into one adversary proceeding. CSW is the named plaintiff in
the consolidated adversary proceeding. On February 27, 1996, the
Fifth Circuit Court of Appeal's denied El Paso's petition for writ
of mandamus. No trial date has been set for the lawsuits.
Although CSW believes that it has substantial defenses to El
Paso's claims and intends to defend El Paso's claims and pursue
CSW's claims vigorously, CSW cannot presently predict the outcome
of the lawsuit. However, if the lawsuit is decided adversely to
CSW, it could have a material adverse effect on CSW's consolidated
results of operations and financial condition.
CPL Rate Review
On November 6, 1995, CPL filed with the Texas Commission a
request to increase its retail base rates by $71 million and
reduce its annual retail fuel factors by $17 million. The net
effect of these proposals would be an increase of $54 million, or
4.6%, in total annual retail revenues based on a test year ended
June 30, 1995. CPL is not seeking interim rate relief, but will
implement bonded rates in May 1996, the earliest date permitted by
law. CPL also is seeking to reconcile $229 million of fuel costs
incurred during the period July 1, 1994 through June 30, 1995.
CPL's previous request to reconcile fuel costs from March 1, 1990
to June 30, 1994 in Docket No. 13650 was consolidated with the
current rate review. If the requested increase and other
adjustments in rate structure are approved, CPL has committed not
to increase its base rates prior to January 1, 2001, subject to
certain force majeure events.
CPL is requesting this rate review in large part as a result
of the expiration of the amortization of its Mirror CWIP
liability. The Mirror CWIP liability was amortized to income in
declining amounts over a five-year period from 1991 through 1995
pursuant to rate settlements reached by CPL in 1990 and 1991. In
1995, Mirror CWIP provided $41 million in non-cash earnings at
CPL. Also included in the request are proposals by CPL to
accelerate recovery of nuclear and regulatory assets as a way to
proactively address certain assets that could possibly be
unrecoverable or stranded in a more competitive electric utility
industry. In a preliminary order issued December 21, 1995, the
Texas Commission expanded the scope of the rate review to address
CSW
<PAGE> 2-39
certain competitive issues facing the electric utility industry.
The competitive issues to be addressed by CPL in a supplemental
filing due April 1, 1996, are: (i) the calculation of rates on an
unbundled or functional basis (i.e., generation, transmission and
distribution); (ii) the current value of CPL's generating assets
as compared to estimates of the market value of such assets under
alternate future industry structures; (iii) the application of
performance based ratemaking; (iv) potential revisions in the
methodology of reconciling and recovering fuel costs; and (v) the
Texas Commission's authority to introduce competition in the
electric utility industry under existing law.
On February 13, 1996, intervening parties filed testimony in
the revenue requirements phase of CPL's base rate case. Among the
parties that filed testimony were the OPUC which recommended a
base rate decrease of approximately $75 million on a total company
basis and the Cities which recommended a base rate reduction of
approximately $52 million on a total company basis.
On February 20, 1996, the Staff filed testimony recommending
an increase in total company base rates of approximately $30
million. Certain elements of the Staff's proposal are described
below.
The Staff recommended a return on common stock equity of
11.35% compared to the 12.25% return on common equity requested by
CPL. The Staff recommended a disallowance of $16 million in costs
billed for administrative services by CSW Services to CPL on the
basis that the specific benefits to CPL were not clearly
identified. Additionally, the Staff recommended a $7 million
reduction in CPL's current annual depreciation accrual and a $3
million reduction in CPL's requested accrual for decommissioning
STP. A comparison of the Staff's recommendation for a base rate
increase, compared to CPL's claimed revenue deficiency is provided
in the CPL RATE REVIEW COMPARISON table.
CPL RATE REVIEW COMPARISON (unaudited)
(millions)
CPL revenue deficiency (1) $103
Return on common equity (21)
CSW Services expenses (16)
Depreciation expense (7)
Decommissioning expense (3)
Miscellaneous items (26)
Staff recommended revenue increase (2) $30
(1) The total company rate increase requested by
CPL was reduced from $103 million to $78 million
($71 million allocated to the Texas retail
jurisdiction) in accordance with rate settlements
entered into by CPL in 1990 and 1991.
(2) The Staff recommended that CPL be granted a $23
million base rate increase and an annual increase
of $7 million in customer service charges.
The Staff and Cities recently filed testimony on the fuel
portion of the rate case recommending a reduction to CPL's
eligible fuel costs of $16 million and $32 million, respectively.
After completion of hearings in all phases of the rate case,
which began in late February 1996 and are expected to conclude
during the third quarter of 1996, the ALJs assigned to hear the
case will issue a proposal for decision for consideration by the
Texas Commission. Testimony filed by parties to the rate case,
including the Staff, is not binding on either the ALJs or the
Texas Commission. A final decision on the rate request is not
anticipated from the Texas Commission prior to December 1996.
CSW
<PAGE> 2-40
Management of CSW and CPL cannot predict the ultimate outcome
of CPL's rate case, although management believes that the ultimate
resolution will not have a material adverse effect on CPL's or
CSW's consolidated results of operations or financial condition.
However, if CPL ultimately is unsuccessful in obtaining adequate
rate relief, CPL and CSW could experience a material adverse
effect on their results of operations and financial condition.
CPL 1995 Agreement
On April 5, 1995, CPL reached an agreement in principle with
other parties to pending regulatory proceedings involving base
rate, fuel and prudence issues relating to an outage experienced
at STP during 1993 and 1994. On May 16, 1995, CPL filed the CPL
1995 Agreement with the Texas Commission. Pursuant to the CPL
1995 Agreement, base rate refunds, fuel refunds and the reduction
of CPL's fuel factors were implemented during the summer of 1995.
Under the CPL 1995 Agreement, CPL provided customers a one-time
base rate refund of $50 million. In addition, CPL refunded
approximately $30 million in over-recovered fuel costs through
April 1995. Furthermore, CPL did not charge customers for $62.25
million in replacement power costs and related interest primarily
associated with the 1993-1994 STP outage. The CPL 1995 Agreement
did not result in any ongoing change in base rate levels and
provided that there would be no new rate review requests filed
prior to September 28, 1995. CPL also reduced its fuel factors,
effective in July 1995, by approximately $55 million on an annual
basis due to projections of lower fuel costs. Hearings on the CPL
1995 Agreement were held on July 19, 1995, and the final written
Texas Commission order approving the CPL 1995 Agreement was
received on October 4, 1995. Details of the items in the CPL 1995
Agreement and the total 1995 earnings impact for CPL, including
certain accounting provisions, are set forth in the following
table.
Pre-tax After-tax
(millions)
Base rate refund $(50.0) $(32.5)
Fuel disallowance (62.3) (40.5)
Wholesale fuel refund (3.2) (2.1)
Current flowback of excess
deferred federal income taxes 34.3 34.3
Capitalization of previously
expensed restructuring and
rate case costs 27.6 17.9
Recognition of factoring income 16.1 10.5
Amortization, interest and other (6.6) (4.4)
CPL Deferred Accounting
CPL was granted deferred accounting treatment for certain
STP Unit 1 and 2 costs by Texas Commission orders issued in
October 1990 and December 1990, respectively. In 1994, the
Supreme Court sustained deferred accounting as an appropriate
mechanism for the Texas Commission to use in preserving the
financial integrity of CPL, but remanded CPL's case to the Court
of Appeals to consider certain substantial evidence points of
error not previously decided by the Court of Appeals given its
prior determinations. On August 16, 1995, the Court of Appeals
rendered its opinion in the remand proceeding and affirmed the
Texas Commission's order in all respects.
CPL believes that the language of the Supreme Court's
opinion suggests that the appropriateness of allowing deferred
accounting may be reviewed under a financial integrity standard in
the first case in which the deferred STP costs are recovered
through rates. If the courts decide that subsequent review under
the financial integrity standard is required, that review would be
conducted in a remand of the STP Unit 1 and 2 orders. Pending the
ultimate resolution of CPL's deferred accounting issues, CPL is
unable to predict how its deferred accounting orders will
ultimately be resolved by the Texas Commission.
CSW
<PAGE> 2-41
If CPL's deferred accounting matters are not favorably
resolved, CSW and CPL could experience a material adverse effect
on their respective results of operations and financial condition.
While CPL's management is unable to predict the ultimate outcome
of these matters, management believes CPL will receive approval of
its deferred accounting orders or will be successful in
renegotiation of its rate orders, so that there will be no
material adverse effect on CSW's or CPL's results of operation or
financial condition.
CPL Westinghouse Litigation
CPL and other owners of STP were plaintiffs in a lawsuit
filed in October 1990 in the District Court in Matagorda County,
Texas against Westinghouse, seeking damages and other relief. The
suit alleged that Westinghouse supplied STP with defective steam
generator tubes that are susceptible to stress corrosion cracking.
On December 8, 1995, CPL and the other owners of STP settled the
lawsuit. While the court order prohibits disclosure of the terms
of the settlement, CPL believes the litigation was settled on
terms that provided satisfactory consideration to CPL and STP and
will not have a material adverse effect on the results of
operations or financial condition of CSW or CPL.
CPL Civil Penalties
In October 1995, the NRC notified HLP of a Notice of
Violation and proposed penalties totaling $160,000 related to
events that occurred at STP in May 1992. The Notice of Violation
and penalties reflect the NRC's belief that certain STP employees
were terminated as a result of raising safety concerns with the
NRC. The Notice of Violation was the result of a Department of
Labor decision and order in April 1995 and is awaiting final
action by the Secretary of Labor. HLP is not required to reply to
the NRC's Notice of Violation or pay the penalties pending the
Secretary of Labor's final decision. The NRC indicated that the
proposed civil penalties reflect minimum penalties allowed because
of improvements made to the STP Employee Concerns Program since
1992. CPL's share of any penalty that is ultimately paid would be
approximately 25%, reflecting its ownership interest in STP.
CPL Industrial Road and Industrial Metals Site
Three suits naming CPL and others as defendants relating to
a third-party owned and operated site in Corpus Christi, Texas
formerly used for commercial reclamation of used electrical
transformers, lead acid batteries and other scrap metals, are
currently pending in federal and state court in Corpus Christi,
Texas. Plaintiffs' complaints seek damages for alleged property
damage and health impairment as a result of operations on the site
and cleanup activities. Management cannot predict the outcome of
these suits. However, management believes that CPL has defenses
to the plaintiffs' complaints and intends to defend the suits
vigorously. Management also believes that the ultimate resolution
of these matters will not have a material adverse effect on CSW's
or CPL's results of operations or financial condition.
PSO Gas Transportation and Fuel Management Fees
An order issued by the Oklahoma Commission in 1991 required
that the level of gas transportation and fuel management fees,
paid to Transok by PSO, permitted for recovery through the fuel
adjustment clause be reviewed in PSO's 1993 rate proceeding. This
portion of the 1993 rate review was subsequently bifurcated. In
March 1995, an order was issued by the Oklahoma Commission
approving an agreement which allows PSO to recover approximately
$28.4 million of transportation and fuel management fees in base
rates using 1991 determinants and approximately $1 million through
the fuel adjustment clause. The agreement also requires the phase-
in of competitive bidding of natural gas transportation
requirements in excess of 165 MMcf/d.
PSO Gas Purchase Contracts
PSO has been named defendant in complaints filed in federal
and state courts of Oklahoma and Texas in 1984 through 1995 by gas
suppliers alleging claims arising out of certain gas purchase
contracts. The plaintiffs seek relief through the filing dates as
well as attorneys' fees. In January 1996, complaints representing
CSW
<PAGE> 2-42
approximately $10 million in claims were settled. Remaining
complaints currently total approximately $1 million in claimed
actual damages. The settlements did not have a material effect on
CSW's and PSO's consolidated results of operations or financial
condition. The remaining suits are in the preliminary stages.
Management cannot predict the outcome of these proceedings.
However, management believes that PSO has defenses to the
remaining complaints and intends to defend the suits vigorously.
Management also believes that the ultimate resolution of the
remaining complaints will not have a material adverse effect on
CSW's or PSO's consolidated results of operations or financial
condition.
PSO PCB Cases
PSO has been named a defendant in complaints filed in
federal and state courts of Oklahoma in 1984, 1985, 1986, 1993 and
1996. The complaints allege, among other things, that some of the
plaintiffs and the property of other plaintiffs were contaminated
with PCBs and other toxic by-products following certain incidents,
including transformer malfunctions, in April 1982, December 1983
and May 1984. To date, all complaints, except for claims
representing approximately $13 million in alleged damages and
claims filed in February 1996 for additional unspecified actual
and punitive damages, have been dismissed, certain of which
resulted from settlements among the parties. Management believes
that PSO has defenses to the remaining complaints and intends to
defend the suits vigorously. Moreover, management believes that
the remaining claims are covered under insurance. Management also
believes that the ultimate resolution of the remaining complaints
will not have a material adverse effect on CSW's or PSO's
consolidated results of operations or financial condition.
PSO Burlington Northern Transportation Contract
In June 1992, PSO filed suit in the United States District
Court for the Northern District of Oklahoma against Burlington
Northern seeking declaratory relief under a long-term contract for
the transportation of coal. In July 1992, Burlington Northern
asserted counterclaims for unspecified damages against PSO
alleging that PSO breached the contract. In December 1993, PSO
amended its suit against Burlington Northern seeking damages and
declaratory relief under federal and state antitrust laws. In
December 1995, PSO and Burlington Northern reached a compromise
settlement of all outstanding claims and counterclaims, and the
action was dismissed with prejudice. The settlement did not have
a material adverse effect on CSW's or PSO's consolidated results
of operations or financial condition.
PSO Burlington Northern Arbitration
In May 1994, in an arbitration related to the Burlington
Northern coal transportation contract described above, an
arbitration panel made an award in favor of PSO concerning basic
transportation rates under the coal transportation contract and
concerning the contract mechanism for adjustment for future
transportation rates. This arbitration award was then the subject
of litigation in the United States District Courts for the
Northern Districts of Oklahoma and Texas and the United States
Court of Appeals for the Tenth Circuit. In December 1995, this
litigation was settled as part of the compromise settlement of the
related lawsuit described above. Under the settlement, a $16.4
million judgment by the U.S. District Court for the Northern
District of Oklahoma confirming the arbitration award became final
and was then released and satisfied of record.
PSO Ash Creek Coal Mine Reclamation
In August 1994, PSO received approval from the Wyoming
Department of Environmental Quality to begin reclamation of a coal
mine in Sheridan, Wyoming, owned by Ash Creek, a wholly owned
subsidiary of PSO. Ash Creek recorded a $3 million liability in
1993 for the estimated reclamation costs and subsequently accrued
an additional $500,000 in 1995. Actual reclamation work commenced
in September 1995, with completion expected in late 1996.
Surveillance monitoring will continue for ten years after final
reclamation. Management believes that ultimate resolution of this
matter will not have a material adverse effect on CSW's or PSO's
consolidated results of operations or financial condition.
CSW
<PAGE> 2-43
PSO MCPC
In 1989, PSO entered into certain long-term contracts with
MCPC, a cogeneration development company located in northeastern
Oklahoma. These contracts include: (i) an Interconnection and
Interchange Agreement providing terms and conditions under which
MCPC could connect its electric generating facilities to PSO's
transmission system and providing for future transmission by PSO
of specified amounts of MCPC's power to an unaffiliated utility;
(ii) a Stock/Asset Purchase Agreement which allows PSO under
certain conditions to acquire the stock or assets of MCPC; and
(iii) an Energy Conversion Agreement which required PSO to deliver
natural gas to MCPC for conversion to electrical energy to be
delivered by MCPC to PSO. Under the Energy Conversion Agreement,
PSO had the right to dispatch up to 60 MWH per hour of quick-start
capability.
In 1993, MCPC filed an application with the Oklahoma
Commission requesting relief through the modification of the
existing Energy Conversion Agreement. An emergency order was
issued under MCPC's application which increased the payment made
by PSO to MCPC for energy purchases and decreased the amount of
firm energy MCPC was required to deliver to PSO. The emergency
order was subject to a permanent ruling.
In July 1993, PSO commenced a lawsuit in the District Court
of Tulsa County, Oklahoma, seeking a declaratory judgment that PSO
was entitled to terminate the Energy Conversion Agreement as of
August 1, 1993, because of a default committed by MCPC. On March
31, 1995, PSO, MCPC and the Oklahoma Commission Staff signed a
joint settlement resolving all issues pursuant to the various
proceedings before the Oklahoma Commission and the District Court
of Tulsa County, Oklahoma. The settlement, among other things,
eliminated a requirement that MCPC deliver an annual minimum of
394,200 MWH of Assured Delivery Energy and related provisions
associated with underdelivery charges. Most other provisions of
the agreement between PSO and MCPC were kept intact. The Oklahoma
Commission issued an order in May 1995 approving the settlement.
The settlement is on terms satisfactory to PSO and will not have a
material adverse effect on CSW's or PSO's consolidated results of
operations or financial condition.
SWEPCO Fuel Factor Proceedings
On October 6, 1995, SWEPCO filed a petition, designated as
Docket No. 14819, with the Texas Commission to revise its fixed
fuel factors for the recovery of fuel and purchased power costs.
SWEPCO was experiencing an over-recovery of fuel costs based on
application of its then current factors which became effective in
July 1994. The original filing with the Texas Commission proposed
decreasing SWEPCO's fixed fuel factors and refunding to customers
$7.1 million of cumulative over-recoveries for the period January
1994 to June 1995. SWEPCO subsequently revised its petition to
the Texas Commission, updating the cumulative fuel over-recovery
to $10.4 million through September 1995. On December 20, 1995,
the Texas Commission issued an order approving SWEPCO's revised
fixed fuel factors and authorizing the refund of $10.8 million,
including interest, to customers primarily as billing credits on
January 1996 monthly bills.
SWEPCO Burlington Northern Transportation Contract
On January 20, 1995, a state district court in Bowie County,
Texas, entered judgment in favor of SWEPCO against Burlington
Northern in a lawsuit regarding rates charged under two rail
transportation contracts for delivery of coal to SWEPCO's Welsh
and Flint Creek power plants. The court awarded SWEPCO
approximately $72 million covering damages for the period from
April 27, 1989 through September 26, 1994, post-judgment interest
and attorneys' fees and granted certain declaratory relief
requested by SWEPCO. Burlington Northern appealed the state
district court's judgment to the Texarkana, Texas Court of
Appeals. The appeal is now pending.
CSW
<PAGE> 2-44
WTU Stipulation and Agreement
WTU has been the subject of several pending regulatory
matters, including the following: (i) a retail rate proceeding and
fuel reconciliation before the Texas Commission in Docket No.
13369; (ii) Writ of Error to the Supreme Court - review of WTU's
1987 Texas rate case in Docket No. 7510; and (iii) the Texas
Commission's proceeding on remand in Docket No. 13949 regarding
deferred accounting treatment for Oklaunion Power Station Unit No.
1 originally authorized in the Texas Commission's Docket No. 7289.
On September 22, 1995, WTU, along with other major parties
to the above described matters, filed with the Texas Commission a
joint stipulation and agreement to resolve all of these matters.
The WTU Stipulation and Agreement is a unified package that
included: (i) a retail base rate reduction of approximately $13.5
million annually starting with WTU's October 1995 revenue month
billing cycle; (ii) a $21 million retail refund which was not
attributed to any specific cause but was inclusive of all claims
related to the three above described litigation and regulatory
matters and included the effect of the rate reduction to October
1, 1994; (iii) a reduction of fixed fuel factors by approximately
2%; (iv) various rate and accounting treatments including a
reasonable return on equity for retail operations of 11.375%; and
(v) a retail base rate freeze until October 1, 1998, subject to
certain force majeure provisions.
On November 9, 1995, the Texas Commission rendered a final
order that implemented the joint stipulation and agreement, ending
the rate proceeding and fuel reconciliation in Docket No. 13369
and the remand, designated Docket No. 13949, to the Texas
Commission by the Supreme Court for the deferred accounting
treatment of Oklaunion Power Station Unit No. 1 originally
authorized by the Texas Commission in Docket No. 7289. The final
order also set into motion the actions required to seek a remand
of the appeal of Docket No. 7510 to the Texas Commission to
implement a final order consistent with the WTU Stipulation and
Agreement.
On December 8, 1995, all parties to the appeals filed a
joint motion with the Supreme Court and, on December 22, 1995, the
Supreme Court approved the joint motion to withdraw and dismissed
the case. The case will now go back to the Court of Appeals so
that it can be remanded back to the Texas Commission. The date of
this remand and final action by the Texas Commission is not known.
The WTU Stipulation and Agreement is expected to impact
WTU's results of operations for the next several years, reducing
annual earnings by approximately $8 million beginning in 1996.
Details of the items with significant earnings impact for 1995 and
1996, including certain accounting treatments, are set forth in
the following table.
1995 1996 (unaudited)
Pre-tax After-tax Pre-tax After-tax
(millions)
Refund to retail customers $(21.0) $(13.7) $-- $--
Effect of retail rate reduction (2.4) (1.6) (7.6) (4.9)
Current flowback of property related
excess deferred federal income
taxes 6.9 6.9 -- --
Five year flowback of non-property
related excess deferred federal
income taxes 0.1 0.1 0.5 0.5
Capitalization and amortization
of previously expensed restructuring
costs 12.7 8.2 (1.9) (1.2)
Accelerated amortization of deferred
Oklaunion plant costs (accelerated
from the remaining 31 years to 7
years) -- -- (2.9) (1.9)
Other amortization (0.2) (0.1) (0.8) (0.5)
Other one-time items 1.0 0.7 -- --
CSW
<PAGE> 2-45
The WTU Stipulation and Agreement also eliminated several
significant risks that have been the subject of regulatory
proceedings relating to deferred accounting and rates and will
enable WTU's rates to remain at competitive levels for the
foreseeable future.
CSW Energy Cimmaron Litigation
On January 12, 1994, Cimmaron brought suit against CSW and
its wholly owned subsidiary, CSW Energy, in the 125th District
Court of Houston, Harris County, Texas. Cimmaron alleged that CSW
and CSW Energy breached commitments to participate with Cimmaron
in the failed BioTech Cogeneration project located in Colorado.
CSW Energy filed a counterclaim against Cimmaron and third-
party claims against the principals of Cimmaron on December 22,
1994. On January 10, 1995, Cimmaron added claims of negligence
and gross negligence against the members of CSW Energy's board of
directors at the time of the failed project. Effective July 27,
1995, the parties agreed upon a settlement whereby they would
dismiss their respective claims. The terms of the settlement were
on terms satisfactory to CSW and CSW Energy and had no material
adverse impact on CSW's consolidated results of operations or
financial condition.
Other
CSW is party to various other legal claims, actions and
complaints arising in the normal course of business. Management
does not expect disposition of these matters to have a material
adverse effect on CSW's consolidated results of operations or
financial condition.
3.COMMITMENTS AND CONTINGENT LIABILITIES
Construction and Capital Expenditures
It is estimated that CSW, including the Electric Operating
Companies, SEEBOARD, Transok and other diversified operations,
will spend approximately $636 million in capital expenditures
during 1996. Substantial commitments have been made in connection
with these programs. During 1996, each of the Electric Operating
Companies expects to spend, including AFUDC, approximately the
following amounts in construction expenditures:
CPL-$137 million PSO-$68 million SWEPCO-$98 million WTU-$42 million
Fuel Commitments
To supply a portion of the fuel requirements of the CSW
System, the subsidiary companies have entered into various
commitments for the procurement of fuel.
SWEPCO Henry W. Pirkey Power Plant
In connection with the South Hallsville lignite mining
contract for its Henry W. Pirkey Power Plant, SWEPCO has agreed,
under certain conditions, to assume the obligations of the mining
contractor. As of December 31, 1995, the maximum amount SWEPCO
would have to assume was $71.9 million. The maximum amount may
vary as the mining contractor's need for funds fluctuates. The
contractor's actual obligation outstanding at December 31, 1995
was $58.7 million.
SWEPCO South Hallsville Lignite Mine
As part of the process to receive a renewal of a Texas
Railroad Commission permit for lignite mining at the South
Hallsville lignite mine, SWEPCO has agreed to provide bond
guarantees on mine reclamation in the amount of $70 million.
Since SWEPCO uses self-bonding, the guarantee provides for SWEPCO
CSW
<PAGE> 2-46
to commit to use its resources to complete the reclamation in the
event the work is not completed by the third party miner. The
current cost to reclaim the mine is estimated to be approximately
$25 million.
WTU Pipeline Leases
WTU has entered into various commitments for the procurement
of fuel. WTU has a sale/leaseback agreement with Transok, an
affiliated company, for full capacity use of a natural gas
pipeline to WTU's Ft. Phantom generating plant. The lease
agreement also provides for full capacity use of Transok's natural
gas pipelines serving WTU's San Angelo, Oak Creek and Rio Pecos
generating plants. The initial terms of the agreement entered
into in 1992 are for twelve years with renewable options
thereafter.
Other Commitments and Contingencies
CPL Nuclear Insurance
In connection with the licensing and operation of STP, the
owners have purchased the maximum limits of nuclear liability
insurance, as required by law, and have executed indemnification
agreements with the NRC in accordance with the financial
protection requirements of the Price-Anderson Act.
The Price-Anderson Act, a comprehensive statutory
arrangement providing limitations on nuclear liability and
governmental indemnities, is in effect until August 1, 2002. The
limit of liability under the Price-Anderson Act for licensees of
nuclear power plants is $8.92 billion per incident, effective as
of January 1995. The owners of STP are insured for their share of
this liability through a combination of private insurance
amounting to $200 million and a mandatory industry-wide program
for self-insurance totaling $8.72 billion. The maximum amount
that each licensee may be assessed under the industry-wide program
of self-insurance following a nuclear incident at an insured
facility is $75.5 million per reactor, which may be adjusted for
inflation, plus a five percent charge for legal expenses, but not
more than $10 million per reactor for each nuclear incident in any
one year. CPL and each of the other STP owners are subject to
such assessments, which CPL and other owners have agreed will be
allocated on the basis of their respective ownership interests in
STP. For purposes of these assessments, STP has two licensed
reactors.
The owners of STP currently maintain on-site decontamination
liability and property damage insurance in the amount of $2.75
billion provided by ANI and NEIL. Policies of insurance issued by
ANI and NEIL stipulate that policy proceeds must be used first to
pay decontamination and cleanup costs before being used to cover
direct losses to property. Under project agreements, CPL and the
other owners of STP will share the total cost of decontamination
liability and property insurance for STP, including premiums and
assessments, on a pro rata basis, according to each owner's
respective ownership interest in STP.
CPL purchases, for its own account, a NEIL I Business
Interruption and/or Extra Expense policy. This insurance will
reimburse CPL for extra expenses incurred for replacement
generation or purchased power as the result of a covered accident
that shuts down production at one or both of the STP Units for
more than 21 consecutive weeks. In the event of an outage of STP
Units 1 and 2 and the outage is the result of the same accident,
insurance will reimburse CPL up to 80% of the single unit
recovery. The maximum amount recoverable for a single unit outage
is $86.02 million for Unit 1 and $85.96 million for Unit 2. CPL
is subject to an additional assessment up to $1.6 million for the
current policy year in the event that insured losses at a nuclear
facility covered under the NEIL I policy exceeds the accumulated
funds available under the policy.
On August 28, 1994, CPL filed a claim under the NEIL I
policy relating to the 1993 - 1994 outage at STP Units 1 and 2.
NEIL has denied the claim. CPL management is currently evaluating
its options regarding this claim, but cannot predict the ultimate
outcome of this matter.
CSW
<PAGE> 2-47
SWEPCO Rental and Lease Commitments
SWEPCO has entered into various financing arrangements
primarily with respect to coal transportation and related
equipment, which are treated as operating leases for rate-making
purposes. At December 31, 1995, leased assets of $46 million, net
of accumulated amortization of $33.7 million, were included in
Electric fixed assets on the balance sheet and at December 31,
1994, leased assets were $46 million, net of accumulated
amortization of $30.1 million. Total charges to SWEPCO's
operating expenses for expenses associated with these financing
arrangements were $6.3 million, $6.8 million and $7.1 million for
the years 1995, 1994 and 1993, respectively.
SWEPCO Biloxi, Mississippi MGP Site
In 1994, SWEPCO was notified by Mississippi Power that it may
be a PRP at a MGP site in Biloxi, Mississippi, formerly owned and
operated by a predecessor of SWEPCO. SWEPCO worked with
Mississippi Power to investigate the extent of contamination at
this site. The MDEQ approved a site investigation work plan and,
in January 1995, SWEPCO and Mississippi Power initiated sampling
pursuant to that work plan. Contamination at the site was
identified as a result of the investigation of property and
adjacent properties. Soil and grounds water test results were
sent to the MDEQ for review and comment. The test results
confirmed the contamination on the property and indicated the
possibility of contamination of an adjacent property. A risk
assessment has been performed to assist SWEPCO and Mississippi
Power in determining remediation alternatives. A final range of
cleanup costs has not been determined, but based on preliminary
estimates, SWEPCO has accrued approximately $2 million for its
portion of the cleanup of this site.
CSW Energy Investments and Commitments
CSW Energy provided construction services to the Mulberry
cogeneration facility through a wholly owned subsidiary, CSW
Development-I, Inc. The project achieved commercial operation in
August 1994 and added 120 MW of on-line capacity of which CSW
Energy owns 50%. CSW Energy's maximum potential liability under
the fixed price contract is $29 million which will decrease to
zero in August 1996. As of December 31, 1995, CSW had provided
additional guarantees to the project totaling approximately $3.3
million.
CSW Energy has entered into a purchase agreement on the Ft.
Lupton project to provide $80.6 million of equity upon the
occurrence of certain events. As of December 31, 1995, $44
million has been paid and CSW has provided a guarantee for $40
million. Additionally, CSW Energy has provided four letters of
credit to the project totaling $18.9 million. In March 1995, CSW
Energy closed permanent project financing on the Ft. Lupton
facility in the amount of $208 million which allowed the project
to repay its $102 million construction borrowing to CSW. The
following table summarizes the investments and commitments in CSW
Energy's projects at December 31, 1995.
Letters of Credit
Equity and Guarantees Loans
(millions)
Brush $15.3 $-- $--
Orange Cogeneration 53.2 2.3 --
Ft. Lupton 44.0 58.9 36.5
Mulberry 23.6 32.3 --
Phillips Sweeny -- 3.0 4.2
Newgulf 8.1 -- --
Various developmental projects 10.5 7.1 9.5
SEEBOARD Medway Commitment
In April 1992, SEEBOARD entered into an agreement to provide
37.5% of the equity to Medway Power Ltd., a company formed to
construct, own and operate a 660 MW gas-fired power plant on the
CSW
<PAGE> 2-48
Isle of Grain, Kent, in the United Kingdom. Through December 31,
1995, SEEBOARD has invested 11.6 million pounds or approximately $18.0
million in the project and remains committed for an additional
maximum amount of 11.3 million pounds or approximately $17.5 million
(1.00 pound=$1.55). In addition, SEEBOARD has entered into a
commitment to purchase 50% of the Medway power plant's output for
15 years commencing in 1996.
4.INCOME TAXES
CSW files a consolidated federal income tax return and
participates in a tax sharing agreement with its subsidiaries.
Income tax includes federal income taxes, applicable state income
taxes and SEEBOARD's United Kingdom Corporation income taxes.
The CSW System adopted the provisions of SFAS No. 109
effective January 1, 1993. The net effect on CSW's earnings for
the year ended December 31, 1993, was a one-time adjustment to
increase net income by $6 million or $0.03 per share. This
adjustment was recorded as a cumulative effect of change in
accounting principle. The benefit was attributable to the
reduction in deferred taxes associated with CSW's non-utility
operations previously recorded at rates higher than current rates.
For the Electric Operating Companies, there were no material
effects of SFAS No. 109 on CSW's earnings. As a result of this
change, CSW recognized additional accumulated deferred income
taxes from its utility operations and corresponding regulatory
assets and liabilities to ratepayers in amounts equal to future
revenues or the reduction in future revenues required when the
book versus tax differences reverse and are recovered or settled
in rates. As a result of a favorable earnings history, the CSW
System did not record any valuation allowance against deferred tax
assets at December 31, 1995, 1994 and 1993.
Total income taxes (income taxes included in Operating
Expenses and Taxes as well as Other Income and Deductions) differ
from the amounts computed by applying the federal statutory income
tax rates to income before taxes for a number of reasons. The tax
implications of the CPL 1995 Agreement and the WTU Stipulation and
Agreement, whereby the flowback of unprotected excess deferred
income taxes was accelerated, contributed to the difference as did
adjustments that were made to eliminate tax obligations that no
longer exist. These differences are presented in the INCOME TAX
RATE RECONCILIATION table below.
Information concerning income taxes, including total income
tax expense, a reconciliation between the federal statutory tax
rate and the effective tax rate and significant components of
deferred income taxes follow.
INCOME TAX EXPENSE CSW CPL PSO SWEPCO WTU
(millions) (thousands)
1995
Included in Operating
Expenses and Taxes
Current $107 $51,626 $37,687 $41,852 $4,892
Deferred 12 (30,025) 2,704 6,287 1,971
Deferred ITC (1) (14) (5,789) (2,789) (4,786) (1,321)
105 15,812 37,602 43,353 5,542
Included in Other Income
and Deductions
Current 2 129 (197) (721) 1,564
Deferred (4) -- -- -- --
(2) 129 (197) (721) 1,564
$103 $15,941 $37,405 $42,632 $7,106
CSW
<PAGE> 2-49
CSW CPL PSO SWEPCO WTU
(millions) (thousands)
1994
Included in Operating
Expenses and Taxes
Current $94 $54,486 $32,083 $24,333 $10,898
Deferred 109 26,659 7,844 22,248 8,377
Deferred ITC (1) (14) (5,789) (2,789) (4,278) (1,321)
189 75,356 37,138 42,303 17,954
Included in Other Income
and Deductions
Current (13) (3,157) (4,129) (3,710) (2,998)
Deferred (5) -- (65) -- --
(18) (3,157) (4,194) (3,710) (2,998)
$171 $72,199 $32,944 $38,593 $14,956
1993
Included in Operating
Expenses and Taxes
Current $35 $(19,690) $15,339 $37,235 $11,379
Deferred 111 90,682 9,419 (2,481) 3,593
Deferred ITC (1) (15) (5,806) (2,791) (5,193) (1,321)
131 65,186 21,967 29,561 13,651
Included in Other Income
and Deductions
Current (3) 736 (1,785) (1,847) (510)
Deferred (3) (162) 71 -- --
(6) 574 (1,714) (1,847) (510)
Tax Effects of Cumulative
Effect of Changes in
Accounting Principles 14 14,697 4,362 1,834 2,034
$139 $80,457 $24,615 $29,548 $15,175
(1) ITC deferred in prior years are included in income over the
lives of the related properties.
<TABLE>
<CAPTION>
INCOME TAX RATE
RECONCILIATION CSW CPL PSO SWEPCO WTU
($ in
millions) ($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995
Tax at statutory rates $182 35% $77,836 35% $41,732 35% $55,886 35% $14,573 35%
Differences
Amortization of ITC (14) (3) (5,789) (3) (2,789) (2) (4,786) (3) (1,321) (3)
Mirror CWIP (11) (2) (10,843) (5) -- -- --
CPL 1995 Agreement (34) (7) (34,289) (15) -- -- --
WTU Stipulation and
Agreement (7) (1) -- -- -- (6,859) (16)
Prior period
adjustments (22) (4) (13,462) (6) (2,949) (2) (2,783) (2) 953 2
Other 9 2 2,488 1 1,411 -- (5,685) (3) (240) (1)
$103 20% $15,941 7% $37,405 31% $42,632 27% $7,106 17%
1994
Tax at statutory rates $204 35% $97,174 35% $35,442 35% $50,483 35% $18,313 35%
Differences
Amortization of ITC (14) (2) (5,789) (2) (2,789) (3) (4,277) (3) (1,321) (3)
Mirror CWIP (20) (4) (20,293) (7) -- -- --
Prior period
adjustments (2) -- (1,955) (1) (1,272) (1) (2,588) (2) --
Other 3 -- 3,062 1 1,563 2 (5,025) (3) (2,036) (3)
$171 29% $72,199 26% $32,944 33% $38,593 27% $14,956 29%
</TABLE>
CSW
<PAGE> 2-50
<TABLE>
<CAPTION>
CSW CPL PSO SWEPCO WTU
($ in
millions) ($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993
Tax at statutory rates $163 35% $88,509 35% $24,967 35% $38,998 35% $15,915 35%
Differences
Amortization of ITC (15) (3) (5,806) (2) (2,790) (4) (5,193) (5) (1,321) (3)
Mirror CWIP (23) (5) (22,989) (9) -- -- --
Prior period
adjustments 19 4 19,101 7 (355) (1) (576) (1) --
Cumulative effect of
change in method
of accounting
for income taxes (8) (2) -- -- -- --
Other 3 1 1,642 1 2,793 5 (3,681) (2) 581 1
$139 30% $80,457 32% $24,615 35% $29,548 27% $15,175 33%
</TABLE>
DEFERRED INCOME TAXES CSW CPL PSO SWEPCO WTU
(millions) (thousands)
1995
Deferred Income Tax Liabilities
Depreciable utility plant $1,679 $769,888 $277,317 $388,394 $130,490
Deferred plant costs 180 170,816 -- -- 9,132
Mirror CWIP asset 109 109,132 -- -- --
Income tax related regulatory
assets 220 163,014 14,481 32,462 10,557
Other 474 69,671 24,923 23,441 25,606
2,662 1,282,521 316,721 444,297 175,785
Deferred Income Tax Assets
Income tax related
regulatory liability (133) (41,567) (30,657) (44,914) (15,619)
Unamortized ITC (98) (53,460) (17,878) (15,868) (10,696)
Alternative minimum tax
carryforward (96) (21,456) -- -- --
Other (71) (36,386) (14,222) (10,906) (9,668)
(398) (152,869) (62,757) (71,688) (35,983)
Net Accumulated Deferred Income
Taxes $2,264 $1,129,652 $253,964 $372,609 $139,802
Net Accumulated Deferred Income
Taxes
Noncurrent $2,306 $1,151,823 $264,353 $377,245 $145,130
Current (42) (22,171) (10,389) (4,636) (5,328)
$2,264 $1,129,652 $253,964 $372,609 $139,802
CSW
<PAGE> 2-51
CSW CPL PSO SWEPCO WTU
(millions) (thousands)
1994
Deferred Income Tax
Liabilities
Depreciable utility plant $1,683 $755,437 $292,127 $389,016 $144,501
Deferred plant costs 181 171,145 -- -- 9,420
Mirror CWIP asset 113 112,639 -- -- --
Income tax related
regulatory assets 229 169,104 15,061 33,847 10,908
Other 262 49,800 25,309 41,150 10,120
2,468 1,258,125 332,497 464,013 174,949
Deferred Income Tax Assets
Income tax related
regulatory liability (155) (68,149) (22,260) (50,162) (14,134)
Unamortized ITC (115) (55,486) (18,957) (29,482) (11,159)
Alternative minimum tax
carryforward (96) (26,138) -- -- --
Other (56) (7,223) (16,811) (25,520) (6,578)
(422) (156,996) (58,028) (105,164) (31,871)
Net Accumulated Deferred
Income Taxes $2,046 $1,101,129 $274,469 $358,849 $143,078
Net Accumulated Deferred
Income Taxes
Noncurrent $2,048 $1,087,317 $281,139 $365,441 $146,146
Current (2) 13,812 (6,670) (6,592) (3,068)
$2,046 $1,101,129 $274,469 $358,849 $143,078
5.BENEFIT PLANS
Defined Benefit Pension Plan
The CSW System maintains a tax qualified, non-contributory
defined benefit pension plan covering substantially all employees.
Benefits are based on employees' years of credited service, age at
retirement, and final average annual earnings with an offset for
the participant's primary Social Security benefit. The CSW
System's funding policy is based on actuarially determined
contributions, taking into account amounts which are deductible
for income tax purposes and minimum contributions required by
ERISA. Pension plan assets consist primarily of common stocks and
short-term and intermediate-term fixed income investments.
Information about the pension plan, including: (1) pension plan
net periodic costs and contributions; (2) pension plan
participation; (3) a reconciliation of the funded status of the
pension plan to the amounts recognized on the balance sheets; and
(4) assumptions used in accounting for the pension plan follow.
NET PERIODIC
PENSION PLAN COSTS
AND CONTRIBUTIONS CSW CPL PSO SWEPCO WTU
(millions) (thousands)
1995
Net Periodic Pension Costs
Service cost $20 $4,699 $3,614 $4,220 $2,609
Interest cost on
projected benefit
obligation 64 14,860 11,428 13,345 8,251
Actual return on plan
assets (117) (27,137) (20,869) (24,370) (15,068)
Net amortization and
deferral 44 10,136 7,795 9,102 5,628
$11 $2,558 $1,968 $2,297 $1,420
Pension Plan Contributions $29 $6,754 $5,195 $6,066 $3,751
CSW
<PAGE> 2-52
CSW CPL PSO SWEPCO WTU
(millions) (thousands)
1994
Net Periodic Pension Costs
Service cost $22 $5,796 $5,181 $4,843 $3,082
Interest cost on
projected benefit
obligation 62 15,989 14,292 13,361 8,501
Actual return on plan
assets (4) (1,131) (1,011) (945) (601)
Net amortization and
deferral (70) (17,972) (16,064) (15,018) (9,556)
$10 $2,682 $2,398 $2,241 $1,426
Pension Plan Contributions $28 $7,099 $6,345 $5,932 $3,744
1993
Net Periodic Pension Costs
Service cost $20 $5,228 $4,642 $4,239 $2,732
Interest cost on
projected benefit
obligation 56 14,878 13,209 12,063 7,776
Actual return on plan
assets (68) (18,079) (16,051) (14,658) (9,448)
Net amortization and
deferral -- 68 60 55 35
$8 $2,095 $1,860 $1,699 $1,095
Pension Plan Contributions $32 $11,005 $6,694 $6,113 $3,940
APPROXIMATE NUMBER OF
PARTICIPANTS IN PLAN
DURING 1995 CSW CPL PSO SWEPCO WTU
Active employees 7,700 1,900 1,400 1,700 1,100
Retirees 4,200 1,400 1,200 900 600
Terminated employees 1,300 400 400 200 200
RECONCILIATION OF
FUNDED STATUS OF PLAN
TO AMOUNTS RECOGNIZED
ON THE CSW CONSOLIDATED
BALANCE SHEETS December 31,
1995 1994
(millions)
Plan assets, at fair value $897 $794
Actuarial present value of
Accumulated benefit obligation
for service rendered to date 745 685
Additional benefit for future
salary levels 140 112
Projected benefit obligation 885 797
Plan assets in excess/(below) the
projected benefit obligation 12 (3)
Unrecognized net gain 64 60
Unrecognized prior service cost (8) (8)
Unrecognized net obligation 14 15
Prepaid pension cost $82 $64
The vested portion of the accumulated benefit obligations at
December 31, 1995 and 1994 was $678 million and $626 million,
respectively. The unrecognized net obligation is being amortized
over the average remaining service life of employees or 16 years.
Prepaid pension cost is included in Deferred Charges and Other
Assets on the consolidated balance sheet. No reconciliation of
CSW
<PAGE> 2-53
the funding status of the plan for CPL, PSO, SWEPCO or WTU is
presented because the plan is administered for the CSW System as a
whole and such information is unavailable for the Electric
Operating Companies individually.
In addition to the amounts shown in the above table, the CSW
System has a non-qualified excess benefit plan. This plan is
available to all pension plan participants who are entitled to
receive a pension benefit from CSW which is in excess of the
limitations imposed on benefits by the Internal Revenue Code
through the qualified plan. CSW's net periodic cost for this non-
qualified plan for the years ended December 31, 1995, 1994 and
1993 was $2.4 million, $1.8 million and $0.5 million,
respectively.
ASSUMPTIONS USED IN Long-Term Return
ACCOUNTING FOR THE Discount Compensation on Plan
PENSION PLAN Rate Increase Assets
1995 8.00% 5.46% 9.50%
1994 8.25% 5.46% 9.50%
1993 7.75% 5.46% 9.50%
Postretirement Benefits Other Than Pensions
The CSW System, including each of the Electric Operating
Companies, adopted SFAS No. 106 effective January 1, 1993. The
effect on the CSW System's operating expense in 1993 was an
increase of $16 million, with the individual Electric Operating
Companies' effects being approximately $5.9 million, $3.0 million
and $1.9 million for CPL, SWEPCO and WTU, respectively. The
transition obligation is being amortized over twenty years, with
seventeen years remaining. Prior to 1993, these benefits were
accounted for on a pay-as-you-go basis. Pursuant to an order by
the Oklahoma Commission, PSO established a regulatory asset of
approximately $5 million in 1993 for the difference between the
pay-as-you-go basis and the costs determined under SFAS No. 106.
PSO is recovering the amortization of this regulatory asset over a
ten year period. Information about the non-pension postretirement
benefit plan, including: (1) net periodic postretirement benefit
costs; (2) a reconciliation of the funded status of the
postretirement benefit plan to the amounts recognized on the
balance sheets; and (3) assumptions used in accounting for the
postretirement benefit plan follow.
NET PERIODIC
POSTRETIREMENT
BENEFIT COSTS CSW CPL PSO SWEPCO WTU
(millions) (thousands)
1995
Service cost $8 $2,123 $1,986 $1,803 $1,113
Interest cost on APBO 18 5,929 5,175 4,299 2,561
Actual return on plan
assets (8) (1,948) (2,597) (2,466) (870)
Amortization of
transition obligation 9 2,900 2,528 1,967 1,225
Net amortization and
deferral 2 238 631 679 96
$29 $9,242 $7,723 $6,282 $4,125
1994
Service cost $9 $2,435 $2,350 $1,965 $1,233
Interest cost on APBO 19 6,061 5,317 4,266 2,559
Actual return on plan
assets (1) (285) (495) (464) (113)
Amortization of
transition obligation 9 2,900 2,528 1,967 1,225
Net amortization and
deferral (4) (913) (917) (765) (418)
$32 $10,198 $8,783 $6,969 $4,486
CSW
<PAGE> 2-54
NET PERIODIC
POSTRETIREMENT
BENEFIT COSTS CSW CPL PSO SWEPCO WTU
(millions) (thousands)
1993
Service cost $8 $2,257 $2,175 $1,813 $1,157
Interest cost on APBO 17 5,505 4,811 3,782 2,316
Actual return on plan
assets (1) (249) (264) (230) (104)
Amortization of
transition obligation 9 2,900 2,528 1,967 1,225
Net amortization and
deferral (2) (703) (564) (474) (296)
$31 $9,710 $8,686 $6,858 $4,298
RECONCILIATION OF
FUNDED STATUS OF PLAN
TO AMOUNTS RECOGNIZED
ON THE BALANCE SHEETS CSW CPL PSO SWEPCO WTU
(millions) (thousands)
1995
APBO
Retirees $175 $58,337 $49,130 $38,762 $23,880
Other fully eligible
participants 13 3,026 2,974 3,622 1,837
Other active
participants 57 14,676 12,697 13,205 7,829
Total 245 76,039 64,801 55,589 33,546
Plan assets at fair value (100) (27,997) (27,904) (24,424) (12,708)
APBO in excess of plan
assets 145 48,042 36,897 31,165 20,838
Unrecognized transition
obligation (153) (49,308) (42,984) (33,436) (20,822)
Unrecognized gain or (loss) 8 2,325 5,511 2,310 378
(Accrued)/Prepaid Cost $-- $1,059 $(576) $39 $394
1994
APBO
Retirees $149 $49,852 $42,233 $32,938 $19,703
Other fully eligible
participants 31 9,278 8,077 7,945 4,764
Other active
participants 55 15,017 14,372 12,726 7,519
Total 235 74,147 64,682 53,609 31,986
Plan assets at fair value (76) (21,457) (21,649) (18,775) (9,636)
APBO in excess of plan
assets 159 52,690 43,033 34,834 22,350
Unrecognized transition
obligation (162) (52,208) (45,512) (35,403) (22,047)
Unrecognized gain or (loss) 4 577 1,903 608 91
(Accrued)/Prepaid Cost $1 $1,059 $(576) $39 $394
ASSUMPTIONS USED
THROUGHOUT THE CSW
SYSTEM IN THE Return Tax Rate
ACCOUNTING FOR Discount on Plan for Taxable
SFAS NO. 106 Rate Assets Trusts
1995 8.00% 9.50% 39.6%
1994 8.25% 9.50% 39.6%
1993 7.75% 9.00% 39.6%
Health care cost trend rates
Pre-65 Participants: 1995 Rate of 10.50% grading down .75% per year to an
ultimate rate of 6.0% in 2001.
1994 Rate of 11.75% grading down .75% per year to an
ultimate rate of 6.5% in 2001.
Post-65 Participants: 1995 Rate of 10.00% grading down .75% per year to an
ultimate rate of 5.5% in 2001.
1994 Rate of 11.25% grading down .75% per year to an
ultimate rate of 6.0% in 2001.
CSW
<PAGE> 2-55
Increasing the assumed health care cost trend rates by one
percentage point in each year would increase the APBO and the
aggregate of the service and interest costs components on net
postretirement benefits by the amounts presented in the following
table.
CSW CPL PSO SWEPCO WTU
(millions)
APBO $26.0 $8.0 $7.0 $6.0 $3.6
Service and interest costs 4.0 1.0 1.0 0.9 0.5
Health and Welfare Plans
The CSW System has medical, dental, group life insurance,
dependent life insurance, and accidental death and dismemberment
plans for substantially all active CSW System employees. The
contributions for the CSW System, recorded on a pay-as-you-go
basis, for the years ended December 31, 1995, 1994 and 1993 are
listed in the following table.
CSW CPL PSO SWEPCO WTU
(millions)
1995 $27.0 $2.4 $4.6 $4.7 $1.1
1994 17.0 4.6 3.6 4.1 2.7
1993 23.0 6.1 5.0 5.4 3.5
Effective January 1993, the CSW System's method of providing
health benefits was modified to include such benefits as a health
maintenance organization, preferred provider options, managed
prescription drug and mail-order program and a mental health and
substance abuse program in addition to the self-insured indemnity
plans.
SEEBOARD's Employee Benefits
The majority of SEEBOARD's employees joined, and received
pension benefits from a pension plan that is administered for the
United Kingdom's electricity industry. The assets of this plan
are held in a separate trustee administered fund that is
actuarially valued every three years. SEEBOARD and its
participating employees both contribute to the plan for the
employee's benefit. Subsequent to July 1, 1995, new employees
were no longer able to participate in that plan. Instead, two new
pension plans were made available to new employees, both of which
are also separate trustee-administered plans. At December 31,
1995, SEEBOARD's pension plan projected benefit obligation,
reflecting CSW's 76.45% ownership interest in SEEBOARD, is
approximately $676 million while the fair value of the pension
plan's assets is approximately $719 million. The excess of the
fair value represents a $43 million prepaid pension cost and is
included in Deferred Charges and Other Assets on the consolidated
balance sheets at December 31, 1995. Employer provided health
care benefits are not common in the United Kingdom due to the
country's national health care system. Accordingly, SEEBOARD does
not provide health care benefits to the majority of its employees.
6.JOINTLY OWNED ELECTRIC UTILITY PLANT
The Electric Operating Companies are parties to various
joint ownership agreements with other non-affiliated entities.
Such agreements provide for the joint ownership and operation of
generating stations and related facilities, whereby each
participant bears its share of the project costs. At December
CSW
<PAGE> 2-56
31, 1995, the Electric Operating Companies had undivided interests
in five such generating stations and related facilities as shown
in the following table.
SWEPCO SWEPCO
CPL Flint SWEPCO Dolet CSW *
STP Creek Pirkey Hills Oklaunion
Nuclear Coal Lignite Lignite Coal
Plant Plant Plant Plant Plant
($ in millions)
Plant in service $2,325 $79 $432 $226 $396
Accumulated
depreciation $443 $42 $148 $69 $103
Plant capacity-MW 2,501 480 650 650 676
Participation 25.2% 50.0% 85.9% 40.2% 78.1%
Share of capacity-MW 630 240 559 262 528
* CPL, PSO and WTU have joint ownership agreements with each
other and other non-affiliated entities. Such agreements
provide for the joint ownership and operation of Oklaunion
Power Station. Each participant provided financing for its
share of the project, which was placed in service in December
1986. CPL's 7.8%, PSO's 15.6% and WTU's 54.7% ownership
participation represents CSW's 78.1% participation in the
plant. The statements of income reflect CPL's, PSO's and WTU's
respective portions of the operating costs of Oklaunion Power
Station. The total investments, including AFUDC, in Oklaunion
Power Station for CPL, PSO and WTU were $36 million, $80
million and $280 million, respectively, at December 31, 1995.
Accumulated depreciation is $9 million, $27 million and $67
million for CPL, PSO and WTU, respectively.
7.FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the following fair values of each class of financial instruments
for which it is practicable to estimate fair value. The fair
value does not affect CSW's or any of the Electric Operating
Companies' liabilities unless the issues are redeemed prior to
their maturity dates.
Cash, temporary cash investments, special deposits, accounts
receivable and short-term debt
The fair value equals the carrying amount as stated on the
balance sheets because of the short maturity of those instruments.
National Grid assets held for sale
The fair value and the carrying value of the 32,492,966
shares of common stock of the National Grid held for sale are both
approximately $100 million. The fair value is based on the
closing market price for National Grid common stock on the London
Stock Exchange on December 31, 1995 (1.995 pounds per share) and an
exchange rate of 1.00 pound=$1.55 (the prevailing exchange rate on
December 31, 1995).
Long-term debt
The fair value of CSW's long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the
current rates offered to CSW for debt of the same remaining
maturities.
Preferred stock subject to mandatory redemption
The fair value of the Electric Operating Companies'
preferred stock subject to mandatory redemption is estimated based
on quoted market prices for the same or similar issues or on the
current rates offered to CSW for preferred stock with the same or
similar remaining redemption provision.
Long-term debt and preferred stock due within 12 months
The fair value of current maturities of long-term debt and
preferred stock due within 12 months are estimated based on quoted
market prices for the same or similar issues or on the current
rates offered for long-term debt or preferred stock with the same
or similar remaining redemption provisions.
CSW
<PAGE> 2-57
CARRYING VALUE
AND ESTIMATED
FAIR VALUE CSW CPL PSO SWEPCO WTU
(millions) (thousands)
Long-term debt
1995 carrying amount $3,914 $1,517,347 $379,250 $598,951 $273,245
fair value 4,090 1,583,959 396,386 627,034 286,648
1994 carrying amount 2,940 1,466,393 402,752 595,833 210,047
fair value 2,795 1,395,590 364,585 555,659 199,986
Preferred stock
subject to mandatory
redemption
1995 carrying amount 34 -- -- 33,628 --
fair value 35 -- -- 34,648 --
1994 carrying amount 35 -- -- 34,828 --
fair value 32 -- -- 31,968 --
Long-term debt and
preferred stock due
within 12 months
1995 carrying amount 30 231 25,000 5,099 --
fair value 30 231 25,000 5,136 --
1994 carrying amount 7 723 -- 5,270 650
fair value 7 725 -- 5,171 666
8.LONG-TERM DEBT
CSW's long-term debt outstanding as of the end of the last two
years is presented in the following table.
Maturities Interest Rates December 31,
From To From To 1995 1994
(millions)
First mortgage bonds
1996 1999 5.25% 7.50% $418 $443
2000 2004 5.25% 7.75% 876 836
2005 2009 6.20% 7.75% 527 247
2010 2014 7.50% 7.50% 112 112
2015 2019 9.15% 9.75% -- 226
2020 2024 7.25% 7.50% 295 295
2025 2029 6.875% 6.875% 80 80
Pollution control bonds
2000 2004 6.90% 7.125% 12 21
2005 2009 5.90% 6.00% 49 83
2010 2014 7.875% 10.125% 162 231
2015 2019 4.135% 7.875% 154 114
2025 2029 6.00% 6.10% 221 120
Notes and Lease Obligations
1996 2023 6.287% 9.75% 477 328
CSW Credit Agreement
2000 floating 731 --
Unamortized discount (13) (21)
Unamortized cost of reacquired
debt (187) (175)
$3,914 $2,940
The mortgage indentures, as amended and supplemented,
securing first mortgage bonds issued by the Electric Operating
Companies, constitute a direct first mortgage lien on
CSW
<PAGE> 2-58
substantially all electric utility plant. The Operating Companies
may offer additional first mortgage bonds, MTNs and other
securities subject to market conditions and other factors.
CPL
CPL's $40.9 million Series 1995, GBRA, PCRBs were issued
with a variable rate computed daily. The average interest rate
for 1995 was 4.1%.
SWEPCO
SWEPCO's $50.0 million bank loan was issued with a variable
rate. The weighted average interest rate for 1995 was 6.3%.
CSW's year end weighted average cost of long-term debt was
7.2% for 1995, 7.7% for 1994 and 7.8% for 1993. For additional
information about each of the Electric Operating Companies' long
term debt, see each of their Statements of Capitalization.
Annual Requirements
Certain series of outstanding first mortgage bonds have
annual sinking fund requirements, which are generally 1% of the
amount of each such series issued. These requirements may be, and
generally have been, satisfied by the application of net
expenditures for bondable property in an amount equal to 166-2/3%
of the annual requirements. Certain series of pollution control
bonds also have sinking fund requirements. At December 31, 1995,
the annual sinking fund requirements and annual maturities for
first mortgage bonds, pollution control bonds and SWEPCO's rail
car capital lease obligations for the next five years are
presented in the following table.
Sinking Fund
Requirements CSW CPL PSO SWEPCO WTU
(millions) (thousands)
1996 $1 $640 $550 $145 $--
1997 1 640 550 145 --
1998 1 360 550 145 --
1999 1 360 300 595 --
2000 1 360 300 595 --
Annual
Maturities CSW CPL PSO SWEPCO WTU
(millions) (thousands)
1996 $31 $640 $25,550 $3,900 $--
1997 204 200,640 550 2,600 --
1998 31 28,360 550 2,400 --
1999 194 125,360 25,300 44,000 --
2000 188 100,360 300 48,000 40,000
Dividends
The Electric Operating Companies' mortgage indentures, as
amended and supplemented, contain certain restrictions on the use
of their retained earnings for cash dividends on their common
stock. These restrictions do not limit the ability of CSW to pay
dividends to its shareholders. At December 31, 1995,
approximately $1.5 billion of the subsidiary companies' retained
earnings were available for payment of cash dividends to CSW. At
December 31, 1995, the amount of retained earnings available for
payment of cash dividends to CSW by the Electric Operating
Companies was as follows:
CPL-$744 million PSO-$150 million SWEPCO-$302 million WTU-$126 million
CSW
<PAGE> 2-59
Reacquired Long-term Debt
During 1995, 1994 and 1993, the Electric Operating Companies
reacquired $355 million, $27 million and $987 million of long-term
debt, respectively, including reacquisition premiums, prior to
maturity. The premiums and related reacquisition costs and
discounts are included in long-term debt on the consolidated
balance sheets and are being amortized over 5 to 35 years,
consistent with its expected ratemaking treatment.
Reference is made to MD&A for further information related to
long-term debt, including new issues and reacquisitions.
9.PREFERRED STOCK
The outstanding preferred stock of the Electric Operating
Companies as of the end of the last two years is presented in the
following table.
Current
Dividend Redemption
Rate December 31, Price
From - To 1995 1994 From - To
(millions)
Not subject to mandatory redemption
592,900 shares 4.00% - 5.00% $59 $59 $102.75 - $109.00
760,000 shares 7.12% - 8.72% 76 76 100.00 - 101.00
1,600,000 shares auction 160 160 100.00
Issuance expenses and unamortized
redemption costs (3) (3)
$292 $292
Subject to mandatory redemption
352,000 shares 6.95% $35 $36 104.64
To be redeemed within one year (1) (1)
$34 $35
Total authorized shares
6,405,000
All of the outstanding preferred stock is redeemable at the
option of the Electric Operating Companies upon 30 days notice at
the current redemption price per share.
During 1994 and 1993, the Electric Operating Companies
redeemed $33 million and $17 million, respectively, of preferred
stock, including redemption premiums, while in 1995, the only
preferred stock redemption was SWEPCO's $1.2 million annual
sinking fund requirement.
CPL
The dividends on CPL's $160 million auction and money market
preferred stocks are adjusted every 49 days, based on current
market rates. The dividend rates averaged 4.5%, 3.5% and 2.7%
during 1995, 1994 and 1993, respectively. CPL retired its
remaining 10.05% preferred stock during August 1994.
SWEPCO
The minimum annual sinking fund requirement for SWEPCO's
preferred stock subject to mandatory redemption is $1.2 million
for the years 1996 through 2000. This sinking fund retires 12,000
shares annually.
WTU
In July 1993, WTU redeemed 100,000 shares of its 7.25%
Series, $100 par value, Preferred Stock, for $10 million, in
accordance with mandatory and optional sinking fund provisions.
The capital required for this transaction was provided by short-
CSW
<PAGE> 2-60
term borrowings from the CSW System money pool and internal
sources. In July 1994, WTU redeemed the remaining 47,000 shares
of its 7.25% Series, $100 par value, Preferred Stock.
For additional information about each of the Electric
Operating Companies' preferred stock, see each of their Statements
of Capitalization.
10. SHORT-TERM FINANCING
The CSW System has established a money pool to coordinate
short-term borrowings by the Electric Operating Companies, Transok
and CSW Services, which is funded through CSW's issuance of
commercial paper. At December 31, 1995, the CSW System had two
credit facilities in place aggregating $1.2 billion to back up its
commercial paper program, which had $692 million outstanding at a
weighted average rate of 5.85%.
CSW Credit, which does not participate in the money pool,
issues commercial paper on a stand-alone basis that is secured by
the assignment of its receivables. CSW Credit maintains a secured
revolving credit agreement which aggregated $900 million to back
up its commercial paper program which, at December 31, 1995, had
$646 million outstanding at a weighted average rate of 5.83%.
11. COMMON STOCK
CSW has reserved 100,000 shares of CSW Common for issuance
to outside directors pursuant to the directors restricted stock
plan. In addition, CSW maintains a long-term incentive plan
pursuant to which CSW is authorized to issue shares of restricted
common stock, stock options and/or stock appreciation rights to
certain eligible employees. Under the long-term incentive plan,
approximately 3.8 million shares of CSW Common were available for
grant as of December 31, 1995 and approximately 1.6 million shares
were reserved for issuance upon exercise of options which were
outstanding at December 31, 1995. In January 1996, the
compensation committee of the board of directors of CSW authorized
a restricted stock grant for the executive officers of CSW. This
special award was made to reward sustained, long-term corporate
performance, encourage executive retention and focus on the long-
term perspective. This grant vests in 25 percent increments in
1997, 1998, 1999 and 2000.
The PowerShare plan is available to all CSW shareholders,
employees, eligible retirees, utility customers and other
residents of the four states where the Electric Operating
Companies operate. Plan participants are able to make optional
cash payments and reinvest all or any portion of their dividends
in additional CSW Common. In February 1996, CSW filed a
registration statement with the SEC relating (i) to the issue and
sale of an additional five million shares of CSW Common through
the PowerShare plan and (ii) proposed amendments to the plan that
would, among other things, make the plan available to the
residents of all fifty states and the District of Columbia.
During 1995 and 1994, CSW raised approximately $57 million and $50
million, respectively, in new equity through the PowerShare plan.
CSW expects to use the proceeds from sales of CSW Common made
pursuant to the PowerShare plan to reduce short-term and long-term
debt and for other general corporate purposes. Information
concerning new CSW Common equity, primarily through PowerShare,
issued during 1995 and 1994 is presented in the following table.
CSW
<PAGE> 2-61
1995 1994
Number of new shares issued (millions) 2.3 2.2
Range of stock price for new shares $22 5/8 - $28 3/8 $20 3/8 - $29 5/8
New common stock equity (millions) $57 $50
On February 27, 1996, CSW sold 15,525,000 shares of its CSW
Common in the 1996 Stock Offering and received net proceeds of
approximately $398 million. These proceeds were used to repay a
portion of the indebtedness incurred by CSW under the CSW Credit
Agreement to fund the acquisition of SEEBOARD.
12. BUSINESS SEGMENTS
CSW's business segments include United States Electric
Operations (CPL, PSO, SWEPCO, WTU), United Kingdom Electric
Operations (SEEBOARD Group) and Gas Operations (Transok). Seven
additional non-utility companies are included with CSW in
Corporate items and Other (CSW Energy, CSW International, CSW
Communications, CSW Credit, CSW Leasing, CSW Services and
EnerShop). The United Kingdom Electric Operations includes the
activities of SEEBOARD, as well as the purchase accounting
adjustments and financing activities included in the SEEBOARD
Group. See NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES for
a discussion of the accounting for the SEEBOARD acquisition.
CSW's business segment information is presented in the following
tables.
1995 1994 1993
(millions)
Operating Revenues
Electric Operations
United States $2,883 $3,065 $3,055
United Kingdom (1) 208 -- --
Gas Operations 592 518 603
Corporate items and Other 52 40 29
$3,735 $3,623 $3,687
Operating Income
Electric Operations
United States $719 $728 $559
United Kingdom (1) 21 -- --
Gas Operations 52 49 25
Corporate items and Other (31) 6 4
Operating income before taxes 761 783 588
Income taxes 105 189 131
$656 $594 $457
Depreciation and Amortization
Electric Operations
United States $335 $316 $296
United Kingdom (1) 7 -- --
Gas Operations 31 32 29
Corporate items and Other 11 8 5
$384 $356 $330
CSW
<PAGE> 2-62
1995 1994 1993
(millions)
Identifiable Assets
Electric Operations
United States $9,201 $9,066 $8,927
United Kingdom (1) 2,821 -- --
Gas Operations 766 724 684
Corporate items and Other 1,081 1,276 993
$13,869 $11,066 $10,604
Capital expenditures and
acquisitions
Electric Operations
United States $398 $493 $481
United Kingdom (1) (2) 731 -- --
Gas Operations 66 65 88
Corporate items and Other (3) 19 114 64
$1,214 $672 $633
(1) Represents equity method of accounting for November
1995 (27.6%) and full consolidation accounting for
December 1995 (76.45%).
(2) Represents cash that had been used as of December
31, 1995, to purchase SEEBOARD capital shares in the
open market.
(3) Includes CSW Energy equity investments.
13. UNAUDITED PRO FORMA INFORMATION
On November 6, 1995, CSW, indirectly through CSW (UK),
announced its intention to commence the Tender Offer in the United
Kingdom to acquire all of the outstanding share capital of
SEEBOARD, a regional electric company based in the United Kingdom,
for an aggregate adjusted purchase price of approximately $2.12
billion.
SEEBOARD's principal business is the distribution and supply
of electricity in southeast England. SEEBOARD has its
headquarters in Crawley, West Sussex. It has a distribution
territory that covers approximately 3,000 square miles which
extends from the outlying areas of London to the English Channel.
SEEBOARD serves approximately 2 million customers. Approximately
80% of SEEBOARD's sales are to residential and commercial
customers, while the remaining 20% are primarily to industrial
customers. For the year ended December 31, 1995, SEEBOARD had
electricity sales of approximately 18 billion KWHs and, excluding
exceptional items, net earnings of $118 million on revenues of
approximately $1.9 billion. SEEBOARD's results for the calendar
year ended December 31, 1995 are not indicative of the results
that will be experienced by SEEBOARD as a subsidiary of CSW due,
in part, to the debt incurred in connection with the financing of
the acquisition, the purchase accounting adjustments and the
accounting adjustments made to adjust SEEBOARD's results for U.S.
Generally Accepted Accounting Principles. SEEBOARD is also
involved in certain activities other than electricity distribution
and supply, including electrical contracting and retailing, gas
supply and electricity generation. The earnings of SEEBOARD
presented above have been converted into U. S. dollar amounts for
illustrative purposes only at an exchange rate of 1.00 pound=$1.58,
which was the prevailing rate of exchange at the close of business
on November 3, 1995, the business day prior to the announcement of
the Tender Offer. See MD&A for a discussion of the financing of
the SEEBOARD acquisition.
The unaudited pro forma information is presented in response
to applicable accounting rules relating to acquisition
transactions. The pro forma information gives effect to the
acquisition of SEEBOARD accounted for under the purchase method of
accounting for the twelve months ended December 31, 1995 and the
twelve months ended December 31, 1994 as if the transaction had
been consummated at the beginning of the periods presented.
CSW
<PAGE> 2-63
The unaudited pro forma information is based upon preliminary
fair value allocations related to the purchase of SEEBOARD. The
allocations are subject to revision after more detailed analyses,
appraisals and evaluations are completed. The unaudited pro forma
information has been prepared in accordance with United States
generally accepted accounting principles. The pro forma
information in the following table is presented for illustrative
purposes only and is not necessarily indicative of the operating
results that would have occurred if the SEEBOARD acquisition had
taken place at the beginning of the period specified, nor is it
necessarily indicative of future operating results. The following
pro forma information has been prepared reflecting the February
1996 issuance of CSW Common, and has been converted at an exchange
rate of 1.00 pound=$1.58 and 1.00 pound=$1.54 for the twelve months ended
December 31, 1995 and 1994, respectively.
1995 1994
(millions, except EPS)
Operating Revenues $5,404 $5,465
Operating Income 750 745
Net Income for Common Stock 445 431
EPS of Common Stock $2.15 $2.13
CSW
<PAGE> 2-64
14. QUARTERLY INFORMATION (UNAUDITED)
The following unaudited quarterly information includes, in
the opinion of management, all adjustments necessary for a fair
presentation of such amounts. Information for quarterly periods
is affected by seasonal variations in sales, rate changes, timing
of fuel expense recovery and other factors.
1995
QUARTER ENDED CSW CPL PSO SWEPCO WTU
(millions,
except EPS) (thousands)
March 31, 1995
Operating Revenues $659 $127,282 $148,416 $169,240 $74,921
Operating Income 90 30,556 12,848 26,587 9,896
Net Income 44 16,362 7,449 15,525 4,233
EPS (CSW only) $0.20
June 30, 1995
Operating Revenues $920 $324,525 $161,644 $212,960 $83,049
Operating Income 170 96,518 28,370 48,878 13,186
Net Income 108 75,644 20,512 38,070 7,926
EPS (CSW only) $0.54
September 30, 1995
Operating Revenues $1,087 $358,790 $232,156 $266,268 $87,178
Operating Income 267 104,082 58,524 59,880 30,432
Net Income 203 82,238 50,682 48,473 24,021
EPS (CSW only) $1.04
December 31, 1995
Operating Revenues $1,069 $262,872 $148,607 $188,237 $74,687
Operating Income 129 51,028 12,027 27,431 5,972
Net Income 66 32,203 3,185 15,046 (1,650)
EPS (CSW only) $0.32
Total 1995
Operating Revenues $3,735 $1,073,469 $690,805 $836,735 $319,835
Operating Income 656 282,184 111,769 162,776 59,486
Net Income 421 206,447 81,828 117,114 34,530
EPS (CSW only) $2.10
CSW
<PAGE> 2-65
QUARTERLY INFORMATION - (UNAUDITED)
1994
QUARTER ENDED CSW CPL PSO SWEPCO WTU
(millions,
except EPS) (thousands)
March 31, 1994
Operating Revenues $850 $263,229 $157,509 $190,066 $83,319
Operating Income 93 36,943 12,427 24,820 8,487
Net Income 48 24,986 4,307 14,537 3,546
EPS (CSW only) $0.23
June 30, 1994
Operating Revenues $908 $333,169 $174,631 $211,989 $83,016
Operating Income 157 75,070 23,808 36,699 12,958
Net Income 107 62,470 15,927 25,851 8,192
EPS (CSW only) $0.55
September 30, 1994
Operating Revenues $1,070 $364,044 $246,378 $245,331 $109,348
Operating Income 239 96,062 47,196 53,304 27,987
Net Income 189 82,877 40,003 41,854 23,271
EPS (CSW only) $0.97
December 31, 1994
Operating Revenues $795 $257,537 $161,978 $177,910 $67,308
Operating Income 105 48,176 14,827 31,099 5,331
Net Income 68 35,106 8,029 23,470 2,357
EPS (CSW only) $0.33
Total 1994
Operating Revenues $3,623 $1,217,979 $740,496 $825,296 $342,991
Operating Income 594 256,251 98,258 145,922 54,763
Net Income 412 205,439 68,266 105,712 37,366
EPS (CSW only) $2.08
CSW
<PAGE> 2-66
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Central and South West
Corporation:
We have audited the accompanying consolidated balance sheets of
Central and South West Corporation (a Delaware corporation) and
subsidiary companies as of December 31, 1995 and 1994, and the
related consolidated statements of income, retained earnings and
cash flows, for each of the three years ended December 31, 1995.
These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Central and South West Corporation and subsidiary companies as of
December 31, 1995 and 1994, and the related consolidated statements
of income, retained earnings and cash flows for each of the three
years ended December 31, 1995, in conformity with generally accepted
accounting principles.
In 1993, as discussed in NOTE 1, Central and South West
Corporation and subsidiary companies changed their methods of
accounting for unbilled revenues, postretirement benefits other than
pensions, income taxes and postemployment benefits.
Our audits were made for the purpose of forming an opinion on
the financial statements taken as a whole. The supplemental
Schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Dallas, Texas
February 28, 1996
CSW
<PAGE> 2-67
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and
objectivity of the consolidated financial statements of Central and
South West Corporation and subsidiary companies as well as other
information contained in this Annual Report. The consolidated
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis and, in
some cases, reflect amounts based on the best estimates and
judgments of management, giving due consideration to materiality.
Financial information contained elsewhere in this Annual Report is
consistent with that in the consolidated financial statements.
The consolidated financial statements have been audited by the
independent accounting firm, Arthur Andersen LLP, which was given
unrestricted access to all financial records and related data,
including minutes of all meetings of stockholders, the board of
directors and committees of the board. CSW and its subsidiaries
believe that representations made to the independent auditors during
their audit were valid and appropriate. Arthur Andersen LLP's audit
report is presented elsewhere in this report.
CSW, together with its subsidiary companies, maintains a system
of internal controls to provide reasonable assurance that
transactions are executed in accordance with management's
authorization, that the consolidated financial statements are
prepared in accordance with generally accepted accounting principles
and that the assets of CSW and its subsidiaries are properly
safeguarded against unauthorized acquisition, use or disposition.
The system includes a documented organizational structure and
division of responsibility, established policies and procedures
including a policy on ethical standards which provides that the
companies will maintain the highest legal and ethical standards, and
the careful selection, training and development of our employees.
Internal auditors continuously monitor the effectiveness of the
internal control system following standards established by the
Institute of Internal Auditors. Actions are taken by management to
respond to deficiencies as they are identified. The board,
operating through its audit committee, which is comprised entirely
of directors who are not officers or employees of CSW or its
subsidiaries, provides oversight to the financial reporting process.
Due to the inherent limitations in the effectiveness of
internal controls, no internal control system can provide absolute
assurance that errors will not occur. However, management strives
to maintain a balance, recognizing that the cost of such a system
should not exceed the benefits derived.
CSW and its subsidiaries believe that, in all material
respects, its system of internal controls over financial reporting
and over safeguarding of assets against unauthorized acquisition,
use or disposition functioned effectively as of December 31, 1995.
E. R. Brooks Glenn D. Rosilier Wendy G. Hargus
Chairman, President and Senior Vice President and Controller
Chief Executive Officer Chief Financial Officer
CSW
<PAGE> 2-68
CENTRAL POWER AND LIGHT
COMPANY
CPL
<PAGE> 2-69
SELECTED FINANCIAL DATA
The following selected financial data for each of the five
years ended December 31 is provided to highlight significant trends
in the financial condition and results of operations for CPL.
Certain financial statement items for prior years have been
reclassified to conform to the most recent period presented.
1995 1994 1993 (1) 1992 1991
($ thousands, except ratio data)
INCOME STATEMENT DATA
Revenues $1,073,469 $1,217,979 $1,223,528 $1,113,423 $1,098,730
Operating expenses
and taxes 791,285 961,728 1,033,449 846,758 849,157
Operating income 282,184 256,251 190,079 266,665 249,573
Other income and
deductions 56,322 70,487 78,439 83,825 100,261
Interest charges 132,059 121,299 123,388 131,979 132,628
Net income 206,447 205,439 172,425 218,511 217,206
Net income for
common stock 191,978 191,635 158,422 202,441 197,362
BALANCE SHEET DATA
Assets 4,881,136 4,822,699 4,781,745 4,583,660 4,458,063
Common stock equity 1,437,332 1,431,654 1,424,195 1,437,876 1,428,547
Preferred stock
Not subject to
mandatory
redemption 250,351 250,351 250,351 250,351 250,351
Subject to
mandatory
redemption -- -- 22,021 28,393 35,331
Long-term debt 1,517,347 1,466,393 1,362,799 1,347,887 1,350,854
Current liabilities
(2) 357,772 376,006 370,534 380,058 210,923
Capitalization ratios
Common stock equity 44.9% 45.5% 46.6% 46.9% 46.6%
Preferred stock 7.8 7.9 8.9 9.1 9.3
Long-term debt 47.3 46.6 44.5 44.0 44.1
Ratio of earnings to
fixed charges (SEC
Method) before
cumulative effect of
changes in accounting
principles 2.63 3.24 2.69 3.23 3.18
(1) Earnings in 1993 were significantly affected by restructuring
charges, the $27 million cumulative effect of changes in
accounting principles and prior year tax adjustments. CPL changed
its method of accounting for unbilled revenues in 1993. Pro forma
amounts, assuming that the change in accounting for unbilled
revenues had been adopted retroactively, are not materially
different from amounts reported for prior years and therefore have
not been restated.
(2) Includes net unbilled factored accounts receivable in 1994
and 1995.
CPL
<PAGE> 2-70
CENTRAL POWER AND LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to CPL's Financial Statements and related
Notes to Financial Statements and Selected Financial Data. The
information contained therein should be read in conjunction with,
and is essential in understanding, the following discussion and
analysis.
OVERVIEW
Net income for common stock was stable in 1995 when compared to
1994 at $192 million, although CPL reported lower electric operating
revenues, Mirror CWIP liability amortization and higher interest
charges offset by lower operating expenses and taxes. Also
impacting 1995 were the effects of the CPL 1995 Agreement.
Net income for common stock for 1994 increased 21% to $192
million from $158 million in 1993. The increase was due primarily
to an increase in base revenue, a decrease in restructuring costs
and a decrease in maintenance expense. Such increases were
partially offset by the cumulative effect of changes in accounting
principles recorded in 1993.
RESTRUCTURING
During 1993, CSW announced a restructuring under which the CSW
System restructured the Electric Operating Companies (including CPL)
under a new business unit called CSW Electric and centralized many
common service functions into CSW Services in order to reduce costs
and improve efficiency and productivity. The restructuring included
restaffing positions throughout the CSW System and a reduction in
the workforce by more than 7% system-wide. CPL's restructuring
costs, approximately $29 million, were expensed during 1993 and
incurred primarily during 1994. CPL has realized a number of
benefits from the restructuring, including increased efficiencies
and synergies through the elimination of previously duplicated
functions.
RATES AND REGULATORY MATTERS
CPL Rate Review
On November 6, 1995, CPL filed with the Texas Commission a
request to increase its retail base rates by $71 million and reduce
its annual retail fuel factors by $17 million. The net effect of
these proposals would be an increase of $54 million, or 4.6%, in
total annual retail revenues based on a test year ended June 30,
1995. CPL is not seeking interim rate relief, but will implement
bonded rates in May 1996, the earliest date permitted by law. CPL
also is seeking to reconcile $229 million of fuel costs incurred
during the period July 1, 1994 through June 30, 1995. CPL's previous
request to reconcile fuel costs from March 1, 1990 to June 30, 1994
in Docket No. 13650 was consolidated with the current rate review.
If the requested increase and other adjustments in rate structure are
approved, CPL has committed not to increase its base rates prior to
January 1, 2001, subject to certain force majeure events.
CPL is requesting this rate review in large part as a result of
the expiration of the amortization of its Mirror CWIP liability. The
Mirror CWIP liability was amortized to income in declining amounts
over a five-year period from 1991 through 1995 pursuant to rate
settlements reached by CPL in 1990 and 1991. In 1995, Mirror CWIP
provided $41 million in non-cash earnings at CPL. Also included in
the request are proposals by CPL to accelerate recovery of nuclear
CPL
<PAGE> 2-71
and regulatory assets as a way to proactively address certain assets
that could possibly be unrecoverable or stranded in a more
competitive electric utility industry. In a preliminary order issued
December 21, 1995, the Texas Commission expanded the scope of the
rate review to address certain competitive issues facing the electric
utility industry. The competitive issues to be addressed by CPL in a
supplemental filing due April 1, 1996, are: (i) the calculation of
rates on an unbundled or functional basis (i.e., generation,
transmission and distribution); (ii) the current value of CPL's
generating assets as compared to estimates of the market value of
such assets under alternate future industry structures; (iii) the
application of performance based ratemaking; (iv) potential revisions
in the methodology of reconciling and recovering fuel costs; and (v)
the Texas Commission's authority to introduce competition in the
electric utility industry under existing law.
On February 13, 1996, intervening parties filed testimony in the
revenue requirements phase of CPL's base rate case. Among the
parties that filed testimony were the OPUC which recommended a base
rate decrease of approximately $75 million on a total company basis
and the Cities which recommended a base rate reduction of
approximately $52 million on a total company basis.
On February 20, 1996, the Staff filed testimony recommending an
increase in total company base rates of approximately $30 million.
Certain elements of the Staff's proposal are described below.
The Staff recommended a return on common stock equity of 11.35%
compared to the 12.25% return on common equity requested by CPL. The
Staff recommended a disallowance of $16 million in costs billed for
administrative services by CSW Services to CPL on the basis that the
specific benefits to CPL were not clearly identified. Additionally,
the Staff recommended a $7 million reduction in CPL's current annual
depreciation accrual and a $3 million reduction in CPL's requested
accrual for decommissioning STP. A comparison of the Staff's
recommendation for a base rate increase, compared to CPL's claimed
revenue deficiency is provided in the CPL RATE REVIEW COMPARISON
table.
CPL RATE REVIEW COMPARISON
(millions)
CPL revenue deficiency (1) $103
Return on common equity (21)
CSW Services expenses (16)
Depreciation expense (7)
Decommissioning expense (3)
Miscellaneous items (26)
Staff recommended revenue increase (2) $30
(1) The total company rate increase requested
by CPL was reduced from $103 million to $78
million ($71 million allocated to the Texas
retail jurisdiction) in accordance with rate
settlements entered into by CPL in 1990 and
1991.
(2) The Staff recommended that CPL be granted a $23
million base rate increase and an annual increase
of $7 million in customer service charges.
The Staff and Cities recently filed testimony on the fuel
portion of the rate case recommending a reduction to CPL's eligible
fuel costs of $16 million and $32 million, respectively.
After completion of hearings in all phases of the rate case,
which began in late February 1996 and are expected to conclude during
the third quarter of 1996, the ALJs assigned to hear the case will
issue a proposal for decision for consideration by the Texas
Commission. Testimony filed by parties to the rate case, including
CPL
<PAGE> 2-72
the Staff, is not binding on either the ALJs or the Texas Commission.
A final decision on the rate request is not anticipated from the
Texas Commission prior to December 1996.
Management of CPL cannot predict the ultimate outcome of CPL's
rate case, although management believes that the ultimate resolution
will not have a material adverse effect on CPL's results of
operations or financial condition. However, if CPL ultimately is
unsuccessful in obtaining adequate rate relief, CPL could experience
a material adverse effect on its results of operations and financial
condition.
CPL 1995 Agreement
On April 5, 1995, CPL reached an agreement in principle with
other parties to pending regulatory proceedings involving base rate,
fuel and prudence issues relating to an outage experienced at STP
during 1993 and 1994. On May 16, 1995, CPL filed the CPL 1995
Agreement with the Texas Commission. Pursuant to the CPL 1995
Agreement, base rate refunds, fuel refunds and the reduction of CPL's
fuel factors were implemented on an interim basis during the summer
of 1995. Under the CPL 1995 Agreement, CPL provided customers a one-
time base rate refund of $50 million. In addition, CPL refunded
approximately $30 million in over-recovered fuel costs through April
1995. Furthermore, CPL did not charge customers for $62.25 million
in replacement power costs and related interest primarily associated
with the 1993-1994 STP outage. The CPL 1995 Agreement did not result
in any ongoing change in base rate levels and provided that there
would be no new rate review requests filed prior to September 28,
1995. CPL also reduced its fuel factors, effective in July 1995, by
approximately $55 million on an annual basis due to projections of
lower fuel costs. Hearings on the CPL 1995 Agreement were held on
July 19, 1995, and the final written Texas Commission order approving
the CPL 1995 Agreement was received on October 4, 1995. See NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS.
See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for a
discussion of additional regulatory proceedings.
SOUTH TEXAS PROJECT
CPL owns 25.2% of STP, a two-unit nuclear power plant which is
located near Bay City, Texas. In addition, HLP, the Project Manager
of STP, owns 30.8%, San Antonio owns 28.0%, and Austin owns 16.0% of
STP. STP Unit 1 was placed in service in August 1988 and STP Unit 2
was placed in service in June 1989.
From February 1993 until May 1994, STP experienced an
unscheduled outage resulting from mechanical problems. The outage
resulted in significant rate and regulatory proceedings involving
CPL, including a base rate case and fuel reconciliation proceedings
as previously discussed. Unit 1 restarted on February 25, 1994 and
reached 100% power on April 8, 1994 and Unit 2 resumed operation on
May 30, 1994 and reached 100% power on June 16, 1994. During the
last six months of 1994, the STP units operated at capacity factors
of 98.6% for Unit 1 and 99.2% for Unit 2. For a discussion of
regulatory matters surrounding the STP outage, see RATES AND
REGULATORY MATTERS above and NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS.
Both STP units were removed from service during 1995 for
scheduled refueling outages. The fueling outages lasted 41 days for
Unit 1 and 26 days for Unit 2. For the year 1995, Unit 1 and Unit 2
operated at net capacity factors of 84.9% and 90.6%, respectively.
For additional information regarding STP and the accounting for
the decommissioning of STP, see NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES and NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS.
CPL
<PAGE> 2-73
LIQUIDITY AND CAPITAL RESOURCES
Overview
CPL's need for capital results primarily from its construction
of facilities to provide reliable electric service to its customers.
Accordingly, internally generated funds should meet most of the
capital requirements. However, if internally generated funds are
not sufficient, CPL's financial condition should allow it access to
the capital markets.
Construction Expenditures
CPL maintains a continuing construction program, the nature and
extent of which is based upon current and estimated future demands
upon the system. Planned construction expenditures for CPL for the
next three years are primarily to improve and expand distribution
facilities and will be funded primarily through internally generated
funds. These improvements will be required to meet the anticipated
needs of new customers and the growth in the requirements of existing
customers. Construction expenditures, including AFUDC, for CPL were
approximately $155 million in 1995, $179 million in 1994 and $180
million in 1993. CPL's estimated total construction expenditures,
including AFUDC, for the years 1996 through 1998 are presented in the
following table.
CONSTRUCTION EXPENDITURES
1996 1997 1998 Total
(millions)
Generation $17 $ 42 $16 $75
Transmission 14 18 19 51
Distribution 69 72 74 215
Fuel 18 11 15 44
Other 19 14 13 46
$137 $157 $137 $431
The foregoing consists of forward looking information and,
accordingly, actual results may differ materially from such
projected information due to changes in the underlying assumptions.
Such assumptions are based on numerous factors, including factors
such as the rate of load growth, escalation of construction costs,
changes in lead times in manufacturing, inflation, the availability
and pricing of alternatives to construction, nuclear, environmental
and other regulation, delays from regulatory hearings, adequacy of
rate relief and the availability of necessary external capital.
Changes in those and other factors could cause CPL to defer or
accelerate construction or to sell or buy more power, which would
affect its cash position, revenues and income to an extent that
cannot now be reliably predicted.
Although CPL does not believe that it will require substantial
additions of generating capacity through the end of the decade, the
CSW System's internal resource plan presently anticipates that any
additional capacity needs will come from a variety of sources
including projected coal- and lignite-fired generating plants for
which CPL has invested approximately $24 million in prior years for
plant sites, engineering studies and lignite reserves. Should
future plans exclude these plants for environmental, economical or
other reasons, CPL would evaluate the probability of recovery of
these investments and may record appropriate reserves.
Long-Term Financing
As of December 31, 1995, the capitalization ratios of CPL were
45% common stock equity, 8% preferred stock and 47% long-term debt.
CPL's embedded cost of long-term debt was 7.2% at December 31, 1995.
CPL continually monitors the capital markets for opportunities to
lower its cost of capital through refinancing. CPL is committed to
maintaining financial flexibility through a strong capital structure
CPL
<PAGE> 2-74
and favorable securities ratings in order to access the capital
markets opportunistically or when required. CPL's long-term
financing activity for 1995 is summarized in the following table.
ISSUED REACQUIRED
Financing Amount Financial Amount
Instrument (millions) Rate Maturity Instrument (millions) Rate Maturity
FMB(1) $200.0 6 5/8% 2005 FMB $139.2 9 3/8% 2019
PCRB 100.6 6.1% 2028 PCRB 68.9 10 1/8% 2014
PCRB(2) 31.8 9 3/4% 2015
PCRB 40.9 floating 2015 PCRB(3) 8.4 7 1/8% 2004
PCRB(3) 34.2 6.0% 2007
(1) The balance of proceeds not used to redeem higher cost FMBs
were used to repay a portion of CPL's short-term borrowings, to
provide working capital and for other general corporate purposes.
(2) Collateralized PCRB (secured by a FMB).
(3) The additional funds required to redeem these issues were
provided through internal funds and short-term borrowings.
Shelf Registration Statements
CPL has $60 million remaining for the issuance of FMBs, and $75
million remaining for the issuance of preferred stock, under shelf
registration statements filed with the SEC in 1993 and 1994,
respectively. CPL may offer additional FMBs and preferred stock
subject to market conditions and other factors. The proceeds of any
such offerings will be used principally to redeem higher cost FMBs
and preferred stock in order to lower CPL's cost of capital.
Short-Term Financing
CPL, together with other members of CSW System, has established
a CSW System money pool to coordinate short-term borrowings. These
loans are unsecured demand obligations at rates approximating the
CSW System's commercial paper borrowing costs. At December 31, 1995
CPL's short-term borrowing limit from the money pool was
approximately $268 million. During 1995, the annual weighted
average interest rate on CPL's borrowings was 6.1% and the average
amount of CPL's short-term borrowings outstanding was $148 million.
The maximum amount of CPL short-term borrowings outstanding during
1995 was $236 million, which was the amount outstanding at March 2,
1995.
Internally Generated Funds
Internally generated funds consist of cash flows from operating
activities less common and preferred stock dividends. CPL uses
short-term debt to meet fluctuations in working capital requirements
due to the seasonal nature of energy sales. CPL anticipates that
capital requirements for the period 1996 to 1998 will be met, in
large part, from internal sources. CPL also anticipates that some
external financing will be required during the period, but the
nature, timing and extent have not yet been determined. Information
concerning internally generated funds is presented in the following
table.
1995 1994 1993
($ in millions)
Internally Generated Funds $100 $114 $92
Construction Expenditures Provided
by Internally Generated Funds 66% 65% 52%
Sales of Accounts Receivable
CPL sells its billed and unbilled accounts receivable, without
recourse, to CSW Credit. The sales provided CPL with cash
immediately, thereby reducing working capital needs and revenue
requirements. The average and year end amounts of accounts
receivable sold were $109 million and $85 million, respectively, in
1995, as compared to $123 million and $113 million, respectively, in
1994.
CPL
<PAGE> 2-75
RECENT DEVELOPMENTS AND TRENDS
Competition and Industry Challenges
Competitive forces at work in the electric utility industry are
impacting CPL and electric utilities generally. Increased
competition facing electric utilities is driven by complex economic,
political and technological factors. These factors have resulted in
legislative and regulatory initiatives that are likely to result in
even greater competition at both the wholesale and retail level in
the future. As competition in the industry increases, CPL will have
the opportunity to seek new customers and at the same time be at
risk of losing customers to other competitors. Additionally, CPL
will continue to compete with suppliers of alternative forms of
energy, such as natural gas, fuel oil and coal, some of which may be
cheaper than electricity. CPL believes that its prices for
electricity and the quality and reliability of its service currently
places it in a position to compete effectively in the marketplace.
The Energy Policy Act, which was enacted in 1992, significantly
alters the way in which electric utilities compete. The Energy
Policy Act creates exemptions from regulation under the Holding
Company Act and permits utilities, including registered utility
holding companies and non-utility companies, to form EWGs. EWGs are
a new category of non-utility wholesale power producers that are
free from most federal and state regulation, including the principal
restrictions of the Holding Company Act. These provisions enable
broader participation in wholesale power markets by reducing
regulatory hurdles to such participation. The Energy Policy Act
also allows the FERC, on a case-by-case basis and with certain
restrictions, to order wholesale transmission access and to order
electric utilities to enlarge their transmission systems. A FERC
order requiring a transmitting utility to provide wholesale
transmission service must include provisions generally that permit
the utility to recover from the FERC applicant all of the costs
incurred in connection with the transmission services and any
enlargement of the transmission system and associated services.
Wholesale energy markets, including the market for wholesale
electric power, have been extremely competitive since the enactment
of the Energy Policy Act. CPL must compete in the wholesale energy
markets with other public utilities, cogenerators, qualified
facilities, EWGs and others for sales of electric power. While CPL
believes that the Energy Policy Act will continue to make the
wholesale markets more competitive, CPL is unable to predict the
extent to which the Energy Policy Act will impact its operations.
On March 29, 1995, consistent with the direction of the Energy
Policy Act, the FERC announced in a NOPR that each public utility
that owns and controls transmission facilities in interstate commerce
must unbundle its services and file open access transmission tariffs
under which each utility will offer comparable open access
transmission services to its transmission customers. In addition,
the FERC revised its proposed mechanisms by which utilities will be
permitted to recover stranded investment costs expected to be brought
about by the proposed changes. On August 7, 1995, CSW filed comments
on the proposed approach in the NOPR with the FERC. Although CSW
supports the concept of comparable open access for the nation's
transmission service, CSW believes that certain changes must be made
in the FERC's proposed approach of implementing the open transmission
system. First, with respect to the issue of stranded investments,
the FERC proposed that customers who left the utility company pay for
a portion, but not all, of the costs incurred by the owner of
existing facilities that are not utilized as a result of the loss of
such customers. CSW raised concerns about the FERC's proposed
methodology for addressing stranded investment because it did not, in
CSW's view, provide for the fair recovery of the full amount
previously invested. Second, CSW proposed that the FERC adopt a
"power flow pricing" approach whereby all electric systems that incur
costs because of a transmission transaction are compensated, as
opposed to the traditional "postage stamp" method whereby only the
companies that are directly involved in the actual purchase and sale
of the electricity are compensated or charged.
On February 9, 1996, CPL filed at the FERC complete sets of open
access transmission tariffs. These tariffs substantially reflect the
pro forma tariffs attached to the FERC's March 29, 1995 NOPR. Open
CPL
<PAGE> 2-76
access and market pricing should increase marketing opportunities for
CPL, but may also expose it to the risk of loss of load or reduced
revenues due to competition with alternate suppliers.
Increasing competition in the utility industry brings an
increased need to stabilize or reduce rates. The retail regulatory
environment is beginning to shift from traditional rate base
regulation to incentive regulation. Incentive rate and performance-
based plans encourage efficiencies and increased productivity while
permitting utilities to share in the results. Retail wheeling, a
major industry issue which may require utilities to "wheel" or move
power from third parties to their own retail customers, is evolving
gradually. Many states throughout the country currently have
legislation introduced to investigate the issue.
CPL believes that retail competition would harm the best
interests of CPL's customers and security holders unless CPL
receives fair recovery of the full amounts previously invested to
finance power plants. These investments, which were reasonably
incurred, were made by CPL to meet its obligation to serve the
public interest, necessity and convenience. This obligation has
existed for nearly a century and remains in force under current law.
CPL intends to strongly oppose attempts to impose retail competition
without just compensation for the risks and investments CPL
undertook to serve the public's demand for electricity.
CPL is unable to predict the ultimate outcome or impact of
competitive forces on the electric utility industry or on CPL. As
the wholesale and retail electricity markets become more
competitive, however, the principal factor determining success is
likely to be price, and to a lesser extent, reliability,
availability of capacity, and customer service.
PURA
Amendments to PURA, the legal foundation of electric regulation
in Texas, became effective on September 1, 1995. Among other things,
the amendments deregulate the wholesale bulk power market in ERCOT,
permit pricing flexibility for utilities facing competitive
challenges, provide for a market-driven integrated resource planning
process and mandate comparable open access transmission service.
PURA also requires that the Texas Commission adopt a rule on
comparable open transmission access by March 1, 1996. In
conjunction with this rulemaking proceeding (Project No. 14045),
Texas Commission Chairman Pat Wood issued a proposal on September 6,
1995, for the purpose of maximizing competition in the ERCOT
wholesale bulk power market. The proposal calls for the functional
unbundling of integrated utilities where distribution entities could
purchase their power requirements from any generator or set of
generators in ERCOT. Those generators which are currently regulated
would be deregulated after provisions are in place to recover
stranded costs. The proposal has been assigned to a separate
proceeding (Project No. 15000). CPL expects this project to provide
the vehicle for the Texas Commission and other interested parties to
develop positions on industry restructuring before the Texas
Legislature convenes in January 1997. A schedule has been developed
for this project that includes a series of workshops and technical
conferences during the first half of 1996. The schedule
contemplates that the Texas Commission will develop legislative
recommendations on restructuring and stranded costs during the
second half of 1996.
On February 7, 1996, the Texas Commission adopted a rule
governing transmission access and pricing (Project No. 14045). The
pricing method tentatively adopted by the Texas Commission is a
hybrid combination of an ERCOT-wide postage stamp rate covering 70%
of total ERCOT transmission costs and a distance-sensitive component
referred to as a vector-absolute megawatt mile which recovers the
remaining 30% of ERCOT transmission costs. Although the open access
tariffs filed with the FERC on February 9, 1996 do not reflect
Project No. 14045 pricing, CPL anticipates filing tariffs with the
FERC that do conform to the Texas Commission's rule in the second
quarter of 1996.
CPL
<PAGE> 2-77
Regulatory Accounting
Consistent with industry practice and the provisions of SFAS
No. 71, which allows for the recognition and recovery of regulatory
assets, CPL has recognized significant regulatory assets and
liabilities. Management believes that CPL will continue to meet the
criteria for following SFAS No. 71. However, in the event CPL no
longer meets the criteria for following SFAS No. 71, a write-off of
regulatory assets and liabilities would be required. For additional
information regarding SFAS No. 71 reference is made to NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Consolidated Taxes
Prior to 1992, the Texas Commission allowed income taxes to be
recovered in rates based on the federal income tax incurred by a
utility as if it were a stand-alone company. This "stand-alone"
approach treated the regulated activities of a utility as a separate
entity and considered only those revenues and expenses that are
included in the utility's cost of service to calculate the federal
income tax liability for ratemaking purposes. However, in 1992 the
Texas Commission changed its method of calculating the federal income
tax component of rates to the "actual tax approach." This approach
reduces rates by the tax benefits of deductions which are not
considered for or included in setting rates for the utility.
On April 13, 1995, the Supreme Court issued a decision which
holds that the Texas Commission is not required to use the tax
benefits associated with the losses of unregulated affiliates to
reduce tax expense in cost of service. The Supreme Court also ruled
that the Texas Commission cannot include the income tax deductions
taken by the utility for disallowed expenses when determining the
utility's federal income tax liability.
ENVIRONMENTAL MATTERS
The operations of CPL, like those of other utility systems,
generally involve the use and disposal of substances subject to
environmental laws. CERCLA, the federal "Superfund" law, addresses
the cleanup of sites contaminated by hazardous substances.
Superfund requires that PRPs fund remedial actions regardless of
fault or the legality of past disposal activities. PRPs include
owners and operators of contaminated sites and transporters and/or
generators of hazardous substances. Many states have similar laws.
Legally, any one PRP can be held responsible for the entire cost of
a cleanup. Usually, however, cleanup costs are allocated among
PRPs.
CPL is subject to various pending claims alleging that it is a
PRP under federal or state remedial laws for investigating and
cleaning up contaminated property. CPL anticipates that resolution
of these claims, individually or in the aggregate, will not have a
material adverse effect on CPL's results of operations or financial
condition. Although the reasons for this expectation differ from
site to site, factors that are the basis for the expectation for
specific sites include the volume and/or type of waste allegedly
contributed by CPL, the estimated amount of costs allocated to CPL
and the participation of other parties. See ITEM 1-BUSINESS, NOTE
2. LITIGATION AND REGULATORY PROCEEDINGS and NOTE 3. COMMITMENTS AND
CONTINGENT LIABILITIES for additional discussion regarding
environmental matters.
NEW ACCOUNTING STANDARDS
SFAS No. 121
In March 1995, the FASB issued SFAS No. 121 to be effective for
financial statements for fiscal years beginning after December 15,
1995. The statement establishes a two-fold test for identification
and quantification of an impaired asset. The first test in
determining an impairment is to compare the sum of expected future
cash flows (undiscounted and without interest charges) related to an
CPL
<PAGE> 2-78
asset to the carrying amount of the asset. If the sum of expected
cash flows is not sufficient to recover the carrying value of the
asset, then an impairment is recognized. Once an impairment is
identified, the second part of the test is applied to quantify the
amount of the impairment. The statement lists several alternative
methods of establishing fair market value and quantifying the
impairment. Cash flows used to measure possible impairment of an
asset are grouped at the lowest level for which there are
identifiable cash flows that are largely independent of the cash
flows of other groups of assets. For CPL, the lowest independently
identifiable cash flow level used for this analysis is
jurisdictional rates charged to customers.
CPL will adopt SFAS No. 121 in the first quarter of 1996.
Under the current regulatory environment, CPL does not expect the
adoption of SFAS No. 121 to have a significant impact on CPL's
results of operations or financial condition. However, future
developments in the electric industry and utility regulation could
jeopardize the full recovery of the carrying cost of certain
investments. Consequently, CPL is monitoring the changing
conditions facing the electric utility industry.
SFAS No. 123
SFAS No. 123 was issued in October 1995 with an effective date
for transactions entered into after December 15, 1995. This
statement requires the use of an option pricing model to calculate
the value of stock-based compensation transactions where such value
cannot otherwise be determined, but then allows for two alternative
methods of reporting the transactions. One method recognizes this
value as a cost of compensation and as an expense for the current
period. The alternative method permits footnote disclosure of the
compensation cost, without charging the amount against current
earnings.
As provided by the provisions of SFAS No. 123, CPL will
continue to apply the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of SFAS
No. 123 in 1996. Accordingly, the adoption of SFAS No. 123 will not
impact CPL's results of operations or financial condition.
RESULTS OF OPERATIONS
Electric Operating Revenues
Total revenues were $1.1 billion in 1995, a decrease of 12%
when compared to 1994 revenues of $1.2 billion. The decline was due
primarily to a one time $50 million base rate refund and a $62.3
million disallowance of under-recovered fuel costs resulting from
the CPL 1995 Agreement. Also contributing to the decrease in
revenue was a $66.6 million decrease in fuel revenue resulting
primarily from lower average unit fuel costs and purchased power as
discussed below and a wholesale fuel revenue refund. Partially
offsetting the decrease in fuel revenue was a $34.4 million increase
in non-fuel revenue resulting from a 6% increase in KWH sales. The
increase in sales was attributable to increased usage per customer,
residential and commercial customer growth and a new contract with
an existing wholesale customer.
Total revenues decreased $5.5 million in 1994 when compared to
1993 revenues. The 1994 decrease reflects lower fuel-related
revenues of $41.5 million partially offset by higher base revenues
of $35.9 million. Fuel-related revenues declined as a result of
lower per unit fuel and purchased power costs. An 8% increase in
KWH sales resulting from an increased number of residential and
commercial customers served as well as warmer spring and summer
weather also contributed to the increase in base revenues.
Fuel
Fuel expense decreased $40.5 million, or 12%, during 1995 as
compared to 1994. The decrease in fuel expense was due primarily to
a 22% decrease in the average unit cost of fuel from $1.75 per Mmbtu
in 1994 to $1.37 per Mmbtu in 1995. The decrease in the average
unit cost of fuel resulted from the expiration of higher priced gas
contracts that were replaced with lower cost spot market natural
CPL
<PAGE> 2-79
gas, the renegotiation of a coal contract and increased usage of
lower unit cost nuclear fuel. The decrease in the unit cost of fuel
was partially offset by a 13% increase in generation.
Fuel expense decreased $21.8 million in 1994 when compared to
1993 due primarily to a decrease in the average unit cost of fuel
from $2.17 per Mmbtu in 1993 to $1.75 per Mmbtu in 1994 partially
offset by a 16% increase in generation. The lower average unit cost
of fuel reflects increased usage of lower unit cost nuclear fuel
since STP Units 1 and 2 restarted and reached 100 percent output
level in April and June of 1994, respectively, and lower unit costs
of gas and coal in 1994. STP Units 1 and 2 had not operated at full
capacity since February 1993 as discussed previously under SOUTH
TEXAS PROJECT.
Purchased Power
Purchased power decreased $22.7 million and $21.7 million
during 1995 and 1994, respectively, when compared to the prior year.
The decrease in 1995 was due primarily to increased generation at
STP, which replaced power that had been purchased during the first
half of 1994 when STP was out of service, and an unscheduled outage
at a fossil-fueled generating plant during the third quarter of
1994. The decrease of $21.7 million in 1994 as compared to 1993 was
due primarily to the outage at STP which began in February 1993.
Other Operating
Other operating expenses decreased $15.8 million, or 7%, during
1995 when compared to 1994. The decrease was due primarily to a
reduction in employee related costs. Other operating expenses in
1994 were relatively consistent with 1993 levels.
Restructuring Charges
Restructuring charges decreased $20.8 million during 1995 when
compared to 1994. The decrease was due primarily to the recognition
of a $20.7 million regulatory asset established in accordance with
the CPL 1995 Agreement for previously recorded restructuring
charges. Restructuring charges in 1993 reflect the original accrual
of $29.4 million.
Maintenance
Maintenance expense decreased $5.3 million in 1995 when
compared to 1994 as a result of postponement of previously scheduled
plant maintenance and savings resulting from cost containment
efforts. Maintenance expense decreased $12.8 million during 1994 as
compared to 1993 due primarily to lower STP outage-related
maintenance activities.
Depreciation and Amortization
Depreciation and amortization increased $8.9 million, or 6%,
during 1995 as compared to 1994 as a result of an increase in
depreciable property and the amortization of regulatory assets
associated with the CPL 1995 Agreement. Depreciation and
amortization increased in 1994 as compared to 1993 as a result of an
increase in depreciable property and a decline in amortization
credits related to power plant inventory.
Taxes, Other than Income
Taxes, other than income decreased $14.5 million during 1995 as
compared to 1994 due primarily to lower ad valorem tax expense
resulting from a true-up of prior year estimates. The $5.9 million
decrease in 1994 when compared to 1993 was primarily a result of a
franchise tax refund.
Income Taxes
Income taxes decreased $59.5 million in 1995 as compared to
1994 due primarily to the reduction of $34.3 million of deferred
income taxes in accordance with the CPL 1995 Agreement, prior year
tax adjustments and lower pre-tax income. Income taxes increased
$10.2 million in 1994 as compared to 1993 due to higher pre-tax
income.
CPL
<PAGE> 2-80
Other Income and Deductions
Mirror CWIP liability amortization decreased $27.0 million and
$8.0 million in 1995 and 1994, respectively, when compared to the
prior year. In accordance with the original liability amortization
schedule agreed upon in the settlement of its rate cases in 1990 and
1991, CPL amortized its Mirror CWIP liability in declining amounts
over the years 1991 through 1995. The absence of Mirror CWIP
liability amortization in 1996 will have a negative impact on CPL's
net income, although its cash flow will not be impacted. Other
income was higher in 1995 when compared to 1994 due primarily to the
recognition of factoring income pursuant to the CPL 1995 Agreement.
Interest Charges
Interest on long-term debt increased $4.8 million during 1995
as compared to 1994 as a result of increased long-term debt
outstanding. Interest on short-term debt and other increased $7.6
million during 1995 when compared to 1994 as a result of higher
levels of short-term debt outstanding at higher interest rates and
the recognition of interest expense associated with over-recovered
fuel.
Cumulative Effect of Changes in Accounting Principles
In 1993, CPL changed its method of accounting for unbilled
revenues and implemented SFAS No. 112. These accounting changes had
a cumulative effect of increasing net income by $27.3 million in
1993.
Inflation
Annual inflation rates, as measured by the Consumer Price
Index, have averaged approximately 2.8% during the three years ended
December 31, 1995. CPL believes that inflation, at this level, does
not materially affect its results of operation or financial
condition. However, under existing regulatory practice, only the
historical cost of plant is recoverable from customers. As a
result, cash flows designed to provide recovery of historical plant
costs may not be adequate to replace plant in future years.
CPL
<PAGE> 2-81
CPL
Statements of Income
Central Power and Light Company
For the Years Ended December 31,
1995 1994 1993
(thousands)
Electric Operating Revenues
Residential $465,478 $474,480 $474,426
Commercial 355,238 368,405 369,426
Industrial 256,223 271,738 281,247
Sales for resale 52,081 50,777 45,369
Other (55,551) 52,579 53,060
1,073,469 1,217,979 1,223,528
Operating Expenses and Taxes
Fuel 287,979 328,460 350,268
Purchased power 19,632 42,342 64,025
Other operating 209,021 224,852 225,034
Restructuring charges (20,793) 98 29,365
Maintenance 63,201 68,537 81,352
Depreciation and amortization 150,508 141,622 131,825
Taxes, other than income 65,925 80,461 86,394
Income taxes 15,812 75,356 65,186
791,285 961,728 1,033,449
Operating Income 282,184 256,251 190,079
Other Income and Deductions
Allowance for equity funds used
during construction 442 1,215 1,074
Mirror CWIP liability amortization 41,000 68,000 75,702
Other 14,880 1,272 1,663
56,322 70,487 78,439
Income Before Interest Charges 338,506 326,738 268,518
Interest Charges
Interest on long-term debt 116,205 111,408 112,939
Interest on short-term debt and
other 19,926 12,365 11,993
Allowance for borrowed funds used
during construction (4,072) (2,474) (1,544)
132,059 121,299 123,388
Income Before Cumulative Effect of
Changes in Accounting Principles 206,447 205,439 145,130
Cumulative Effect of Changes in
Accounting Principles -- -- 27,295
Net Income 206,447 205,439 172,425
Preferred stock dividends 14,469 13,804 14,003
Net Income for Common Stock $191,978 $191,635 $158,422
The accompanying notes to financial statements
are an integral part of these statements.
CPL
<PAGE> 2-82
CPL
Statements of Retained Earnings
Central Power and Light Company
For the Years Ended December 31,
1995 1994 1993
(thousands)
Retained Earnings at Beginning of Year $857,466 $850,307 $863,988
Net income for common stock 191,978 191,635 158,422
Deduct: Common stock dividends 186,000 183,000 172,000
Preferred stock redemption
costs -- 1,476 103
Retained Earnings at End of Year $863,444 $857,466 $850,307
The accompanying notes to financial statements
are an integral part of these statements.
CPL
<PAGE> 2-83
CPL
Balance Sheets
Central Power and Light Company
As of December 31,
1995 1994
(thousands)
ASSETS
Electric Utility Plant
Production $3,110,744 $3,070,005
Transmission 486,090 451,050
Distribution 879,618 828,350
General 248,629 216,888
Construction work in progress 127,307 142,724
Nuclear fuel 165,087 161,152
5,017,475 4,870,169
Less - Accumulated depreciation 1,547,530 1,400,343
3,469,945 3,469,826
Current Assets
Cash 2,883 642
Special deposits 797 668
Accounts receivable 45,186 29,865
Materials and supplies, at average cost 71,112 66,209
Fuel inventory, at average cost 26,472 22,916
Accumulated deferred income taxes 22,171 --
Under-recovered fuel costs -- 54,126
Prepayments 1,739 2,316
170,360 176,742
Deferred Charges and Other Assets
Deferred STP costs 488,047 488,987
Mirror CWIP asset 311,804 321,825
Income tax related regulatory assets, net 346,993 288,444
Other 93,987 76,875
1,240,831 1,176,131
$4,881,136 $4,822,699
The accompanying notes to financial statements
are an integral part of these statements.
CPL
<PAGE> 2-84
CPL
Balance Sheets
Central Power and Light Company
As of December 31,
1995 1994
CAPITALIZATION AND LIABILITIES (thousands)
Capitalization
Common stock: $25 par value
Authorized shares: 12,000,000
Issued and outstanding
shares: 6,755,535 $168,888 $168,888
Paid-in capital 405,000 405,000
Retained earnings 863,444 857,466
Total Common Stock Equity 1,437,332 1,431,354
Preferred stock 250,351 250,351
Long-term debt 1,517,347 1,466,393
Total Capitalization 3,205,030 3,148,098
Current Liabilities
Long-term debt due within twelve months 231 723
Advances from affiliates 176,334 161,320
Accounts payable 49,507 84,608
Accrued taxes 61,614 59,386
Accumulated deferred income taxes -- 13,812
Accrued interest 32,742 24,681
Over-recovered fuel costs 12,586 --
Other 24,758 31,476
357,772 376,006
Deferred Credits
Accumulated deferred income taxes 1,151,823 1,087,317
Investment tax credits 152,744 158,533
Mirror CWIP liability and other 13,767 52,745
1,318,334 1,298,595
$4,881,136 $4,822,699
The accompanying notes to financial statements
are an integral part of these statements.
CPL
<PAGE> 2-85
CPL
Statements of Cash Flows
Central Power and Light Company
For the Years Ended December 31,
1995 1994 1993
(thousands)
OPERATING ACTIVITIES
Net Income $ 206,447 $ 205,439 $ 172,425
Non-cash Items Included in Net Income
Depreciation and amortization 173,711 170,971 140,223
Deferred income taxes and investment
tax credits (35,815) 20,870 84,714
Mirror CWIP liability amortization (41,000) (68,000) (75,702)
Restructuring charges (240) 98 29,365
Regulatory asset established for
previously incurred restructuring
charges (20,652) -- --
Allowance for equity funds used
during construction (442) (1,215) (1,074)
Cumulative effect of changes in
accounting principles -- -- (27,295)
Changes in Assets and Liabilities
Accounts receivable (15,321) (6,015) (3,554)
Fuel inventory (3,556) (5,982) 12,325
Accounts payable (35,101) (5,765) (22,386)
Accrued taxes 2,228 25,617 (9,311)
Over- and under-recovered fuel costs 66,712 (1,167) (57,386)
Accrued restructuring charges (1,085) (20,245) --
Other deferred credits 2,022 1,444 6,295
Other 1,910 (4,575) 29,928
299,818 311,475 278,567
INVESTING ACTIVITIES
Construction expenditures (150,372) (174,993) (177,120)
Allowance for borrowed funds used
during constriction (4,072) (2,474) (1,544)
(154,444) (177,467) (178,664)
FINANCING ACTIVITIES
Proceeds from issuance of long-term
debt 337,828 99,190 441,131
Retirement of long-term debt -- (459) (431)
Reacquisition of long-term debt (295,938) (618) (573,776)
Retirement of preferred stock -- (27,021) (6,578)
Special deposits for reacquisition of
long-term debt -- -- 145,482
Change in advances from affiliates 15,014 (9,845) 79,399
Payment of dividends (200,037) (197,048) (186,361)
(143,133) (135,801) (101,134)
Net Change in Cash and Cash Equivalents 2,241 (1,793) (1,231)
Cash and Cash Equivalents at Beginning of
Year 642 2,435 3,666
Cash and Cash Equivalents at End of Year $2,883 $642 $2,435
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $115,845 $114,980 $116,664
Income taxes paid $37,151 $28,166 $3,631
The accompanying notes to financial statements
are an integral part of these statements.
CPL
<PAGE> 2-86
CPL
Statements of Capitalization
Central Power and Light Company
As of December 31,
1995 1994
(thousands)
COMMON STOCK EQUITY $1,437,332 $1,431,354
PREFERRED STOCK
Cumulative $100 Par Value,
Authorized 3,035,000 shares
Number Current
of Shares Redemption
Series Outstanding Price
Not Subject to Mandatory
Redemption
4.00% 100,000 $105.75 10,000 10,000
4.20% 75,000 $103.75 7,500 7,500
7.12% 260,000 $101.00 26,000 26,000
8.72% 500,000 $100.00 50,000 50,000
Auction Money Market 750,000 $100.00 75,000 75,000
Auction Series A 425,000 $100.00 42,500 42,500
Auction Series B 425,000 $100.00 42,500 42,500
Issuance Expense (3,149) (3,149)
250,351 250,351
LONG-TERM DEBT
First Mortgage Bonds
Series J, 6 5/8%, due January 1, 1998 28,000 28,000
Series L, 7%, due February 1, 2001 36,000 36,000
Series T, 7 1/2%, due December 15, 2014*
(Matagorda) 111,700 111,700
Series U, 9 3/4%, due July 1, 2015* (Matagorda) -- 31,765
Series Z, 9 3/8%, due December 1, 2019 -- 139,405
Series AA, 7 1/2%, due March 1, 2020* (Matagorda) 50,000 50,000
Series BB, 6%, due October 1, 1997 200,000 200,000
Series CC, 7 1/4%, due October 1, 2004 100,000 100,000
Series DD, 7 1/8%, due December 1, 1999 25,000 25,000
Series EE, 7 1/2%, due December 1, 2002 115,000 115,000
Series FF, 6 7/8%, due February 1, 2003 50,000 50,000
Series GG, 7 1/8%, due February 1, 2008 75,000 75,000
Series HH, 6%, due April 1, 2000 100,000 100,000
Series II, 7 1/2%, due April 1, 2023 100,000 100,000
Series JJ, 7 1/2%, due May 1, 1999 100,000 100,000
Series KK, 6 5/8%, due July 1, 2005 200,000 --
Installment Sales Agreements - PCRBs
Series 1974A, 7 1/8%, due June 1, 2004 (Nueces) -- 8,700
Series 1977, 6%, due November 1, 2007 (Guadalupe) -- 34,235
Series 1984, 7 7/8%, due September 15, 2014 (Red
River) 6,330 6,330
Series 1984, 10 1/8%, due October 15, 2014
(Matagorda) -- 68,870
Series 1986, 7 7/8%, due December 1, 2016
(Matagorda) 60,000 60,000
Series 1993, 6%, due July 1, 2028 (Matagorda) 120,265 120,265
Series 1995, 6.10%, due July 1, 2028 (Matagorda) 100,635 --
Series 1995, variable rate, due November 1, 2015
(Guadalupe) 40,890 --
Notes Payable, 6 1/2%, due December 8, 1995 231 448
Unamortized Discount (6,115) (11,655)
Unamortized Costs of Reacquired Debt (95,358) (81,947)
Amount to be Redeemed Within One Year 231 (723)
1,517,347 1,466,393
TOTAL CAPITALIZATION $3,205,030 $3,148,098
*Obligations incurred in connection with the sale by public authorities of
tax-exempt PCRBs.
The accompanying notes to financial statements
are an integral part of these statements.
CPL
<PAGE> 2-87
CENTRAL POWER AND LIGHT COMPANY
NOTES TO FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See CSW's NOTE 1 on pages 2-32 to 2-37.
2.LITIGATION AND REGULATORY PROCEEDINGS
CPL Rate Review
On November 6, 1995, CPL filed with the Texas Commission a
request to increase its retail base rates by $71 million and
reduce its annual retail fuel factors by $17 million. The net
effect of these proposals would be an increase of $54 million, or
4.6%, in total annual retail revenues based on a test year ended
June 30, 1995. CPL is not seeking interim rate relief, but will
implement bonded rates in May 1996, the earliest date permitted by
law. CPL also is seeking to reconcile $229 million of fuel costs
incurred during the period July 1, 1994 through June 30, 1995.
CPL's previous request to reconcile fuel costs from March 1, 1990
to June 30, 1994 in Docket No. 13650 was consolidated with the
current rate review. If the requested increase and other
adjustments in rate structure are approved, CPL has committed not
to increase its base rates prior to January 1, 2001, subject to
certain force majeure events.
CPL is requesting this rate review in large part as a result
of the expiration of the amortization of its Mirror CWIP
liability. The Mirror CWIP liability was amortized to income in
declining amounts over a five-year period from 1991 through 1995
pursuant to rate settlements reached by CPL in 1990 and 1991. In
1995, Mirror CWIP provided $41 million in non-cash earnings at
CPL. Also included in the request are proposals by CPL to
accelerate recovery of nuclear and regulatory assets as a way to
proactively address certain assets that could possibly be
unrecoverable or stranded in a more competitive electric utility
industry. In a preliminary order issued December 21, 1995, the
Texas Commission expanded the scope of the rate review to address
certain competitive issues facing the electric utility industry.
The competitive issues to be addressed by CPL in a supplemental
filing due April 1, 1996, are: (i) the calculation of rates on an
unbundled or functional basis (i.e., generation, transmission and
distribution); (ii) the current value of CPL's generating assets
as compared to estimates of the market value of such assets under
alternate future industry structures; (iii) the application of
performance based ratemaking; (iv) potential revisions in the
methodology of reconciling and recovering fuel costs; and (v) the
Texas Commission's authority to introduce competition in the
electric utility industry under existing law.
On February 13, 1996, intervening parties filed testimony in
the revenue requirements phase of CPL's base rate case. Among the
parties that filed testimony were the OPUC which recommended a
base rate decrease of approximately $75 million on a total company
basis and the Cities which recommended a base rate reduction of
approximately $52 million on a total company basis.
On February 20, 1996, the Staff filed testimony recommending
an increase in total company base rates of approximately $30
million. Certain elements of the Staff's proposal are described
below.
The Staff recommended a return on common stock equity of
11.35% compared to the 12.25% return on common equity requested by
CPL. The Staff recommended a disallowance of $16 million in costs
billed for administrative services by CSW Services to CPL on the
basis that the specific benefits to CPL were not clearly
identified. Additionally, the Staff recommended a $7 million
reduction in CPL's current annual depreciation accrual and a $3
million reduction in CPL's requested accrual for decommissioning
CPL
<PAGE> 2-88
STP. A comparison of the Staff's recommendation for a base rate
increase, compared to CPL's claimed revenue deficiency is provided
in the CPL RATE REVIEW COMPARISON table.
CPL RATE REVIEW COMPARISON (unaudited)
(millions)
CPL revenue deficiency (1) $103
Return on common equity (21)
CSW Services expenses (16)
Depreciation expense (7)
Decommissioning expense (3)
Miscellaneous items (26)
Staff recommended revenue increase (2) $30
(1) The total company rate increase requested by
CPL was reduced from $103 million to $78 million
($71 million allocated to the Texas retail
jurisdiction) in accordance with rate settlements
entered into by CPL in 1990 and 1991.
(2) The Staff recommended that CPL be granted a $23
million base rate increase and an annual increase
of $7 million in customer service charges.
The Staff and Cities recently filed testimony on the fuel
portion of the rate case recommending a reduction to CPL's
eligible fuel costs of $16 million and $32 million, respectively.
After completion of hearings in all phases of the rate case,
which began in late February 1996 and are expected to conclude
during the third quarter of 1996, the ALJs assigned to hear the
case will issue a proposal for decision for consideration by the
Texas Commission. Testimony filed by parties to the rate case,
including the Staff, is not binding on either the ALJs or the
Texas Commission. A final decision on the rate request is not
anticipated from the Texas Commission prior to December 1996.
CPL's management cannot predict the ultimate outcome of CPL's
rate case, although management believes that the ultimate
resolution will not have a material adverse effect on CPL's
results of operations or financial condition. However, if CPL
ultimately is unsuccessful in obtaining adequate rate relief, CPL
could experience a material adverse effect on its results of
operations and financial condition.
CPL 1995 Agreement
On April 5, 1995, CPL reached an agreement in principle with
other parties to pending regulatory proceedings involving base
rate, fuel and prudence issues relating to an outage experienced
at STP during 1993 and 1994. On May 16, 1995, CPL filed the CPL
1995 Agreement with the Texas Commission. Pursuant to the CPL
1995 Agreement, base rate refunds, fuel refunds and the reduction
of CPL's fuel factors were implemented during the summer of 1995.
Under the CPL 1995 Agreement, CPL provided customers a one-time
base rate refund of $50 million. In addition, CPL refunded
approximately $30 million in over-recovered fuel costs through
April 1995. Furthermore, CPL did not charge customers for $62.25
million in replacement power costs and related interest primarily
associated with the 1993-1994 STP outage. The CPL 1995 Agreement
did not result in any ongoing change in base rate levels and
provided that there would be no new rate review requests filed
prior to September 28, 1995. CPL also reduced its fuel factors,
effective in July 1995, by approximately $55 million on an annual
basis due to projections of lower fuel costs. Hearings on the CPL
1995 Agreement were held on July 19, 1995, and the final written
Texas Commission order approving the CPL 1995 Agreement was
received on October 4, 1995. Details of the items in the CPL 1995
CPL
<PAGE> 2-89
Agreement and the total 1995 earnings impact for CPL, including
certain accounting provisions, are set forth in the following
table.
Pre-tax After-tax
(millions)
Base rate refund $(50.0) $(32.5)
Fuel disallowance (62.3) (40.5)
Wholesale fuel refund (3.2) (2.1)
Current flowback of excess deferred
federal income taxes 34.3 34.3
Capitalization of previously expensed
restructuring and rate case costs 27.6 17.9
Recognition of factoring income 16.1 10.5
Amortization, interest and other (6.6) (4.4)
CPL Deferred Accounting
CPL was granted deferred accounting treatment for certain
STP Unit 1 and 2 costs by Texas Commission orders issued in
October 1990 and December 1990, respectively. In 1994, the
Supreme Court sustained deferred accounting as an appropriate
mechanism for the Texas Commission to use in preserving the
financial integrity of CPL, but remanded CPL's case to the Court
of Appeals to consider certain substantial evidence points of
error not previously decided by the Court of Appeals given its
prior determinations. On August 16, 1995, the Court of Appeals
rendered its opinion in the remand proceeding and affirmed the
Texas Commission's order in all respects.
CPL believes that the language of the Supreme Court's
opinion suggests that the appropriateness of allowing deferred
accounting may be reviewed under a financial integrity standard in
the first case in which the deferred STP costs are recovered
through rates. If the courts decide that subsequent review under
the financial integrity standard is required, that review would be
conducted in a remand of the STP Unit 1 and 2 orders. Pending the
ultimate resolution of CPL's deferred accounting issues, CPL is
unable to predict how its deferred accounting orders will
ultimately be resolved by the Texas Commission.
If CPL's deferred accounting matters are not favorably
resolved, CPL could experience a material adverse effect on its
results of operations and financial condition. While CPL's
management is unable to predict the ultimate outcome of these
matters, management believes CPL will receive approval of its
deferred accounting orders or will be successful in renegotiation
of its rate orders, so that there will be no material adverse
effect on CPL's results of operation or financial condition.
CPL Westinghouse Litigation
CPL and other owners of STP were plaintiffs in a lawsuit
filed in October 1990 in the District Court in Matagorda County,
Texas against Westinghouse, seeking damages and other relief. The
suit alleged that Westinghouse supplied STP with defective steam
generator tubes that are susceptible to stress corrosion cracking.
On December 8, 1995, CPL and the other owners of STP settled the
lawsuit. While the court order prohibits disclosure of the terms
of the settlement, CPL believes the litigation was settled on
terms that provided satisfactory consideration to CPL and STP and
will not have a material adverse effect on the results of
operations or financial condition of CPL.
CPL Civil Penalties
In October 1995, the NRC notified HLP of a Notice of
Violation and proposed penalties totaling $160,000 related to
events that occurred at STP in May 1992. The Notice of Violation
and penalties reflect the NRC's belief that certain STP employees
were terminated as a result of raising safety concerns with the
NRC. The Notice of Violation was the result of a Department of
Labor decision and order in April 1995 and is awaiting final
action by the Secretary of Labor. HLP is not required to reply to
the NRC's Notice of Violation or pay the penalties pending the
CPL
<PAGE> 2-90
Secretary of Labor's final decision. The NRC indicated that the
proposed civil penalties reflect minimum penalties allowed because
of improvements made to the STP Employee Concerns Program since
1992. CPL's share of any penalty that is ultimately paid would be
approximately 25%, reflecting its ownership interest in STP.
CPL Industrial Road and Industrial Metals Site
Three suits naming CPL and others as defendants relating to
a third-party owned and operated site in Corpus Christi, Texas
formerly used for commercial reclamation of used electrical
transformers, lead acid batteries and other scrap metals, are
currently pending in federal and state court in Corpus Christi,
Texas. Plaintiffs' complaints seek damages for alleged property
damage and health impairment as a result of operations on the site
and cleanup activities. Management cannot predict the outcome of
these suits. However, management believes that CPL has defenses
to the plaintiffs' complaints and intends to defend the suits
vigorously. Management also believes that the ultimate resolution
of these matters will not have a material adverse effect on CPL's
results of operations or financial condition.
Other
CPL is party to various other legal claims, actions and
complaints arising in the normal course of business. Management
does not expect disposition of these matters to have a material
adverse effect on CPL's results of operations or financial
condition.
3.COMMITMENTS AND CONTINGENT LIABILITIES
Construction and Capital Expenditures
It is estimated that CPL will spend approximately $137
million, including AFUDC, in construction expenditures during
1996. Substantial commitments have been made in connection with
this capital expenditure program.
Fuel Commitments
To supply a portion of the fuel requirements, CPL has
entered into various commitments for procurement of fuel.
Other Commitments and Contingencies
CPL Nuclear Insurance
In connection with the licensing and operation of STP, the
owners have purchased the maximum limits of nuclear liability
insurance, as required by law, and have executed indemnification
agreements with the NRC in accordance with the financial
protection requirements of the Price-Anderson Act.
The Price-Anderson Act, a comprehensive statutory
arrangement providing limitations on nuclear liability and
governmental indemnities, is in effect until August 1, 2002. The
limit of liability under the Price-Anderson Act for licensees of
nuclear power plants is $8.92 billion per incident, effective as
of January 1995. The owners of STP are insured for their share of
this liability through a combination of private insurance
amounting to $200 million and a mandatory industry-wide program
for self-insurance totaling $8.72 billion. The maximum amount
that each licensee may be assessed under the industry-wide program
of self-insurance following a nuclear incident at an insured
facility is $75.5 million per reactor, which may be adjusted for
inflation, plus a five percent charge for legal expenses, but not
more than $10 million per reactor for each nuclear incident in any
one year. CPL and each of the other STP owners are subject to
such assessments, which CPL and other owners have agreed will be
allocated on the basis of their respective ownership interests in
STP. For purposes of these assessments, STP has two licensed
reactors.
CPL
<PAGE> 2-91
The owners of STP currently maintain on-site decontamination
liability and property damage insurance in the amount of $2.75
billion provided by ANI and NEIL. Policies of insurance issued by
ANI and NEIL stipulate that policy proceeds must be used first to
pay decontamination and cleanup costs before being used to cover
direct losses to property. Under project agreements, CPL and the
other owners of STP will share the total cost of decontamination
liability and property insurance for STP, including premiums and
assessments, on a pro rata basis, according to each owner's
respective ownership interest in STP.
CPL purchases, for its own account, a NEIL I Business
Interruption and/or Extra Expense policy. This insurance will
reimburse CPL for extra expenses incurred for replacement
generation or purchased power as the result of a covered accident
that shuts down production at one or both of the STP Units for
more than 21 consecutive weeks. In the event of an outage of STP
Units 1 and 2 and the outage is the result of the same accident,
insurance will reimburse CPL up to 80% of the single unit
recovery. The maximum amount recoverable for a single unit outage
is $86.02 million for Unit 1 and $85.96 million for Unit 2. CPL
is subject to an additional assessment up to $1.6 million for the
current policy year in the event that insured losses at a nuclear
facility covered under the NEIL I policy exceeds the accumulated
funds available under the policy.
On August 28, 1994, CPL filed a claim under the NEIL I
policy relating to the 1993-1994 outage at STP Units 1 and 2.
NEIL has denied the claim. CPL management is currently evaluating
its options regarding this claim, but cannot predict the ultimate
outcome of this matter.
4.INCOME TAXES
See CSW's NOTE 4.
5.BENEFIT PLANS
See CSW's NOTE 5.
6.JOINTLY OWNED ELECTRIC UTILITY PLANT
See CSW's NOTE 6.
7.FINANCIAL INSTRUMENTS
See CSW's NOTE 7.
8.LONG-TERM DEBT
See CSW's NOTE 8.
9.PREFERRED STOCK
See CSW's NOTE 9.
10. SHORT-TERM FINANCING
See CSW's NOTE 10.
11. QUARTERLY INFORMATION
See CSW's NOTE 14 on pages 2-64 and 2-65.
CSW's NOTE 4 through NOTE 10 are found on pages 2-48 through 2-60.
CPL
<PAGE> 2-92
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Central Power and
Light Company:
We have audited the accompanying balance sheets and statements
of capitalization of Central Power and Light Company (a Texas
corporation and a wholly owned subsidiary of Central and South West
Corporation) as of December 31, 1995 and 1994, and the related
statements of income, retained earnings and cash flows for each of
the three years in the period ended December 31, 1995. These
financial statements are the responsibility of CPL's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Central Power and Light Company as of December 31, 1995 and 1994,
and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
In 1993, as discussed in NOTE 1, CPL changed its methods of
accounting for unbilled revenues, postretirement benefits other than
pensions, income taxes and postemployment benefits.
Our audits were made for the purpose of forming an opinion on
the financial statements taken as a whole. The supplemental
Schedule II and Exhibit 12 are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. This schedule and exhibit have
been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Dallas, Texas
February 28, 1996
CPL
<PAGE> 2-93
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and
objectivity of the financial statements of Central Power and Light
Company as well as other information contained in this Annual
Report. The financial statements have been prepared in conformity
with generally accepted accounting principles applied on a
consistent basis and, in some cases, reflect amounts based on the
best estimates and judgments of management, giving due consideration
to materiality. Financial information contained elsewhere in this
Annual Report is consistent with that in the financial statements.
The financial statements have been audited by the independent
accounting firm, Arthur Andersen LLP, which was given unrestricted
access to all financial records and related data, including minutes
of all meetings of shareholders, the board of directors and
committees of the board. CPL believes that representations made to
the independent auditors during its audit were valid and
appropriate. Arthur Andersen LLP's audit report is presented
elsewhere in this report.
CPL maintains a system of internal controls to provide
reasonable assurance that transactions are executed in accordance
with management's authorization, that the financial statements are
prepared in accordance with generally accepted accounting principles
and that the assets of CPL are properly safeguarded against
unauthorized acquisition, use or disposition. The system includes a
documented organizational structure and division of responsibility,
established policies and procedures including a policy on ethical
standards which provides that CPL will maintain the highest legal
and ethical standards, and the careful selection, training and
development of our employees.
Internal auditors continuously monitor the effectiveness of the
internal control system following standards established by the
Institute of Internal Auditors. Actions are taken by management to
respond to deficiencies as they are identified. The board,
operating through its audit committee, which is comprised entirely
of directors who are not officers or employees of CPL provides
oversight to the financial reporting process.
Due to the inherent limitations in the effectiveness of
internal controls, no internal control system can provide absolute
assurance that errors will not occur. However, management strives
to maintain a balance, recognizing that the cost of such a system
should not exceed the benefits derived.
CPL believes that, in all material respects, its system of
internal controls over financial reporting and over safeguarding of
assets against unauthorized acquisition, use or disposition
functioned effectively as of December 31, 1995.
Robert R. Carey R. Russell Davis
President and CEO - CPL Controller - CPL
CPL
<PAGE> 2-94
PUBLIC SERVICE COMPANY
OF OKLAHOMA
PSO
<PAGE> 2-95
SELECTED FINANCIAL DATA
The following selected financial data for each of the five
years ended December 31 is provided to highlight significant trends
in the financial condition and results of operations for PSO.
Certain financial statement items for prior years have been
reclassified to conform to the most recent period presented.
1995 1994 1993 (1) 1992 1991
(thousands, except ratio data)
INCOME STATEMENT DATA
Revenues $690,823 $740,496 $707,536 $622,092 $650,942
Operating expenses and
taxes 579,054 642,238 635,380 543,996 564,146
Operating income 111,769 98,258 72,156 78,096 86,796
Other income and
deductions 3,544 2,027 1,627 (591) (1,078)
Interest charges 33,485 32,019 33,287 31,943 32,489
Net income 81,828 68,266 46,719 45,562 53,229
Net income for common
stock 81,012 67,450 45,903 44,746 52,413
BALANCE SHEET DATA
Assets 1,480,816 1,465,114 1,420,379 1,351,201 1,308,075
Common stock equity 487,511 461,499 435,049 429,146 419,400
Preferred stock 19,826 19,826 19,826 19,826 19,826
Long-term debt 379,250 402,752 401,255 408,731 368,219
Current liabilities (2) 236,212 223,461 206,004 120,140 136,295
Capitalization ratios
Common stock equity 55.0% 52.2% 50.8% 50.0% 51.9%
Preferred stock 2.2 2.2 2.3 2.3 2.5
Long-term debt 42.8 45.6 46.9 47.7 45.6
Ratio of earnings to fixed
charges (SEC Method)
before cumulative
effect of changes in
accounting principles 4.32 4.03 2.78 2.95 3.33
(1) Earnings in 1993 were significantly affected by restructuring
charges, the $6 million cumulative effect of changes in accounting
principles and the establishment of reserves for fuel and other
properties. Pro forma amounts, assuming that the change in
accounting for unbilled revenues had been adopted retroactively,
are not materially different from amounts reported for prior years
and therefore have not been restated.
(2) Includes net unbilled factored accounts receivable in 1994
and 1995.
PSO
<PAGE> 2-96
PUBLIC SERVICE COMPANY OF OKLAHOMA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to PSO's Consolidated Financial Statements
and related Notes to Consolidated Financial Statement and Selected
Financial Data. The information contained therein should be read in
conjunction with, and is essential to understanding, the following
discussion and analysis.
OVERVIEW
Net income for common stock for 1995 was $81 million,
representing a 20% increase from 1994 net income for common stock of
$67 million. The increase was due primarily to decreased operating
and maintenance expenses and the sale of a non-utility fiber optic
telecommunication property during 1995.
Net income for common stock for 1994 was $67 million, a 47%
increase from 1993. The increase was due primarily to increased
energy sales to retail customers and sales for resale to other
electric utilities due to increased market place demand and the 1993
restructuring charges of $25 million.
RESTRUCTURING
During 1993, CSW announced a restructuring under which the CSW
System restructured the Electric Operating Companies (including PSO)
under a new business unit called CSW Electric and centralized many
common service functions into CSW Services in order to reduce costs
and improve efficiency and productivity. The restructuring included
restaffing positions throughout the CSW System and a reduction in
the workforce by more than 7% system-wide. PSO's restructuring
costs were initially estimated to be $25 million and were expensed
in 1993. The actual costs of the restructuring, approximately $24
million, were incurred primarily during 1994. PSO has realized a
number of benefits from the restructuring, including increased
efficiencies and synergies through the elimination of previously
duplicated functions.
LIQUIDITY AND CAPITAL RESOURCES
Overview
PSO's need for capital results primarily from the construction
of facilities to provide reliable electric service to its customers.
Accordingly, internally generated funds should meet most of the
capital requirements. However, if internally generated funds are
not sufficient, PSO's financial condition should allow it access to
the capital markets.
Construction Expenditures
PSO maintains a continuing construction program, the nature and
extent of which is based upon current and estimated future demands
upon the system. Planned construction expenditures for PSO for the
next three years are primarily to improve and expand distribution
facilities and will be funded primarily through internally generated
funds. These improvements will be required to meet the anticipated
needs of new customers and the growth in the requirements of existing
customers. Construction expenditures, including AFUDC, for PSO were
approximately $102 million in 1995, $131 million in 1994 and $95
million in 1993. PSO's estimated total
construction expenditures, including AFUDC, for the years 1996
through 1998 are presented in the following table.
PSO
<PAGE> 2-97
CONSTRUCTION EXPENDITURES
1996 1997 1998 Total
(millions)
Generation $11 $15 $12 $38
Transmission 3 3 3 9
Distribution 40 39 39 118
Other 14 15 15 44
$68 $72 $69 $209
The foregoing consists of forward looking information and,
accordingly, actual results may differ materially from such
projected information due to changes in the underlying assumptions.
Such assumptions are based on numerous factors, including factors
such as the rate of load growth, escalation of construction costs,
changes in lead times in manufacturing, inflation, the availability
and pricing of alternatives to construction, environmental and other
regulation, delays from regulatory hearings, adequacy of rate relief
and the availability of necessary external capital. Changes in
those and other factors could cause PSO to defer or accelerate
construction or to sell or buy more power, which would affect its
cash position, revenues and income to an extent that cannot now be
reliably predicted.
Although PSO does not believe that it will require substantial
additions of generating capacity through the end of the decade, the
CSW System's internal resource plan presently anticipates that any
additional capacity needs will come from a variety of sources
including projected coal- and lignite-fired generating plants for
which PSO has invested approximately $38 million in prior years for
plant sites, engineering studies and lignite reserves. Should
future plans exclude these plants for environmental, economical or
other reasons, PSO would evaluate the probability of recovery of
these investments and may record appropriate reserves.
Long-Term Financing
As of December 31, 1995, the capitalization ratios of PSO were
55% common stock equity, 2% preferred stock and 43% long-term debt.
PSO's embedded cost of long-term debt was 7.5% at December 31, 1995.
PSO continually monitors the capital markets for opportunities to
lower its cost of capital through refinancing. PSO continues to be
committed to maintaining financial flexibility by maintaining a
strong capital structure and favorable securities ratings which
should allow funds to be obtained from the capital markets when
required.
In February 1996, PSO filed a shelf registration statement with
the SEC for the sale of up to $75 million of Senior Notes. In March
1996, PSO issued $30 million of MTNs, Series A under the shelf
registration statement described in the preceding sentence. The
proceeds were used to repay a portion of PSO's short-term borrowing
and to reimburse PSO's treasury for the scheduled maturity of $25
million aggregate principal amount of FMBs on March 1, 1996. PSO
may offer the remaining $45 million of Senior Notes available under
its shelf registration statement from time to time subject to market
conditions and other factors. The proceeds of any such offering may
be used to redeem FMBs, repay short-term debt or provide working
capital.
Short-Term Financing
PSO, together with other members of CSW System, has established
a CSW System money pool to coordinate short-term borrowings. These
loans are unsecured demand obligations at rates approximating the
CSW System's commercial paper borrowing costs. At December 31, 1995
PSO's short-term borrowing limit from the money pool was
approximately $93 million. During 1995, the annual weighted average
interest rate on PSO's borrowings was 6.1% and the average amount of
PSO's short-term borrowings outstanding was $54 million. The
PSO
<PAGE> 2-98
maximum amount of PSO's short-term borrowings outstanding during
1995 was $90 million, which was the amount outstanding at January
25, 1995.
Internally Generated Funds
Internally generated funds consist of cash flows from operating
activities less common and preferred stock dividends. PSO utilizes
short-term debt to meet fluctuations in working capital requirements
due to the seasonal nature of energy sales. PSO anticipates that
capital requirements for the period 1996 to 1998 will be met, in
large part, from internal sources. PSO also anticipates that some
external financing will be required during the period, but the
nature, timing and extent have not yet been determined. Information
concerning internally generated funds is presented in the following
table.
1995 1994 1993
($ in millions)
Internally Generated Funds $88 $110 $93
Construction Expenditures Provided
by Internally Generated Funds 87% 85% 99%
Sales of Accounts Receivable
PSO sells its billed and unbilled accounts receivable, without
recourse, to CSW Credit. The sales provide PSO with cash
immediately, thereby reducing working capital needs and revenue
requirements. The average and year end amounts of accounts
receivable sold were $80 million and $71 million, respectively, in
1995, as compared to $91 million and $72 million, respectively, in
1994.
RECENT DEVELOPMENTS AND TRENDS
Competition and Industry Challenges
Competitive forces at work in the electric utility industry are
impacting PSO and electric utilities generally. Increased
competition facing electric utilities is driven by complex economic,
political and technological factors. These factors have resulted in
legislative and regulatory initiatives that are likely to result in
even greater competition at both the wholesale and retail level in
the future. As competition in the industry increases, PSO will have
the opportunity to seek new customers and at the same time be at
risk of losing customers to other competitors. Additionally, PSO
will continue to compete with suppliers of alternative forms of
energy, such as natural gas, fuel oil and coal, some of which may be
cheaper than electricity. PSO believes that its prices for
electricity and the quality and reliability of its service currently
place it in a position to compete effectively in the marketplace.
The Energy Policy Act, which was enacted in 1992, significantly
alters the way in which electric utilities compete. The Energy
Policy Act creates exemptions from regulation under the Holding
Company Act and permits utilities, including registered utility
holding companies and non-utility companies, to form EWGs. EWGs are
a new category of non-utility wholesale power producers that are
free from most federal and state regulation, including the principal
restrictions of the Holding Company Act. These provisions enable
broader participation in wholesale power markets by reducing
regulatory hurdles to such participation. The Energy Policy Act
also allows the FERC, on a case-by-case basis and with certain
restrictions, to order wholesale transmission access and to order
electric utilities to enlarge their transmission systems. A FERC
order requiring a transmitting utility to provide wholesale
transmission service must include provisions generally that permit
the utility to recover from the FERC applicant all of the costs
incurred in connection with the transmission services and any
enlargement of the transmission system and associated services.
Wholesale energy markets, including the market for wholesale
electric power, have been extremely competitive since the enactment
of the Energy Policy Act. PSO must compete in the wholesale energy
markets with other public utilities, cogenerators, qualified
PSO
<PAGE> 2-99
facilities, EWGs and others for sales of electric power. While PSO
believes that the Energy Policy Act will continue to make the
wholesale markets more competitive, PSO is unable to predict the
extent to which the Energy Policy Act will impact PSO operations.
On March 29, 1995, consistent with the direction of the Energy
Policy Act, the FERC announced in a NOPR a requirement that each
public utility that owns and controls transmission facilities in
interstate commerce must unbundle its services and file open access
transmission tariffs under which such utility will offer comparable
open access transmission services to its transmission customers. In
addition, the FERC revised its proposed mechanisms by which utilities
will be permitted to recover stranded investment costs expected to be
brought about by the proposed changes. On August 7, 1995, CSW filed
comments on the proposed approach in the NOPR with the FERC.
Although CSW supports the concept of comparable open access for the
nation's transmission service, CSW believes that certain changes must
be made in the FERC's proposed approach of implementing the open
transmission system. First, with respect to the issue of stranded
investments, the FERC proposed that customers who left the utility
company pay for a portion, but not all, of the costs incurred by the
owner of existing facilities that are not utilized as a result of the
loss of such customers. CSW raised concerns about the FERC's
proposed methodology for addressing stranded investment because it
did not, in CSW's view, provide for the fair recovery of the full
amount previously invested. Second, CSW proposed that the FERC adopt
a "power flow pricing" approach whereby all electric systems that
incur costs because of a transmission transaction are compensated, as
opposed to the traditional "postage stamp" method whereby only the
companies that are directly involved in the actual purchase and sale
of the electricity are compensated or charged.
On February 9, 1996, PSO filed at the FERC complete sets of open
access transmission tariffs for the Southwest Power Pool. These
tariffs substantially reflect the pro forma tariffs attached to the
FERC's March 29, 1995 NOPR. Open access and market pricing should
increase marketing opportunities for PSO, but may also expose it to
the risk of loss of load or reduced revenues due to competition with
alternate suppliers.
Increasing competition in the utility industry brings an
increased need to stabilize or reduce rates. The retail regulatory
environment is beginning to shift from traditional rate base
regulation to incentive regulation. Incentive rate and performance-
based plans encourage efficiencies and increased productivity while
permitting utilities to share in the results. Retail wheeling, a
major industry issue which may require utilities to "wheel" or move
power from third parties to their own retail customers, is evolving
gradually. Many states throughout the country currently have
legislation introduced to investigate the issue. In Oklahoma, a
legislative task force is examining state laws affecting retail
electric companies. Issues being addressed include retail wheeling,
territorial boundaries, taxes and condemnations.
PSO believes that retail competition would harm the best
interests of PSO's customers and security holders unless PSO
receives fair recovery of the full amounts previously invested to
finance power plants. These investments, which were reasonably
incurred, were made by PSO to meet its obligation to serve the
public interest, necessity and convenience. This obligation has
existed for nearly a century and remains in force under current law.
PSO intends to strongly oppose attempts to impose retail competition
without just compensation for the risks and investments PSO
undertook to serve the public's demand for electricity.
PSO is unable to predict the ultimate outcome or impact of
competitive forces on the electric utility industry or on PSO. As
the wholesale and retail electricity markets become more
competitive, however, the principal factor determining success is
likely to be price, and to a lesser extent, reliability,
availability of capacity, and customer service.
Regulatory Accounting
Consistent with industry practice and the provisions of SFAS
No. 71, which allows for the recognition and recovery of regulatory
assets, PSO has recognized significant regulatory assets and
liabilities. Management believes that PSO will continue to meet the
PSO
<PAGE> 2-100
criteria for following SFAS No. 71. However, in the event PSO no
longer meets the criteria for following SFAS No. 71, a write-off of
regulatory assets and liabilities would be required. For additional
information regarding SFAS No. 71 reference is made to NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
ENVIRONMENTAL MATTERS
The operations of PSO, like those of other utility systems,
generally involve the use and disposal of substances subject to
environmental laws. CERCLA, the federal "Superfund" law, addresses
the cleanup of sites contaminated by hazardous substances.
Superfund requires that PRPs fund remedial actions regardless of
fault or the legality of past disposal activities. PRPs include
owners and operators of contaminated sites and transporters and/or
generators of hazardous substances. Many states have similar laws.
Legally, any one PRP can be held responsible for the entire cost of
a cleanup. Usually, however, cleanup costs are allocated among
PRPs.
PSO is subject to various pending claims alleging that it is a
PRP under federal or state remedial laws for investigating and
cleaning up contaminated property. PSO anticipates that resolution
of these claims, individually or in the aggregate, will not have a
material adverse effect on PSO's results of operations or financial
condition. Although the reasons for this expectation differ from
site to site, factors that are the basis for the expectation for
specific sites include the volume and/or type of waste allegedly
contributed by PSO, the estimated amount of costs allocated to PSO
and the participation of other parties. See ITEM 1-BUSINESS and
NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for additional
discussion regarding environmental matters.
NEW ACCOUNTING STANDARDS
SFAS No. 121
In March 1995, the FASB issued SFAS No. 121 to be effective for
financial statements for fiscal years beginning after December 15,
1995. The statement establishes a two-fold test for identification
and quantification of an impaired asset. The first test in
determining an impairment is to compare the sum of expected future
cash flows (undiscounted and without interest charges) related to an
asset to the carrying amount of the asset. If the sum of expected
cash flows is not sufficient to recover the carrying value of the
asset, then an impairment is recognized. Once an impairment is
identified, the second part of the test is applied to quantify the
amount of the impairment. The statement lists several alternative
methods of establishing fair market value and quantifying the
impairment. Cash flows used to measure possible impairment of an
asset are grouped at the lowest level for which there are
identifiable cash flows that are largely independent of the cash
flows of other groups of assets. For PSO, the lowest independently
identifiable cash flow level used for this analysis is
jurisdictional rates charged to customers.
PSO will adopt SFAS No. 121 in the first quarter of 1996.
Under the current regulatory environment, PSO does not expect the
adoption of SFAS No. 121 to have a significant impact on PSO's
consolidated results of operations or financial condition. However,
future developments in the electric industry and utility regulation
could jeopardize the full recovery of the carrying cost of certain
investments. Consequently, PSO is monitoring the changing
conditions facing the electric utility industry.
SFAS No. 123
SFAS No. 123 was issued in October 1995 with an effective date
for transactions entered into after December 15, 1995. This
statement requires the use of an option pricing model to calculate
the value of stock-based compensation transactions where such value
cannot otherwise be determined, but then allows for two alternative
PSO
<PAGE> 2-101
methods of reporting the transactions. One method recognizes this
value as a cost of compensation and as an expense for the current
period. The alternative method permits footnote disclosure of the
compensation cost, without charging the amount against current
earnings.
As provided by the provisions of SFAS No. 123, PSO will
continue to apply the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of SFAS
No. 123 in 1996. Accordingly, the adoption of SFAS No. 123 will not
impact PSO's consolidated results of operations or financial
condition.
RESULTS OF OPERATIONS
Electric Operating Revenues
Electric operating revenues decreased 7% to $690.8 million
during 1995 from $740.5 million during 1994. The decrease in 1995
was due primarily to decreased fuel recovery and a decrease in
weather-related retail customer demand partially offset by customer
growth.
Electric operating revenues for 1994 increased 5% to $740.5
million from $707.5 million during 1993. The increase in 1994
reflected an increase of approximately 8% in KWH sales resulting
from increased sales for resale to other electric utilities due to
increased marketplace demand, partially offset by lower unit fuel
costs as described below. Additionally, 1994 was affected by
increased fuel revenue as discussed below.
Fuel
Fuel expense was $273.5 million during 1995, which represented
a 14% decrease compared to $316.5 million during 1994. The decrease
was primarily attributable to a reduction in the over-recovery of
fuel costs, as well as a reduction in average fuel costs from $1.96
per Mmbtu in 1994 to $1.73 per Mmbtu in 1995. The decrease in
average unit fuel costs was attributable to the settlement of
certain coal transportation litigation and a reduction in the spot
market price of natural gas. The decrease was partially offset by a
3% increase in KWH generation.
Fuel expense for 1994 increased approximately 6% to $316.5
million in 1994 from $298.9 million in 1993. Fuel expense for 1994
increased primarily as a result of the termination of the FUSER
Program effective October 1993. See ITEM 1-BUSINESS for additional
information relating to the FUSER program. In 1994, fuel expense
was also affected by a 17% increase in KWH generation and an over-
recovery of fuel costs from customers, which was previously recorded
as deferred fuel, offset in part by a reduction in average unit fuel
costs. The average unit fuel cost for 1994 was $1.96 per Mmbtu, a
decrease of approximately 18% from 1993 levels. The decrease in per
unit fuel cost reflects the reversal of prior years accruals for
potential liabilities related to coal transportation, as well as
lower costs for natural gas and coal.
Purchased Power
Purchased power expenses decreased approximately 32% to $23.6
million for 1995 from $34.9 million in 1994. Purchased power
expenses for 1994 increased approximately $2.2 million or 7% when
compared to 1993. Both 1995 and 1994 were impacted by the 1994
increases in purchases of economy energy.
Other Operating Expenses
Other operating expenses decreased 3% to $116.7 million during
1995 from $120.2 million during 1994. The decrease was due
primarily to a net decrease in customer related expenses, decreased
distribution meter expenses and the realization of savings from cost
containment efforts. The decreases were offset in part by increases
in employee related costs and additional transmission expenses
associated with the completion and placement in service of a new
HVdc tie in 1995.
PSO
<PAGE> 2-102
Other operating expenses in 1994 were $120.2 million, a
decrease of 5% when compared to other operating expenses of $127.1
million in 1993. The decrease was due to the 1993 write-off of
approximately $5 million of certain lignite properties and accrued
mine reclamation expenses of approximately $3 million.
Restructuring Charges
Restructuring charges reflect the original accrual of $25
million in 1993 which was subsequently reduced by $0.2 million and
$0.5 million in 1994 and 1995, respectively, resulting in total
restructuring costs of $24.3 million.
Maintenance
Maintenance expenses in 1995 decreased 21% to $35.4 million
from $44.9 million in 1994 as a result of the 1994 write-off of
certain deferred expenses associated with the Tulsa Power Station.
Also contributing to the decrease was the realization of savings
from cost containment efforts.
Depreciation and Amortization
Depreciation and amortization expense increased $4.6 million
and $4.0 million in 1995 and 1994, respectively, when compared to
the prior years due primarily to increases in depreciable property.
Income Taxes
Income tax expense in 1995 was affected by higher pre-tax
income, offset by prior year tax adjustments. Income tax expense
increased approximately $15.2 million or 69% in 1994 as compared
to 1993 primarily as a result of increased pre-tax income.
Other Income and Deductions
Other income and deductions increased $1.3 million for 1995
when compared to 1994 primarily as a result of a $2.7 million gain
on the sale of non-utility fiber optic telecommunication property,
offset in part by an adjustment to reallocate parent company tax
benefits.
Interest Charges
Interest on short-term debt and other for 1995 increased 65% to
$6.4 million from $3.8 million in 1994. The increase was due
primarily to higher levels of short-term debt outstanding at higher
interest rates. Interest on long-term debt for 1994 decreased
approximately $1.8 million or 6% as a result of the refinancing in
1993 of higher cost debt. This decrease was offset in part by
increases in short-term borrowings.
Cumulative Effect of Changes in Accounting Principles
PSO implemented a number of accounting changes in 1993. These
included the adoption of SFAS No. 112 and SFAS No. 109. PSO also
changed its method of accounting for unbilled revenues. These
accounting changes had a cumulative effect of increasing net income
approximately $6 million.
Inflation
Annual inflation rates, as measured by the national Consumer
Price Index, have averaged approximately 2.8% during the three years
ended December 31, 1995. PSO believes that inflation, at this
level, does not materially affect its consolidated results of
operations or financial condition. However, under existing
regulatory practice, only the historical cost of plant is
recoverable from customers. As a result, cash flows designed to
provide recovery of historical plant costs may not be adequate to
replace plant in future years.
PSO
<PAGE> 2-103
PSO
Consolidated Statements of Income
Public Service Company of Oklahoma
For the Years Ended December 31,
1995 1994 1993
(thousands)
Electric Operating Revenues
Residential $280,127 $296,159 $296,027
Commercial 210,875 227,488 222,598
Industrial 147,811 165,200 149,762
Sales for resale 34,273 35,458 18,248
Other 17,737 16,191 20,901
690,823 740,496 707,536
Operating Expenses and Taxes
Fuel 273,533 316,470 298,905
Purchased power 23,584 34,906 32,711
Other operating 116,663 120,221 127,072
Restructuring charges (488) (197) 24,995
Maintenance 35,356 44,847 45,777
Depreciation and amortization 67,657 63,096 59,133
Taxes, other than income 25,147 25,757 24,820
Income taxes 37,602 37,138 21,967
579,054 642,238 635,380
Operating Income 111,769 98,258 72,156
Other Income and Deductions
Allowance for equity funds
used during construction 1,270 1,094 1,096
Other 2,274 933 531
3,544 2,027 1,627
Income Before Interest Charges 115,313 100,285 73,783
Interest Charges
Interest on long-term debt 29,594 29,594 31,410
Interest on short-term debt
and other 6,355 3,844 2,729
Allowance for borrowed funds
used during construction (2,464) (1,419) (852)
33,485 32,019 33,287
Income Before Cumulative Effect of
Changes in Accounting Principles 81,828 68,266 40,496
Cumulative Effect of Changes in
Accouting Principles -- -- 6,223
Net Income 81,828 68,266 46,719
Preferred stock dividends 816 816 816
Net Income for Common Stock $81,012 $67,450 $45,903
The accompanying notes to consolidated financial statements are
an integral part of these statements.
PSO
<PAGE> 2-104
PSO
Consolidated Statements of Retained Earnings
Public Service Company of Oklahoma
For the Years Ended December 31,
1995 1994 1993
(thousands)
Retained Earnings at Beginning of Year $124,269 $97,819 $91,916
Net income for common stock 81,012 67,450 45,903
Deduct: Common stock dividends 55,000 41,000 40,000
Retained Earnings at End of Year $150,281 $124,269 $97,819
The accompanying notes to consolidated financial statements are
an integral part of these statements.
PSO
<PAGE> 2-105
PSO
Consolidated Balance Sheets
Public Service Company of Oklahoma
As of December 31,
1995 1994
(thousands)
ASSETS
Electric Utility Plant
Production $939,106 $902,602
Transmission 363,692 346,433
Distribution 712,483 668,346
General 182,705 150,898
Construction work in progress 56,576 96,133
2,254,562 2,164,412
Less - Accumulated depreciation 924,186 859,894
1,330,376 1,304,518
Current Assets
Cash 744 5,453
Accounts receivable 17,957 21,531
Materials and supplies, at average cost 41,179 39,888
Fuel inventory, at LIFO cost 15,765 17,820
Accumulated deferred income taxes 10,389 6,670
Prepayments 2,450 7,889
88,484 99,251
Deferred Charges and Other Assets 61,956 61,345
$1,480,816 $1,465,114
The accompanying notes to consolidated financial statements
are an integral part of these statements.
PSO
<PAGE> 2-106
PSO
Consolidated Balance Sheets
Public Service Company of Oklahoma
As of December 31,
1995 1994
CAPITALIZATION AND LIABILITIES (thousands)
Capitalization
Common stock: $15 par value
Authorized shares: 11,000,000 shares
Issued 10,482,000 shares and outstanding
9,013,000 shares $157,230 $157,230
Paid-in capital 180,000 180,000
Retained earnings 150,281 124,269
Total Common Stock Equity 487,511 461,499
Preferred stock 19,826 19,826
Long-term debt 379,250 402,752
Total Capitalization 886,587 884,077
Current Liabilities
Long-term debt due within 12 months 25,000 --
Advances from affiliates 70,510 55,160
Payables to affiliates 40,463 44,367
Accounts payable 23,094 59,899
Payables to customers 32,517 22,655
Accrued taxes 27,014 17,356
Accrued interest 9,025 8,867
Other 8,589 15,157
236,212 223,461
Deferred Credits
Accumulated deferred income taxes 264,353 281,139
Investment tax credits 46,222 49,011
Income tax related regulatory liabilities, net 41,820 18,611
Other 5,622 8,815
358,017 357,576
$1,480,816 $1,465,114
The accompanying notes to consolidated financial statements
are an integral part of these statements.
PSO
<PAGE> 2-107
PSO
Consolidated Statements of Cash Flows
Public Service Company of Oklahoma
For the Years Ended December 31,
1995 1994 1993
(thousands)
OPERATING ACTIVITIES
Net Income $81,828 $68,266 $46,719
Non-cash Items Included in Net Income
Depreciation and amortization 73,218 67,452 65,242
Restructuring charges (400) (197) 24,995
Deferred income taxes and investment
tax credits (85) 4,990 6,700
Allowance for equity funds used during
construction (1,270) (1,094) (1,096)
Cumulative effect of changes in
accounting principles -- -- (6,223)
Changes in Assets and Liabilities
Accounts receivable 3,574 15,081 (17,299)
Material and supplies (1,291) 1,777 2,872
Accounts payable (22,970) 26,894 (2,963)
Accrued taxes 9,658 2,165 4,240
Accrued restructuring charges (646) (15,626) --
Other deferred credits (3,193) (17,153) 9,583
Other 5,465 (754) 1,322
143,888 151,801 134,092
INVESTING ACTIVITIES
Construction expenditures (98,415) (128,625) (92,648)
Allowance for borrowed funds used during
construction (2,464) (1,419) (852)
Other (7,251) (335) (6,125)
(108,130) (130,379) (99,625)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- -- 181,194
Retirement of long-term debt -- -- (10,000)
Reacquisition of long-term debt -- -- (189,685)
Change in advances from affiliates 15,350 23,416 26,454
Payment of dividends (55,817) (41,814) (40,816)
(40,467) (18,398) (32,853)
Net Change in Cash and Cash Equivalents (4,709) 3,024 1,614
Cash and Cash Equivalents at Beginning of Year 5,453 2,429 815
Cash and Cash Equivalents at End of Year $744 $5,453 $2,429
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $31,285 $31,459 $34,844
Income taxes paid $27,651 $28,910 $ 9,232
The accompanying notes to consolidated financial statements
are an integral part of these statements.
PSO
<PAGE> 2-108
PSO
Consolidated Statements of Capitalization
Public Service Company of Oklahoma
As of December 31,
1995 1994
(thousands)
COMMON STOCK EQUITY $487,511 $461,499
PREFERRED STOCK
(Cumulative $100 Par Value, Authorized 700,000
shares, redeemable at the option of PSO
upon 30 days notice)
Number Current
of Shares Redemption
Series Outstanding Price
4.00% 97,900 $105.75 9,790 9,790
4.20% 100,000 $103.19 10,000 10,000
Premium 36 36
19,826 19,826
LONG-TERM DEBT
First Mortgage Bonds
Series J, 5 1/4%, due March 1, 1996 25,000 25,000
Series K, 7 1/4%, due January 1, 1999 25,000 25,000
Series L, 7 3/8%, due March 1, 2002 30,000 30,000
Series S, 7 1/4%, due July 1, 2003 65,000 65,000
Series T, 7 3/8%, due December 1, 2004 50,000 50,000
Series U, 6 1/4%, due April 1, 2003 35,000 35,000
Series V, 7 3/8%, due April 1, 2023 100,000 100,000
Series W, 6 1/2%, due June 1, 2005 50,000 50,000
Installment sales agreement - PCRBs
Series A, 5.9%, due December 1, 2007 (OEFA) 34,700 34,700
Series 1984, 7 7/8%, due September 15, 2014 (Red
River) 12,660 12,660
Unamortized discount (4,415) (4,756)
Unamortized costs of reacquired debt (18,695) (19,852)
Amount to be redeemed within one year (25,000) --
379,250 402,752
TOTAL CAPITALIZATION $886,587 $884,077
The accompanying notes to consolidated financial statements
are an integral part of these statements.
PSO
<PAGE> 2-109
PUBLIC SERVICE COMPANY OF OKLAHOMA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See CSW's NOTE 1 on pages 2-32 to 2-37.
2.LITIGATION AND REGULATORY PROCEEDINGS
PSO Gas Transportation and Fuel Management Fees
An order issued by the Oklahoma Commission in 1991 required
that the level of gas transportation and fuel management fees,
paid to Transok by PSO, permitted for recovery through the fuel
adjustment clause be reviewed in PSO's 1993 rate proceeding. This
portion of the 1993 rate review was subsequently bifurcated. In
March 1995, an order was issued by the Oklahoma Commission
approving an agreement which allows PSO to recover approximately
$28.4 million of transportation and fuel management fees in base
rates using 1991 determinants and approximately $1 million through
the fuel adjustment clause. The agreement also requires the phase-
in of competitive bidding of natural gas transportation
requirements in excess of 165 MMcf/d.
PSO Gas Purchase Contracts
PSO has been named defendant in complaints filed in federal
and state courts of Oklahoma and Texas in 1984 through 1995 by gas
suppliers alleging claims arising out of certain gas purchase
contracts. The plaintiffs seek relief through the filing dates as
well as attorneys' fees. In January 1996, complaints representing
approximately $10 million in claims were settled. Remaining
complaints currently total approximately $1 million in claimed
actual damages. The settlements did not have a material effect on
PSO's consolidated results of operations or financial condition.
The remaining suits are in the preliminary stages. Management
cannot predict the outcome of these proceedings. However,
management believes that PSO has defenses to the remaining
complaints and intends to defend the suits vigorously. Management
also believes that the ultimate resolution of the remaining
complaints will not have a material adverse effect on PSO's
consolidated results of operations or financial condition.
PSO PCB Cases
PSO has been named a defendant in complaints filed in
federal and state courts of Oklahoma in 1984, 1985, 1986, 1993 and
1996. The complaints allege, among other things, that some of the
plaintiffs and the property of other plaintiffs were contaminated
with PCBs and other toxic by-products following certain incidents,
including transformer malfunctions, in April 1982, December 1983
and May 1984. To date, all complaints, except for claims
representing approximately $13 million in alleged damages and
claims filed in February 1996 for additional unspecified actual
and punitive damages, have been dismissed, certain of which
resulted from settlements among the parties. Management believes
that PSO has defenses to the remaining complaints and intends to
defend the suits vigorously. Moreover, management believes that
the remaining claims are covered under insurance. Management also
believes that the ultimate resolution of the remaining complaints
will not have a material adverse effect on PSO's consolidated
results of operations or financial condition.
PSO Burlington Northern Transportation Contract
In June 1992, PSO filed suit in the United States District
Court for the Northern District of Oklahoma against Burlington
Northern seeking declaratory relief under a long-term contract for
the transportation of coal. In July 1992, Burlington Northern
asserted counterclaims for unspecified damages against PSO
alleging that PSO breached the contract. In December 1993, PSO
PSO
<PAGE> 2-110
amended its suit against Burlington Northern seeking damages and
declaratory relief under federal and state antitrust laws. In
December 1995, PSO and Burlington Northern reached a compromise
settlement of all outstanding claims and counterclaims, and the
action was dismissed with prejudice. The settlement did not have
a material adverse effect on PSO's consolidated results of
operations or financial condition.
PSO Burlington Northern Arbitration
In May 1994, in an arbitration related to the Burlington
Northern coal transportation contract described above, an
arbitration panel made an award in favor of PSO concerning basic
transportation rates under the coal transportation contract and
concerning the contract mechanism for adjustment for future
transportation rates. This arbitration award was then the subject
of litigation in the United States District Courts for the
Northern Districts of Oklahoma and Texas and the United States
Court of Appeals for the Tenth Circuit. In December 1995, this
litigation was settled as part of the compromise settlement of the
related lawsuit described above. Under the settlement, a $16.4
million judgment by the U.S. District Court for the Northern
District of Oklahoma confirming the arbitration award became final
and was then released and satisfied of record.
PSO Ash Creek Coal Mine Reclamation
In August 1994, PSO received approval from the Wyoming
Department of Environmental Quality to begin reclamation of a coal
mine in Sheridan, Wyoming, owned by Ash Creek, a wholly owned
subsidiary of PSO. Ash Creek recorded a $3 million liability in
1993 for the estimated reclamation costs and subsequently accrued
an additional $500,000 in 1995. Actual reclamation work commenced
in September 1995, with completion expected in late 1996.
Surveillance monitoring will continue for ten years after final
reclamation. Management believes that ultimate resolution of this
matter will not have a material adverse effect on PSO's
consolidated results of operations or financial condition.
PSO MCPC
In 1989, PSO entered into certain long-term contracts with
MCPC, a cogeneration development company located in northeastern
Oklahoma. These contracts include: (i) an Interconnection and
Interchange Agreement providing terms and conditions under which
MCPC could connect its electric generating facilities to PSO's
transmission system and providing for future transmission by PSO
of specified amounts of MCPC's power to an unaffiliated utility;
(ii) a Stock/Asset Purchase Agreement which allows PSO under
certain conditions to acquire the stock or assets of MCPC; and
(iii) an Energy Conversion Agreement which required PSO to deliver
natural gas to MCPC for conversion to electrical energy to be
delivered by MCPC to PSO. Under the Energy Conversion Agreement,
PSO had the right to dispatch up to 60 MWH per hour of quick-start
capability.
In 1993, MCPC filed an application with the Oklahoma
Commission requesting relief through the modification of the
existing Energy Conversion Agreement. An emergency order was
issued under MCPC's application which increased the payment made
by PSO to MCPC for energy purchases and decreased the amount of
firm energy MCPC was required to deliver to PSO. The emergency
order was subject to a permanent ruling.
In July 1993, PSO commenced a lawsuit in the District Court
of Tulsa County, Oklahoma, seeking a declaratory judgment that PSO
was entitled to terminate the Energy Conversion Agreement as of
August 1, 1993, because of a default committed by MCPC. On March
31, 1995, PSO, MCPC and the Oklahoma Commission Staff signed a
joint settlement resolving all issues pursuant to the various
proceedings before the Oklahoma Commission and the District Court
of Tulsa County, Oklahoma. The settlement, among other things,
eliminated a requirement that MCPC deliver an annual minimum of
394,200 MWH of Assured Delivery Energy and related provisions
associated with underdelivery charges. Most other provisions of
the agreement between PSO and MCPC were kept intact. The Oklahoma
Commission issued an order in May 1995 approving the settlement.
The settlement is on terms satisfactory to PSO and will not have a
PSO
<PAGE> 2-111
material adverse effect on PSO's consolidated results of
operations or financial condition.
Other
PSO is party to various other legal claims, actions and
complaints arising in the normal course of business. Management
does not expect disposition of these matters to have a material
adverse effect on PSO's consolidated results of operations or
financial condition.
3.COMMITMENTS AND CONTINGENT LIABILITIES
It is estimated that PSO will spend approximately $68
million, including AFUDC, in capital expenditures during 1996.
Substantial commitments have been made in connection with the 1996
construction program.
To supply the fuel requirements of its
generating plants, PSO has entered into various commitments for
the procurement of fuel.
4.INCOME TAXES
See CSW's NOTE 4.
5.BENEFIT PLANS
See CSW's NOTE 5.
6.JOINTLY OWNED ELECTRIC UTILITY PLANT
See CSW's NOTE 6.
7.FINANCIAL INSTRUMENTS
See CSW's NOTE 7.
8.LONG-TERM DEBT
See CSW's NOTE 8.
9.PREFERRED STOCK
See CSW's NOTE 9.
10.SHORT-TERM FINANCING
See CSW's NOTE 10.
11.QUARTERLY INFORMATION
See CSW's NOTE 14 on pages 2-64 and 2-65.
CSW's NOTE 4 through NOTE 10 are found on pages 2-48 through 2-60.
PSO
<PAGE> 2-112
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Public Service Company
of Oklahoma:
We have audited the accompanying consolidated balance sheets
and consolidated statements of capitalization of Public Service
Company of Oklahoma (an Oklahoma corporation and a wholly owned
subsidiary of Central and South West Corporation) and subsidiary
company, as of December 31, 1995 and 1994, and the related
consolidated statements of income, retained earnings and cash flows,
for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of PSO's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Public Service Company of Oklahoma and subsidiary company as of
December 31, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
In 1993, as discussed in NOTE 1, PSO changed its methods of
accounting for unbilled revenues, postretirement benefits other than
pensions, income taxes and postemployment benefits.
Our audits were made for the purpose of forming an opinion on
the financial statements taken as a whole. The supplemental
Schedule II and Exhibit 12 are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. This schedule and exhibit have
been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Dallas, Texas
February 28, 1996
PSO
<PAGE> 2-113
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and
objectivity of the consolidated financial statements of Public
Service Company of Oklahoma and its subsidiary company as well as
other information contained in this Annual Report. The consolidated
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis and, in
some cases, reflect amounts based on the best estimates and
judgments of management, giving due consideration to materiality.
Financial information contained elsewhere in this Annual Report is
consistent with that in the consolidated financial statements.
The consolidated financial statements have been audited by the
independent accounting firm, Arthur Andersen LLP, which was given
unrestricted access to all financial records and related data,
including minutes of all meetings of shareholders, the board of
directors and committees of the board. PSO and its subsidiary
believe that representations made to the independent auditors during
their audit were valid and appropriate. Arthur Andersen LLP's audit
report is presented elsewhere in this report.
PSO, together with its subsidiary company, maintains a system
of internal controls to provide reasonable assurance that
transactions are executed in accordance with management's
authorization, that the consolidated financial statements are
prepared in accordance with generally accepted accounting principles
and that the assets of the companies are properly safeguarded
against unauthorized acquisition, use or disposition. The system
includes a documented organizational structure and division of
responsibility, established policies and procedures including a
policy on ethical standards which provides that PSO will maintain
the highest legal and ethical standards, and the careful selection,
training and development of our employees.
Internal auditors continuously monitor the effectiveness of the
internal control system following standards established by the
Institute of Internal Auditors. Actions are taken by management to
respond to deficiencies as they are identified. The board,
operating through its audit committee, which is comprised entirely
of directors who are not officers or employees of PSO or its
subsidiary, provides oversight to the financial reporting process.
Due to the inherent limitations in the effectiveness of
internal controls, no internal control system can provide absolute
assurance that errors will not occur. However, management strives
to maintain a balance, recognizing that the cost of such a system
should not exceed the benefits derived.
PSO and its subsidiary believe that, in all material respects,
its system of internal controls over financial reporting and over
safeguarding of assets against unauthorized acquisition, use or
disposition functioned effectively as of December 31, 1995.
Robert L. Zemanek R. Russell Davis
President and CEO - PSO Controller - PSO
PSO
<PAGE> 2-114
SOUTHWESTERN ELECTRIC
POWER COMPANY
SWEPCO
<PAGE> 2-115
SELECTED FINANCIAL DATA
The following selected financial data for each of the five
years ended December 31 is provided to highlight significant trends
in the financial condition and results of operations for SWEPCO.
Certain financial statement items for prior years have been
reclassified to conform to the most recent period presented.
1995 1994 1993 (1) 1992 1991
(in thousands, except ratio data)
INCOME STATEMENT DATA
Revenues $836,705 $825,296 $837,192 $778,303 $760,694
Operating expenses and
taxes 673,929 679,374 719,135 632,576 617,377
Operating income 162,776 145,922 118,057 145,727 143,317
Other income and
deductions 4,468 8,235 5,218 669 4,433
Interest charges 50,130 48,445 44,804 51,513 51,126
Net Income 117,114 105,712 81,876 94,883 96,624
Net Income for common
stock 113,870 102,351 78,514 91,438 93,159
BALANCE SHEET DATA
Assets 2,116,719 2,079,207 1,968,285 1,927,320 1,851,108
Common stock equity 682,994 678,122 645,731 647,217 645,780
Preferred stock
Not subject to
mandatory redemption 16,032 16,032 16,032 16,032 16,033
Subject to
mandatory redemption 33,628 34,828 36,028 37,228 38,416
Long-term debt 598,951 595,833 602,065 532,860 573,626
Current liabilities (2) 287,155 251,457 191,488 205,646 90,436
Capitalization ratios
Common stock equity 51.3% 51.2% 49.7% 52.5% 50.7%
Preferred stock 3.7 3.8 4.0 4.3 4.3
Long-term debt 45.0 45.0 46.3 43.2 45.0
Ratio of earnings to
fixed charges (SEC
Method) before
cumulative effect of
changes in accounting
principles 3.80 3.70 3.27 3.39 3.51
(1) Earnings in 1993 were significantly affected by restructuring
charges, the $3 million cumulative effect of changes in accounting
principles and the establishment of reserves for fuel properties.
Pro forma amounts, assuming that the change in accounting for
unbilled revenues had been adopted retroactively, are not
materially different from amounts reported for prior years and
therefore have not been restated.
(2) Includes net unbilled factored accounts receivable in 1994
and 1995.
SWEPCO
<PAGE> 2-116
SOUTHWESTERN ELECTRIC POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to SWEPCO's Financial Statements and related
Notes to Financial Statements and Selected Financial Data. The
information contained therein should be read in conjunction with, and
is essential in understanding, the following discussion and analysis.
OVERVIEW
Net income for common stock increased 11% during 1995 to
approximately $113.9 million from approximately $102.4 million in
1994 due primarily to an increase in non-fuel revenue. The increase
in non-fuel revenue was attributable to a 4% increase in KWH sales
from weather-related demand and customer growth.
Net income for common stock increased 30% during 1994 to
approximately $102.4 million from approximately $78.5 million in
1993, due primarily to the effects of restructuring costs recorded
during 1993.
RESTRUCTURING
During 1993, CSW announced a restructuring under which the CSW
System restructured the Electric Operating Companies (including
SWEPCO) under a new business unit called CSW Electric and
centralized many common service functions into CSW Services in order
to reduce costs and improve efficiency and productivity. The
restructuring included restaffing positions throughout the CSW
System and a reduction in the workforce by more than 7% system-wide.
SWEPCO's restructuring costs were initially estimated to be $25
million and were expensed in 1993. The actual costs of the
restructuring, approximately $20 million, were incurred primarily
during 1994. SWEPCO is realizing a number of benefits from the
restructuring, including increased efficiencies and synergies
through the elimination of previously duplicated functions. This
leads to enhanced communication and efficiency, which SWEPCO
believes should translate into a reduction in the rate of growth in
operating and maintenance costs.
LIQUIDITY AND CAPITAL RESOURCES
Overview
SWEPCO's need for capital results primarily from its
construction of facilities to provide reliable electric service to
its customers. Accordingly, internally generated funds should meet
most of the capital requirements. However, if internally generated
funds are not sufficient, SWEPCO's financial condition should allow
it access to the capital markets.
Construction Expenditures
SWEPCO maintains a continuing construction program, the nature
and extent of which is based upon current and estimated future
demands upon the system. Planned construction expenditures for
SWEPCO for the next three years are primarily to improve and expand
distribution facilities and will be funded primarily through
internally generated funds. These improvements will be required to
meet the anticipated needs of new customers and the growth in the
requirements of existing customers. Construction expenditures,
including AFUDC, for SWEPCO were approximately $115 million in 1995,
$153 million in 1994 and $176 million in 1993. Included in the 1993
construction expenditures is approximately $35 million in capital
expenditures that were incurred for the acquisition of BREMCO, a
SWEPCO
<PAGE> 2-117
rural electric cooperative with service territory adjacent to
SWEPCO's service territory in Louisiana. SWEPCO's estimated total
construction expenditures, including AFUDC, for the years 1996
through 1998 are presented in the following table.
CONSTRUCTION EXPENDITURES
1996 1997 1998 Total
(millions)
Generation $9 $10 $12 $31
Transmission 18 21 31 70
Distribution 46 45 44 135
Other 25 21 18 64
$98 $97 $105 $300
The foregoing consists of forward looking information and,
accordingly, actual results may differ materially from such
projected information due to changes in the underlying assumptions.
Such assumptions are based on numerous factors, including factors
such as the rate of load growth, escalation of construction costs,
changes in lead times in manufacturing, inflation, the availability
and pricing of alternatives to construction, environmental and other
regulation, delays from regulatory hearings, adequacy of rate relief
and the availability of necessary external capital. Changes in
those and other factors could cause SWEPCO to defer or accelerate
construction or to sell or buy more power, which would affect its
cash position, revenues and income to an extent that cannot now be
reliably predicted.
Although SWEPCO does not believe that it will require
substantial additions of generating capacity through the end of the
decade, the CSW System's internal resource plan presently
anticipates that any additional capacity needs will come from a
variety of sources including projected coal- and lignite-fired
generating plants for which SWEPCO has invested approximately $34
million in prior years for plant sites, engineering studies and
lignite reserves. Should future plans exclude these plants for
environmental, economical or other reasons, SWEPCO would evaluate
the probability of recovery of these investments and may record
appropriate reserves.
Long-Term Financing
As of December 31, 1995, the capitalization ratios of SWEPCO
were 51% common stock equity, 4% preferred stock and 45% long-term
debt. SWEPCO's embedded cost of long-term debt was 7.5% at December
31, 1995. SWEPCO continually monitors the capital markets for
opportunities to lower its cost of capital through refinancing.
SWEPCO is committed to maintaining financial flexibility through a
strong capital structure and favorable securities ratings in order to
access the capital markets opportunistically or when required.
Short-Term Financing
SWEPCO, together with other members of CSW System, has
established a CSW System money pool to coordinate short-term
borrowings. These loans are unsecured demand obligations at rates
approximating the CSW System's commercial paper borrowing costs. At
December 31, 1995 SWEPCO's short-term borrowing limit from the money
pool was approximately $133 million. During 1995, the annual
weighted average interest rate on SWEPCO's borrowings was 6.0% and
the average amount of SWEPCO short-term borrowings outstanding was
$79 million. The maximum amount of SWEPCO short-term borrowings
outstanding during 1995 was $115 million, which was the amount
outstanding at February 7, 1995.
Internally Generated Funds
Internally generated funds consist of cash flows from operating
activities less common and preferred stock dividends. SWEPCO
utilizes short-term debt to meet fluctuations in working capital
requirements due to the seasonal nature of energy sales. SWEPCO
anticipates that capital requirements for the period 1996 to 1998
SWEPCO
<PAGE> 2-118
will be met, in large part, from internal sources. SWEPCO also
anticipates that some external financing will be required during the
period, however the nature, timing and extent have not yet been
determined. Information concerning internally generated funds is
presented in the following table.
1995 1994 1993
($ in millions)
Internally Generated Funds $100 $105 $149
Construction Expenditures Provided
by Internally Generated Funds 96% 71% 85%
Sales of Accounts Receivable
SWEPCO sells its billed and unbilled accounts receivable,
without recourse, to CSW Credit. The sales provide SWEPCO with cash
immediately, thereby reducing working capital needs and revenue
requirements. The average and year end amounts of accounts
receivable sold were $84 million and $72 million, respectively, in
1995, as compared to $69 million and $62 million, respectively, in
1994.
RECENT DEVELOPMENTS AND TRENDS
Competition and Industry Challenges
Competitive forces at work in the electric utility industry are
impacting SWEPCO and electric utilities generally. Increased
competition facing electric utilities is driven by complex economic,
political and technological factors. These factors have resulted in
legislative and regulatory initiatives that are likely to result in
even greater competition at both the wholesale and retail level in
the future. As competition in the industry increases, SWEPCO will
have the opportunity to seek new customers and at the same time be at
risk of losing customers to other competitors. Additionally, SWEPCO
will continue to compete with suppliers of alternative forms of
energy, such as natural gas, fuel oil and coal, some of which may be
cheaper than electricity. SWEPCO believes that its prices for
electricity and the quality and reliability of its service currently
place it in a position to compete effectively in the marketplace.
The Energy Policy Act, which was enacted in 1992, significantly
alters the way in which electric utilities compete. The Energy
Policy Act creates exemptions from regulation under the Holding
Company Act and permits utilities, including registered utility
holding companies and non-utility companies, to form EWGs. EWGs are
a new category of non-utility wholesale power producers that are
free from most federal and state regulation, including the principal
restrictions of the Holding Company Act. These provisions enable
broader participation in wholesale power markets by reducing
regulatory hurdles to such participation. The Energy Policy Act
also allows the FERC, on a case-by-case basis and with certain
restrictions, to order wholesale transmission access and to order
electric utilities to enlarge their transmission systems. A FERC
order requiring a transmitting utility to provide wholesale
transmission service must include provisions generally that permit
the utility to recover from the FERC applicant all of the costs
incurred in connection with the transmission services and any
enlargement of the transmission system and associated services.
Wholesale energy markets, including the market for wholesale
electric power, have been extremely competitive since the enactment
of the Energy Policy Act. SWEPCO must compete in the wholesale
energy markets with other public utilities, cogenerators, qualified
facilities, exempt wholesale generators and others for sales of
electric power. While SWEPCO believes that the Energy Policy Act
will continue to make the wholesale markets more competitive, SWEPCO
is unable to predict the extent to which the Energy Policy Act will
impact SWEPCO operations.
On March 29, 1995, consistent with the direction of the Energy
Policy Act, the FERC announced in a NOPR that each public utility
that owns and controls transmission facilities in interstate commerce
SWEPCO
<PAGE> 2-119
must unbundle its services and file open access transmission tariffs
under which each utility will offer comparable open access
transmission services to its transmission customers. In addition,
the FERC revised its proposed mechanisms by which utilities will be
permitted to recover stranded investment costs expected to be brought
about by the proposed changes. On August 7, 1995, CSW filed comments
on the proposed approach in the NOPR with the FERC. Although CSW
supports the concept of comparable open access for the nation's
transmission service, CSW believes that certain changes must be made
in the FERC's proposed approach of implementing the open transmission
system. First, with respect to the issue of stranded investments,
the FERC proposed that customers who left the owner company pay for a
portion, but not all, of the costs incurred by the utility of
existing facilities that are not utilized as a result of the loss of
such customers. CSW raised concerns about the FERC's proposed
methodology for addressing stranded investment because it did not, in
CSW's view, provide for the fair recovery of the full amount
previously invested. Second, CSW proposed that the FERC adopt a
"power flow pricing" approach whereby all electric systems that incur
costs because of a transmission transaction are compensated, as
opposed to the traditional "postage stamp" method whereby only the
companies that are directly involved in the actual purchase and sale
of the electricity are compensated or charged.
On February 9, 1996, SWEPCO filed at the FERC complete sets of
open access transmission tariffs. These tariffs substantially
reflect the pro forma tariffs attached to the FERC's March 29, 1995
NOPR. Open access and market pricing should increase marketing
opportunities for SWEPCO, but may also expose it to the risk of loss
of load or reduced revenues due to competition with alternate
suppliers.
Increasing competition in the utility industry brings an
increased need to stabilize or reduce rates. The retail regulatory
environment is beginning to shift from traditional rate base
regulation to incentive regulation. Incentive rate and performance-
based plans encourage efficiencies and increased productivity while
permitting utilities to share in the results. Retail wheeling, a
major industry issue which may require utilities to "wheel" or move
power from third parties to their own retail customers, is evolving
gradually. Many states throughout the country currently have
legislation introduced to investigate the issue.
SWEPCO believes that retail competition would harm the best
interests of SWEPCO's customers and security holders unless SWEPCO
receives fair recovery of the full amounts previously invested to
finance power plants. These investments, which were reasonably
incurred, were made by SWEPCO to meet its obligation to serve the
public interest, necessity and convenience. This obligation has
existed for nearly a century and remains in force under current law.
SWEPCO intends to strongly oppose attempts to impose retail
competition without just compensation for the risks and investments
SWEPCO undertook to serve the public's demand for electricity.
SWEPCO is unable to predict the ultimate outcome or impact of
competitive forces on the electric utility industry or on SWEPCO. As
the wholesale and retail electricity markets become more competitive,
however, the principal factor determining success is likely to be
price, and to a lesser extent, reliability, availability of capacity,
and customer service.
Cajun Asset Purchase Proposal
On March 8, 1996, SWEPCO, together with GSU and the members
committee of Cajun (which represents 10 of the 12 Louisiana
distribution cooperatives that are served by Cajun), submitted to
Cajun's court appointed trustee in bankruptcy a joint proposal
pursuant to which SWEPCO would acquire all of Cajun's non-nuclear
assets, including a three-unit coal-fired plant and a two-unit
natural gas-fired plant, and would serve the member co-ops through
new wholesale power-supply agreements. In addition, the joint
proposal would, if accepted, resolve litigation between GSU and Cajun
related to the River Bend nuclear generating station, which currently
is owned 30% by Cajun and 70% by GSU. The joint proposal was
submitted in response to a formal bid procedure established by the
trustee. It is currently anticipated that the trustee will select a
lead proposal in early April, and file a plan of reorganization with
the bankruptcy court on or about April 22, 1996. The timing and
SWEPCO
<PAGE> 2-120
completion of any transaction would depend, among other things, upon
bankruptcy court approval of a reorganization plan and receipt by
SWEPCO and CSW of all requisite regulatory approvals. Cajun filed a
petition for reorganization under Chapter 11 of the United States
Bankruptcy Code on December 21, 1994 and is currently operating under
the supervision of the United States Bankruptcy Court for the Middle
District of Louisiana.
PURA
Amendments to PURA, the legal foundation of electric regulation
in Texas, became effective on September 1, 1995. Among other
things, the amendments permit pricing flexibility for utilities
facing competitive challenges, provide for a market-driven
integrated resource planning process and mandate comparable open
access transmission service. In addition, one effect of the
amendments is the deregulation of the wholesale bulk power market in
ERCOT. However, SWEPCO, as a member of the Southwest Power Pool
rather than ERCOT, will not be directly impacted by this.
Regulatory Accounting
Consistent with industry practice and the provisions of SFAS No.
71, which allows for the recognition and recovery of regulatory
assets, SWEPCO has recognized regulatory assets and liabilities.
Management believes that SWEPCO will continue to meet the criteria
for following SFAS No. 71. However, in the event that SWEPCO no
longer meets the criteria for following SFAS No. 71, a write-off of
regulatory assets and liabilities would be required. For additional
information regarding SFAS No. 71 reference is made to NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Consolidated Taxes
Prior to 1992, the Texas Commission allowed income taxes to be
recovered in rates based on the federal income tax incurred by a
utility as if it were a stand-alone company. This "stand-alone"
approach treated the regulated activities of a utility as a separate
entity and considered only those revenues and expenses that are
included in the utility's cost of service to calculate the federal
income tax liability for ratemaking purposes. However, in 1992 the
Texas Commission changed its method of calculating the federal income
tax component of rates to the "actual tax approach." This approach
reduces rates by the tax benefits of deductions which are not
considered for or included in setting rates for the utility.
On April 13, 1995, the Supreme Court issued a decision which
holds that the Texas Commission is not required to use the tax
benefits associated with the losses of unregulated affiliates to
reduce tax expense in cost of service. The Supreme Court also ruled
that the Texas Commission cannot include the income tax deductions
taken by the utility for disallowed expenses when determining the
utility's federal income tax liability.
ENVIRONMENTAL MATTERS
The operations of SWEPCO, like those of other utility systems,
generally involve the use and disposal of substances subject to
environmental laws. CERCLA, the federal "Superfund" law, addresses
the cleanup of sites contaminated by hazardous substances.
Superfund requires that PRPs fund remedial actions regardless of
fault or the legality of past disposal activities. PRPs include
owners and operators of contaminated sites and transporters and/or
generators of hazardous substances. Many states have similar laws.
Legally, any one PRP can be held responsible for the entire cost of
a cleanup. Usually, however, cleanup costs are allocated among
PRPs.
SWEPCO is subject to various pending claims alleging that it is
a PRP under federal or state remedial laws for investigating and
cleaning up contaminated property. SWEPCO anticipates that
resolution of these claims, individually or in the aggregate, will
not have a material adverse effect on SWEPCO's results of operations
SWEPCO
<PAGE> 2-121
or financial condition. Although the reasons for this expectation
differ from site to site, factors that are the basis for the
expectation for specific sites include the volume and/or type of
waste allegedly contributed by SWEPCO, the estimated amount of costs
allocated to SWEPCO and the participation of other parties. See
ITEM 1-BUSINESS and NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES
for additional discussion regarding environmental matters.
NEW ACCOUNTING STANDARDS
SFAS No. 121
In March 1995, the FASB issued SFAS No. 121 to be effective for
financial statements for fiscal years beginning after December 15,
1995. The statement establishes a two-fold test for identification
and quantification of an impaired asset. The first test in
determining an impairment is to compare the sum of expected future
cash flows (undiscounted and without interest charges) related to an
asset to the carrying amount of the asset. If the sum of expected
cash flows is not sufficient to recover the carrying value of the
asset, then an impairment is recognized. Once an impairment is
identified, the second part of the test is applied to quantify the
amount of the impairment. The statement lists several alternative
methods of establishing fair market value and quantifying the
impairment. Cash flows used to measure possible impairment of an
asset are grouped at the lowest level for which there are
identifiable cash flows that are largely independent of the cash
flows of other groups of assets. For SWEPCO, the lowest
independently identifiable cash flow level used for this analysis is
jurisdictional rates charged to customers.
SWEPCO will adopt SFAS No. 121 in the first quarter of 1996.
Under the current regulatory environment, SWEPCO does not expect the
adoption of SFAS No. 121 to have a significant impact on SWEPCO's
results of operations or financial condition. However, future
developments in the electric industry and utility regulation could
jeopardize the full recovery of the carrying cost of certain
investments. Consequently, SWEPCO is monitoring the changing
conditions facing the electric utility industry.
SFAS No. 123
SFAS No. 123 was issued in October 1995 with an effective date
for transactions entered into after December 15, 1995. This
statement requires the use of an option pricing model to calculate
the value of stock-based compensation transactions where such value
cannot otherwise be determined, but then allows for two alternative
methods of reporting the transactions. One method recognizes this
value as a cost of compensation and as an expense for the current
period. The alternative method permits footnote disclosure of the
compensation cost, without charging the amount against current
earnings.
As provided by the provisions of SFAS No. 123, SWEPCO will
continue to apply the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of SFAS
No. 123 in 1996. Accordingly, the adoption of SFAS No. 123 will not
impact SWEPCO's results of operations or financial condition.
RESULTS OF OPERATIONS
Electric Operating Revenues
Total electric operating revenues increased $11.4 million, or
1%, to $836.7 million during 1995 due primarily to a $28.3 million
increase in non-fuel revenues. The increase in non-fuel revenues was
attributable to a 4% increase in retail KWH sales resulting from
weather-related demand and customer growth. The increase in non-fuel
revenues was offset in part by a $14.8 million decrease in fuel
revenue due to lower average fuel costs as discussed below.
SWEPCO
<PAGE> 2-122
Total electric operating revenues decreased $11.9 million, or
1%, during 1994 due primarily to decreased fuel revenues partially
offset by a 3% increase in retail KWH sales due to customer growth
and a 15% increase in lower margin sales for resale.
Fuel
Fuel expense was $318.5 million in 1995, a decrease of 5% when
compared to 1994 fuel expense of $336.4 million. The decrease in
fuel expense was due primarily to an 8% decrease in the average unit
cost of fuel from $1.75 per Mmbtu in 1994 to $1.61 per Mmbtu in 1995,
which was offset in part by a 3% increase in generation. The
decrease in the per unit cost of fuel resulted from a decrease in the
spot market price of gas.
Fuel expense decreased approximately $27.2 million or 7% in 1994
when compared to 1993 due primarily to a decrease in the average unit
cost of fuel from $1.94 per Mmbtu in 1993 to $1.75 per Mmbtu in 1994.
The decrease in unit fuel costs was primarily due to coal contract
negotiations and a decrease in the spot market price of gas.
Purchased Power
Purchased power expense decreased approximately $1.2 million, or
6%, during 1995 when compared to 1994 due primarily to a 36% decrease
in purchases, partially offset by a firm contract for additional
operating reserves and on peak capacity. Purchased power increased
from $13.1 million in 1993 to $20.2 million in 1994 due primarily to
a purchased power contract negotiated as a part of the 1993 purchase
of BREMCO.
Other Operating
Other operating expenses increased approximately $2.5 million,
or 2%, during 1995 when compared to 1994. The increase was due
primarily to an increase in transmission expenses associated with the
completion and placement in service of a new HVdc tie in 1995 and an
increase in employee related costs.
Restructuring Charges
Restructuring charges reflect the original accrual of $25.2
million in December 1993 which was subsequently reduced by $5.0
million in 1994 and $0.6 million in 1995, resulting in total
restructuring charges of $19.6 million at December 31, 1995.
Maintenance
Maintenance expense decreased approximately $7.4 million, or
15%, during 1994 when compared to 1993. The decrease was due
primarily to decreased maintenance of distribution facilities and
general plant.
Depreciation and Amortization
Depreciation and amortization increased $3.4 million and $5.5
million during 1995 and 1994, respectively, when compared to the
prior years. The increases during both periods were due primarily to
increases in depreciable plant.
Taxes, Other than Income
Taxes, other than income, increased approximately $1.6 million,
or 4%, during 1995 when compared to 1994 due primarily to increases
in ad valorem taxes.
Income Taxes
Income tax expense decreased approximately $1.0 million in 1995
due primarily to prior year tax adjustments partially offset by
higher pre-tax income. Income tax expense increased approximately
$12.7 million, or 43%, in 1994 due primarily to an increase in pre-
tax income.
SWEPCO
<PAGE> 2-123
Allowance for Equity and Borrowed Funds Used During Construction
AFUDC increased approximately $3.2 million and $3.5 million
during 1995 and 1994, respectively, when compared to the prior year
due primarily to increased CWIP balances accruing AFUDC. Also
contributing to the increase in 1995 was a prior period true-up.
Interest on Long-Term Debt
Interest expense on long-term debt was comparable in 1995 and
1994, while it increased approximately $2.4 million, or 6%, in 1994
when compared to 1993 due primarily to an increase in average
balances outstanding.
Interest on Short-Term Debt and Other
Interest expense on short-term debt and other increased
approximately $3.1 million, or 41%, during 1995 when compared to 1994
due primarily to higher levels of short-term debt outstanding at
higher short-term interest rates. Interest expense on short-term
debt and other increased approximately $2.7 million in 1994 when
compared to 1993 due primarily to an interest accrual pursuant to the
terms of a settlement agreement approved by the Texas Commission in
connection with SWEPCO's fuel reconciliation and increased interest
expense associated with short-term debt.
Cumulative Effect of Changes in Accounting Principles
Accounting changes in 1993 included the adoption of SFAS 112.
SWEPCO also changed its method of accounting for unbilled revenues.
These accounting changes had a cumulative effect of increasing net
income by $3.4 million.
Inflation
Annual inflation rates, as measured by the national Consumer
Price Index, have averaged approximately 2.8% for the three-year
period ending December 31, 1995. SWEPCO believes that inflation at
this level does not materially affect SWEPCO's results of operations
or financial condition. Under existing regulatory practice, however,
only the historical cost of plant is recoverable from customers. As
a result, cash flows designed to provide recovery of historical plant
costs may not be adequate to replace plant in future years.
SWEPCO
<PAGE> 2-124
SWEPCO
Statements of Income
Southwestern Electric Power Company
For the Years Ended December 31,
1995 1994 1993
(thousands)
Electric Operating Revenues
Residential $278,319 $266,620 $273,707
Commercial 177,135 173,718 175,059
Industrial 246,182 243,518 250,912
Sales for resale 94,638 102,723 93,337
Other 40,431 38,717 44,177
836,705 825,296 837,192
Operating Expenses and Taxes
Fuel 318,506 336,389 363,627
Purchased power 19,077 20,244 13,145
Other operating 121,826 119,277 118,665
Restructuring charges (578) (4,978) 25,203
Maintenance 43,320 42,782 50,164
Depreciation and amortization 83,272 79,845 74,385
Taxes, other than income 45,153 43,512 44,385
Income taxes 43,353 42,303 29,561
673,929 679,374 719,135
Operating Income 162,776 145,922 118,057
Other Income and Deductions
Allowance for equity funds used
during construction 4,290 3,579 1,560
Other 178 4,656 3,658
4,468 8,235 5,218
Income Before Interest Charges 167,244 154,157 123,275
Interest Charges
Interest on long-term debt 44,468 43,395 40,958
Interest on short-term debt and other 10,706 7,568 4,866
Allowance for borrowed funds used
during construction (5,044) (2,518) (1,020)
50,130 48,445 44,804
Income Before Cumulative Effect of
Changes in Accounting Principles 117,114 105,712 78,471
Cumulative Effect of Changes in
Accounting Principles -- -- 3,405
Net Income 117,114 105,712 81,876
Preferred stock dividends 3,244 3,361 3,362
Net Income for Common Stock $113,870 $102,351 $78,514
The accompanying notes to financial statements
are an integral part of these statements.
SWEPCO
<PAGE> 2-125
SWEPCO
Statements of Retained Earnings
Southwestern Electric Power Company
For the Years Ended December 31,
1995 1994 1993
(thousands)
Retained Earnings at Beginning of Year $297,462 $265,071 $266,557
Net income for common stock 113,870 102,351 78,514
Gain on reacquisition of preferred stock 2 40 --
Deduct: Common stock dividends 109,000 70,000 80,000
Retained Earnings at End of Year $302,334 $297,462 $265,071
The accompanying notes to financial statements
are an integral part of these statements.
SWEPCO
<PAGE> 2-126
SWEPCO
Balance Sheets
Southwestern Electric Power Company
As of December 31,
1995 1994
(thousands)
ASSETS
Electric Utility Plant
Production $1,410,546 $1,401,418
Transmission 435,362 385,113
Distribution 789,884 733,707
General 231,276 213,563
Construction work in progress 128,963 149,508
2,996,031 2,883,309
Less - Accumulated depreciation 1,116,375 1,026,751
1,879,656 1,856,558
Current Assets
Cash and temporary cash investments 1,702 1,296
Accounts receivable 54,628 54,344
Materials and supplies, at average cost 30,097 28,109
Fuel inventory, at average cost 73,276 61,701
Accumulated deferred income taxes 4,636 6,592
Prepayments and other 14,109 13,071
178,448 165,113
Deferred Charges and Other Assets 58,615 57,536
$2,116,719 $2,079,207
The accompanying notes to financial statements
are an integral part of these statements.
SWEPCO
<PAGE> 2-127
SWEPCO
Balance Sheets
Southwestern Electric Power Company
As of December 31,
1995 1994
CAPITALIZATION AND LIABILITIES (thousands)
Capitalization
Common stock: $18 par value
Authorized: 7,600,000 shares
Issued and outstanding: 7,536,640 shares $135,660 $135,660
Paid-in capital 245,000 245,000
Retained earnings 302,334 297,462
Total Common Stock Equity 682,994 678,122
Preferred stock
Not subject to mandatory redemption 16,032 16,032
Subject to mandatory redemption 33,628 34,828
Long-term debt 598,951 595,833
Total Capitalization 1,331,605 1,324,815
Current Liabilities
Long-term debt and preferred stock due within
twelve months 5,099 5,270
Advances from affiliates 101,228 81,868
Accounts payable 34,717 38,020
Payables to affiliates 52,474 40,739
Over-recovered fuel cost 8,923 12,200
Customer deposits 11,027 13,075
Accrued taxes 30,339 12,495
Accrued interest 17,894 17,175
Other 25,454 30,615
287,155 251,457
Deferred Credits
Accumulated deferred income taxes 377,245 365,441
Investment tax credits 76,237 81,023
Income tax related regulatory liabilities, net 37,363 44,836
Other 7,114 11,635
497,959 502,935
$2,116,719 $2,079,207
The accompanying notes to financial statements
are an integral part of these statements.
SWEPCO
<PAGE> 2-128
SWEPCO
Statements of Cash Flows
Southwestern Electric Power Company
For the Years Ended December 31,
1995 1994 1993
(thousands)
OPERATING ACTIVITIES
Net Income $117,114 $105,712 $81,876
Non-cash Items Included in Net Income
Depreciation and amortization 93,624 89,646 93,120
Restructuring charges (582) (4,978) 25,203
Deferred income taxes and investment
tax credits 1,501 17,970 (4,775)
Cumulative effect of changes in
accounting principles -- -- (3,405)
Allowance for equity funds used during
construction (4,290) (3,579) (1,560)
Changes in Assets and Liabilities
Accounts receivable (284) (29,981) (3,632)
Fuel inventory (11,575) (12,214) 21,101
Accounts payable (3,303) (4) 37,087
Payables to affiliates 11,735 44,172 (45,478)
Accrued taxes 17,844 (14,845) 11,561
Accrued restructuring charges (1,110) (11,694) --
Unrecovered fuel/Fuel refund due
customers (3,277) 9,842 1,946
Other deferred credits (4,521) (1,662) 7,044
Other 638 (10,264) 12,010
213,514 178,121 232,098
INVESTING ACTIVITIES
Construction expenditures (105,193) (146,865) (138,510)
Acquisition expenditures -- -- (35,333)
Allowance for borrowed funds used during
construction (5,044) (2,518) (1,020)
Sale of electric utility plant and other (4,393) (4,980) (4,113)
(114,630) (154,363) (178,976)
FINANCING ACTIVITIES
Proceeds from sale of long-term debt -- -- 221,511
Reacquisition of long-term debt -- (5,475) (198,962)
Redemption of preferred stock (1,200) (1,160) --
Retirement of long-term debt (3,600) (3,213) (39,835)
Change in advances from affiliates 19,360 54,004 (286)
Special deposits for reacquisition of
long-term debt -- -- 53,500
Payment of dividends (113,038) (73,341) (83,386)
(98,478) (29,185) (47,458)
Net Change in Cash and Cash Equivalents 406 (5,427) 5,664
Cash and Cash Equivalents at Beginning of Year 1,296 6,723 1,059
Cash and Cash Equivalents at End of Year $1,702 $1,296 $6,723
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $46,243 $45,260 $42,271
Income taxes paid $28,079 $36,632 $21,112
The accompanying notes to financial statements
are an integral part of these statements.
SWEPCO
<PAGE> 2-129
SWEPCO
Statements of Capitalization
Southwestern Electric Power Company
As of December 31,
1995 1994
(thousands)
COMMON STOCK EQUITY $682,994 $678,122
PREFERRED STOCK
Cumulative $100 Par Value, Authorized 1,860,000 shares
Number Current
of Shares Redemption
Series Outstanding Price
Not Subject to Mandatory
Redemption
5.00% 75,000 $109.00 7,500 7,500
4.65% 25,000 $102.75 2,500 2,500
4.28% 60,000 $103.90 6,000 6,000
Premium 32 32
16,032 16,032
Subject to Mandatory Redemption
6.95% 352,000 $104.64 35,200 36,400
Issuance Expense (372) (372)
Amount to be redeemed within one year (1,200) (1,200)
33,628 34,828
LONG-TERM DEBT
First Mortgage Bonds
Series V, 7 3/4%, due June 1, 2004 40,000 40,000
Series W, 6 1/8%, due September 1, 1999 40,000 40,000
Series X, 7%, due September 1, 2007 90,000 90,000
Series Y, 6 5/8%, due February 1, 2003 55,000 55,000
Series Z, 7 1/4%, due July 1, 2023 45,000 45,000
Series AA, 5 1/4%, due April 1, 2000 45,000 45,000
Series BB, 6 7/8%, due October 1, 2025 80,000 80,000
1976 Series A, 6.20%, due November 1, 2006*
(Siloam Springs) 6,520 6,665
1976 Series B, 6.20%, due November 1, 2006*
(Siloam Springs) 1,000 1,000
Installment Sales Agreements - PCRBs
1978 Series A, 6%, due January 1, 2008 (Titus
County) 14,420 14,420
Series 1986, 8.2%, due July 1, 2014 (Sabine) 81,700 81,700
1991 Series A, 8.2%, due August 1, 2011 (Titus
County) 17,125 17,125
1991 Series B, 6.9%, due November 1, 2004 (Titus
County) 12,290 12,290
Series 1992, 7.6%, due January 1, 2019 (DeSoto) 53,500 53,500
Bank Loan, Variable Rate, due June 15, 2000 50,000 50,000
Railcar lease obligations 13,996 17,922
Unamortized discount and premium 373 (3,745)
Unamortized costs of reacquired debt (43,074) (45,974)
Amount to be redeemed within one year (3,899) (4,070)
598,951 595,833
TOTAL CAPITALIZATION $1,331,605 $1,324,815
*Obligations incurred in connection with the sale by public authorities
of tax-exempt PCRBs.
The accompanying notes to financial statements
are an integral part of these statements.
SWEPCO
<PAGE> 2-130
SOUTHWESTERN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See CSW's NOTE 1 on pages 2-32 to 2-37.
2.LITIGATION AND REGULATORY PROCEEDINGS
SWEPCO Fuel Factor Proceedings
On October 6, 1995, SWEPCO filed a petition, designated as
Docket No. 14819, with the Texas Commission to revise its fixed
fuel factors for the recovery of fuel and purchased power costs.
SWEPCO was experiencing an over-recovery of fuel costs based on
application of its then current factors which became effective in
July 1994. The original filing with the Texas Commission proposed
decreasing SWEPCO's fixed fuel factors and refunding to customers
$7.1 million of cumulative over-recoveries for the period January
1994 to June 1995. SWEPCO subsequently revised its petition to
the Texas Commission, updating the cumulative fuel over-recovery
to $10.4 million through September 1995. On December 20, 1995,
the Texas Commission issued an order approving SWEPCO's revised
fixed fuel factors and authorizing the refund of $10.8 million,
including interest, to customers primarily as billing credits on
January 1996 monthly bills.
SWEPCO Burlington Northern Transportation Contract
On January 20, 1995, a state district court in Bowie County,
Texas, entered judgment in favor of SWEPCO against Burlington
Northern in a lawsuit regarding rates charged under two rail
transportation contracts for delivery of coal to SWEPCO's Welsh
and Flint Creek power plants. The court awarded SWEPCO
approximately $72 million covering damages for the period from
April 27, 1989 through September 26, 1994, post-judgment interest
and attorneys' fees and granted certain declaratory relief
requested by SWEPCO. Burlington Northern appealed the state
district court's judgment to the Texarkana, Texas Court of
Appeals. The appeal is now pending.
Other
SWEPCO is party to various other legal claims, actions and
complaints arising in the normal course of business. Management
does not expect disposition of these matters to have a material
adverse effect on SWEPCO's results of operations or financial
condition.
3.COMMITMENTS AND CONTINGENT LIABILITIES
Construction and Capital Expenditures
It is estimated that SWEPCO will spend approximately $98
million, including AFUDC, in construction expenditures during
1996. Substantial commitments have been made in connection with
this capital expenditure program.
Fuel Commitments
To supply a portion of the fuel requirements, SWEPCO has
entered into various commitments for procurement of fuel.
SWEPCO
<PAGE> 2-131
SWEPCO Henry W. Pirkey Power Plant
In connection with the South Hallsville lignite mining
contract for its Henry W. Pirkey Power Plant, SWEPCO has agreed,
under certain conditions, to assume the obligations of the mining
contractor. As of December 31, 1995, the maximum amount SWEPCO
would have to assume was $71.9 million. The maximum amount may
vary as the mining contractor's need for funds fluctuates. The
contractor's actual obligation outstanding at December 31, 1995
was $58.7 million.
SWEPCO South Hallsville Lignite Mine
As part of the process to receive a renewal of a Texas
Railroad Commission permit for lignite mining at the South
Hallsville lignite mine, SWEPCO has agreed to provide bond
guarantees on mine reclamation in the amount of $70 million.
Since SWEPCO uses self-bonding, the guarantee provides for SWEPCO
to commit to use its resources to complete the reclamation in the
event the work is not completed by the third party miner. The
current cost to reclaim the mine is estimated to be approximately
$25 million.
Other Commitments and Contingencies
SWEPCO Rental and Lease Commitments
SWEPCO has entered into various financing arrangements
primarily with respect to coal transportation and related
equipment, which are treated as operating leases for rate-making
purposes. At December 31, 1995, leased assets of $46 million, net
of accumulated amortization of $33.7 million, were included in
electric fixed assets on the balance sheet and at December 31,
1994, leased assets were $46 million, net of accumulated
amortization of $30.1 million. Total charges to SWEPCO's
operating expenses for expenses associated with these financing
arrangements were $6.3 million, $6.8 million and $7.1 million for
the years 1995, 1994 and 1993, respectively.
SWEPCO Biloxi, Mississippi MGP Site
In 1994, SWEPCO was notified by Mississippi Power that it may
be a PRP at a MGP site in Biloxi, Mississippi, formerly owned and
operated by a predecessor of SWEPCO. SWEPCO worked with
Mississippi Power to investigate the extent of contamination at
this site. The MDEQ approved a site investigation work plan and,
in January 1995, SWEPCO and Mississippi Power initiated sampling
pursuant to that work plan. Contamination at the site was
identified as a result of the investigation of property and
adjacent properties. Soil and grounds water test results were
sent to the MDEQ for review and comment. The test results
confirmed the contamination on the property and indicated the
possibility of contamination of an adjacent property. A risk
assessment has been performed to assist SWEPCO and Mississippi
Power in determining remediation alternatives. A final range of
cleanup costs has not been determined, but based on preliminary
estimates, SWEPCO has accrued approximately $2 million for its
portion of the cleanup of this site.
4.INCOME TAXES
See CSW's NOTE 4.
5.BENEFIT PLANS
See CSW's NOTE 5.
6.JOINTLY OWNED ELECTRIC UTILITY PLANT
See CSW's NOTE 6.
7.FINANCIAL INSTRUMENTS
See CSW's NOTE 7.
SWEPCO
<PAGE> 2-132
8.LONG-TERM DEBT
See CSW's NOTE 8.
9.PREFERRED STOCK
See CSW's NOTE 9.
10.SHORT-TERM FINANCING
See CSW's NOTE 10.
11.QUARTERLY INFORMATION
See CSW's NOTE 14 on pages 2-64 and 2-65.
CSW's NOTE 4 through NOTE 10 are found on pages 2-48 through 2-60.
SWEPCO
<PAGE> 2-133
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Southwestern Electric
Power Company:
We have audited the accompanying balance sheets and statements
of capitalization of Southwestern Electric Power Company (a Delaware
corporation and a wholly owned subsidiary of Central and South West
Corporation) as of December 31, 1995 and 1994, and the related
statements of income, retained earnings and cash flows for each of
the three years in the period ended December 31, 1995. These
financial statements are the responsibility of SWEPCO's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Southwestern Electric Power Company as of December 31, 1995 and
1994, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
In 1993, as discussed in NOTE 1, SWEPCO changed its method of
accounting for unbilled revenues, postretirement benefits other than
pensions, income taxes and postemployment benefits.
Our audits were made for the purpose of forming an opinion on
the financial statements taken as a whole. The supplemental Schedule
II and Exhibit 12 are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the
basic financial statements. This schedule and exhibit have been
subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein
in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Dallas, Texas
February 28, 1996
SWEPCO
<PAGE> 2-134
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and
objectivity of the financial statements of Southwestern Electric
Power Company as well as other information contained in this Annual
Report. The financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent
basis and, in some cases, reflect amounts based on the best estimates
and judgments of management, giving due consideration to materiality.
Financial information contained elsewhere in this Annual Report is
consistent with that in the financial statements.
The financial statements have been audited by the independent
accounting firm, Arthur Andersen LLP, which was given unrestricted
access to all financial records and related data, including minutes
of all meetings of shareholders, the board of directors and
committees of the board. SWEPCO believes that representations made
to the independent auditors during its audit were valid and
appropriate. Arthur Andersen LLP's audit report is presented
elsewhere in this report.
SWEPCO maintains a system of internal controls to provide
reasonable assurance that transactions are executed in accordance
with management's authorization, that the financial statements are
prepared in accordance with generally accepted accounting principles
and that the assets of the companies are properly safeguarded against
unauthorized acquisition, use or disposition. The system includes a
documented organizational structure and division of responsibility,
established policies and procedures including a policy on ethical
standards which provides that SWEPCO will maintain the highest legal
and ethical standards, and the careful selection, training and
development of our employees.
Internal auditors continuously monitor the effectiveness of the
internal control system following standards established by the
Institute of Internal Auditors. Actions are taken by management to
respond to deficiencies as they are identified. The board, operating
through its audit committee, which is comprised entirely of directors
who are not officers or employees of SWEPCO provides oversight to the
financial reporting process.
Due to the inherent limitations in the effectiveness of internal
controls, no internal control system can provide absolute assurance
that errors will not occur. However, management strives to maintain
a balance, recognizing that the cost of such a system should not
exceed the benefits derived.
SWEPCO believes that, in all material respects, its system of
internal controls over financial reporting and over safeguarding of
assets against unauthorized acquisition, use or disposition
functioned effectively as of December 31, 1995.
Richard H. Bremer R. Russell Davis
President and CEO - SWEPCO Controller - SWEPCO
SWEPCO
<PAGE> 2-135
WEST TEXAS UTILITIES COMPANY
WTU
<PAGE> 2-136
SELECTED FINANCIAL DATA
The following selected financial data for each of the five years
ended December 31 is provided to highlight significant trends in the
financial condition and results of operations for WTU. Certain
financial statement items for prior years have been reclassified to
conform to the most recent period presented.
1995 1994 1993 (1) 1992 1991
(thousands, except ratio data)
INCOME STATEMENT DATA
Revenues $319,835 $342,991 $345,445 $315,370 $318,966
Operating expenses and
taxes 260,349 288,228 298,869 258,068 261,041
Operating income 59,486 54,763 46,576 57,302 57,925
Other income and
deductions (85) 4,360 2,016 1,165 1,671
Interest charges 24,871 21,757 22,075 23,460 23,228
Net income 34,530 37,366 30,296 35,007 36,368
Net income for common
stock 34,266 36,914 29,329 33,556 34,500
BALANCE SHEET DATA
Assets 815,614 771,977 754,443 744,829 734,053
Common stock equity 265,220 271,954 266,092 266,874 259,373
Preferred stock
Not subject to
mandatory redemption 6,291 6,291 6,291 6,291 6,291
Subject to mandatory
redemption -- -- -- 9,537 14,482
Long-term debt 273,245 210,047 176,882 211,610 217,855
Current liabilities (2) 76,931 91,629 116,100 57,544 47,213
Capitalization Ratios
Common stock equity 48.7% 55.7% 59.2% 54.0% 52.1%
Preferred stock 1.2 1.3 1.4 3.2 4.2
Long-term debt 50.1 43.0 39.4 42.8 43.7
Ratio of earnings to
fixed charges (SEC
Method) before
cumulative effect of
changes in accounting
principles 2.63 3.37 2.79 3.22 3.30
(1) Earnings in 1993 were significantly affected by restructuring
charges and the $4 million cumulative effect of changes in
accounting principles. Pro forma amounts, assuming that the
change in accounting for unbilled revenues had been adopted
retroactively, are not materially different from amounts reported
for prior years and therefore have not been restated.
(2) Includes net unbilled factored accounts receivable in 1994
and 1995.
WTU
<PAGE> 2-137
WEST TEXAS UTILITIES COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to WTU's Financial Statements and related
Notes to Financial Statements and Selected Financial Data. The
information contained therein should be read in conjunction with,
and is essential to understanding, the following discussion and
analysis.
OVERVIEW
Net income for common stock was $34 million in 1995, which
represented a 7% decrease when compared to 1994. The decrease was
due primarily to increased depreciation, a prior year non-operating
tax adjustment, and an increase in interest charges on long-term
debt. These effects were partially offset by decreases in other
operating, maintenance, and federal income tax expenses.
Net income for common stock was $37 million in 1994, a 26%
increase when compared to 1993. This increase was due primarily to
an increase in retail base revenues and other income and a decrease
in restructuring charges.
RESTRUCTURING
During 1993, CSW announced a restructuring under which the CSW
System restructured the Electric Operating Companies (including WTU)
under a new business unit called CSW Electric and centralized many
common service functions into CSW Services in order to reduce costs
and improve efficiency and productivity. The restructuring included
restaffing positions throughout the CSW System and a reduction in
the workforce by more than 7% system-wide. WTU's restructuring costs
were initially estimated to be $15 million and were expensed in
1993. The actual costs of the restructuring, approximately $13
million, including AFUDC, were incurred primarily during 1994. WTU
has realized a number of benefits from the restructuring, including
increased efficiencies and synergies through the elimination of
previously duplicated functions.
RATES AND REGULATORY MATTERS
WTU Stipulation and Agreement
WTU has been the subject of several pending regulatory matters,
including the following: (i) a retail rate proceeding and fuel
reconciliation before the Texas Commission in Docket No. 13369; (ii)
Writ of Error to the Supreme Court - review of WTU's 1987 Texas rate
case in Docket No. 7510; and (iii) the Texas Commission's proceeding
on remand in Docket No. 13949 regarding deferred accounting treatment
for Oklaunion Power Station Unit No. 1 originally authorized in the
Texas Commission's order in Docket No. 7289.
On September 22, 1995, WTU, along with other major parties to
the above described matters, filed with the Texas Commission a joint
stipulation and agreement to resolve all of these matters. The WTU
Stipulation and Agreement is a unified package that included: (i) a
retail base rate reduction of approximately $13.5 million annually
starting with WTU's October 1995 revenue month billing cycle; (ii) a
$21 million retail refund which was not attributed to any specific
cause but was inclusive of all claims related to the three above
described litigation and regulatory matters and included the effect
of the rate reduction retroactive to October 1, 1994; (iii) a
reduction of reduced fixed fuel factors by approximately 2%; (iv)
various rate and accounting treatments including a reasonable return
WTU
<PAGE> 2-138
on equity for retail operations of 11.375%; and (v) a retail base
rate freeze until October 1, 1998, subject to certain force majeure
provisions.
On November 9, 1995, the Texas Commission rendered a final order
that implemented the joint stipulation and agreement. The WTU
Stipulation and Agreement is expected to impact WTU's results of
operations for the next several years, reducing annual earnings by
approximately $8 million beginning in 1996. The WTU Stipulation and
Agreement also eliminated several significant risks that have been
the subject of regulatory proceedings relating to deferred accounting
plant costs and rates and will enable WTU's rates to remain at
competitive levels for the foreseeable future. See NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS.
See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for
information regarding other regulatory matters.
LIQUIDITY AND CAPITAL RESOURCES
Overview
WTU's need for capital results primarily from the construction
of facilities to provide reliable electric service to its customers.
Accordingly, internally generated funds should meet most of the
capital requirements. However, if internally generated funds are
not sufficient, WTU's financial condition and credit rating should
allow it access to the capital markets.
Construction Expenditures
WTU maintains a continuing construction program, the nature and
extent of which is based upon current and estimated future demands
upon the system. Planned construction expenditures for WTU for the
next three years are primarily to improve and expand distribution
facilities and will be funded primarily through internally generated
funds. These improvements will be required to meet the anticipated
needs of new customers and the growth in the requirements of existing
customers. Construction expenditures, including AFUDC, for WTU were
approximately $45 million in 1995, $42 million in 1994 and $37
million in 1993. WTU's estimated total construction expenditures,
including AFUDC, for the years 1996 through 1998 are presented in the
following table.
CONSTRUCTION EXPENDITURES
1996 1997 1998 Total
(millions)
Generation $4 $4 $4 $12
Transmission 6 6 6 18
Distribution 20 20 20 60
Other 12 12 13 37
$42 $42 $43 $127
The foregoing consists of forward looking information and,
accordingly, actual results may differ materially from such
projected information due to changes in the underlying assumptions.
Such assumptions are based on numerous factors, including factors
such as the rate of load growth, escalation of construction costs,
changes in lead times in manufacturing, inflation, the availability
and pricing of alternatives to construction, environmental and other
regulation, delays from regulatory hearings, adequacy of rate relief
and the availability of necessary external capital. Changes in
those and other factors could cause WTU to defer or accelerate
construction or to sell or buy more power, which would affect its
cash position, revenues and income to an extent that cannot now be
reliably predicted.
WTU
<PAGE> 2-139
Although WTU does not believe that it will require substantial
additions of generating capacity through the end of the decade, the
CSW System's internal resource plan presently anticipates that any
additional capacity needs will come from a variety of sources
including projected coal- and lignite-fired generating plants for
which WTU has invested approximately $15 million in prior years for
plant sites, engineering studies and lignite reserves. Should
future plans exclude these plants for environmental, economical or
other reasons, WTU would evaluate the probability of recovery of
these investments and may record appropriate reserves.
Long-Term Financing
As of December 31, 1995, the capitalization ratios of WTU were
49% common stock equity, 1% preferred stock and 50% long-term debt.
WTU's embedded cost of long-term debt was 7.8% at December 31, 1995.
WTU is committed to maintaining financial flexibility through a
strong capital structure and favorable securities ratings in order to
access the capital markets opportunistically or when required. WTU's
long-term financing activity for 1995 is summarized in the following
table.
ISSUED REACQUIRED
Financing Amount Financial Amount
Instrument (millions) Rate Maturity Instrument (millions) Rate Maturity
FMB (1) $40.0 7 1/2% 2000
FMB (2) 80.0 6 3/8% 2005 FMB $53.3 9 1/4% 2019
(1) Proceeds were used to repay a portion of WTU's short-term
borrowings and to reimburse WTU's treasury for the reacquisition of
FMBs.
(2) The balance of proceeds not used to redeem higher cost FMBs
were used to repay a portion of WTU's short-term borrowings.
Short-Term Financing
WTU, together with other members of the CSW System, has
established a CSW System money pool to coordinate short-term
borrowings. These loans are unsecured demand obligations at rates
approximating the CSW System's commercial paper borrowing costs. At
December 31, 1995 WTU's short-term borrowing limit from the money
pool was approximately $58 million. During 1995, the annual
weighted average interest rate on WTU borrowings was 6.1% and the
average amount of WTU short-term borrowings outstanding was $20
million. The maximum amount of WTU short-term borrowings
outstanding during 1995 was $50 million, which was the amount
outstanding at February 3, 1995.
Internally Generated Funds
Internally generated funds consist of cash flows from operating
activities less common and preferred stock dividends. WTU uses
short-term debt to meet fluctuations in working capital requirements
due to the seasonal nature of energy sales. During 1993 and 1994,
WTU experienced several non-recurring transactions that resulted in
negative internally generated funds in 1994, including the
refinancing of Series G and Series H FMBs with Series S FMBs which
occurred between December 1993 and February 1994. This refinancing
caused an abnormally high accounts payable balance to affiliates at
December 31, 1993 which was subsequently reduced by the issuance of
Series S FMBs in February 1994, resulting in the appearance of a
large out flow of cash from operating funds. WTU anticipates that
capital requirements for the period 1996 to 1998 may be met, in
large part, from internal sources. WTU also expects that some
external financings will be required during the period, but the
nature, timing and extent have not yet been determined. Information
concerning internally generated funds is presented in the following
table.
1995 1994 1993
($ in millions)
Internally Generated Funds $12 ($4) $59
Construction Expenditures Provided
by Internally Generated Funds 27% -- 163%
WTU
<PAGE> 2-140
Sales of Accounts Receivable
WTU sells its billed and unbilled accounts receivable, without
recourse, to CSW Credit. The sales provide WTU with cash
immediately, thereby reducing working capital needs and revenue
requirements. The average and year end amounts of accounts
receivable sold were $33 million and $28 million, respectively, in
1995, as compared to $35 million and $18 million, respectively, in
1994.
RECENT DEVELOPMENTS AND TRENDS
Competition and Industry Challenges
Competitive forces at work in the electric utility industry are
impacting WTU and electric utilities generally. Increased
competition facing electric utilities is driven by complex economic,
political and technological factors. These factors have resulted in
legislative and regulatory initiatives that are likely to result in
even greater competition at both the wholesale and retail level in
the future. As competition in the industry increases, WTU will have
the opportunity to seek new customers and at the same time be at
risk of losing customers to other competitors. Additionally, WTU
will continue to compete with suppliers of alternative forms of
energy, such as natural gas, fuel oil and coal, some of which may be
cheaper than electricity. WTU believes that its prices for
electricity and the quality and reliability of its service currently
place it in a position to compete effectively in the marketplace.
The Energy Policy Act, which was enacted in 1992, significantly
alters the way in which electric utilities compete. The Energy
Policy Act creates exemptions from regulation under the Holding
Company Act and permits utilities, including registered utility
holding companies and non-utility companies, to form EWGs. EWGs are
a new category of non-utility wholesale power producers that are
free from most federal and state regulation, including the principal
restrictions of the Holding Company Act. These provisions enable
broader participation in wholesale power markets by reducing
regulatory hurdles to such participation. The Energy Policy Act
also allows the FERC, on a case-by-case basis and with certain
restrictions, to order wholesale transmission access and to order
electric utilities to enlarge their transmission systems. A FERC
order requiring a transmitting utility to provide wholesale
transmission service must include provisions generally that permit
the utility to recover from the FERC applicant all of the costs
incurred in connection with the transmission services and any
enlargement of the transmission system and associated services.
Wholesale energy markets, including the market for wholesale
electric power, have been extremely competitive since the enactment
of the Energy Policy Act. WTU must compete in the wholesale energy
markets with other public utilities, cogenerators, qualified
facilities, EWGs and others for sales of electric power. While WTU
believes that the Energy Policy Act will continue to make the
wholesale markets more competitive, WTU is unable to predict the
extent to which the Energy Policy Act will impact WTU operations.
On March 29, 1995, consistent with the direction of the Energy
Policy Act, the FERC announced in a NOPR that each public utility
that owns and controls transmission facilities in interstate commerce
must unbundle its services and file open access transmission tariffs
under which each utility will offer comparable open access
transmission services to its transmission customers. In addition,
the FERC revised its proposed mechanisms by which utilities will be
permitted to recover stranded investment costs expected to be brought
about by the proposed changes. On August 7, 1995, CSW filed comments
on the proposed approach in the NOPR with the FERC. Although CSW
supports the concept of comparable open access for the nation's
transmission service, CSW believes that certain changes must be made
in the FERC's proposed approach of implementing the open transmission
system. First, with respect to the issue of stranded investments,
the FERC proposed that customers who left the utility company pay for
a portion, but not all, of the costs incurred by the owner of
existing facilities that are not utilized as a result of the loss of
such customers. CSW raised concerns about the FERC's proposed
methodology for addressing stranded investment because it did not, in
CSW's view, provide for the fair recovery of the full amount
previously invested. Second, CSW proposed that the FERC adopt a
WTU
<PAGE> 2-141
"power flow pricing" approach whereby all electric systems that incur
costs because of a transmission transaction are compensated, as
opposed to the traditional "postage stamp" method whereby only the
companies that are directly involved in the actual purchase and sale
of the electricity are compensated or charged.
On February 9, 1996, WTU filed at the FERC complete sets of open
access transmission tariffs. These tariffs substantially reflect the
pro forma tariffs attached to the FERC's March 29, 1995 NOPR. Open
access and market pricing should increase marketing opportunities for
WTU, but may also expose them to the risk of loss of load or reduced
revenues due to competition with alternate suppliers.
Increasing competition in the utility industry brings an
increased need to stabilize or reduce rates. The retail regulatory
environment is beginning to shift from traditional rate base
regulation to incentive regulation. Incentive rate and performance-
based plans encourage efficiencies and increased productivity while
permitting utilities to share in the results. Retail wheeling, a
major industry issue which may require utilities to "wheel" or move
power from third parties to their own retail customers, is evolving
gradually. Many states throughout the country currently have
legislation introduced to investigate the issue.
WTU believes that retail competition would harm the best
interests of WTU's customers and security holders unless WTU
receives fair recovery of the full amounts previously invested to
finance power plants. These investments, which were reasonably
incurred, were made by WTU to meet its obligation to serve the
public interest, necessity and convenience. This obligation has
existed for nearly a century and remains in force under current law.
WTU intends to strongly oppose attempts to impose retail competition
without just compensation for the risks and investments WTU
undertook to serve the public's demand for electricity.
WTU is unable to predict the ultimate outcome or impact of
competitive forces on the electric utility industry or on WTU. As
the wholesale and retail electricity markets become more
competitive, however, the principal factor determining success is
likely to be price, and to a lesser extent, reliability,
availability of capacity, and customer service.
PURA
Amendments to PURA, the legal foundation of electric regulation
in Texas, became effective on September 1, 1995. Among other things,
the amendments deregulate the wholesale bulk power market in ERCOT,
permit pricing flexibility for utilities facing competitive
challenges, provide for a market-driven integrated resource planning
process and mandate comparable open access transmission service.
PURA also requires that the Texas Commission adopt a rule on
comparable open transmission access by March 1, 1996. In
conjunction with this rulemaking proceeding (Project No. 14045),
Texas Commission Chairman Pat Wood issued a proposal on September 6,
1995, for the purpose of maximizing competition in the ERCOT
wholesale bulk power market. The proposal calls for the functional
unbundling of integrated utilities where distribution entities could
purchase their power requirements from any generator or set of
generators in ERCOT. Those generators which are currently regulated
would be deregulated after provisions are in place to recover
stranded costs. The proposal has been assigned to a separate
proceeding (Project No. 15000). CSW expects this project to provide
the vehicle for the Texas Commission and other interested parties to
develop positions on industry restructuring before the Texas
Legislature convenes in January 1997. The schedule for Project No.
15000 contemplates that the Texas Commission will develop
legislative recommendations on restructuring and stranded costs
during the second half of 1996 and a schedule has been developed for
this project that includes a series of workshops and technical
conferences during the first half of 1996.
On February 7, 1996, the Texas Commission adopted a rule
governing transmission access and pricing (Project No. 14045). The
pricing method tentatively adopted by the Texas Commission is a
hybrid combination of an ERCOT-wide postage stamp rate covering 70%
WTU
<PAGE> 2-142
of total ERCOT transmission costs and a distance-sensitive component
referred to as a vector-absolute megawatt mile which recovers the
remaining 30% of ERCOT transmission costs. Although the open access
tariffs filed with the FERC on February 9, 1996 do not reflect
Project No. 14045 pricing, WTU anticipates filing tariffs with the
FERC that do conform to the Texas Commission's rule in the second
quarter of 1996.
Regulatory Accounting
Consistent with industry practice and the provisions of SFAS
No. 71, which allows for the recognition and recovery of regulatory
assets, WTU has recognized significant regulatory assets and
liabilities. Management believes that WTU will continue to meet the
criteria for following SFAS No. 71. However, in the event WTU no
longer meets the criteria for following SFAS No. 71, a write-off of
regulatory assets and liabilities would be required. For additional
information regarding SFAS No. 71 reference is made to NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Consolidated Taxes
Prior to 1992, the Texas Commission allowed income taxes to be
recovered in rates based on the federal income tax incurred by a
utility as if it were a stand-alone company. This "stand-alone"
approach treated the regulated activities of a utility as a separate
entity and considered only those revenues and expenses that are
included in the utility's cost of service to calculate the federal
income tax liability for ratemaking purposes. However, in 1992 the
Texas Commission changed its method of calculating the federal income
tax component of rates to the "actual tax approach." This approach
reduces rates by the tax benefits of deductions which are not
considered for or included in setting rates for the utility.
On April 13, 1995, the Supreme Court issued a decision which
holds that the Texas Commission is not required to use the tax
benefits associated with the losses of unregulated affiliates to
reduce tax expense in cost of service. The Supreme Court also ruled
that the Texas Commission cannot include the income tax deductions
taken by the utility for disallowed expenses when determining the
utility's federal income tax liability.
ENVIRONMENTAL MATTERS
The operations of WTU, like those of other utility systems,
generally involve the use and disposal of substances subject to
environmental laws. CERCLA, the federal "Superfund" law, addresses
the cleanup of sites contaminated by hazardous substances.
Superfund requires that PRPs fund remedial actions regardless of
fault or the legality of past disposal activities. PRPs include
owners and operators of contaminated sites and transporters and/or
generators of hazardous substances. Many states have similar laws.
Legally, any one PRP can be held responsible for the entire cost of
a cleanup. Usually, however, cleanup costs are allocated among
PRPs.
WTU is subject to various pending claims alleging that it is a
PRP under federal or state remedial laws for investigating and
cleaning up contaminated property. WTU anticipates that resolution
of these claims, individually or in the aggregate, will not have a
material adverse effect on its results of operations or financial
condition. Although the reasons for this expectation differ from
site to site, factors that are the basis for the expectation for
specific sites include the volume and/or type of waste allegedly
contributed by WTU, the estimated amount of costs allocated to WTU
and the participation of other parties.
WTU
<PAGE> 2-143
NEW ACCOUNTING STANDARDS
SFAS No. 121
In March 1995, the FASB issued SFAS No. 121 to be effective for
financial statements for fiscal years beginning after December 15,
1995. The statement establishes a two-fold test for identification
and quantification of an impaired asset. The first test in
determining an impairment is to compare the sum of expected future
cash flows (undiscounted and without interest charges) related to an
asset to the carrying amount of the asset. If the sum of expected
cash flows is not sufficient to recover the carrying value of the
asset, then an impairment is recognized. Once an impairment is
identified, the second part of the test is applied to quantify the
amount of the impairment. The statement lists several alternative
methods of establishing fair market value and quantifying the
impairment. Cash flows used to measure possible impairment of an
asset are grouped at the lowest level for which there are
identifiable cash flows that are largely independent of the cash
flows of other groups of assets. For WTU, the lowest independently
identifiable cash flow level used for this analysis is
jurisdictional rates charged to customers.
WTU will adopt SFAS No. 121 in the first quarter of 1996.
Under the current regulatory environment, WTU does not expect the
adoption of SFAS No. 121 to have a significant impact on WTU's
results of operations or financial condition. However, future
developments in the electric industry and utility regulation could
jeopardize the full recovery of the carrying cost of certain
investments. Consequently, WTU is monitoring the changing
conditions facing the electric utility industry.
SFAS No. 123
SFAS No. 123 was issued in October 1995 with an effective date
for transactions entered into after December 15, 1995. This
statement requires the use of an option pricing model to calculate
the value of stock-based compensation transactions where such value
cannot otherwise be determined, but then allows for two alternative
methods of reporting the transactions. One method recognizes this
value as a cost of compensation and as an expense for the current
period. The alternative method permits footnote disclosure of the
compensation cost, without charging the amount against current
earnings.
As provided by the provisions of SFAS No. 123, WTU will
continue to apply the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of SFAS
No. 123 in 1996. Accordingly, the adoption of SFAS No. 123 will not
impact WTU's results of operations or financial condition.
RESULTS OF OPERATIONS
Electric Operating Revenues
Electric operating revenues decreased approximately $23.2
million and $2.5 million in 1995 and 1994, respectively, when
compared to the prior year. The decrease in 1995 was attributable
primarily to a one-time $21 million base rate refund made pursuant
to the WTU Stipulation and Agreement. Also contributing to such
decrease were reductions in retail base rates made in accordance
with the WTU Stipulation and Agreement and decreases in transmission
equalization revenues and other miscellaneous non-KWH related
revenues. These decreases were partially offset by increases in
sales to a major new wholesale customer.
The 1994 decrease in electric operating revenues was due
primarily to a reduction in lower margin off-system sales of $8
million resulting from decreased market place demand, and was
partially offset by higher on-system revenues of $6.5 million
attributable to a 3% increase in retail KWH sales. Also
contributing to the 1994 decrease was an interim rate reduction of
approximately $5.7 million on an annual basis effective October 1,
1994.
WTU
<PAGE> 2-144
Fuel
Fuel expenses were $123.7 million in 1995, which represented a
decrease of 6% when compared to 1994 fuel expenses of $131.3
million. The decrease was primarily attributable to a 3% decrease
in average unit fuel costs from $1.88 per Mmbtu in 1994 to $1.83 per
Mmbtu in 1995 due largely to lower spot gas market prices brought
about by weak demand and excess gas storage. Also contributing to
the decreased fuel expense was increased plant efficiencies in 1995
which resulted in less fuel required per MWH generated.
In 1994, fuel expenses decreased approximately $3.8 million or
3% when compared to 1993. The 1994 decrease in fuel expenses was
primarily attributable to a 2% decrease in average unit fuel costs
from $1.91 per Mmbtu in 1993 to $1.88 per Mmbtu in 1994 and a 2%
decrease in generation.
Purchased Power Expenses
Purchased power expenses increased approximately $5.9 million
during 1995 when compared with 1994, but decreased approximately
$2.3 million in 1994 when compared to 1993. The 1995 increase was
primarily attributable to additional energy purchases made to serve
the increased load resulting from the addition of a wholesale
customer and increased economy purchases. The decrease in 1994
resulted from a decrease in economy purchases.
Other Operating
Other operating expenses decreased approximately $2.6 million
during 1995 when compared to 1994, but increased in 1994 when
compared to 1993 by $4.9 million. The decrease in 1995 was
primarily due to the realization of savings resulting from cost
containment efforts and decreased environmental expenditures.
Partially offsetting these decreases were increases in transmission
expenses associated with the completion and placement in service of
a new HVdc tie in 1995, increased employee related costs and
increased telecommunications expenses.
The 1994 increase in operating expenses reflects a
reimbursement in 1993 for the settlement of a dispute relating to a
coal supply contract which lowered expenses in 1993. Higher outside
services for fuel related issues and other employee related expenses
also contributed to the increase.
Restructuring
Restructuring charges reflect the original accrual of $15.2
million in 1993, which was subsequently adjusted by $2 million in
1994 and $0.4 million in 1995, and the recording of a $13.2 million
regulatory asset during 1995 in accordance with the WTU Stipulation
and Agreement for previously recorded costs associated with the
restructuring.
Maintenance
Maintenance expense in 1995 decreased from 1994 by
approximately $1 million or 7% due primarily to decreased production
maintenance resulting from non-recurring plant overhauls in 1994 and
savings resulting from cost containment efforts. Maintenance
expense in 1994 increased over 1993 by approximately $1.7 million or
13% due primarily to increased production maintenance of boiler and
electric plant.
Depreciation and Amortization
Depreciation and amortization expenses increased approximately
$1.7 million and $1.2 million during 1995 and 1994, respectively,
when compared to prior years due primarily to increases in
depreciable property.
Income Taxes
Income taxes decreased approximately $12.4 million or 69% in
1995 when compared with 1994 due primarily to a reduction of $6.9
million of deferred income taxes in accordance with the WTU
Stipulation and Agreement and lower pre-tax income. The increase of
approximately $4.3 million or 32% in 1994 when compared with 1993
was due to higher pre-tax income.
WTU
<PAGE> 2-145
Other Income and Deductions
Other income decreased approximately $4.7 million in 1995 due
primarily to an adjustment to reallocate parent company tax
benefits. Other income increased approximately $2.3 million in 1994
when compared to 1993 as a result of tax benefits received under
WTU's tax sharing agreement with CSW.
Interest on Long-Term Debt
Interest on long-term debt increased approximately $2.9 million
in 1995 when compared to the prior year as a result of higher levels
of long-term debt outstanding. Interest on long-term debt decreased
approximately $0.7 million in 1994 when compared to the prior year
due to WTU's refinancing of higher cost debt with lower cost debt
and decreased average balances outstanding.
Cumulative Effect of Changes in Accounting Principles
In 1993, WTU changed its method of accounting for unbilled
revenue and implemented SFAS No. 112. These accounting changes had
a cumulative effect of increasing net income by $3.8 million.
Inflation
Annual inflation rates, as measured by the national Consumer
Price Index, have averaged approximately 2.8% for the three-year
period ending December 31, 1995. WTU believes that inflation, at
this level, does not materially affect its results of operations or
financial condition. However, under existing regulatory practice,
only the historical cost of plant is recoverable from customers. As
a result, cash flows designed to provide recovery of historical
plant costs may not be adequate to replace plant in future years.
WTU
<PAGE> 2-146
WTU
Statements of Income
West Texas Utilities Company
For the Years Ended December 31,
1995 1994 1993
Electric Operating Revenues (thousands)
Residential $114,269 $118,525 $115,932
Commercial 66,363 66,483 65,085
Industrial 51,443 52,626 53,709
Sales for resale 73,905 67,076 72,252
Other 13,855 38,281 38,467
319,835 342,991 345,445
Operating Expenses and Taxes
Fuel 123,723 131,258 135,048
Purchased power 10,998 5,144 7,411
Other operating 63,727 66,290 61,357
Restructuring charges (13,582) (2,037) 15,250
Maintenance 13,931 14,978 13,251
Depreciation and amortization 33,290 31,569 30,405
Taxes, other than income 22,720 23,072 22,496
Income taxes 5,542 17,954 13,651
260,349 288,228 298,869
Operating Income 59,486 54,763 46,576
Other Income and Deductions
Allowance for equity funds used
during construction 378 150 109
Other (463) 4,210 1,907
(85) 4,360 2,016
Income Before Interest Charges 59,401 59,123 48,592
Interest Charges
Interest on long-term debt 21,413 18,547 19,225
Interest on short-term debt and
other 4,111 3,534 2,988
Allowance for borrowed funds used
during construction (653) (324) (138)
24,871 21,757 22,075
Income Before Cumulative Effect of
Changes in Accounting Principles 34,530 37,366 26,517
Cumulative Effect of Changes in
Accounting Principle -- -- 3,779
Net Income 34,530 37,366 30,296
Preferred stock dividends 264 452 967
Net Income for Common Stock $34,266 $36,914 $29,329
The accompanying notes to financial statements
are an integral part of these statements.
WTU
<PAGE> 2-147
WTU
Statements of Retained Earnings
West Texas Utilities Company
For the Years Ended December 31,
1995 1994 1993
(thousands)
Retained Earnings at Beginning of Year $132,504 $126,642 $127,424
Net income for common stock 34,266 36,914 29,329
Deduct: Common stock dividends 41,000 31,000 30,000
Preferred stock redemption
costs -- 52 111
Retained Earnings at End of Year $125,770 $132,504 $126,642
The accompanying notes to financial statements
are an integral part of these statements.
WTU
<PAGE> 2-148
WTU
Balance Sheets
West Texas Utilities Company
As of December 31,
1995 1994
(thousands)
ASSETS
Electric Utility Plant
Production $427,547 $427,736
Transmission 199,055 194,402
Distribution 326,337 308,905
General 84,326 73,938
Construction work in progress 32,686 23,257
1,069,951 1,028,238
Less - Accumulated depreciation 389,379 364,383
680,572 663,855
Current Assets
Cash 717 2,501
Accounts receivable 28,923 23,165
Materials and supplies, at average cost 16,660 16,519
Fuel inventory, at average cost 8,281 9,229
Coal inventory, at LIFO cost 5,545 6,442
Accumulated deferred income taxes 5,328 3,068
Prepayments and other 1,042 1,091
66,496 62,015
Deferred Charges and Other Assets
Deferred Oklaunion costs 26,092 26,914
Restructuring costs 12,741 --
Other 29,713 19,193
68,546 46,107
$815,614 $771,977
The accompanying notes to financial statements
are an integral part of these statements.
WTU
<PAGE> 2-149
WTU
Balance Sheets
West Texas Utilities Company
As of December 31,
1995 1994
CAPITALIZATION AND LIABILITIES (thousands)
Capitalization
Common stock: $25 par value
Authorized: 7,800,000 shares
Issued and outstanding: 5,488,560 shares $137,214 $137,214
Paid-in capital 2,236 2,236
Retained earnings 125,770 132,504
Total Common Stock Equity 265,220 271,954
Preferred stock
Not subject to mandatory redemption 6,291 6,291
Long-term debt 273,245 210,047
Total Capitalization 544,756 488,292
Current Liabilities
Long-term debt due within twelve months -- 650
Advances from affiliates 19,820 46,315
Payables to affiliates 8,244 4,547
Accounts payable 20,611 23,942
Accrued taxes 13,182 7,452
Accrued interest 6,081 4,394
Over-recovered fuel costs 4,060 1,586
Refund due customers 1,812 --
Other 3,121 2,743
76,931 91,629
Deferred Credits
Accumulated deferred income taxes 145,130 146,146
Investment tax credits 30,561 31,882
Income tax related regulatory liabilities, net 14,464 9,217
Other 3,772 4,811
193,927 192,056
$815,614 $771,977
The accompanying notes to financial statements
are an integral part of these statements.
WTU
<PAGE> 2-150
WTU
Statements of Cash Flows
West Texas Utilities Company
For the Years Ended December 31,
1995 1994 1993
(thousands)
OPERATING ACTIVITIES
Net Income $34,530 $37,366 $30,296
Non-cash Items Included in Net Income
Depreciation and amortization 34,382 33,362 31,925
Restructuring charges (367) (2,037) 15,250
Deferred income taxes and investment
tax credits 650 7,056 3,159
Regulatory asset established for
previously incurred restructuring
charges (13,213) -- --
Cumulative effect of changes in
accounting principles -- -- (3,779)
Allowance for equity funds used during
construction (378) (150) (109)
Changes in Assets and Liabilities
Accounts receivable (5,758) 1,332 (3,159)
Fuel inventory 1,845 (1,010) (6)
Accounts payable (4,922) 7,558 (5,775)
Payables to associates 3,697 (36,564) 22,627
Accrued taxes 5,730 (7,168) 4,085
Accrued restructuring charges (204) (8,918) --
Over- and under-recovered fuel costs 2,474 1,512 (1,767)
Refunds due customers 1,812 -- --
Other deferred credits (1,039) 1,053 3,767
Other (5,899) (5,388) (6,496)
53,340 28,004 90,018
INVESTING ACTIVITIES
Construction expenditures (44,076) (41,504) (36,318)
Allowance for borrowed funds used during
construction (653) (324) (138)
Disposition of plant (1,864) (1,315) 3,302
(46,593) (43,143) (33,154)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 118,376 39,354 (77)
Reacquisition of long-term debt (59,082) (20,731) (24,250)
Redemption of preferred stock -- (4,700) (10,000)
Payment of dividends (41,330) (31,520) (30,816)
Change in advances from affiliates (26,495) 34,531 7,241
(8,531) 16,934 (57,902)
Net Change in Cash and Cash Equivalents (1,784) 1,795 (1,038)
Cash and Cash Equivalents at Beginning of Year 2,501 706 1,744
Cash and Cash Equivalents at End of Year $717 $2,501 $706
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $20,496 $18,128 $18,430
Income taxes paid $8,399 $12,720 $325
The accompanying notes to financial statements
are an integral part of these statements.
WTU
<PAGE> 2-151
WTU
Statements of Capitalization
West Texas Utilities Company
As of December 31,
1995 1994
(thousands)
COMMON STOCK EQUITY $265,220 $271,954
PREFERRED STOCK
Cumulative $100 Par Value, Authorized 810,000 shares
Number Current
of Shares Redemption
Series Outstanding Price
Not Subject to Mandatory
Redemption
4.40% 60,000 $107.00 6,000 6,000
Premium 291 291
6,291 6,291
LONG-TERM DEBT
First Mortgage Bonds
Series O, 9 1/4%, due December 1, 2019 -- 55,203
Series P, 7 3/4%, due June 1, 2007 25,000 25,000
Series Q, 6 7/8%, due October 1, 2002 35,000 35,000
Series R, 7%, due October 1, 2004 40,000 40,000
Series S, 6 1/8%, due February 1, 2004 40,000 40,000
Series T, 7 1/2%, due April 1, 2000 40,000 --
Series U, 6 3/8%, due October 1, 2005 80,000 --
Installment Sales Agreements - PCRBs
Series 1984, 7 7/8%, due September 15, 2014 (Red
River) 44,310 44,310
Unamortized discount and premium (1,607) (1,323)
Unamortized costs of reacquired debt (29,458) (27,493)
Amount to be redeemed within one year -- (650)
273,245 210,047
TOTAL CAPITALIZATION $544,756 $488,292
The accompanying notes to financial statements
are an integral part of these statements.
WTU
<PAGE> 2-152
WEST TEXAS UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See CSW's NOTE 1 on pages 2-32 to 2-37.
2.LITIGATION AND REGULATORY PROCEEDINGS
WTU Stipulation and Agreement
WTU has been the subject of several pending regulatory
matters, including the following: (i) a retail rate proceeding and
fuel reconciliation before the Texas Commission in Docket No.
13369; (ii) Writ of Error to the Supreme Court - review of WTU's
1987 Texas rate case in Docket No. 7510; and (iii) the Texas
Commission's proceeding on remand in Docket No. 13949 regarding
deferred accounting treatment for Oklaunion Power Station Unit No.
1 originally authorized in the Texas Commission's Docket No. 7289.
On September 22, 1995, WTU, along with other major parties
to the above described matters, filed with the Texas Commission a
joint stipulation and agreement to resolve all of these matters.
The WTU Stipulation and Agreement is a unified package that
included: (i) a retail base rate reduction of approximately $13.5
million annually starting with WTU's October 1995 revenue month
billing cycle; (ii) a $21 million retail refund which was not
attributed to any specific cause but was inclusive of all claims
related to the three above described litigation and regulatory
matters and included the effect of the rate reduction to October
1, 1994; (iii) a reduction of fixed fuel factors by approximately
2%; (iv) various rate and accounting treatments including a
reasonable return on equity for retail operations of 11.375%; and
(v) a retail base rate freeze until October 1, 1998, subject to
certain force majeure provisions.
On November 9, 1995, the Texas Commission rendered a final
order that implemented the joint stipulation and agreement, ending
the rate proceeding and fuel reconciliation in Docket No. 13369
and the remand, designated Docket No. 13949, to the Texas
Commission by the Supreme Court for the deferred accounting
treatment of Oklaunion Power Station Unit No. 1 originally
authorized by the Texas Commission in Docket No. 7289. The final
order also set into motion the actions required to seek a remand
of the appeal of Docket No. 7510 to the Texas Commission to
implement a final order consistent with the WTU Stipulation and
Agreement.
On December 8, 1995, all parties to the appeals filed a
joint motion with the Supreme Court and, on December 22, 1995, the
Supreme Court approved the joint motion to withdraw and dismissed
the case. The case will now go back to the Court of Appeals so
that it can be remanded back to the Texas Commission. The date of
this remand and final action by the Texas Commission is not known.
The WTU Stipulation and Agreement is expected to impact
WTU's results of operations for the next several years, reducing
annual earnings by approximately $8 million beginning in 1996.
Details of the items with significant earnings impact for 1995 and
1996, including certain accounting treatments, are set forth in
the following table.
WTU
<PAGE> 2-153
1995 1996
(unaudited)
Pre-tax After-tax Pre-tax After-tax
(millions)
Refund to retail customers $(21.0) $(13.7) $-- $--
Effect of retail rate reduction (2.4) (1.6) (7.6) (4.9)
Current flowback of property
related excess deferred
federal income taxes 6.9 6.9 -- --
Five year flowback of non-
property related excess
deferred federal income taxes 0.1 0.1 0.5 0.5
Capitalization and amortization
of previously expensed
restructuring costs 12.7 8.2 (1.9) (1.2)
Accelerated amortization of
deferred Oklaunion plant
costs (accelerated from
the remaining 31 years to
7 years) -- -- (2.9) (1.9)
Other amortization (0.2) (0.1) (0.8) (0.5)
Other one-time items 1.0 0.7 -- --
The WTU Stipulation and Agreement also eliminated several
significant risks that have been the subject of regulatory
proceedings relating to deferred accounting and rates and will
enable WTU's rates to remain at competitive levels for the
foreseeable future.
Other
WTU is party to various other legal claims, actions and
complaints arising in the normal course of business. Management
does not expect disposition of these matters to have a material
adverse effect on WTU's results of operations or financial
condition.
3.COMMITMENTS AND CONTINGENT LIABILITIES
Construction and Capital Expenditures
It is estimated that WTU will spend approximately $42
million, including AFUDC, in construction expenditures during
1996. Substantial commitments have been made in connection with
this capital expenditure program.
Fuel Commitments
WTU has entered into various commitments for the procurement
of fuel.
WTU Pipeline Leases
WTU has a sale/leaseback agreement with Transok, an
affiliated company, for full capacity use of a natural gas
pipeline to WTU's Ft. Phantom generating plant. The lease
agreement also provides for full capacity use of Transok's natural
gas pipelines serving WTU's San Angelo, Oak Creek and Rio Pecos
generating plants. The initial terms of the agreement entered
into in 1992 are for twelve years with renewable options
thereafter.
4.INCOME TAXES
See CSW's NOTE 4.
5.BENEFIT PLANS
See CSW's NOTE 5.
WTU
<PAGE> 2-154
6.JOINTLY OWNED ELECTRIC UTILITY PLANT
See CSW's NOTE 6.
7.FINANCIAL INSTRUMENTS
See CSW's NOTE 7.
8.LONG-TERM DEBT
See CSW's NOTE 8.
9.PREFERRED STOCK
See CSW's NOTE 9.
10.SHORT-TERM FINANCING
See CSW's NOTE 10.
11.QUARTERLY INFORMATION
See CSW's NOTE 14 on pages 2-64 and 2-65.
CSW's NOTE 4 through NOTE 10 are found on pages 2-48 through 2-60.
WTU
<PAGE> 2-155
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of West Texas Utilities
Company:
We have audited the accompanying balance sheets and statements
of capitalization of West Texas Utilities Company (a Texas
corporation and a wholly owned subsidiary of Central and South West
Corporation) as of December 31, 1995 and 1994, and the related
statements of income, retained earnings and cash flows for each of
the three years in the period ended December 31, 1995. These
financial statements are the responsibility of WTU's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
West Texas Utilities Company as of December 31, 1995 and 1994, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
In 1993, as discussed in NOTE 1, WTU changed its methods of
accounting for unbilled revenues, postretirement benefits other than
pensions, income taxes and postemployment benefits.
Our audits were made for the purpose of forming an opinion on
the financial statements taken as a whole. The supplemental
Schedule II and Exhibit 12 are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. This schedule and exhibit have
been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Dallas, Texas
February 28, 1996
WTU
<PAGE> 2-156
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and
objectivity of the financial statements of West Texas Utilities
Company as well as other information contained in this Annual
Report. The financial statements have been prepared in conformity
with generally accepted accounting principles applied on a
consistent basis and, in some cases, reflect amounts based on the
best estimates and judgments of management, giving due consideration
to materiality. Financial information contained elsewhere in this
Annual Report is consistent with that in the financial statements.
The financial statements have been audited by the independent
accounting firm, Arthur Andersen LLP, which was given unrestricted
access to all financial records and related data, including minutes
of all meetings of shareholders, the board of directors and
committees of the board. WTU believes that representations made to
the independent auditors during their audit were valid and
appropriate. Arthur Andersen LLP's audit report is presented
elsewhere in this report.
WTU maintains a system of internal controls to provide
reasonable assurance that transactions are executed in accordance
with management's authorization, that the financial statements are
prepared in accordance with generally accepted accounting principles
and that the assets of the companies are properly safeguarded
against unauthorized acquisition, use or disposition. The system
includes a documented organizational structure and division of
responsibility, established policies and procedures including a
policy on ethical standards which provides that WTU will maintain
the highest legal and ethical standards, and the careful selection,
training and development of our employees.
Internal auditors continuously monitor the effectiveness of the
internal control system following standards established by the
Institute of Internal Auditors. Actions are taken by management to
respond to deficiencies as they are identified. The board,
operating through its audit committee, which is comprised entirely
of directors who are not officers or employees of WTU provides
oversight to the financial reporting process.
Due to the inherent limitations in the effectiveness of
internal controls, no internal control system can provide absolute
assurance that errors will not occur. However, management strives
to maintain a balance, recognizing that the cost of such a system
should not exceed the benefits derived.
WTU believes that, in all material respects, its system of
internal controls over financial reporting and over safeguarding of
assets against unauthorized acquisition, use or disposition
functioned effectively as of December 31, 1995.
Glenn Files R. Russell Davis
President and CEO - WTU Controller - WTU
WTU
<PAGE> 2-157
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
CSW None.
CPL None.
PSO None.
SWEPCO None.
WTU None.
<PAGE> 3-1
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANTS.
CSW has filed with the SEC its Notice of Annual Meeting of
Stockholders and Proxy Statement relating to its 1996 Annual Meeting
of Stockholders. The information required by ITEM 10, other than
with respect to certain information regarding the executive officers
of CSW which is included in ITEM 1-BUSINESS, is hereby incorporated
by reference herein from pages 3-5 and 8 of such Proxy Statement.
(a) Directors of each of the Electric Operating Companies,
together with certain information with respect to each of them, are
listed below.
Name, Age, Principal Year
Occupation, Business Experience First Became
and Other Directorships Director
CPL
JOHN F. BRIMBERRY AGE - 63 1995
President of Professional Insurance Agents, Inc.,
Victoria, Texas.
E. R. BROOKS AGE - 58 1991
Chairman, President and CEO of CSW since 1991.
President of CSW from 1990 to 1991. Director of CSW
and each of its subsidiaries. Director of Hubbell,
Inc., Orange, Connecticut. Trustee of Baylor
University Medical Center, Dallas, Texas and Hardin-
Simmons University, Abilene, Texas.
ROBERT R. CAREY * AGE - 58 1989
President and CEO of CPL since 1990. Director of
NationsBank, Corpus Christi, Texas.
*Mr. Carey will retire from all positions held at CPL
effective April 30, 1996.
RUBEN M. GARCIA AGE - 64 1981
President or principal of several firms engaged
primarily in construction and land development in the
Laredo, Texas area.
DAVID L. HOOPER AGE - 40 1994
Vice President, Marketing and Business Development of
CPL since 1994. Director of Marketing and Business
Development of CSW Services from 1993 to 1994.
Director of Marketing and Business Development of CPL
from 1991 to 1993. Area manager of CPL from 1990 to
1991.
HARRY D. MATTISON * AGE - 59 1994
Executive Vice President of CSW since 1990 and CEO of
CSW Services since 1993. COO of CSW from 1990 to
1993. Director of CSW and each of CSW's wholly owned
subsidiaries. President and CEO of SWEPCO from 1989
to 1990.
* Mr. Mattison will retire from CPL's board of
directors effective April 11, 1996.
<PAGE> 3-2
Name, Age, Principal Year
Occupation, Business Experience First Became
and Other Directorships Director
ROBERT A. McALLEN AGE - 61 1983
Robert A. McAllen, Insurance Agency, Weslaco, Texas.
PETE MORALES, JR. AGE - 55 1990
President and General Manager of Morales Feed Lots,
Inc., Devine, Texas. Director of The Bank of Texas,
Devine, Texas.
S. LOYD NEAL, JR. AGE - 58 1990
President of Hilb, Rogal and Hamilton Company of
Corpus Christi, an insurance agency, Corpus Christi,
Texas. Director of Bay Area Medical Center, Corpus
Christi, Texas.
H. LEE RICHARDS AGE - 62 1987
Chairman of the Board of Hygeia Dairy Company,
Harlingen, Texas.
MELANIE J. RICHARDSON AGE - 39 1993
Vice President, Administration of CPL since 1993.
Treasurer of CPL from 1992 to 1994. Vice President,
Corporate Services of CPL from 1992 to 1993.
Director of Internal Audits of CPL from 1991 to 1992.
Manager of Personnel Services of CPL from 1986 to
1991.
J. GONZALO SANDOVAL AGE - 47 1992
Vice President, Operations and Engineering of CPL
since 1993. Vice President, Regional Operations of
CPL from 1992 to 1993. Vice President, Corporate
Services of CPL from 1991 to 1992. General Manager
of the Southern Region of CPL from 1988 to 1991.
GERALD E. VAUGHN AGE - 53 1993
Vice President, Nuclear of CSW Services since 1994.
Vice President, Nuclear Affairs of CPL from 1993 to
1994. Vice President for Shearon Harris Nuclear
Plant from 1992-1993 and Vice President, Nuclear
Services from 1990 to 1992 of Carolina Power and
Light Company, Raleigh, North Carolina.
Each of the directors and executive officers of CPL is elected
to hold office until the first meeting of CPL's Board of Directors
after the 1996 Annual Meeting of Stockholders. CPL's 1996 Annual
Meeting of Stockholders is presently scheduled to be held on April
11, 1996. All outside directors have engaged in their principal
occupations listed above for a period of more than five years,
unless otherwise indicated.
PSO
E. R. BROOKS AGE - 58 1991
Chairman, President and CEO of CSW since 1991.
President of CSW from 1990 to 1991. Director of CSW
and each of its subsidiaries. Director of Hubbell,
Inc., Orange, Connecticut. Trustee of Baylor
University Medical Center, Dallas, Texas and Hardin-
Simmons University, Abilene, Texas.
<PAGE> 3-3
Name, Age, Principal Year
Occupation, Business Experience First Became
and Other Directorships Director
HARRY A. CLARKE AGE - 67 1972
General Partner and President of HAC Investments,
Afton, Oklahoma.
PAUL K. LACKEY, JR. AGE - 52 1992
Secretary of Health and Human Services, Executive
Director of the Office of Juvenile Affairs, State of
Oklahoma, beginning in 1995. Consultant, Flint
Industries, Inc., a construction, electronics
manufacturing, and environmental services company,
Tulsa, Oklahoma. Advisory Director of Bank IV-Tulsa,
Tulsa, Oklahoma.
PAULA MARSHALL-CHAPMAN AGE - 42 1991
General Partner/CEO of Bama Pie Ltd., a baked goods
produce company, Tulsa, Oklahoma.
HARRY D. MATTISON * AGE - 59 1994
Executive Vice President of CSW since 1990 and CEO of
CSW Services since 1993. COO of CSW from 1990 to
1993. Director of CSW and each of CSW's wholly owned
subsidiaries. President and CEO of SWEPCO from 1989
to 1990.
* Mr. Mattison will retire from PSO's board of
directors effective April 16, 1996.
WILLIAM R. McKAMEY AGE - 49 1993
Vice President, Marketing and Business Development of
PSO since 1993. Director of Marketing and Business
Development of CSW from 1992 to 1993. Director of
Marketing of SWEPCO from 1990 to 1992.
MARY M. POLFER AGE - 51 1991
Vice President, Administration of PSO since 1993.
Vice President, Finance of PSO from 1990 to 1993.
DR. ROBERT B. TAYLOR, JR. AGE - 67 1975
Retired dentist, Okmulgee, Oklahoma.
ROBERT L. ZEMANEK AGE - 46 1990
President and CEO of PSO since 1992. Executive Vice
President of PSO from 1990 to 1992.
WALDO J. ZERGER, JR. AGE - 49 1991
Vice President, Operations and Engineering of PSO
since 1994. Vice President of Division Operations of
PSO from 1990 to 1994.
Each of the directors and executive officers of PSO is elected
to hold office until the first meeting of PSO's Board of Directors
after the 1996 Annual Meeting of Stockholders. PSO's 1996 Annual
Meeting of Stockholders is presently scheduled to be held on April
16, 1996. All outside directors have engaged in their principal
occupations listed above for a period of more than five years,
unless otherwise indicated.
<PAGE> 3-4
Name, Age, Principal Year
Occupation, Business Experience First Became
and Other Directorships Director
SWEPCO
RICHARD H. BREMER AGE - 47 1989
President and CEO of SWEPCO since 1990. Director of
Commercial National Bank, Shreveport, Louisiana.
Director of Deposit Guaranty Corporation, Jackson,
Mississippi.
E. R. BROOKS AGE - 58 1991
Chairman, President and CEO of CSW since 1991.
President of CSW from 1990 to 1991. Director of CSW
and each of its subsidiaries. Director of Hubbell,
Inc., Orange, Connecticut. Trustee of Baylor
University Medical Center, Dallas, Texas and Hardin-
Simmons University, Abilene, Texas.
JAMES E. DAVISON AGE - 58 1993
Sole Proprietor of Paul M. Davison Petroleum
Products. President and Chief Executive Officer of
Davison Transport, Inc. and Davison Terminal
Services, Inc. Advisory Board member of Heritage
Financial Group. All of the above entities are
located in Ruston, Louisiana.
AL P. EASON, JR. * AGE - 70 1975
President, Eason and Company, a general insurance
company, Fayetteville, Arkansas.
* Mr. Eason will retire from SWEPCO's board of
directors effective April 10, 1996.
W. J. GOOGE, JR. AGE - 53 1990
Vice President, Administration of SWEPCO since 1993.
Vice President, Corporate Services of SWEPCO from
1990 to 1993.
DR. FREDERICK E. JOYCE AGE - 61 1990
Physician. President of Chappell-Joyce Pathology
Association, P.A., Texarkana, Texas. President of
Doctors Diagnostic Laboratory, Inc., Texarkana,
Texas. Director of State First National Bank and
State First Financial Corporation, Texarkana,
Arkansas. Director of First Commercial Corporation,
Little Rock, Arkansas.
MICHAEL H. MADISON AGE - 47 1992
Vice President, Operations and Engineering of SWEPCO
since 1993. Vice President, Engineering and
Production of SWEPCO from 1992 to 1993. Vice
President, Corporate Services of WTU from 1990 to
1992.
HARRY D. MATTISON * AGE - 59 1994
Executive Vice President of CSW since 1990 and CEO of
CSW Services since 1993. COO of CSW from 1990 to
1993. Director of CSW and each of CSW's wholly owned
subsidiaries. President and CEO of SWEPCO from 1989
to 1990.
* Mr. Mattison will retire from SWEPCO's board of
directors effective April 10, 1996.
MARVIN R. McGREGOR AGE - 49 1990
Vice President, Marketing and Business Development of
SWEPCO since 1990.
<PAGE> 3-5
Name, Age, Principal Year
Occupation, Business Experience First Became
and Other Directorships Director
WILLIAM C. PEATROSS AGE - 52 1990
President of Caddo Abstract and Title Co., Inc.,
Director of Commercial National Bank. Both entities
are located in Shreveport, Louisiana.
MAXINE P. SARPY AGE - 56 1996
Vice President of the Caddo-Bossier Port Commission,
Treasurer of the Association for Community Training
and State President of the Auxiliary to the Louisiana
Medical Association, Board Member of the National
Conference of Christians and Jews. All of the above
entities are located in Shreveport, Louisiana. Vice
President of the Southern University Foundation
Board, Baton Rouge, Louisiana.
Each of the directors and executive officers of SWEPCO is
elected to hold office until the first meeting of SWEPCO's Board of
Directors after the 1996 Annual Meeting of Stockholders. SWEPCO's
1996 Annual Meeting of Stockholders is presently scheduled to be
held on April 10, 1996. All outside directors have engaged in their
principal occupations listed above for a period of more than five
years, unless otherwise indicated.
WTU
RICHARD F. BACON AGE - 69 1980
Retired President and CEO of Merchants, Inc.
Companies, a freight common carrier, Abilene, Texas.
C. HARWELL BARBER AGE - 69 1990
Chairman of Rita Barber, Inc., a burial clothing
company, Abilene, Texas.
E. R. BROOKS AGE - 58 1980
Chairman, President and CEO of CSW since 1991.
President of CSW from 1990 to 1991. Director of CSW
and each of its subsidiaries. Director of Hubbell,
Inc., Orange, Connecticut. Trustee of Baylor
University Medical Center, Dallas, Texas and Hardin-
Simmons University, Abilene, Texas.
PAUL J. BROWER AGE - 47 1991
Vice President, Marketing and Business Development of
WTU since 1991. Division Manager of PSO from 1990 to
1991.
T. D. CHURCHWELL AGE - 51 1994
Executive Vice President, Operations and Engineering
of WTU beginning in 1995. Executive Vice President
of WTU from 1994 to 1995. Vice President, Corporate
Services of CSW Services from 1991 to 1993. Central
Region Manager of CPL from 1989 to 1991.
<PAGE> 3-6
Name, Age, Principal Year
Occupation, Business Experience First Became
and Other Directorships Director
GLENN FILES * AGE - 48 1991
President and CEO of WTU since 1992. Executive Vice
President of WTU from 1991 to 1992. Vice President,
Marketing and Business Development of CPL from 1990
to 1991. Director of First National Bank of Abilene,
Texas.
* Effective February 26, 1996, Mr. Files joined CSW's
executive management team while retaining his
responsibilities at WTU. Mr. Files will also assume
an executive advisory role relating to CPL,
effective April 30, 1996, pursuant to Mr. Robert R.
Carey's retirement.
HARRY D. MATTISON * AGE - 59 1994
Executive Vice President of CSW since 1990 and CEO of
CSW Services since 1993. COO of CSW from 1990 to
1993. Director of CSW and each of CSW's wholly owned
subsidiaries. President and CEO of SWEPCO from 1989
to 1990.
* Mr. Mattison will retire from WTU's board of
directors effective March 26, 1996.
TOMMY MORRIS AGE - 61 1976
Independent insurance agent, Abilene, Texas.
DIAN G. OWEN AGE - 56 1994
Chairman of Owen Healthcare, Inc., hospital services,
Abilene, Texas. Director of First National Bank of
Abilene, Abilene, Texas. Director of First Financial
Bankshares, Inc., Abilene, Texas.
JAMES M. PARKER AGE - 65 1987
President and CEO of J. M. Parker and Associates,
Inc., an investment company, Abilene, Texas.
Director of First Financial Bankshares, Inc. and
First National Bank of Abilene, Abilene, Texas.
DENNIS M. SHARKEY AGE - 51 1994
Vice President, Administration of WTU since 1994.
Vice President, Finance and Director of SWEPCO from
1990 to 1994.
F. L. STEPHENS AGE - 58 1980
Chairman and CEO of Town & Country Food Stores, Inc.,
San Angelo, Texas. Director of Norwest Texas,
Lubbock, Texas.
Each of the directors and executive officers of WTU is elected
to hold office until the first meeting of WTU's Board of Directors
after the 1996 Annual Meeting of Stockholders. WTU's 1996 Annual
Meeting of Stockholders is presently scheduled to be held on March
26, 1996. All outside directors have engaged in their principal
occupations listed above for a period of more than five years,
unless otherwise indicated.
<PAGE> 3-7
(b) The following is a list of officers who are not directors
of the registrants, together with certain information with respect
to each of them:
Year First
Name, Age, Principal Elected to
Occupation, Business Experience Present Position
CPL, PSO, SWEPCO and WTU
SHIRLEY S. BRIONES AGE - 44 1994
Treasurer of CPL, PSO, SWEPCO, WTU and CSW Services
since 1994. Manager, Budgets and Accounting Systems
of CPL from 1992 to 1994. Supervisor of Accounting
of CPL from 1990 to 1992.
R. RUSSELL DAVIS AGE - 39 1994
Controller of CPL, WTU, SWEPCO and CSW Services since
1994. Controller of PSO since 1993. Assistant
Controller of CSW from 1992 to 1993. Assistant
Controller of CSW Services from 1991 to 1992.
Business Improvement Project Manager of WTU in 1991.
Manager of Financial Reporting of WTU from 1988 to
1991.
CPL
DAVID P. SARTIN AGE - 39 1994
Director of Planning and Analysis and Secretary of
CPL since 1994. Controller of CPL from 1991 to 1994.
Controller of WTU from 1989 to 1991.
PSO
BETSY J. POWERS AGE - 60 1989
Secretary of PSO since 1989.
SWEPCO
MARILYN S. KIRKLAND AGE - 48 1995
Secretary of SWEPCO since 1995. Senior executive
secretary to the president since 1992. Previously a
human resource representative at SWEPCO.
WTU
MARTHA MURRAY AGE - 50 1992
Secretary of WTU since 1992. Previously a senior
secretary at WTU.
<PAGE> 3-8
ITEM 11. EXECUTIVE COMPENSATION.
Cash and Other Forms of Compensation
Information required by ITEM 11 with respect to CSW is hereby
incorporated by reference herein from pages 15-19 of CSW's Proxy
Statement.
The following table sets forth the aggregate cash and other
compensation for services rendered for the fiscal years of 1995,
1994 and 1993 paid or awarded by each registrant to the CEO and each
of the four most highly compensated Executive Officers, other than
the CEO, whose salary and bonus exceeds $100,000, and up to two
additional individuals, if any, not holding an executive officer
position as of year-end but who held such a position at any time
during the year, and whose compensation for the year would have
placed them among the four most highly compensated executive
officers. For CPL, PSO and SWEPCO only three Executive Officers
meet these requirements.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
CSW
Other CSW Securities
Annual Restricted Underlying All Other
Compen- Stock Options/ LTIP Compen-
Name and Salary Bonus sation Award(s) SARs Payouts sation
Principal Position Year ($) ($)(1) ($)(2) ($)(1)(3) (#) ($) ($)(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CPL
Robert R. Carey, 1995 306,415 44,679 9,414 -- -- -- 23,117
President and CEO 1994 293,344 -- 516 -- 15,901 -- 23,763
1993 272,893 32,943 9,548 33,608 -- -- 27,587
J. Gonzalo Sandoval, 1995 137,760 19,503 4,366 -- -- -- 6,199
Vice President, 1994 129,932 -- 989 -- 4,010 -- 5,847
Operations and 1993 120,327 7,878 4,963 7,986 -- -- 4,221
Engineering
Melanie J. Richardson, 1995 130,890 21,670 1,658 -- -- -- 3,927
Vice President, 1994 122,230 -- 454 -- 4,010 -- 3,667
Administration 1993 109,228 8,399 1,598 -- -- -- 3,277
David L. Hooper, Vice 1995 128,060 15,587 2,402 -- -- -- 3,789
President, Marketing 1994 87,704 -- 51,928 -- 4,010 -- 3,365
and Business Development 1993 -- -- -- -- -- -- --
(2)(5)
PSO
Robert L. Zemanek, 1995 276,270 91,436 9,192 -- -- -- 23,117
President and CEO 1994 262,962 -- 2,981 -- 14,792 -- 17,472
1993 238,269 24,051 3,927 24,503 -- -- 26,835
Waldo J. Zerger, Jr., 1995 146,169 20,586 5,162 -- -- -- 6,578
Vice President, 1994 138,108 -- 2,634 -- 4,010 -- 12,847
Operations and 1993 128,866 4,988 2,571 5,052 -- -- 5,347
Engineering
Mary M. Polfer, Vice 1995 142,492 19,503 5,075 -- -- -- 4,275
President, Administration 1994 135,820 -- 3,417 -- 4,010 -- 8,439
1993 127,403 4,635 3,071 4,179 -- -- 3,518
William R. McKamey, Vice 1995 128,024 19,503 3,282 -- -- -- 5,761
President, Marketing and 1994 119,900 -- 2,401 -- 4,010 -- 6,074
Business Development 1993 52,953 -- 33,903 -- -- -- 4,487
(2)(5)
</TABLE>
<PAGE> 3-9
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
CSW
Other CSW Securities
Annual Restricted Underlying All Other
Compen- Stock Options/ LTIP Compen-
Name and Salary Bonus sation Award(s) SARs Payouts sation
Principal Position Year ($) ($)(1) ($)(2) ($)(1)(3) (#) ($) ($)(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SWEPCO
Richard H. Bremer, 1995 298,372 89,358 14,691 -- -- -- 21,706
President and CEO 1994 277,359 50,000 13,978 -- 15,901 -- 22,235
1993 263,833 36,017 13,206 36,724 -- -- 24,088
Marvin R. McGregor, 1995 145,825 23,837 3,801 -- -- -- 7,402
Vice President, Marketing 1994 133,773 -- 4,292 -- 4,010 -- 6,695
and Business Development 1993 126,620 8,196 5,769 8,319 -- -- 5,197
Michael H. Madison, Vice 1995 142,448 22,753 4,376 -- -- -- 7,250
President, Operating and 1994 131,621 -- 3,625 -- 4,010 -- 6,600
Engineering (2) 1993 126,215 7,140 30,742 7,260 -- -- 5,188
W. J. Googe, Jr., 1995 133,664 21,670 2,718 -- -- -- 6,854
Vice President, 1994 122,769 -- 2,543 -- 4,010 -- 6,213
Administration 1993 117,644 7,001 4,965 9,620 -- -- 6,632
WTU
Glenn Files, President 1995 266,223 85,048 19,144 -- -- -- 23,117
and CEO (2) 1994 246,699 50,000 10,032 -- 13,758 -- 6,750
1993 223,333 24,675 39,223 25,138 -- -- 26,126
T. D. Churchwell, 1995 180,400 40,388 9,206 -- -- -- 4,500
Executive Vice President, 1994 163,329 -- 180,191 -- 6,133 -- 4,500
Operation and Engineering 1993 -- -- -- -- -- -- --
(2) (5)
Dennis M. Sharkey, 1995 171,001 18,419 7,959 -- -- -- 4,500
Vice President, 1994 157,046 -- 72,927 -- 4,010 -- 4,500
Administration (2)(5) 1993 -- -- -- -- -- -- --
Paul J. Brower, Vice 1995 147,119 19,503 11,546 -- -- -- 4,413
President, Marketing and 1994 132,058 -- 5,519 -- 4,010 -- 3,962
Business Development 1993 123,133 7,231 673 7,351 -- -- 3,366
Donald A. Welch, Vice 1995 91,034 17,336 20,011 -- -- -- 4,071
President Division 1994 136,962 -- 5,003 -- 4,010 -- 6,163
Operations and 1993 129,650 7,178 1,628 7,290 -- -- 5,339
Engineering (2)(5)
</TABLE>
(1) Amounts in this column are paid or awarded in a calendar year
for performance in a preceding year.
(2) The following are the perquisites and other personal benefits
required to be identified in respect of each Named Executive
Officer.
CPL
In 1994, Mr. Hooper was reimbursed $49,485 for relocation
expenses.
PSO
In 1993, Mr. McKamey was reimbursed $24,641 for relocation
expenses.
SWEPCO
In 1993, Mr. Madison was reimbursed $14,848 for relocation
expenses.
<PAGE> 3-10
WTU
In 1995, Mr. Welch received $13,133 in compensation related to
the sale of restricted stock.
In 1994, Mr. Churchwell and Mr. Sharkey were reimbursed $21,052
and $43,816, respectively, for relocation expenses. Mr.
Churchwell was reimbursed $73,490 for loss on the sale of his
home, due to structural problems.
In 1993, Mr. Files was reimbursed $8,482 for spouse travel
expenses.
(3) CPL, PSO, SWEPCO and WTU
Grants of restricted stock are administered by the Executive
Compensation Committee of CSW's Board of Directors, which has the
authority to determine the individuals to whom and the terms upon
which restricted stock grants, including the number of underlying
shares, shall be made. The awards reflected in this column all
have four-year vesting periods with 20% of the stock vesting on
the first, second and third anniversary dates of the award and
40% vesting on the fourth such anniversary date. Upon vesting,
shares of CSW Common are re-issued without restrictions. The
individuals receive dividends and may vote shares of restricted
stock, even before they are vested. The amount reported in the
table represents the market value of the shares at the date of
grant. As of the end of 1995, the aggregate restricted stock
holdings of each of the Named Executive Officers are presented in
the following table.
Restricted Market
Name Stock Held Value at
at December December
31, 1995 31, 1995
CPL
Robert R. Carey 1,417 $39,499
J. Gonzalo Sandoval 158 4,404
Melanie J. Richardson -- --
David L. Hooper -- --
PSO
Robert L. Zemanek 680 18,955
Waldo J. Zerger, Jr. 289 8,056
Mary M. Polfer 302 8,418
William R. McKamey -- --
SWEPCO
Richard H. Bremer 1,550 43,206
Marvin R. McGregor 325 9,059
Michael H. Madison 300 8,363
W. Jerry Googe, Jr. 296 8,251
WTU
Glenn Files 733 20,432
T. D. Churchwell 301 8,390
Dennis M. Sharkey 340 9,478
Paul J. Brower 237 6,606
Donald A. Welch -- --
(4) CPL, PSO, SWEPCO and WTU
Amounts shown in this column consist of (i) the annual employer
matching payments to CSW's Thrift Plus Plan, (ii) premiums paid
per participant for personal liability insurance and (iii)
average amounts of premiums paid per participant under CSW's
memorial gift program. Under this program, for certain executive
officers, directors and retired directors from the CSW System,
CSW will make a donation in the participant's name for up to
three charitable organizations of an aggregate of $500,000,
payable by CSW upon such person's death. CSW maintains corporate-
owned life insurance policies to fund the program. The annual
premiums paid by CSW are based on pooled risks and averaged
$16,367 per participant for 1995 and $17,013 per participant for
1994 and 1993. During 1995, Messrs. Bremer, Carey, Files and
<PAGE> 3-11
Zemanek participated. During 1994, Messrs. Carey and Bremer
participated. Messrs. Files and Zemanek also participated in the
plan in 1994, but coverage was provided by CSW. During 1993,
Messrs. Bremer, Carey, Files, and Zemanek participated.
(5) CSW System Affiliations.
CPL
Mr. Hooper was employed by CSW Services during 1993 and a portion
of 1994.
PSO
Mr. McKamey was employed by CSW during a portion of 1993.
WTU
Mr. Churchwell was employed by CSW Services during 1993. Mr.
Sharkey was employed by SWEPCO during 1993, and Mr. Welch
resigned in August of 1995.
Option/SAR Grants
No stock options or stock appreciation rights were granted in
1995. The stock option plans are administered by the Executive
Compensation Committee of the CSW Board of Directors, which has the
authority to determine the individuals to whom and the terms upon
which option and SAR grants shall be made.
Option/SAR Exercises and Year-End Value Table
Information regarding option/SAR exercises during 1995 and
unexercised options/SARs at December 31, 1995 for the Named
Executive Officers is presented in the following table.
Number of CSW
Securities Value of
Underlying In-the-
Unexercised Money/SARs at
Shares Options/SARs Year-End
Acquired Value at Year-End ($)Exercisable/
on Exercise Realized (#) Exercisable/ Unexercisable
Name (#) ($) Unexercisable (1)
CPL
Robert R. Carey -- -- 19,231/10,601 11,912/32,460
J. Gonzalo Sandoval -- -- 4,252/2,674 --/8,188
Melanie J. Richardson -- -- 2,643/2,674 1,804/8,188
David L. Hooper -- -- 2,848/2,674 1,445/8,188
PSO
Robert L. Zemanek -- -- 15,568/9,862 --/30,197
Waldo J. Zerger, Jr. -- -- 4,471,2,674 --/8,188
Mary M. Polfer -- -- 4,252/2,674 --/8,188
William R. McKamey -- -- 3,322/2,674 615/8,188
SWEPCO
Richard H. Bremer -- -- 17,731/10,601 --/32,460
Marvin R. McGregor -- -- 4,471/2,674 --/8,188
Michael H. Madison -- -- 4,471/2,674 --/8,188
W. Jerry Googe, Jr. -- -- 4,252/2,674 --/8,188
WTU
Glenn Files -- -- 14,481/9,172 --/28,085
T. D. Churchwell -- -- 5,179/4,089 772/12,521
Dennis M. Sharkey -- -- 10,652/2,674 73,688/8,188
Paul J. Brower -- -- 4,470/2,675 --/8,191
Donald A. Welch -- -- 16,458/2,675 76,380/8,191
<PAGE> 3-12
(1) Calculated based upon the difference between the closing price of
CSW Common on the New York Stock Exchange on December 31, 1995
($27.875 per share) and the exercise price per share of the
outstanding options (ranging from $16.125 to $29.625 per share).
Long-term Incentive Plan Awards in 1995
Information concerning awards made to the Named Executive
Officers during 1995 under the LTIP is set forth in the following
table.
Performance
Number of or Other Estimated Future Payouts
CSW Shares, Period Until Payouts under Non-Stock
Units or Maturation Price Based Plans
Other Rights or Payout Threshold Target Maximum
Name (#) (1) ($) ($) ($)
CPL
Robert R. Carey -- 2 years -- 146,437 219,656
J. Gonzalo Sandoval -- 2 years -- 31,580 47,370
Melanie J. Richardson -- 2 years -- 31,580 47,370
David L. Hooper -- 2 years -- 31,580 47,370
PSO
Robert L. Zemanek -- 2 years -- 136,223 204,335
Waldo J. Zerger, Jr. -- 2 years -- 31,580 47,370
Mary M. Polfer -- 2 years -- 31,580 47,370
William R. McKamey -- 2 years -- 31,580 47,370
SWEPCO
Richard H. Bremer -- 2 years -- 146,437 219,656
Marvin R. McGregor -- 2 years -- 31,580 47,370
Michael H. Madison -- 2 years -- 31,580 47,370
W. Jerry Googe, Jr. -- 2 years -- 31,580 47,370
WTU
Glenn Files -- 2 years -- 126,723 190,085
T. D. Churchwell -- 2 years -- 63,258 94,887
Dennis M. Sharkey -- 2 years -- 31,580 47,370
Paul J. Brower -- 2 years -- 31,580 47,370
Donald A. Welch -- -- -- -- --
Payouts of the awards are contingent upon CSW achieving a
specified level of total stockholder return, relative to a peer
group of utility companies, for the three-year period, or cycle, and
exceeding a certain defined minimum threshold. Total stockholder
return is calculated by dividing (i) the sum of (a) the cumulative
amount of dividends per share for the three-year period, assuming
full dividend reinvestment, and (b) the change in share price over
the three-year period, by (ii) the share price at the beginning of
the three-year period. If CSW's total stockholder return for a
cycle falls in one of the top three quartiles of similarly-
calculated total stockholder returns achieved at companies in the
peer group of utility companies, CSW will make a payout to
participants for the three-year cycle then ending. First, second
and third quartile performance will result in payouts of 150
percent, 100 percent and 50 percent of target, respectively.
Performance in the fourth quartile yields no payout under the LTIP.
If the Named Executive Officer's employment is terminated during the
performance period for any reason other than death, total and
permanent disability or retirement, then the award is canceled. In
March 1995, the committee reviewed total stockholder return results
and because they were below the threshold for a payout, no awards
were granted. The Executive Compensation Committee is scheduled to
evaluate the 1993 to 1995 cycle performance under the LTIP in March
1996.
The LTIP contains a provision accelerating awards upon a change
in control of CSW. Except as provided in the next sentence, if a
change in control of CSW occurs (i) all options and SARs become
fully exercisable and (ii) all restrictions, terms and conditions
<PAGE> 3-13
applicable to all restricted stock are deemed lapsed and satisfied
and all performance units are deemed to have been fully earned, as
of the date of the change in control. Awards which have been
outstanding for less than six months prior to the date the change in
control occurs are not subject to acceleration upon the occurrence
of a change in control. The LTIP also contains provisions designed
to prevent circumvention of the above acceleration provisions
through coerced termination of an employee prior to a change in
control.
Retirement Plan
Pension Plan Table
Annual Benefits After
Specified Years of Credited Service
Average
Compensation 15 20 25 30 or more
$100,000 . . . . .$ 25,050 $ 33,333 $ 41,667 $ 50,000
150,000 . . . . . 37,575 50,000 62,500 75,000
200,000 . . . . . 50,100 66,667 83,333 100,000
250,000 . . . . . 62,625 83,333 104,167 125,000
300,000 . . . . . 75,150 100,000 125,000 150,000
350,000 . . . . . 87,675 116,667 145,833 175,000
450,000 . . . . . 112,725 150,000 187,500 225,000
550,000 . . . . . 137,775 183,333 229,167 275,000
650,000 . . . . . 162,825 216,667 270,833 325,000
750,000 . . . . . 187,875 250,000 312,500 375,000
Executive officers are eligible to participate in the tax-
qualified CSW Pension Plan like other employees of the registrants.
Certain executive officers, including the Named Executive Officers,
are also eligible to participate in the SERP, a non-qualified ERISA
excess benefit plan. Such pension benefits depend upon years of
credited service, age at retirement and amount of covered
compensation earned by a participant. The annual normal retirement
benefits payable under the pension and the SERP are based on 1.67
percent of "Average Compensation" times the number of years of
credited service (reduced by (i) no more than 50 percent of a
participant's age 62 or later Social Security benefit and (ii)
certain other offset benefits).
"Average Compensation" is the covered compensation for the
plans and equals the average annual compensation, reported as salary
in the Summary Compensation Table, during the 36 consecutive months
of highest pay during the 120 months prior to retirement. The
combined benefit levels in the table above, which include both the
pension and SERP benefits, are based on retirement at age 65, the
years of credited service shown, continued existence of the plans
without substantial change and payment in the form of a single life
annuity.
Respective years of credited service and ages, as of December
31, 1995, for the Named Executive Officers are presented in the
following table.
Named Executive Officer Years of Credited Service Age
CPL
Robert R. Carey 28 58
J. Gonzalo Sandoval 22 46
Melanie J. Richardson 14 39
David L. Hooper 16 39
PSO
Robert L. Zemanek 23 46
Waldo J. Zerger, Jr. 25 49
Mary M. Polfer 5 51
William R. McKamey 25 49
<PAGE> 3-14
Named Executive Officer Years of Credited Service Age
SWEPCO
Richard H. Bremer 18 47
Marvin R. McGregor 26 49
Michael H. Madison 24 47
W. Jerry Googe, Jr. 30 53
WTU
Glenn Files 24 48
T. D. Churchwell 17 51
Dennis M. Sharkey 17 51
Paul J. Brower 19 46
Donald A. Welch 30 56
Meetings and Compensation
Those directors who are not also officers of CPL, PSO, SWEPCO
and WTU receive annual directors' fees and a fee of $300 plus
expenses for each board or committee meeting attended, as described
below. They are also eligible to participate in a deferred
compensation plan. Under this plan such directors may elect to
defer payment of annual directors' and meeting fees until they
retire from the board or as they otherwise direct. The number of
board meetings and annual directors' fees are presented in the
following table.
CPL PSO SWEPCO WTU
Number of regular board meetings 4 4 4 5
Annual directors' fees $6,000 $6,000 $6,600 $6,000
Compensation Committee Interlocks and Insider Participation
No person serving during 1995 as a member of the Executive
Compensation Committee of the Board of Directors of CSW served as an
officer or employee of any registrant during or prior to 1995. No
person serving during 1995 as an executive officer of the Electric
Operating Companies serves or has served on the compensation
committee or as a director of another company whose executive
officers serve or has served as a member of the Executive
Compensation Committee of CSW or as a director of one of the
Electric Operating Companies.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
CSW
The information required by ITEM 12 is incorporated by
reference herein from page 5-6 of CSW's Proxy Statement.
CPL, PSO, SWEPCO and WTU
All of the outstanding shares of common stock of each of the
Electric Operating Companies, presented in the following table, is
owned beneficially and of record by CSW, 1616 Woodall Rodgers
Freeway, Dallas, Texas 75202-1234.
Company Shares Par Value
CPL 6,755,535 $25 par value
PSO 9,013,000 $15 par value
SWEPCO 7,536,640 $18 par value
WTU 5,488,560 $25 par value
<PAGE> 3-15
Security Ownership of Management
The following tables show securities beneficially owned as of
December 31, 1995, by each director, the CEO and the four other most
highly compensated executive officers, and as a group, all directors
and Executive Officers of each of the Electric Operating Companies.
Share amounts shown in this table include options exercisable within
60 days after year-end, restricted stock, shares of CSW Common
credited to CSW Thrift Plus accounts and all other shares of CSW
Common beneficially owned by the listed persons.
Each of the Electric Operating Companies has one or more series
of preferred stock outstanding. As of December 31, 1995, none of
the individuals listed in the following tables owned any shares of
preferred stock of any Electric Operating Company.
CPL's Beneficial Ownership as of December 31, 1995
CSW Common
Underlying
CSW Restricted Immediately
Name Common (1) Stock (2)(3) Exercisable Options (3)
John F. Brimberry -- -- --
E. R. Brooks 86,887 2,572 41,455
Robert R. Carey 27,224 1,417 19,231
Ruben M. Garcia -- -- --
David L. Hooper 4,102 -- --
Harry D. Mattison 49,580 1,654 26,429
Robert A. McAllen -- -- --
Pete Morales, Jr. -- -- --
S. Loyd Neal, Jr. 1,572 -- --
H. Lee Richards 1,700 -- --
Melanie J. Richardson 3,583 -- 2,643
J. Gonzalo Sandoval 14,942 158 4,252
Gerald E. Vaughn 3,924 -- 1,336
All of the above and
other officers as a
group 200,045 5,801 102,125
(1) Beneficial ownership percentages are all less than
one percent and therefore are omitted.
(2) These individuals currently have voting power, but
not investment power, with respect to these shares.
(3) These shares are included in the CSW Common
column.
PSO's Beneficial Ownership as of December 31, 1995
CSW Common
Underlying
CSW Restricted Immediately
Name Common (1) Stock (2)(3) Exercisable Options (3)
E. R. Brooks 86,887 2,572 41,455
Harry A. Clarke -- -- --
Paul K. Lackey, Jr. -- -- --
Paula Marshall-Chapman -- -- --
Harry D. Mattison 49,580 1,654 26,429
William R. McKamey 10,739 -- 3,322
Mary M. Polfer 6,063 302 4,252
Dr. Robert B. Taylor, Jr. -- -- --
Robert L. Zemanek 19,122 680 15,568
Waldo J. Zerger, Jr. 13,101 289 4,471
All of the above and
other officers as a
group 194,589 5,497 99,241
(1) Beneficial ownership percentages are all less than
one percent and therefore are omitted.
(2) These individuals currently have voting power, but
not investment power, with respect to these shares.
(3) These shares are included in the CSW Common column.
<PAGE> 3-16
SWEPCO's Beneficial Ownership as of December 31, 1995
CSW Common
Underlying
CSW Restricted Immediately
Name Common (1) Stock (2)(3) Exercisable Options (3)
Richard H. Bremer 38,984 1,550 17,731
E. R. Brooks 86,887 2,572 41,455
James E. Davison -- -- --
Al P. Eason, Jr. 2,000 -- --
W. J. Googe, Jr. 7,716 296 4,252
Dr. Frederick E. Joyce 2,000 -- --
Michael H. Madison 6,975 300 4,471
Harry D. Mattison 49,580 1,654 26,429
Marvin R. McGregor 7,006 325 4,471
William C. Peatross 380 -- --
Maxine P. Sarpy -- -- --
All of the above and
other officers as a
group 204,060 6,697 100,629
(1) Beneficial ownership percentages are all less than
one percent and therefore are omitted.
(2) These individuals currently have voting power, but
not investment power, with respect to these shares.
(3) These shares are included in the CSW Common column.
WTU Beneficial Ownership as of December 31, 1995
CSW Common
Underlying
CSW Restricted Immediately
Name Common (1) Stock (2)(3) Exercisable Options (3)
Richard F. Bacon 345 -- --
C. Harwell Barber 12,292 -- --
E. R. Brooks 86,887 2,572 41,455
Paul J. Brower 6,443 237 4,470
T. D. Churchwell 6,734 301 5,179
Glenn Files 22,218 733 14,481
Harry D. Mattison 49,580 1,654 26,429
Tommy Morris 2,000 -- --
Dian G. Owen 50 -- --
James M. Parker 1,700 -- --
Dennis M. Sharkey 19,583 340 10,652
F. L. Stephens 1,707 -- --
Donald A. Welch 10,280 -- 4,470
All of the above and
other officers as a
group 224,615 5,837 108,956
(1) Beneficial ownership percentages are all less than
one percent and therefore are omitted.
(2) These individuals currently have voting power, but
not investment power, with respect to these shares.
(3) These shares are included in the CSW Common column.
<PAGE> 3-17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
CSW
The information required by ITEM 13 is incorporated herein by
reference from page 7 of CSW's Proxy Statement.
CPL, PSO, SWEPCO and WTU
None.
<PAGE> 4-1
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) The following documents are filed as a part of this report on
this Form 10-K.
(1) Financial Statements.
Reports of Independent Public Accountants on the financial
statements for CSW and subsidiary companies, CPL, PSO, SWEPCO
and WTU are listed under ITEM 8 herein.
The financial statements filed as a part of this report for CSW
and subsidiary companies, CPL, PSO, SWEPCO and WTU are listed
under ITEM 8 herein.
(2) Financial Statement Schedules.
Report of Independent Public Accountants as to Schedules for
CSW, CPL, PSO, SWEPCO and WTU are included in the Report of
Independent Public Accountants for each registrant.
Financial Statement Schedules for CSW, CPL, PSO, SWEPCO and WTU
are listed in (d) Index to the Financial Statement Schedules
below.
(3) Exhibits.
Exhibits for CSW, CPL, PSO, SWEPCO and WTU are listed in (c)
Index to Exhibits below.
(b) Reports on Form 8-K.
CSW
Item 5. Other Events, reporting CPL's intent to file a rate
review request, dated September 27, 1995 (filed in the fourth
quarter).
Item 5. Other Events and Item 7. Financial Statements and
Exhibits, reporting CSW's and its partner's bid to acquire
Norweb, dated September 28, 1995 (filed in the fourth quarter).
Item 5. Other Events, reporting the termination of CSW's and its
partner's bid to acquire Norweb, dated October 12, 1995.
Item 2. Acquisition or Disposition of Assets and Item 7.
Financial Statements and Exhibits, reporting CSW's acquisition
of SEEBOARD and financial information related to the
acquisition, dated January 10, 1996.
Item 5. Other Events, updating recent developments in connection
with CSW's common stock offering, dated January 30, 1996.
Item 5. Other Events, reporting information related to CPL's
rate review, dated February 13, 1996.
Item 5. Other Events and Item 7. Financial Statements, Pro
Forma Financial Information and Exhibits, reporting information
related to CSW's common stock offering, dated February 22, 1996.
<PAGE> 4-2
CPL
Item 5. Other Events, reporting CPL's intent to file a rate
review request, dated September 27, 1995 (filed in the fourth
quarter).
Item 5. Other Events, providing unaudited financial information
for the quarter and year ended September 30, 1995, in connection
with a debt offering by CPL, dated October 19, 1995.
Item 5. Other Events, reporting information related to CPL's
rate review, dated February 13, 1996.
PSO
Item 5. Other Events, providing unaudited financial information
for the year ended December 31, 1995 in connection with a debt
offering by PSO, dated February 23, 1996.
Item 5. Other Events, and Item 7. Financial statements, pro
forma financial information and exhibits, reporting information
related to a PSO debt offering, dated March 4, 1996.
SWEPCO
No reports were filed on Form 8-K during the quarter ended
December 31, 1995.
WTU
Item 5. Other Events, providing unaudited financial information
for the quarter ended and year ended September 30, 1995, in
connection with a debt offering by WTU, dated October 19, 1995.
<PAGE> 4-3
CSW
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 27, 1996. The signature of the
undersigned registrant shall be deemed to relate only to matters
having reference to such registrant and any subsidiaries thereof.
CENTRAL AND SOUTH WEST CORPORATION
By: Wendy G. Hargus
Controller
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated
on March 27, 1996. The signature of each of the undersigned shall be
deemed to relate only to matters having reference to the above named
registrant and any subsidiaries thereof.
Signature Title
E. R. Brooks President and CEO and Director
(Principal Executive Officer)
Glenn D. Rosilier Chief Financial Officer
(Principal Financial Officer)
Wendy G. Hargus Controller
(Principal Accounting Officer)
*Glenn Biggs Director
*Molly Shi Boren Director
*Donald M. Carlton Director
*Thomas H. Cruikshank Director
*T. J. Ellis Director
*Joe H. Foy Director
*Robert Lawless Director
*Harry D. Mattison Executive Vice President and Director
*James L. Powell Director
*T. V. Shockley, III Executive Vice President and Director
*J. C. Templeton Director
*Lloyd D. Ward Director
*Wendy G. Hargus, by signing her name hereto, does sign this document
on behalf of the persons indicated above pursuant to a power of
attorney duly executed by each such person.
*By: Wendy G. Hargus
Attorney-in-Fact
<PAGE> 4-4
CPL
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 27, 1996. The signature of the
undersigned registrant shall be deemed to relate only to matters
having reference to such registrant.
CENTRAL POWER AND LIGHT COMPANY
By: R. Russell Davis
Controller
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated
on March 27, 1996. The signature of each of the undersigned shall be
deemed to relate only to matters having reference to the above named
registrant.
Signature Title
Robert R. Carey President and CEO and Director
(Principal Executive Officer)
R. Russell Davis Controller
(Principal Accounting and Financial
Officer)
*John F. Brimberry Director
*E. R. Brooks Director
*Ruben M. Garcia Director
*David L. Hooper Director
*Harry D. Mattison Director
*Robert A. McAllen Director
*Pete Morales, Jr. Director
*S. Loyd Neal, Jr. Director
*H. Lee Richards Director
*Melanie J. Richardson Director
*J. Gonzalo Sandoval Director
*Gerald E. Vaughn Director
*R. Russell Davis, by signing his name hereto, does sign this
document on behalf of the persons indicated above pursuant to a power
of attorney duly executed by each such person.
*By: R. Russell Davis
Attorney-in-Fact
<PAGE> 4-5
PSO
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 27, 1996. The signature of the
undersigned registrant shall be deemed to relate only to matters
having reference to such registrant.
PUBLIC SERVICE COMPANY OF OKLAHOMA
By: R. Russell Davis
Controller
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated
on March 27, 1996. The signature of each of the undersigned shall be
deemed to relate only to matters having reference to the above named
registrant.
Signature Title
Robert L. Zemanek President and CEO and Director
(Principal Executive Officer)
R. Russell Davis Controller
(Principal Accounting and Financial
Officer)
*E. R. Brooks Director
*Harry A. Clark Director
*Paul K. Lackey, Jr. Director
*Paula Marshall-Chapman Director
*Harry D. Mattison Director
*William R. McKamey Director
*Mary M. Polfer Director
*Dr. Robert B. Taylor, Jr. Director
*Waldo J. Zerger, Jr. Director
*R. Russell Davis, by signing his name hereto, does sign this
document on behalf of the persons indicated above pursuant to a power
of attorney duly executed by each such person.
*By: R. Russell Davis
Attorney-in-Fact
<PAGE> 4-6
SWEPCO
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 27, 1996. The signature of the
undersigned registrant shall be deemed to relate only to matters
having reference to such registrant.
SOUTHWESTERN ELECTRIC POWER COMPANY
By: R. Russell Davis
Controller
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated
on March 27, 1996. The signature of each of the undersigned shall be
deemed to relate only to matters having reference to the above named
registrant.
Signature Title
Richard H. Bremer President and CEO and Director
(Principal Executive Officer)
R. Russell Davis Controller (Principal Accounting and
Financial Officer)
*E. R. Brooks Director
*James E. Davison Director
*Al P. Eason, Jr. Director
*W. J. Googe, Jr. Director
*Dr. Frederick E. Joyce Director
*Michael H. Madison Director
*Harry D. Mattison Director
*Marvin R. McGregor Director
*William C. Peatross Director
*Maxine P. Sarpy Director
*R. Russell Davis, by signing his name hereto, does sign this
document on behalf of the persons indicated above pursuant to a power
of attorney duly executed by each such person.
*By: R. Russell Davis
Attorney-in-Fact
<PAGE> 4-7
WTU
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 27, 1996. The signature of the
undersigned registrant shall be deemed to relate only to matters
having reference to such registrant.
WEST TEXAS UTILITIES COMPANY
By: R. Russell Davis
Controller
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated
on March 27, 1996. The signature of each of the undersigned shall be
deemed to relate only to matters having reference to the above named
registrant.
Signature Title
Glenn Files President and CEO and Director
(Principal Executive Officer)
R. Russell Davis Controller (Principal Accounting and
Financial Officer)
*Richard F. Bacon Director
*C. Harwell Barber Director
*E. R. Brooks Director
*Paul J. Brower Director
*T. D. Churchwell Director
*Harry D. Mattison Director
*Tommy Morris Director
*Dian G. Owen Director
*James M. Parker Director
*Dennis M. Sharkey Director
*F. L. Stephens Director
*R. Russell Davis, by signing his name hereto, does sign this
document on behalf of the persons indicated above pursuant to a power
of attorney duly executed by each such person.
*By: R. Russell Davis
Attorney-in-Fact
<PAGE> 4-8
(c) Index to Exhibits.
The following exhibits indicated by an asterisk (*) preceding
the exhibit number are filed herewith. The balance of the exhibits
have heretofore been filed with the SEC, respectively, as the
exhibits and in the file numbers indicated and are incorporated
herein by reference. The exhibits marked with a plus (+) are
management contracts or compensatory plans or arrangements required
to be filed herewith and required to be identified as such by ITEM
14. of Form 10-K. Reference is made to a duplicate list of exhibits
being filed as a part of this Form 10-K, which list, prepared in
accordance with Item 102 of Regulation S-T of the SEC, immediately
precedes the exhibits being filed with this Form 10-K.
(2) Plan of acquisition, reorganization, arrangement, liquidation
or succession.
CSW
1 Agreement and Plan of Merger Among
El Paso Electric Company, Central and South West
Corporation and CSW Sub, Inc. Dated as of May 3, 1993 as
Amended May 18, 1993 (incorporated herein by reference to
Exhibit 2.1 to CSW's Form 8-K dated December 29, 1993, File
No. 1-1443).
2 Second Amendment Dated as of August 26, 1993 to Agreement and
Plan of Merger Among El Paso Electric Company, Central and South
West Corporation and CSW Sub, Inc. Dated as of May 3, 1993 as
amended on May 18,1993 (incorporated herein by reference to
Exhibit 2.2 to CSW's Form 8-K dated December 29, 1993, File
No. 1-1443).
3 Third Amendment Dated as of
December 1, 1993 to Agreement and Plan of Merger Among El
Paso Electric Company, Central and South West Corporation
and CSW Sub, Inc. Dated as of May 3, 1993 as amended on
May 18, 1993 and August 26, 1993 (incorporated herein by
reference to Exhibit 2.3 to CSW's Form 8-K dated December
29, 1993, File No. 1-1443).
4 Modified Third Amended Plan of Reorganization of El Paso
Electric Company Providing for the Acquisition of El Paso
Electric Company by Central and South West Corporation as
corrected December 6, 1993, and confirmed by the Bankruptcy
Court (incorporated herein by reference to Exhibit 2.4 to
CSW's Form 8-K dated December 29, 1993, File No. 1-1443).
5 Order and Judgment Confirming El Paso Electric Company's Third
Amended Plan of Reorganization, as Modified, Under Chapter 11
of the United States Bankruptcy Code and Granting Related Relief
(incorporated herein by reference to Exhibit 2.5 to CSW's
Form 8-K dated December 29, 1993, File No. 1-1443).
(3) Articles of Incorporation and By-Laws.
CSW
1 Second Restated Certificate of Incorporation of CSW, as
amended (incorporated herein by reference to Exhibit 3
(a) to CSW's 1990 Form 10-K, File No. 1-1443).
2 Bylaws of CSW, as amended (incorporated herein by reference
to Exhibit 3 (b) to CSW's 1990 Form 10-K, File No. 1-1443).
CPL
1 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).
2 Bylaws of CPL, as amended (incorporated herein by reference
to Exhibit 3(b) 2 to CPL's 1994 Form 10-K, File No. 0-346).
<PAGE> 4-9
PSO
1 Restated Certificate of Incorporation of PSO (incorporated
herein by reference to Exhibit 3 to PSO's 1987 Form 10-K,
File No. 0-343).
2 Bylaws of PSO, as amended (incorporated herein by reference
to Exhibit 3(c) 2 to PSO's 1994 Form 10-K, File No. 0-343).
SWEPCO
1 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).
2 Bylaws of SWEPCO, as amended (incorporated herein by
reference to Exhibit 3(d) 2 to SWEPCO's 1994 Form 10-K,
File No. 1-3146).
WTU
1 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).
2 Bylaws of WTU, as amended (incorporated herein by reference
to Exhibit 3(e) 2 to WTU's 1994 Form 10-K, File No. 0-340).
(4) Instruments defining the rights of security holder, including
indentures.
CPL
Indenture of Mortgage or Deed of Trust dated November 1,
1943, executed by CPL to The First National Bank of Chicago
and Robert L. Grinnell, as Trustee, as amended through
October 1, 1977 (incorporated herein by reference to
Exhibit 5.01 in File No. 2-60712), and the Supplemental
Indentures of CPL dated September 1, 1978 (incorporated
herein by reference to Exhibit 2.02 in File No. 2-62271)
and December 15, 1984, July 1, 1985, May 1, 1986 and
November 1, 1987 (incorporated herein by reference to
Exhibit 17 to Form U-1, File No. 70-7003, Exhibit 4 (b) in
File No. 2-98944, Exhibit 4 to Form U-1, File No. 70-7236
and Exhibit 4 to Form U-1, File No. 70-7249) and June 1,
1988, December 1, 1989, March 1, 1990, October 1, 1992,
December 1, 1992, February 1, 1993, April 1, 1993, May 1,
1994 and July 1, 1995 (incorporated herein by reference to
Exhibit 2 to Form U-1, File No. 70-7520, Exhibit 3 to Form
U-1, File No. 70-7721, Exhibit 10 to Form U-1, File No. 70-
7725 and Exhibit 10 (a), 10 (b), 10 (c), 10 (d), 10(e) and
10(f), respectively, to Form U-1, File No. 70-8053).
PSO
1 Indenture dated July 1, 1945, as amended, of PSO (incorporated
herein by reference to Exhibit 5.03 in Registration No. 2-60712),
the Supplemental Indenture of PSO dated June 1, 1979 (incorporated
herein by reference to Exhibit 2.02 in Registration No. 2-64432),
the Supplemental Indenture of PSO dated December 1, 1979
(incorporated herein by reference to Exhibit 2.02 in
Registration No. 2-65871), the Supplemental Indenture of
PSO dated March 1, 1983 (incorporated herein by reference
to Exhibit 2 to Form U-1, File No. 70-6822), the
Supplemental Indenture of PSO dated May 1, 1986
(incorporated herein by reference to Exhibit 3 to Form U-1,
File No. 70-7234), the Supplemental Indenture of PSO dated
July 1, 1992 (incorporated herein by reference to Exhibit 4
(b) to Form S-3, File No. 33-48650), the Supplemental
Indenture of PSO dated December 1, 1992 (incorporated
herein by reference to Exhibit 4 (c) to Form S-3, File No.
33-49143), the Supplemental Indenture of PSO dated April 1,
1993 (incorporated herein by reference to Exhibit 4 (b) to
Form S-3, File No. 33-49575), Supplemental Indenture of PSO
dated June 1, 1993 (incorporated herein by reference to
Exhibit 4 (b) to PSO's 1993 Form 10-K, File No. 0-343) and
Supplemental Indenture dated as of February 1, 1996
(incorporated herein by reference to Exhibit 4.03 to PSO's
Form 8-K dated March 4, 1996, File No. 0-343).
<PAGE> 4-10
2 Indenture dated as of February 1, 1996 of PSO (incorporated
herein by reference to Exhibit 4.01 to PSO's Form 8-K dated
March 4, 1996, File No. 0-343) and First Supplemental Indenture
dated as of February 1, 1996 of PSO (incorporated herein by
reference to Exhibit 4.02 to PSO's Form 8-K dated March 4, 1996,
File No. 0-343).
SWEPCO
Indenture dated February 1, 1940, as amended through November 1,
1976, of SWEPCO (incorporated herein by reference to Exhibit 5.04
in Registration No. 2-60712), the Supplemental Indenture dated
August 1, 1978 incorporated herein by reference to Exhibit
2.02 in Registration No. 2-61943), the Supplemental
Indenture dated January 1, 1980 (incorporated herein by
reference to Exhibit 2.02 in Registration No. 2-66033), the
Supplemental Indenture dated April 1, 1981 (incorporated
herein by reference to Exhibit 2.02 in Registration No. 2-
71126), the Supplemental Indenture dated May 1, 1982
(incorporated herein by reference to Exhibit 2.02 in
Registration No. 2-77165), the Supplemental Indenture dated
August 1, 1985 (incorporated herein by reference to Exhibit
4 to Form U-1, File No. 70-7121), the Supplemental
Indenture dated May 1, 1986 (incorporated herein by
reference to Exhibit 3 to Form U-1 File No. 70-7233), the
Supplemental Indenture dated November 1, 1989 (incorporated
herein by reference to Exhibit 3 to Form U-1, File No. 70-
7676), the Supplemental Indenture dated June 1, 1992
(incorporated herein by reference to Exhibit 10 to Form U-
1, File No. 70-7934), the Supplemental Indenture dated
September 1, 1992 (incorporated herein by reference to
Exhibit 10 (b) to Form U-1, File No. 72-8041), the
Supplemental Indenture dated July 1, 1993 (incorporated
herein by reference to Exhibit 10 (c) to Form U-1, File No.
70-8041) and the Supplemental Indenture dated October 1,
1993 (incorporated herein by reference to Exhibit 10 (a) to
Form U-1, File No. 70-8239).
WTU
Indenture dated August 1, 1943, as amended through July 1, 1973
(incorporated herein by reference to Exhibit 5.05 in File
No. 2-60712), Supplemental Indenture dated May 1, 1979 (incorporated
herein by reference to Exhibit No. 2.02 in File No. 2-63931),
Supplemental Indenture dated November 15, 1981 (incorporated herein
by reference to Exhibit No. 4.02 in File No. 2-74408), Supplemental
Indenture dated November 1, 1983 (incorporated herein by reference
to Exhibit 12 to Form U-1, File No. 70-6820), Supplemental
Indenture dated April 15, 1985 (incorporated herein by reference
to Amended Exhibit 13 to Form U-1, File No. 70-6925), Supplemental
Indenture dated August 1, 1985 (incorporated herein by
reference to Exhibit 4 (b) in File No. 2-98843),
Supplemental Indenture dated May 1, 1986 (incorporated
herein by reference to Exhibit 4 to Form U-1, File No. 70-7237),
Supplemental Indenture dated December 1, 1989 (incorporated
herein by reference to Exhibit 3 to Form U-1, in File No. 70-7719),
Supplemental Indenture dated June 1, 1992 (incorporated
herein by reference to Exhibit 10 to Form U-1, File No. 70-7936),
Supplemental Indenture dated October 1, 1992 (incorporated herein
by reference to Exhibit 10 to Form U-1, File No. 70-8057),
Supplemental Indenture dated February 1, 1994 (incorporated herein
by reference to Exhibit 10 Form U-1, File No. 70-8265), Supplemental
Indenture dated March 1, 1995 (incorporated herein by reference to
Exhibit 10(b) to Form U-1, File No. 70-8057) and Supplemental
Indenture dated October 1, 1995 (incorporated herein by
reference to Exhibit 10(c) to Form U-1, File No. 70-8057).
(10) Material contracts.
CSW
+ 1 Restricted Stock Plan for Central and South West Corporation
(incorporated herein by reference to Exhibit 10(a) to CSW's 1990
Form 10-K, File No. 1-1443).
+ 2 Central and South West System Special Executive Retirement Plan
(incorporated herein by reference to Exhibit 10(b) to CSW's 1990
Form 10-K, File No. 1-1443).
+ 3 Executive Incentive Compensation Plan for Central and South West
System (incorporated herein by reference to Exhibit 10(c) to the
Corporation's 1990 Form 10-K, File No. 1-1443).
<PAGE> 4-11
4 Central and South West Corporation Stock Option Plan
(incorporated herein by reference to Exhibit 10(d) to the
Corporation's 1990 Form 10-K, File No. 1-1443).
5 Central and South West Corporation Deferred Compensation Plan
for Directors (incorporated herein by reference to Exhibit 10(e)
to the Corporation's 1990 Form 10-K, File No. 1-1443).
+ 6 Central and South West Corporation 1992 Long-Term Incentive Plan
(incorporated herein by reference to Appendix A to the Central and
South West Corporation Notice of 1992 Annual Meeting of
Shareholders and Proxy Statement).
* 7 Amended and Restated Credit Agreement dated as of January 18, 1996
among Central and South West Corporation and the banks listed therein.
* 8 Facility Agreement dated as of November 5, 1995 among CSW
Investments, CSW (UK) plc and the banks listed therein.
(12) Statements re computation of ratios.
CPL, PSO, SWEPCO and WTU
* 1 CPL's Statement re computation of Ratio of Earnings to
Fixed Charges for the five years ended December 31, 1995.
* 2 PSO's Statement re computation of Ratio of Earnings to
Fixed Charges for the five years ended December 31, 1995.
* 3 SWEPCO's Statement re computation of Ratio of Earnings to
Fixed Charges for the five years ended December 31, 1995.
* 4 WTU's Statement re computation of Ratio of Earnings to
Fixed Charges for the five years ended December 31, 1995.
* (21) Subsidiaries of the registrant (CSW).
(23) Consent of experts and counsel.
CSW, CPL, PSO and WTU
* 1 CSW's Consent of Independent Public Accountants.
* 2 CPL's Consent of Independent Public Accountants.
* 3 PSO's Consent of Independent Public Accountants.
* 4 WTU's Consent of Independent Public Accountants.
(24) Power of attorney.
CSW
* 1 Power of Attorney.
* 2 Power of Attorney.
* 3 Power of Attorney.
* 4 Power of Attorney.
<PAGE> 4-12
CPL
* 5 Power of Attorney.
* 6 Power of Attorney.
* 7 Power of Attorney.
PSO
* 8 Power of Attorney.
* 9 Power of Attorney.
* 10 Power of Attorney.
SWEPCO
* 11 Power of Attorney.
* 12 Power of Attorney.
* 13 Power of Attorney.
WTU
* 14 Power of Attorney.
* 15 Power of Attorney.
* 16 Power of Attorney.
(27) Financial Data Schedules.
CSW, CPL, PSO, SWEPCO and WTU
* 1 CSW's Financial Data Schedule
* 2 CPL's Financial Data Schedule
* 3 PSO's Financial Data Schedule
* 4 SWEPCO's Financial Data Schedule
* 5 WTU's Financial Data Schedule
<PAGE> 4-13
(d) Index to Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts.
CSW, CPL, PSO, SWEPCO and WTU
1 CSW's Schedule II - Valuation and Qualifying Accounts
2 CPL's Schedule II - Valuation and Qualifying Accounts
3 PSO's Schedule II - Valuation and Qualifying Accounts
4 SWEPCO's Schedule II - Valuation and Qualifying Accounts
5 WTU's Schedule II - Valuation and Qualifying Accounts
Other Schedules.
All other exhibits and schedules are omitted because of the
absence of the conditions under which they are required or
because the required information is included in the financial
statements or related notes to financial statements.
<PAGE> 4-14
Schedule II-1
Central And South West Corporation And Subsidiary Companies
Valuation And Qualifying Accounts
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged Balance
Beginning Costs and to other at End
Description of Year Expenses Account(b) Deductions(c) of Year
(millions)
1995
Accrued
Restructuring
Charges $4 $(2)(a) -- $(2) --
1994
Accrued
Restructuring
Charges $97 $(9) (a) $(27) $57 $4
1993
Accrued
Restructuring
Charges $-- $97 $-- $-- $97
(a) Reflects true-up to revised estimate of restructuring charges.
(b) Effects of early retirement related to SFAS No. 87 and SFAS
No. 112 follow:
(millions)
SFAS No. 87 $(31)
SFAS No. 112 4
Total $(27)
(c) Payments of accrued restructuring charges.
<PAGE> 4-15
Schedule II-2
Central Power and Light Company
Valuation And Qualifying Accounts
Column A Column B Column C Column D Column E
Additions
Balance Charged Charged
at to Costs to Balance
Beginning and Other at End
Description of Year Expenses Accounts(b) Deductions (c) of Year
(thousands)
1995
Accrued
Restructuring
Charges $1,325 ($141) (a) $-- $1,184 $--
1994
Accrued
Restructuring
Charges $29,365 $98 (a) $(7,893) $20,245 $1,325
1993
Accrued
Restructuring
Charges $-- $29,365 $-- $-- $29,365
(a) Reflects true-up to revised estimate of restructuring charges.
(b) Effects of early retirement related to SFAS No. 87 and SFAS No.
112 follow:
(thousands)
SFAS No. 87 $(9,099)
SFAS No. 112 1,206
Total $(7,893)
(c) Payments of accrued restructuring charges.
<PAGE> 4-16
Schedule II-3
Public Service Company of Oklahoma
Valuation And Qualifying Accounts
Column A Column B Column C Column D Column E
Additions
Balance Charged
at to Costs Charged Balance
Beginning and to Other at End
Description of Year Expenses Accounts(b) Deductions(c) of Year
(thousands)
1995
Accrued
Restructuring
Charges $1,046 ($488)(a) $-- $558 $--
1994
Accrued
Restructuring
Charges $24,995 $(197)(a) $(8,126) $15,626 $1,046
1993
Accrued
Restructuring
Charges $-- $24,995 $-- $-- $24,995
(a) Reflects true-up to revised estimate of restructuring charges.
(b) Effects of early retirement related to SFAS No. 87 and SFAS No.
112 follow:
(thousands)
SFAS No. 87 $(9,880)
SFAS No. 112 1,754
Total $(8,126)
(c) Payments of accrued restructuring charges.
<PAGE> 4-17
Schedule II-4
Southwestern Electric Power Company
Valuation And Qualifying Accounts
Column A Column B Column C Column D Column E
Additions
Balance Charged to Charged
at Costs to Balance
Beginning and Other at End
Description of Year Expenses Accounts(b) Deductions (c) of Year
(thousands)
1995
Accrued
Restructuring
Charges $1,110 ($578) (a) $-- $532 $--
1994
Accrued
Restructuring
Charges $25,203 $(4,978) (a) $(7,421) $11,694 $1,110
1993
Accrued
Restructuring
Charges $-- $25,203 $-- $-- $25,203
(a) Reflects true-up to revised estimate of restructuring charges.
(b) Effects of early retirement related to SFAS No. 87 and SFAS No.
112 follow:
(thousands)
SFAS No. 87 $(8,016)
SFAS No. 112 595
Total $(7,421)
(c) Payments of accrued restructuring charges.
<PAGE> 4-18
Schedule II-5
West Texas Utilities Company
Valuation And Qualifying Accounts
Column A Column B Column C Column D Column E
Additions
Charged
Balance to Charged
at Costs to Balance
Beginning and Other at End
Description of Year Expense Accounts (b) Deductions (c) of Year
(thousands)
1995
Accrued
Restructuring
Charges $571 ($369)(a) $-- $202 $--
1994
Accrued
Restructuring
Charges $15,250 $(2,037)(a) $(3,724) $8,918 $571
1993
Accrued
Restructuring
Charges $-- $15,250 $-- $-- $15,250
(a) Reflects true-up to revised estimate of restructuring charges.
(b) Effects of early retirement related to SFAS No. 87 and SFAS No.
112 follow:
(thousands)
SFAS No. 87 $(3,992)
SFAS No. 112 268
Total $(3,724)
(c) Payments of accrued restructuring charges.
EXECUTION COPY
$850,000,000
FIVE-YEAR
CREDIT AGREEMENT
dated as of
November 6, 1995,
as amended and restated as of
January 18, 1996,
among
Central and South West Corporation,
The Banks Listed Herein
and
Union Bank of Switzerland,
as Agent
Citibank, N.A.
Credit Suisse
Union Bank of Switzerland
Arrangers
Credit Suisse
Syndication Agent
Citibank, N.A.
Documentation Agent
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS
1.1. Definitions 1
1.2. Accounting Terms and Determinations 15
1.3. Types of Borrowings 15
ARTICLE 2
THE CREDITS
2.1. Commitments 16
2.2. Term Loans 16
2.3. Notice of Committed Borrowing 16
2.4. Money Market Borrowings 17
2.5. Notice to Banks; Funding of Loans 21
2.6. Notes 22
2.7. Maturity of Loans 22
2.8. Interest Rates 22
2.9. Fees 27
2.10. Optional Termination or Reduction
of Commitments 27
2.11. Method of Electing Interest Rates 27
2.12. Scheduled Termination of Commitments 29
2.13. Optional Prepayments 29
2.14. General Provisions as to Payments 30
2.15. Funding Losses 30
2.16. Computation of Interest and Fees 31
2.17. Regulation D Compensation 31
ARTICLE 3
CONDITIONS
3.1. Effective Date 32
3.2. Borrowings 33
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1. Corporate Existence and Power 34
4.2. Corporate and Governmental Authorization;
No Contravention 35
4.3. Binding Effect 35
4.4. Financial Information 35
4.5. Litigation 36
4.6. Compliance with ERISA 36
4.7. Environmental Matters 37
4.8. Taxes 37
4.9. Subsidiaries 38
4.10. Full Disclosure 38
4.11. No Defaults 38
ARTICLE 5
COVENANTS
5.1. Information 38
5.2. Payment of Obligations 40
5.3. Maintenance of Property; Insurance 40
5.4. Conduct of Business and Maintenance of
Existence 40
5.5. Compliance with Laws 41
5.6. Inspection of Property, Books and Records 41
5.7. Use of Proceeds 41
5.8. Negative Pledge 42
5.9. Transactions with Affiliates 44
5.10. Sale of Material Subsidiaries 44
5.11. Prohibition of Fundamental Changes. 44
5.12. Minimum Consolidated Net Worth 44
5.13. Syndication 45
ARTICLE 6
DEFAULTS
6.1. Events of Default 45
6.2. Notice of Default 48
ARTICLE 7
THE AGENT
7.1. Appointment and Authorization 48
7.2. Agent and Affiliates 48
7.3. Action by Agent 48
7.4. Consultation with Experts 48
7.5. Liability of Agent 48
7.6. Indemnification 49
7.7. Credit Decision 49
7.8. Successor Agent 49
7.9. Agent's Fee 50
7.10. Arrangers, etc. 50
ARTICLE 8
CHANGE IN CIRCUMSTANCES
8.1. Basis for Determining Interest Rate
Inadequate or Unfair 50
8.2. Illegality 51
8.3. Increased Cost and Reduced Return 52
8.4. Taxes 53
8.5. Base Rate Loans Substituted for Affected
Fixed Rate Loans 55
8.6. Replacement of Bank 56
ARTICLE 9
MISCELLANEOUS
9.1. Notices 58
9.2. No Waivers 59
9.3. Expenses; Indemnification 59
9.4. Sharing of Set-Offs 60
9.5. Amendments and Waivers 60
9.6. Successors and Assigns 61
9.7. Collateral 62
9.8. Governing Law; Submission to Jurisdiction 63
9.9. Counterparts; Integration; Effectiveness 63
9.10. WAIVER OF JURY TRIAL 63
EXHIBIT A - Note
EXHIBIT B - Money Market Quote Request
EXHIBIT C - Invitation for Money Market Quotes
EXHIBIT D - Money Market Quote
EXHIBIT E - Opinion of Special Counsel for the
Borrower EXHIBIT F - Opinion of Special Counsel
for the Agent and the Arrangers
EXHIBIT G - Assignment and Assumption Agreement
<PAGE> 1
AGREEMENT dated as of November 6, 1995, as amended
and restated as of January 18, 1996, among CENTRAL AND SOUTH
WEST CORPORATION, the BANKS listed on the signature pages
hereof and UNION BANK OF SWITZERLAND, as Agent.
The parties hereto are party to a Credit Agreement
dated as of November 6, 1995, as amended by Amendment No. 1
thereto dated as of November 21, 1995 (as so amended, the
"Original Credit Agreement"). Pursuant to the Original
Credit Agreement, the Banks (such term and each other
capitalized term used but not defined in this introductory
statement having the meaning assigned to it in Section 1.1)
have made term loans to the Borrower in an aggregate
principal amount outstanding on the Effective Date equal to
$731,000,000 (the "Term Loans"). The proceeds of the Term
Loans have been used by the Borrower, directly or
indirectly, to acquire ordinary shares of Bidco, and such
proceeds have been used by Bidco to acquire ordinary shares
of the Target and to pay costs and expenses related thereto.
The Borrower has requested that the Original Credit
Agreement be amended and restated to, among other things,
(a) convert the Term Loans to revolving credit
loans that may be prepaid and reborrowed in accordance with
the terms hereof, (b) convert the undrawn Commitment (as
defined in the Original Credit Agreement) to a revolving
credit commitment, (c) allow the proceeds of Loans to be
used by the Borrower for general corporate purposes,
including financing of the Acquisition and payment of costs
and expenses related thereto, and (d) make certain other
changes to the Original Credit Agreement to effectuate the
foregoing.
The Banks and the Agent are willing so to amend and
restate the Original Credit Agreement. Accordingly, the
parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The following terms, as used
herein, have the following meanings:
"Absolute Rate Auction" means a solicitation of Money
Market Quotes setting forth Money Market Absolute Rates
<PAGE> 2
pursuant to Section 2.4.
"Acquisition" means the acquisition by Bidco of
ordinary shares of the Target.
"Adjusted CD Rate" has the meaning set forth in
Section 2.8(b).
"Administrative Questionnaire" means, with respect to
each Bank, an administrative questionnaire in the form
prepared by the Agent and submitted to the Agent (with a
copy to the Borrower) duly completed by such Bank.
"Affiliate" means (i) any Person that directly, or
indirectly through one or more intermediaries, controls the
Borrower (a "Controlling Person") or (ii) any Person (other
than the Borrower or a Subsidiary) which is controlled by or
is under common control with a Controlling Person. As used
herein, the term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of
the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Notwithstanding the foregoing, no individual shall be an
Affiliate solely by reason of his or her being a director,
officer or employee of the Borrower or any of its
Subsidiaries.
"Agent" means Union Bank of Switzerland, in its
capacity as administrative agent for the Banks hereunder,
and its successors in such capacity.
"Applicable Lending Office" means, with respect to
any Bank, (i) in the case of its Domestic Loans, its
Domestic Lending Office, (ii) in the case of its Euro-Dollar
Loans, its Euro-Dollar Lending Office and (iii) in the case
of its Money Market Loans, its Money Market Lending Office.
"Arrangers" means Citibank, N.A., Credit Suisse and
Union Bank of Switzerland, in their respective capacities as
arrangers of the credit facility hereunder.
"Assessment Rate" has the meaning set forth in
Section 2.8(b).
"Assignee" has the meaning set forth in
Section 9.6(c).
"Bank" means each bank listed on the signature pages
hereof, each Replacement Bank which becomes a Bank pursuant
to Section 8.6, each Assignee which becomes a Bank pursuant
<PAGE> 3
to Section 9.6(c), and their respective successors.
"Base Rate" means, for any day, a rate per annum
equal to the higher of (i) the Prime Rate for such day
and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate
for such day.
"Base Rate Loan" means (i) a Loan which bears
interest at the Base Rate pursuant to the applicable Notice
of Committed Borrowing or Notice of Interest Rate Election
or the provisions of Article 8 or (ii) an overdue amount
which was a Base Rate Loan immediately before it became
overdue.
"Benefit Arrangement" means at any time an employee
benefit plan within the meaning of Section 3(3) of ERISA
which is not a Plan or a Multiemployer Plan and which is
maintained or otherwise contributed to by any member of the
ERISA Group.
"Bidco" means CSW (UK) plc, a limited company
incorporated in England and Wales.
"Borrower" means Central and South West Corporation,
a Delaware corporation, and its successors.
"Borrower's 1994 Form 10-K" means the Borrower's
annual report on Form 10-K for 1994, as filed with the
Commission pursuant to the Securities Exchange Act of 1934.
"Borrower's Latest Form 10-Q" means the Borrower's
quarterly report on Form 10-Q for the quarter ended
September 30, 1995, as filed with the Commission pursuant to
the Securities Exchange Act of 1934.
"Borrowing" has the meaning set forth in Section 1.3.
"CD Base Rate" has the meaning set forth in
Section 2.8(b).
"CD Loan" means (i) a Loan which bears interest at a
CD Rate pursuant to the applicable Notice of Committed
Borrowing or Notice of Interest Rate Election or (ii) an
overdue amount which was a CD Loan immediately before it
became overdue.
"CD Margin" means a rate per annum determined in
accordance with the Pricing Schedule.
<PAGE> 4
"CD Rate" means a rate of interest determined
pursuant to Section 2.8(b) on the basis of an Adjusted
CD Rate.
"CD Reference Banks" means the principal New York
offices of Citibank, N.A., Credit Suisse and Union Bank of
Switzerland.
"Commission" means the Securities and Exchange
Commission, or any entity succeeding to its responsibilities
under the Public Utility Holding Company Act of 1935, as
amended.
"Commitment" means, with respect to each Bank, the
amount set forth opposite the name of such Bank on the
signature pages hereof, as such amount may be reduced from
time to time pursuant to Section 2.10.
"Committed Loan" means a loan made by a Bank pursuant
to Section 2.1, provided that, if any such loan or loans (a
portion thereof) are combined or subdivided pursuant to a
Notice of Interest Rate Election, the term "Committed Loan"
shall refer to the combined principal amount resulting from
such combination or to each of the separate principal
amounts resulting from such subdivision, as the case may be.
"Confidential Information Memorandum" has the meaning
set forth in Section 5.13.
"Consolidated Subsidiary" means at any date any
Subsidiary or other entity the accounts of which would be
consolidated with those of the Borrower in its consolidated
financial statements if such statements were prepared as of
such date.
"Consolidated Net Worth" means at any date the
consolidated common stock equity of the Borrower and its
Consolidated Subsidiaries determined as of such date.
"Debt" of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed
money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade
accounts payable arising in the ordinary course of business,
(iv) all obligations of such Person as lessee which are
capitalized in accordance with generally accepted accounting
principles, (v) all non-contingent obligations (and, for
<PAGE> 5
purposes of Section 5.8 and the definition of Material Debt,
all contingent obligations) of such Person to reimburse any
bank or other Person in respect of amounts paid under a
letter of credit or similar instrument, (vi) all Debt
secured by a Lien on any asset of such Person, whether or
not such Debt is otherwise an obligation of such Person
and (vii) all Debt of others Guaranteed by such Person.
"Default" means any condition or event which
constitutes an Event of Default or which with the giving of
notice or lapse of time or both would, unless cured or
waived, become an Event of Default.
"Derivatives Obligations" of any Person means all
obligations of such Person in respect of any rate swap
transaction, basis swap, forward rate transaction, forward
purchase, commodity swap, commodity option, equity or equity
index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, currency
swap transaction, cross-currency rate swap transaction,
currency option or any other similar transaction (including
any option with respect to any of the foregoing
transactions) or any combination of the foregoing
transactions.
"Documentation Agent" means Citibank, N.A., in its
capacity as documentation agent of the credit facility
hereunder.
"Domestic Business Day" means any day except a
Saturday, Sunday or other day on which commercial banks in
New York City are authorized by law to close.
"Domestic Lending Office" means, as to each Bank, its
office located at its address set forth in its
Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office)
or such other office as such Bank may hereafter designate as
its Domestic Lending Office by notice to the Borrower and
the Agent; provided that any Bank may so designate separate
Domestic Lending Offices for its Base Rate Loans, on the one
hand, and its CD Loans, on the other hand, in which case all
references herein to the Domestic Lending Office of such
Bank shall be deemed to refer to either or both of such
offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or
both.
<PAGE> 6
"Domestic Reserve Percentage" has the meaning set
forth in Section 2.8(b).
"Effective Date" means the date this amendment and
restatement of the Original Credit Agreement becomes
effective in accordance with Sections 3.1 and 9.9.
"Environmental Laws" means any and all federal,
state, local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, decrees,
plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental
restrictions relating to the environment, the effect of the
environment on human health or to emissions, discharges or
releases of pollutants, contaminants, Hazardous Substances
or wastes into the environment including, without
limitation, ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport
or handling of pollutants, contaminants, Hazardous
Substances or wastes or the clean-up or other remediation
thereof, in each case as in effect and applicable to the
Borrower and its Subsidiaries at the time the representation
in Section 4.7 is made or compliance with Section 5.5 is
determined.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and
all members of a controlled group of corporations and all
trades or businesses (whether or not incorporated) under
common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under
Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic
Business Day on which commercial banks are open for
international business (including dealings in dollar
deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank,
its office, branch or affiliate located at its address set
forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Euro-Dollar Lending
Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar
Lending Office by notice to the Borrower and the Agent.
"Euro-Dollar Loan" means (i) a Committed Loan which
<PAGE> 7
bears interest at a Euro-Dollar Rate pursuant to the
applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or (ii) an overdue amount which was a
Euro-Dollar Loan immediately before it became overdue.
"Euro-Dollar Margin" means a rate per annum
determined in accordance with the Pricing Schedule.
"Euro-Dollar Rate" means a rate of interest
determined pursuant to Section 2.8(c) on the basis of a
London Interbank Offered Rate.
"Euro-Dollar Reference Banks" means the principal
London offices of Citibank, N.A., Credit Suisse and Union
Bank of Switzerland.
"Euro-Dollar Reserve Percentage" has the meaning set
forth in Section 2.17.
"Event of Default" has the meaning set forth in
Section 6.1.
"Facility Agreement" means the Facility Agreement
dated November 5, 1995, between Bidco, the Arrangers and
Original Banks named therein and Credit Suisse, as Facility
and Security Agent, as amended, supplemented or otherwise
modified from time to time.
"Facility Fee Rate" means a rate per annum determined
in accordance with the Pricing Schedule.
"Federal Funds Rate" means, for any day, the rate per
annum (rounded upward, if necessary, to the nearest 1/100th
of 1%) equal to the weighted average of the rates on
overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on
such day, as published by the Federal Reserve Bank of New
York on the Domestic Business Day next succeeding such day;
provided that (i) if such day is not a Domestic Business
Day, the Federal Funds Rate for such day shall be such rate
on such transactions on the next preceding Domestic Business
Day as so published on the next succeeding Domestic Business
Day, and (ii) if no such rate is so published on such next
succeeding Domestic Business Day, the Federal Funds Rate for
such day shall be the average rate quoted to Union Bank of
Switzerland on such day on such transactions as determined
by the Agent.
"Fixed Rate Loans" means CD Loans, Euro-Dollar Loans
or Money Market Loans (excluding Money Market LIBOR Loans
<PAGE> 8
bearing interest at the Base Rate pursuant to Section 8.1)
or any combination of the foregoing.
"Group of Loans" means at any time a group of Loans
consisting of (i) all Committed Loans which are Base Rate
Loans at such time, (ii) all Euro-Dollar Loans having the
same Interest Period at such time or (iii) all CD Loans
having the same Interest Period at such time, provided that,
if a Committed Loan of any particular Bank is converted to
or made as a Base Rate Loan pursuant to Article 8, such Loan
shall be included in the same Group or Groups of Loans from
time to time as it would have been in if it had not been so
converted or made.
"Guarantee" by any Person means any obligation,
contingent or otherwise, of such Person directly or
indirectly guaranteeing any Debt of any other Person and,
without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt (whether
arising by virtue of partnership arrangements, by agreement
to keep-well, to purchase assets, goods, securities or
services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the holder of such
Debt of the payment thereof or to protect such holder
against loss in respect thereof (in whole or in part);
provided that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has
a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive,
caustic or otherwise hazardous substance, including
petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
"Indemnitee" has the meaning set forth in
Section 9.3(b).
"Interest Period" means: 1) with respect to each Euro-Dollar Loan, the
period commencing on the date of borrowing specified in the
applicable Notice of Borrowing or on the date specified in
the applicable Notice of Interest Rate Election and ending
one, two, three or six months thereafter, as the Borrower
may elect in the applicable notice; provided that:
<PAGE> 9
(a) any Interest Period which would otherwise end on a
day which is not a Euro-Dollar Business Day shall, subject
to clause (c) below, be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Euro-Dollar
Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall,
subject to clause (c) below, end on the last Euro-Dollar
Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
(2) with respect to each CD Loan, the period commencing
on the date of borrowing specified in the applicable Notice
of Borrowing or on the date specified in the applicable
Notice of Interest Rate Election and ending 30, 60, 90 or
180 days thereafter, as the Borrower may elect in the
applicable notice; provided that:
(a) any Interest Period which would otherwise end on a
day which is not a Euro-Dollar Business Day shall, subject
to clause (b) below, be extended to the next succeeding Euro-
Dollar Business Day; and
(b) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
(3) with respect to each Money Market LIBOR Loan, the
period commencing on the date of borrowing specified in the
applicable Notice of Borrowing and ending such whole number
of months thereafter as the Borrower may elect in accordance
with Section 2.4; provided that:
(a) any Interest Period which would otherwise end on
a day which is not a Euro-Dollar Business Day shall,
subject to clause (c) below, be extended to the next
succeeding Euro-Dollar Business Day unless such
Euro-Dollar Business Day falls in another calendar month,
in which case such Interest Period shall end on the next
preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last
<PAGE> 10
Euro-Dollar Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
(4) with respect to each Money Market Absolute Rate Loan,
the period commencing on the date of borrowing specified in
the applicable Notice of Borrowing and ending such number of
days thereafter (but not less than 7 days) as the Borrower
may elect in accordance with Section 2.4; provided that:
(a) any Interest Period which would otherwise end on
a day which is not a Euro-Dollar Business Day shall,
subject to clause (b) below, be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
"Internal Revenue Code" means the Internal Revenue
Code of 1986, as amended, or any successor statute.
"LIBOR Auction" means a solicitation of Money Market
Quotes setting forth Money Market Margins based on the
London Interbank Offered Rate pursuant to Section 2.4.
"Lien" means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, or any other type of preferential
arrangement that has the practical effect of creating a
security interest, in respect of such asset. For the
purposes of this Agreement, the Borrower or any Subsidiary
shall be deemed to own subject to a Lien any asset which it
has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease
or other title retention agreement relating to such asset.
"Loan" means a Domestic Loan, a Euro-Dollar Loan or a
Money Market Loan and "Loans" means Domestic Loans, Euro-
Dollar Loans or Money Market Loans or any combination
thereof.
"London Interbank Offered Rate" has the meaning set
<PAGE> 11
forth in Section 2.8(c).
"Material Debt" means Debt (other than the Notes) of
the Borrower and/or one or more of its Subsidiaries, arising
in one or more related or unrelated transactions, in an
aggregate principal or face amount exceeding $25,000,000.
"Material Plan" means at any time a Plan or Plans
having aggregate Unfunded Liabilities in excess of
$25,000,000.
"Material Subsidiary" means each Subsidiary which is
a "public utility company" within the meaning of
Section 2(a)(5) of the Public Utility Holding Company Act of
1935.
"Money Market Absolute Rate" has the meaning set
forth in Section 2.4(d)(ii)(D).
"Money Market Absolute Rate Loan" means a loan to be
made by a Bank pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank,
its Domestic Lending Office or such other office, branch or
affiliate of such Bank as it may hereafter designate as its
Money Market Lending Office by notice to the Borrower and
the Agent; provided that any Bank may from time to time by
notice to the Borrower and the Agent designate separate
Money Market Lending Offices for its Money Market LIBOR
Loans, on the one hand, and its Money Market Absolute Rate
Loans, on the other hand, in which case all references
herein to the Money Market Lending Office of such Bank shall
be deemed to refer to either or both of such offices, as the
context may require.
"Money Market LIBOR Loan" means a loan to be made by
a Bank pursuant to a LIBOR Auction (including such a loan
bearing interest at the Base Rate pursuant to Section 8.1).
"Money Market Loan" means a Money Market LIBOR Loan
or a Money Market Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in
Section 2.4(d)(ii)(C).
"Money Market Quote" means an offer by a Bank to make
a Money Market Loan in accordance with Section 2.4.
"Multiemployer Plan" means at any time an employee
pension benefit plan within the meaning of
<PAGE> 12
Section 4001(a)(3) of ERISA (i) to which any member of the
ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years
made contributions, including for these purposes any Person
which ceased to be a member of the ERISA Group during such
five-year period and (ii) which is covered by Title IV of
ERISA.
"Notes" means promissory notes of the Borrower,
substantially in the form of Exhibit A hereto, evidencing
the obligation of the Borrower to repay the Loans, and
"Note" means any one of such promissory notes issued
hereunder.
"Notice of Borrowing" means a Notice of Committed
Borrowing (as defined in Section 2.3) or a Notice of Money
Market Borrowing (as defined in Section 2.4(f)).
"Notice of Interest Rate Election" has the meaning
set forth in Section 2.11.
"Offer" has the meaning set forth in the Facility
Agreement.
"Original Credit Agreement" has the meaning set forth
in the Introductory Statement.
"Parent" means, with respect to any Bank, any Person
controlling such Bank.
"Participant" has the meaning set forth in
Section 9.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation
or any entity succeeding to any or all of its functions
under ERISA.
"Person" means an individual, a corporation, a
partnership, an association, a trust or any other entity or
organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit
plan (other than a Multiemployer Plan) which is covered by
Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member
of the ERISA Group for employees of any member of the ERISA
Group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person
<PAGE> 13
which was at such time a member of the ERISA Group for
employees of any Person which was at such time a member of
the ERISA Group.
"Pricing Schedule" means the Schedule attached hereto
identified as such.
"Prime Rate" means the rate of interest publicly
announced by Union Bank of Switzerland in New York City from
time to time as its Prime Rate.
"Quarterly Date" means March 31, June 30, September
30 and December 31.
"Reference Banks" means the CD Reference Banks or the
Euro-Dollar Reference Banks, as the context may require, and
"Reference Bank" means any one of such Reference Banks.
"Regulation U" means Regulation U of the Board of
Governors of the Federal Reserve System, as in effect from
time to time.
"Replacement Bank" has the meaning set forth in
Section 8.6.
"Required Banks" means at any time Banks having more
than 50% of the aggregate amount of the Commitments or, if
the Commitments shall have been terminated, holding Notes
evidencing more than 50% of the aggregate unpaid principal
amount of the Loans.
"Revolving Credit Period" means the period from and
including the Effective Date to but excluding the
Termination Date.
"SEC Authorization Date" means December 31, 1997, the
outside maturity date for bank borrowings by the Borrower
specified by the Commission in its order adopted pursuant to
the Public Utility Holding Company Act of 1935, as amended
(Release No. 35-26156; International Series Release No. 743;
70-8423), as such order may be amended from time to time, or
such later outside maturity date as may be established for
such purpose by order of the Commission, a copy of which
order shall be furnished promptly to the Agent.
"Stage 1" means the period from and including the
Effective Date to and including the earlier of (i) May 3,
1996, and (ii) the earliest to occur of (a) the date on
which all the ordinary shares of the Target have been
<PAGE> 14
acquired by Bidco and all options to acquire such ordinary
shares have been cancelled, (b) the date on which the Offer
lapses or is abandoned by Bidco and (c) any earlier date
specified by the Borrower by notice to the Agent in
accordance with Section 9.1.
"Stage 2" means the period from but excluding the
last day of Stage 1 to but excluding the Termination Date.
"Subsidiary" means, as to any Person, any corporation
or other entity of which securities or other ownership
interests having ordinary voting power to elect a majority
of the board of directors or other Persons performing
similar functions are at the time directly or indirectly
owned by such Person; unless otherwise specified,
"Subsidiary" means a Subsidiary of the Borrower.
"Syndication Agent" means Credit Suisse, in its
capacity as syndication agent of the credit facility
hereunder.
"Target" means SEEBOARD plc, a public limited company
incorporated in England and Wales.
"Termination Date" means the earlier of (i) November
6, 2000, and (ii) the SEC Authorization Date, or, if any
such day is not a Euro-Dollar Business Day, the next
preceding Euro-Dollar Business Day.
"Term Loan" has the meaning set forth in the
Introductory Statement.
"Unfunded Liabilities" means, with respect to any
Plan at any time, the amount (if any) by which (i) the value
of all benefit liabilities (within the meaning of
Section 4001(a)(16) of ERISA) under such Plan, determined on
a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds
(ii) the fair market value of all Plan assets allocable to
such liabilities under Title IV of ERISA (excluding any
accrued but unpaid contributions), all determined as of the
then most recent valuation date for such Plan, but only to
the extent that such excess represents a potential liability
of a member of the ERISA Group to the PBGC or any other
Person under Title IV of ERISA.
"United States" means the United States of America,
including the States and the District of Columbia, but
excluding its territories and possessions.
<PAGE> 15
SECTION 1.2. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein
shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as
in effect from time to time, applied on a basis consistent
(except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its
Consolidated Subsidiaries delivered to the Banks; provided
that, if the Borrower notifies the Agent that the Borrower
wishes to amend any covenant in Article 5 to eliminate the
effect of any change in generally accepted accounting
principles on the operation of such covenant (or if the
Agent notifies the Borrower that the Required Banks wish to
amend Article 5 for such purpose), then the Borrower's
compliance with such covenant shall be determined on the
basis of generally accepted accounting principles in effect
immediately before the relevant change in generally accepted
accounting principles became effective, until either such
notice is withdrawn or such covenant is amended in a manner
satisfactory to the Borrower and the Required Banks.
SECTION 1.3. Types of Borrowings. The term "Borrowing"
denotes the aggregation of Loans of one or more Banks to be
made to the Borrower pursuant to Article 2 on the same date,
all of which Loans are of the same type (subject to
Article 8) and, except in the case of Base Rate Loans, have
the same initial Interest Period. Borrowings are classified
for purposes of this Agreement either by reference to the
pricing of Loans comprising such Borrowing (e.g., a "Fixed
Rate Borrowing" is a Euro-Dollar Borrowing, a CD Borrowing
or a Money Market Borrowing (excluding any such Borrowing
consisting of Money Market LIBOR Loans bearing interest at
the Base Rate pursuant to Section 8.1), and a "Euro-Dollar
Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or
by reference to the provisions of Article 2 under which
participation therein is determined (i.e., a "Committed
Borrowing" is a Borrowing under Section 2.1 in which all
Banks participate in proportion to their Commitments, while
a "Money Market Borrowing" is a Borrowing under Section 2.4
in which the Bank participants are determined on the basis
of their bids in accordance therewith). Borrowings may also
be classified as "Stage 1 Borrowings" or "Stage 2
Borrowings" on the basis of whether they are to be made
during Stage 1 or Stage 2.
<PAGE> 16
ARTICLE 2
THE CREDITS
SECTION 2.1. Commitments. During the Revolving Credit
Period, each Bank severally agrees, on the terms and
conditions set forth in this Agreement, to make loans to the
Borrower pursuant to this Section from time to time in
amounts such that the aggregate principal amount of
Committed Loans by such Bank at any one time outstanding
shall not exceed the amount of its Commitment. Each
Borrowing under this Section shall be in an aggregate
principal amount of $10,000,000 or any larger multiple of
$1,000,000 (except that any such Borrowing may be in the
aggregate amount available in accordance with
Section 3.2(a)(ii) or 3.2(b)(ii), as the case may be) and
shall be made from the several Banks ratably in proportion
to their respective Commitments; provided, however, that the
failure of any Bank to make any Loan shall not relieve any
other Bank of its obligation to lend hereunder (it being
understood, however, that no Bank shall be responsible for
the failure of any other Bank to make any Loan required to
be made by such other Bank). Within the foregoing limits,
the Borrower may borrow under this Section, prepay Loans to
the extent permitted by Section 2.13 and reborrow at any
time during the Revolving Credit Period under this Section.
SECTION 2.2. Term Loans. On the Effective Date, each Term Loan
shall be deemed to be a Loan hereunder, with the same
Interest Period and interest rate as when made under the
Original Credit Agreement.
SECTION 2.3. Notice of Committed Borrowing. The Borrower shall
give the Agent notice (a "Notice of Committed Borrowing")
not later than 12:00 Noon (New York City time) on (x) the
date of each Base Rate Borrowing, (y) the second Domestic
Business Day before each CD Borrowing and (z) the third Euro-
Dollar Business Day before each Euro-Dollar Borrowing,
specifying:
(i) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Domestic Borrowing or a
Euro-Dollar Business Day in the case of a Euro-Dollar
Borrowing;
(ii) the aggregate amount of such Borrowing;
<PAGE> 17
(iii) whether the Loans comprising such Borrowing are
to bear interest initially at the Base Rate, a CD Rate or a
Euro-Dollar Rate;
(iv) in the case of a Fixed Rate Borrowing, the duration
of the Interest Period applicable thereto, subject to the
provisions of the definition of Interest Period; and
(v) in the case of a Stage 1 Borrowing, whether the
proceeds thereof will be used, directly or indirectly, to
finance the Acquisition or to pay costs and expenses related
thereto.
SECTION 2.4. Money Market Borrowings. (a) The Money
Market Option. In addition to Committed Borrowings pursuant
to Section 2.1, the Borrower may, as set forth in this
Section, request the Banks during the Revolving Credit
Period to make offers to make Money Market Loans to the
Borrower. The Banks may, but shall have no obligation to,
make such offers and the Borrower may, but shall have no
obligation to, accept any such offers in the manner set
forth in this Section.
(b) Money Market Quote Request. When the Borrower wishes
to request offers to make Money Market Loans under this
Section, it shall transmit to the Agent by telex or
facsimile transmission a Money Market Quote Request
substantially in the form of Exhibit B hereto so as to be
received not later than 10:30 A.M. (New York City time) on
(x) the fourth Euro-Dollar Business Day prior to the date of
Borrowing proposed therein, in the case of a LIBOR Auction
or (y) the Domestic Business Day next preceding the date of
Borrowing proposed therein, in the case of an Absolute Rate
Auction (or, in either case, such other time or date as the
Borrower and the Agent shall have mutually agreed and shall
have notified to the Banks not later than the date of the
Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be
effective) specifying:
(i) the proposed date of Borrowing, which shall be a
Euro-Dollar Business Day in the case of a LIBOR Auction
or a Domestic Business Day in the case of an Absolute
Rate Auction,
(ii) the aggregate amount of such Borrowing, which
shall be $10,000,000 or a larger multiple of $1,000,000,
<PAGE> 18
(iii) the duration of the Interest Period applicable
thereto, subject to the provisions of the definition of
Interest Period, and
(iv) whether the Money Market Quotes requested are
to set forth a Money Market Margin or a Money Market
Absolute Rate.
The Borrower may request offers to make Money Market Loans
for more than one Interest Period in a single Money Market
Quote Request. No Money Market Quote Request shall be given
within three Euro-Dollar Business Days (or such other number
of days as the Borrower and the Agent may agree) of any
other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon
receipt of a Money Market Quote Request, the Agent shall
send to the Banks by telex or facsimile transmission an
Invitation for Money Market Quotes substantially in the form
of Exhibit C hereto, which shall constitute an invitation by
the Borrower to each Bank to submit Money Market Quotes
offering to make the Money Market Loans to which such Money
Market Quote Request relates in accordance with this
Section.
(d) Submission and Contents of Money Market Quotes.
(i) Each Bank may submit a Money Market Quote containing an
offer or offers to make Money Market Loans in response to
any Invitation for Money Market Quotes. Each Money Market
Quote must comply with the requirements of this subsection
(d) and must be submitted to the Agent by telex or facsimile
transmission at its offices specified in or pursuant to
Section 9.1 not later than (x) 4:00 P.M. (New York City
time) on the fourth Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction
or (y) 9:30 A.M. (New York City time) on the proposed date
of Borrowing, in the case of an Absolute Rate Auction (or,
in either case, such other time or date as the Borrower and
the Agent shall have mutually agreed and shall have notified
to the Banks not later than the date of the Money Market
Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective); provided
that Money Market Quotes submitted by the Agent (or any
affiliate of the Agent) in the capacity of a Bank may be
submitted, and may only be submitted, if the Agent or such
affiliate notifies the Borrower of the terms of the offer or
offers contained therein not later than (x) one hour prior
to the deadline for the other Banks, in the case of a LIBOR
Auction or (y) 15 minutes prior to the deadline for the
other Banks, in the case of an Absolute Rate Auction.
<PAGE> 19
Subject to Articles 3 and 6, any Money Market Quote so made
shall be irrevocable except with the written consent of the
Agent given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be in
substantially the form of Exhibit D hereto and shall in any
case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for
which each such offer is being made, which principal amount
(w) may be greater than or less than the Commitment of the
quoting Bank, (x) must be $5,000,000 or a larger multiple of
$1,000,000, (y) may not exceed the principal amount of Money
Market Loans for which offers were requested and (z) may be
subject to an aggregate limitation as to the principal
amount of Money Market Loans for which offers being made by
such quoting Bank may be accepted (which aggregate
limitation may be allocated by the Borrower among such
offers as the Borrower may elect),
(C) in the case of a LIBOR Auction, the margin above or
below the applicable London Interbank Offered Rate (the
"Money Market Margin") offered for each such Money Market
Loan, expressed as a percentage (specified to the nearest
1/10,000th of 1%) to be added to or subtracted from such
base rate,
(D) in the case of an Absolute Rate Auction, the rate of
interest per annum (specified to the nearest 1/10,000th of
1%) (the "Money Market Absolute Rate") offered for each such
Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate
offers by the quoting Bank with respect to each Interest
Period specified in the related Invitation for Money Market
Quotes.
(iii) Unless the Borrower and the Agent shall
otherwise agree, any Money Market Quote shall be disregarded
if it:
(A) is not substantially in conformity with Exhibit
D hereto or does not specify all of the information
required by subsection (d)(ii);
<PAGE> 20
(B) contains qualifying, conditional or similar
language;
(C) proposes terms other than or in addition to
those set forth in the applicable Invitation for Money
Market Quotes; or
(D) arrives after the time set forth in subsection
(d)(i).
(e) Notice to Borrower. The Agent shall promptly notify
the Borrower of the terms (x) of any Money Market Quote
submitted by a Bank that is in accordance with subsection
(d) and (y) of any Money Market Quote that amends, modifies
or is otherwise inconsistent with a previous Money Market
Quote submitted by such Bank with respect to the same Money
Market Quote Request. Any such subsequent Money Market
Quote shall be disregarded by the Agent unless such
subsequent Money Market Quote is submitted solely to correct
a manifest error in such former Money Market Quote. The
Agent's notice to the Borrower shall specify (A) the
aggregate principal amount of Money Market Loans for which
offers have been received for each Interest Period specified
in the related Money Market Quote Request, (B) the
respective principal amounts and Money Market Margins or
Money Market Absolute Rates, as the case may be, so offered
and (C) if applicable, limitations on the aggregate
principal amount of Money Market Loans for which offers in
any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than
10:30 A.M. (New York City time) on (x) the third Euro-Dollar
Business Day prior to the proposed date of Borrowing, in the
case of a LIBOR Auction or (y) the proposed date of
Borrowing, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the
Agent shall have mutually agreed and shall have notified to
the Banks not later than the date of the Money Market Quote
Request for the first LIBOR Auction or Absolute Rate Auction
for which such change is to be effective), the Borrower
shall notify the Agent of its acceptance or non-acceptance
of the offers so notified to it pursuant to subsection (e).
In the case of acceptance, such notice (a "Notice of Money
Market Borrowing") shall specify the aggregate principal
amount of offers for each Interest Period that are accepted.
The Borrower may accept any Money Market Quote in whole or
in part; provided that:
<PAGE> 21
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in
the related Money Market Quote Request;
(ii) the principal amount of each Money Market Borrowing
must be $10,000,000 or a larger multiple of $1,000,000;
(iii) acceptance of offers may only be made on the basis of
ascending Money Market Margins or Money Market Absolute Rates, as
the case may be, for the applicable Interest
Period; and
(iv) the Borrower may not accept any offer that is
described in subsection (d)(iii) or that otherwise fails to comply
with the requirements of this Agreement.
(g) Allocation by Agent. If offers are made by two or
more Banks with the same Money Market Margins or Money
Market Absolute Rates, as the case may be, for a greater
aggregate principal amount than the amount in respect of
which such offers are accepted for the related Interest
Period, the principal amount of Money Market Loans in
respect of which such offers are accepted shall be allocated
by the Agent among such Banks as nearly as possible (in
multiples of $1,000,000, as the Agent may deem appropriate)
in proportion to the aggregate principal amounts of such
offers. Determinations by the Agent of the amounts of Money
Market Loans shall be conclusive in the absence of manifest
error.
SECTION 2.5. Notice to Banks; Funding of Loans. (a) Upon
receipt of a Notice of Borrowing, the Agent shall promptly
notify each Bank of the contents thereof and of such Bank's
share (if any) of such Borrowing and such Notice of
Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 2:00 p.m. (New York City time) on the
date of each Borrowing, each Bank participating therein
shall make available its share of such Borrowing, in Federal
or other funds immediately available in New York City, to
the Agent at its address referred to in Section 9.1. Unless
the Agent determines that any applicable condition specified
in Article 3 has not been satisfied, the Agent will make the
funds so received from the Banks available to the Borrower
at the Agent's aforesaid address.
<PAGE> 22
(c) Unless the Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will
not make available to the Agent such Bank's share of such
Borrowing, the Agent may assume that such Bank has made such
share available to the Agent on the date of such Borrowing
in accordance with subsection (b) of this Section and the
Agent may, in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and
to the extent that such Bank shall not have so made such
share available to the Agent, such Bank and, to the extent
such Bank has failed to do so within three Domestic
Business Days of demand therefor by the Agent, the Borrower
severally agree to repay to the Agent forthwith on demand
such corresponding amount (together with interest thereon),
for each day from the date such amount is made available to
the Borrower until the date such amount is repaid to the
Agent, at (i) in the case of the Borrower, a rate per annum
equal to the higher of the Federal Funds Rate and the
interest rate applicable thereto pursuant to Section 2.8 and
(ii) in the case of such Bank, the Federal Funds Rate. If
such Bank shall repay to the Agent such corresponding
amount, such amount so repaid shall constitute such Bank's
Loan included in such Borrowing for purposes of this
Agreement. If the Borrower shall repay to the Agent such
corresponding amount, such Bank's Loan included in such
Borrowing shall be deemed not to have been made. This
subsection (c) shall not limit any right of the Borrower
pursuant to Section 8.6.
SECTION 2.6. Notes. (a) The Loans of each Bank shall be
evidenced by a single Note payable to the order of such Bank
for the account of its Applicable Lending Office in an
amount equal to the aggregate unpaid principal amount of
such Bank's Loans. Prior to the syndication referred to in
Section 5.13, the Loans of each Bank shall be evidenced by
the Note issued to such Bank under the Original Credit
Agreement.
(b) Each Bank may, by notice to the Borrower and the
Agent, request that its Loans of a particular type be
evidenced by a separate Note in an amount equal to the
aggregate unpaid principal amount of such Loans. Each such
Note shall be in substantially the form of Exhibit A hereto
with appropriate modifications to reflect the fact that it
evidences solely Loans of the relevant type. Each reference
in this Agreement to the "Note" of such Bank shall be deemed
to refer to and include any or all of such Notes, as the
context may require.
<PAGE> 23
(c) Upon receipt of each Bank's Note pursuant to
Section 3.1(a), the Agent shall forward such Note to such
Bank. Each Bank shall record the date, amount and type of
each Loan made by it and the date and amount of each payment
of principal made by the Borrower with respect thereto, and
may, if such Bank so elects in connection with any transfer
or enforcement of its Note, endorse on the schedule forming
a part thereof appropriate notations to evidence the
foregoing information with respect to each such Loan then
outstanding; provided that the failure of any Bank to make
any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Notes.
Each Bank is hereby irrevocably authorized by the Borrower
so to endorse its Note and to attach to and make a part of
its Note a continuation of any such schedule as and when
required.
SECTION 2.7. Maturity of Loans. (a) Each Committed Loan
shall mature, and the principal amount thereof shall be due
and payable, together with accrued interest thereon, on the
Termination Date.
(b) Each Money Market Loan included in any Money
Market Borrowing shall mature, and the principal amount
thereof shall be due and payable, on the last day of the
Interest Period applicable to such Borrowing.
SECTION 2.8. Interest Rates. (a) Each Base Rate Loan
shall bear interest on the outstanding principal amount
thereof, for each day from the date such Loan is made until
it becomes due, at a rate per annum equal to the Base Rate
for such day. Such interest shall be payable quarterly in
arrears on each Quarterly Date and, with respect to the
principal amount of any Base Rate Loan converted to a
CD Loan or a Euro-Dollar Loan, on each date a Base Rate Loan
is so converted. Any overdue principal of or interest on
any Base Rate Loan shall bear interest, payable on demand,
for each day until paid at a rate per annum equal to the sum
of 2% plus the rate otherwise applicable to Base Rate Loans
for such day.
(b) Each CD Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest
Period applicable thereto, at a rate per annum equal to the
sum of the CD Margin for such day plus the Adjusted CD Rate
applicable to such Interest Period; provided that if any
CD Loan shall, as a result of clause (2)(b) of the
definition of Interest Period, have an Interest Period of
less than 30 days, such CD Loan shall bear interest during
such Interest Period at the rate applicable to Base Rate
<PAGE> 24
Loans during such period. Such interest shall be payable
for each Interest Period on the last day thereof and, if
such Interest Period is longer than 90 days, at intervals of
90 days after the first day thereof. Any overdue principal
of or interest on any CD Loan shall bear interest, payable
on demand, for each day until paid at a rate per annum equal
to the sum of 2% plus the higher of (i) the rate applicable
to Base Rate Loans for such day and (ii) the sum of the
CD Margin plus the Adjusted CD Rate applicable to such Loan
at the date such payment was due.
The "Adjusted CD Rate" applicable to any Interest
Period means a rate per annum determined pursuant to the
following formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
__________
* The amount in brackets being rounded upward, if
necessary, to the next higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period
is the rate of interest determined by the Agent to be the
average (rounded upward, if necessary, to the next higher
1/100 of 1%) of the prevailing rates per annum bid at
10:00 A.M. (New York City time) (or as soon thereafter as
practicable) on the first day of such Interest Period by two
or more New York certificate of deposit dealers of
recognized standing for the purchase at face value from each
CD Reference Bank of its certificates of deposit in an
amount comparable to the principal amount of the CD Loan of
such CD Reference Bank to which such Interest Period applies
and having a maturity comparable to such Interest Period.
"Domestic Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on
such day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including without
limitation any basic, supplemental or emergency reserves)
for a member bank of the Federal Reserve System in New York
City with deposits exceeding five billion dollars in respect
<PAGE> 25
of new non-personal time deposits in dollars in New York
City having a maturity comparable to the related Interest
Period and in an amount of $100,000 or more. The Adjusted
CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve
Percentage.
"Assessment Rate" means for any day the annual
assessment rate in effect on such day which is payable by a
member of the Bank Insurance Fund classified as adequately
capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within
the meaning of 12 C.F.R. 327.4(a) (or any successor
provision) to the Federal Deposit Insurance Corporation (or
any successor) for such Corporation's (or such successor's)
insuring time deposits at offices of such institution in the
United States. The Adjusted CD Rate shall be adjusted
automatically on and as of the effective date of any change
in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for each day during
each Interest Period applicable thereto, at a rate per annum
equal to the sum of the Euro-Dollar Margin for such day plus
the London Interbank Offered Rate applicable to such
Interest Period. Such interest shall be payable for each
Interest Period on the last day thereof and, if such
Interest Period is longer than three months, at intervals of
three months after the first day thereof.
The "London Interbank Offered Rate" applicable to any
Interest Period means the average (rounded upward, if
necessary, to the next higher 1/16 of 1%) of the respective
rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London
interbank market at approximately 11:00 A.M. (London time)
two Euro-Dollar Business Days before the first day of such
Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar
Reference Bank to which such Interest Period is to apply and
for a period of time comparable to such Interest Period.
(d) Any overdue principal of or interest on any
Euro-Dollar Loan shall bear interest, payable on demand, for
each day until paid at a rate per annum equal to the higher
of (i) the sum of 2% plus the Euro-Dollar Margin for such
day plus the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing
(x) the average (rounded upward, if necessary, to the next
higher 1/16 of 1%) of the respective rates per annum at
<PAGE> 26
which one day (or, if such amount due remains unpaid more
than three Euro-Dollar Business Days, then for such other
period of time not longer than three months as the Agent may
select) deposits in dollars in an amount approximately equal
to such overdue payment due to each of the Euro-Dollar
Reference Banks are offered to such Euro-Dollar Reference
Bank in the London interbank market for the applicable
period determined as provided above by (y) 1.00 minus the
Euro-Dollar Reserve Percentage (or, if the circumstances
described in clause (a) or (b) of Section 8.1 shall exist,
at a rate per annum equal to the sum of 2% plus the rate
applicable to Base Rate Loans for such day) and (ii) the sum
of 2% plus the Euro-Dollar Margin for such day plus the
London Interbank Offered Rate applicable to such Loan at the
date such payment was due.
(e) Subject to Section 8.1, each Money Market LIBOR Loan
shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a
rate per annum equal to the sum of the London Interbank
Offered Rate for such Interest Period (determined in
accordance with Section 2.8(c) as if the related Money
Market LIBOR Borrowing were a Committed Euro-Dollar
Borrowing) plus (or minus) the Money Market Margin quoted by
the Bank making such Loan in accordance with Section 2.4.
Each Money Market Absolute Rate Loan shall bear interest on
the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the
Money Market Absolute Rate quoted by the Bank making such
Loan in accordance with Section 2.4. Such interest shall be
payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at
intervals of three months after the first day thereof. Any
overdue principal of or interest on any Money Market Loan
shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the sum of 2% plus the
Base Rate for such day.
(f) The Agent shall determine each interest rate
applicable to the Loans hereunder. The Agent shall give
prompt notice to the Borrower and the participating Banks of
each rate of interest so determined, and its determination
thereof shall be conclusive in the absence of manifest
error.
(g) Each Reference Bank agrees to use its best efforts to
furnish quotations to the Agent as contemplated by this
Section. If any Reference Bank does not furnish a timely
quotation, the Agent shall determine the relevant interest
rate on the basis of the quotation or quotations furnished
<PAGE> 27
by the remaining Reference Bank or Banks or, if none of such
quotations is available on a timely basis, the provisions of
Section 8.1 shall apply.
SECTION 2.9. Fees. (a) Commitment Fee. The Borrower shall
pay to the Agent for the account of the Banks ratably a
commitment fee of 0.30% per annum on the daily aggregate
amount of the undrawn Commitments during Stage 1.
(b) Facility Fee. The Borrower shall pay to the Agent
for the account of the Banks ratably a facility fee at the
Facility Fee Rate (determined daily in accordance with the
Pricing Schedule) on the daily aggregate amount of the
Commitments, whether used or unused, during Stage 2 (or, if
the Commitments shall have terminated in their entirety
during Stage 2, on the daily aggregate outstanding principal
amount of the Loans).
(c) Accrued fees under this Section shall be payable
quarterly in arrears on each Quarterly Date and on the date
of termination of the Commitments in their entirety (and, if
later, the date the Loans shall be repaid in their
entirety).
SECTION 2.10. Optional Termination or Reduction of
Commitments. During the Revolving Credit Period, the
Borrower may, upon at least three Domestic Business Days'
notice to the Agent, (i) terminate the Commitments at any
time, if no Loans are outstanding at such time or (ii)
ratably reduce from time to time by an aggregate amount of
$25,000,000 or a larger multiple of $1,000,000, the
aggregate amount of the Commitments in excess of the
aggregate outstanding principal amount of the Loans.
SECTION 2.11. Method of Electing Interest Rates. (a) The
Loans included in each Committed Borrowing shall bear
interest initially at the type of rate specified by the
Borrower in the applicable Notice of Committed Borrowing.
Thereafter, the Borrower may from time to time elect to
change or continue the type of interest rate borne by each
Group of Loans (subject in each case to the provisions of
Article 8), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may
elect to convert such Loans to CD Loans as of any Domestic
Business Day or to Euro-Dollar Loans as of any Euro-Dollar
Business Day;
(ii) if such Loans are CD Loans, the Borrower may elect to
convert such Loans to Base Rate Loans or Euro-Dollar Loans
<PAGE> 28
or elect to continue such Loans as CD Loans for an
additional Interest Period, subject to Section 2.15 in the
case of any such conversion or continuation effective on any
day other than the last day of the then current Interest
Period applicable to such Loans; and
(iii) if such Loans are Euro-Dollar Loans, the
Borrower may elect to convert such Loans to Base Rate Loans
or CD Loans or elect to continue such Loans as Euro-Dollar
Loans for an additional Interest Period, subject to
Section 2.15 in the case of any such conversion or
continuation effective on any day other than the last day of
the then current Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a
"Notice of Interest Rate Election") to the Agent not later
than 10:30 A.M. (New York City time) on the third
Euro-Dollar Business Day before the conversion or
continuation selected in such notice is to be effective
(unless the relevant Loans are to be converted to Domestic
Loans of the other type or are CD Rate Loans to be continued
as CD Rate Loans for an additional Interest Period, in which
case such notice shall be delivered to the Agent not later
than 10:30 A.M. (New York City time) on the second Domestic
Business Day before such conversion or continuation is to be
effective). A Notice of Interest Rate Election may, if it
so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans; provided
that (i) such portion is allocated ratably among the Loans
comprising such Group and (ii) the portion to which such
Notice applies, and the remaining portion to which it does
not apply, are each $25,000,000 (or, if such remaining
portion is comprised of Base Rate Loans, $10,000,000) or any
larger multiple of $1,000,000.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such
notice applies;
(ii) the date on which the conversion or continuation
selected in such notice is to be effective, which shall
comply with the applicable clause of subsection (a) above;
(iii) if the Loans comprising such Group are to be
converted, the new type of Loans and, if the Loans being
<PAGE> 29
converted are to be Fixed Rate Loans, the duration of the
next succeeding Interest Period applicable thereto; and
(iv) if such Loans are to be continued as CD Loans or
Euro-Dollar Loans for an additional Interest Period, the
duration of such additional Interest Period.
Each Interest Period specified in a Notice of Interest Rate
Election shall comply with the provisions of the definition
of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election
from the Borrower pursuant to subsection (a) above, the
Agent shall promptly notify each Bank of the contents
thereof and such notice shall not thereafter be revocable by
the Borrower.
(d) An election by the Borrower to change or continue the
rate of interest applicable to any Group of Loans pursuant
to this Section shall not constitute a "Borrowing" subject
to the provisions of Section 3.2.
SECTION 2.12. Scheduled Termination of Commitments. The
Commitments shall terminate on the Termination Date.
SECTION 2.13. Optional Prepayments. (a) Subject in the
case of any Fixed Rate Borrowing to Section 2.15, the
Borrower may, upon at least one Domestic Business Day's
notice to the Agent, prepay any Group of Domestic Loans (or
any Money Market Borrowing bearing interest at the Base Rate
pursuant to Section 8.1) or upon at least three Euro-Dollar
Business Days' notice to the Agent, prepay any Group of Euro-
Dollar Loans, in each case in whole at any time, or from
time to time in part in amounts aggregating $25,000,000 or
any larger multiple of $1,000,000, by paying the principal
amount to be prepaid together with accrued interest thereon
to the date of prepayment. Each such optional prepayment
shall be applied to prepay ratably the Loans of the Banks
included in such Group.
(b) Except as provided in subsection (a) above, the
Borrower may not prepay all or any portion of the principal
amount of any Money Market Loan prior to the maturity
thereof without the prior written consent of the Bank making
such Loan.
(c) Upon receipt of a notice of prepayment pursuant to
this Section, the Agent shall promptly notify each Bank of
the contents thereof and of such Bank's ratable share (if
<PAGE> 30
any) of such prepayment and such notice shall not thereafter
be revocable by the Borrower.
SECTION 2.14. General Provisions as to Payments. (a) The
Borrower shall make each payment of principal of, and
interest on, the Loans and of fees hereunder, not later than
2:00 p.m. (New York City time) on the date when due, in
Federal or other funds immediately available in New York
City, to the Agent at its address referred to in
Section 9.1. The Agent will promptly distribute to each
Bank its ratable share of each such payment received by the
Agent for the account of the Banks. Whenever any payment of
principal of, or interest on, the Domestic Loans or of fees
shall be due on a day which is not a Domestic Business Day,
the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of
principal of, or interest on, the Euro-Dollar Loans or Money
Market LIBOR Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall
be extended to the next succeeding Euro-Dollar Business Day
unless such Euro-Dollar Business Day falls in another
calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day.
Whenever any payment of principal of, or interest on, the
Money Market Absolute Rate Loans shall be due on a day which
is not a Euro-Dollar Business Day, the date for payment
thereof shall be extended to the next succeeding Euro-Dollar
Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon
shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the
Borrower prior to the date on which any payment is due to
the Banks hereunder that the Borrower will not make such
payment in full, the Agent may assume that the Borrower has
made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to
the amount then due such Bank. If and to the extent that
the Borrower shall not have so made such payment, each Bank
shall repay to the Agent forthwith on demand such amount
distributed to such Bank together with interest thereon, for
each day from the date such amount is distributed to such
Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.15. Funding Losses. If the Borrower makes any
payment of principal with respect to any Fixed Rate Loan or
any Fixed Rate Loan is converted (pursuant to Article 2, 6
<PAGE> 31
or 8 or otherwise) on any day other than the last day of an
Interest Period applicable thereto, or the last day of an
applicable period fixed pursuant to Section 2.8(d), or if
the Borrower fails to borrow, convert or prepay any Fixed
Rate Loans after notice has been given to any Bank in
accordance with Section 2.5(a), 2.11(c) or 2.13(c) the
Borrower shall reimburse each Bank within 15 days after
demand for any resulting loss or expense incurred by it (or
by an existing or prospective Participant in the related
Loan), including (without limitation) any loss incurred in
obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after
any such payment or conversion or failure to borrow, convert
or prepay, provided that such Bank shall have delivered to
the Borrower a certificate as to the amount of such loss or
expense, which certificate shall be conclusive in the
absence of manifest error.
SECTION 2.16. Computation of Interest and Fees. Interest
based on the Prime Rate hereunder shall be computed on the
basis of a year of 365 days (or 366 days in a leap year) and
paid for the actual number of days elapsed (including the
first day but excluding the last day). All other interest
and fees shall be computed on the basis of a year of
360 days and paid for the actual number of days elapsed
(including the first day but excluding the last day).
SECTION 2.17. Regulation D Compensation. For so long as any
Bank maintains reserves against "Eurocurrency liabilities"
(or any other category of liabilities which includes
deposits by reference to which the interest rate on Euro-
Dollar Loans is determined or any category of extensions of
credit or other assets which includes loans by a non-United
States office of such Bank to United States residents), and
as a result the cost to such Bank (or its Euro-Dollar
Lending Office) of making or maintaining its Euro-Dollar
Loans is increased, then such Bank may require the Borrower
to pay, contemporaneously with each payment of interest on
the Euro-Dollar Loans, additional interest on the related
Euro-Dollar Loan of such Bank at a rate per annum up to but
not exceeding the excess of (i) (A) the applicable London
Interbank Offered Rate divided by (B) one minus the Euro-
Dollar Reserve Percentage over (ii) the applicable London
Interbank Offered Rate. Any Bank wishing to require payment
of such additional interest (x) shall so notify the Borrower
and the Agent, in which case such additional interest on the
Euro-Dollar Loans of such Bank shall be payable to such Bank
at the place indicated in such notice with respect to each
Interest Period commencing at least four Euro-Dollar
Business Days after the giving of such notice and (y) shall
<PAGE> 31
furnish to the Borrower at least five Euro-Dollar
Business Days prior to each date on which interest is
payable on the Euro-Dollar Loans an officer's certificate
setting forth the amount to which such Bank is then entitled
under this Section (which shall be consistent with such
Bank's good faith estimate of the level at which the related
reserves are maintained by it).
"Euro-Dollar Reserve Percentage" means for any day
that percentage (expressed as a decimal) which is in effect
on such day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) for determining
the maximum reserve requirement for a member bank of the
Federal Reserve System in New York City with deposits
exceeding five billion dollars in respect of "Eurocurrency
liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which
the interest rate on Euro-Dollar Loans is determined or any
category of extensions of credit or other assets which
includes loans by a non-United States office of any Bank to
United States residents).
ARTICLE 3
CONDITIONS
SECTION 3.1. Effective Date. The effectiveness of the
amendment and restatement of the Original Credit Agreement
in the form hereof shall be subject to the satisfaction of
each of the following conditions:
(a) the Agent shall have received an opinion of Vinson &
Elkins L.L.P., special counsel for the Borrower,
substantially in the form of Exhibit E hereto;
(b) the Agent shall have received an opinion of Cravath,
Swaine & Moore, special counsel for the Agent and the
Arrangers, substantially in the form of Exhibit F hereto;
and
(c) the Agent shall have received (i) a copy of the
certificate of incorporation, including all amendments
thereto, of the Borrower, certified as of a recent date by
the Secretary of State of the State of Delaware, and a
certificate as to the good standing of the Borrower as of a
recent date, from such Secretary of State; (ii) a
certificate of the Secretary or Assistant Secretary of the
Borrower dated the Effective Date and certifying (A) that
<PAGE> 33
attached thereto is a true and complete copy of the by-laws
of the Borrower, as in effect on the date of such
certificate and at all times since a date prior to the date
of the resolutions described in clause (B) below, (B) that
attached thereto is a true and complete copy of resolutions
duly adopted by the Borrower, authorizing the execution,
delivery and performance by the Borrower of this Agreement
and the Notes and the borrowings hereunder, and that such
resolutions have not been modified, rescinded or amended and
are in full force and effect as of the date of such
certificate, (C) that the certificate of incorporation of
the Borrower has not been amended since the date of the last
amendment thereto shown on the certificate of good standing
furnished pursuant to clause (i) above and (D) as to the
incumbency and specimen signature of each officer executing
this Agreement, any Note or any other document delivered in
connection herewith on behalf of the Borrower; and (iii) a
certificate of another officer as to the incumbency and
specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to (ii) above.
SECTION 3.2. Borrowings. (a) The obligation of any
Bank to make a Loan on the occasion of any Stage 1
Borrowing, the proceeds of which are to be used, directly or
indirectly, to finance the Acquisition or to pay costs and
expenses related thereto, is subject to the satisfaction of
the following conditions:
(i) the Agent shall have received a Notice of Borrowing
as required by Section 2.3 or 2.4, as the case may be;
(ii) the fact that, immediately after such Borrowing, the
aggregate outstanding principal amount of the Loans will not
exceed the aggregate amount of the Commitments;
(iii) the fact that, immediately before and after such
Borrowing, no Default described in clause (f) or (g) of
Section 6.1 shall have occurred and be continuing; and
(iv) the fact that the representations and warranties of
the Borrower contained in Sections 4.1, 4.2 and 4.3 shall be
true in all material respects on and as of the date of such
Borrowing.
Each Borrowing hereunder of the type described in this
Section 3.2(a) shall be deemed to be a representation and
<PAGE> 34
warranty by the Borrower on the date of such Borrowing as to
the facts specified in clauses (ii), (iii) and (iv) of this
Section 3.2(a).
(b) The obligation of any Bank to make a Loan on the
occasion of any Borrowing other than a Stage 1 Borrowing of
the type described in Section 3.2(a) is subject to the
satisfaction of the following conditions:
(i) the Agent shall have received a Notice of
Borrowing as required by Section 2.3 or 2.4, as the case
may be;
(ii) the fact that, immediately after such
Borrowing, the aggregate outstanding principal amount of
the Loans will not exceed the aggregate amount of the
Commitments;
(iii) the fact that, immediately before and after
such Borrowing, no Default shall have occurred and be
continuing; and
(iv) the fact that the representations and
warranties of the Borrower contained in this Agreement
shall be true in all material respects on and as of the
date of such Borrowing.
Each Borrowing hereunder of the type described in this
Section 3.2(b) shall be deemed to be a representation and
warranty by the Borrower on the date of such Borrowing as to
the facts specified in clauses (ii), (iii) and (iv) of this
Section 3.2(b).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.1. Corporate Existence and Power. The Borrower
is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware, and
has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to
carry on its business as now conducted.
<PAGE> 35
SECTION 4.2. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by
the Borrower of this Agreement and the Notes are within the
corporate powers of the Borrower, have been duly authorized
by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency
or official, except for the order of the Commission
contemplated by the definition of SEC Authorization Date,
which, as of the date of each Borrowing, has been obtained
and is in full force and effect with respect to the
Borrowings to be made on such date, and do not contravene,
or constitute a default under, any provision of applicable
law or regulation or of the certificate of incorporation or
by-laws of the Borrower or of any agreement or instrument
governing Debt of the Borrower or any of its Subsidiaries or
of any material agreement, judgment, injunction, order,
decree or other instrument binding upon the Borrower or any
of its Subsidiaries or result in the creation or imposition
of any Lien on any material asset of the Borrower or any of
its Subsidiaries.
SECTION 4.3. Binding Effect. This Agreement constitutes a
valid and binding agreement of the Borrower and each Note,
when executed and delivered in accordance with this
Agreement, will constitute a valid and binding obligation of
the Borrower, in each case enforceable in accordance with
its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally
and except as the enforceability of the Agreement and the
Notes is subject to the application of general principles of
equity (regardless of whether 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 remedy and (b) concepts of
materiality, reasonableness, good faith and fair dealing.
SECTION 4.4. Financial Information. (a) The consolidated
balance sheet of the Borrower and its Consolidated
Subsidiaries as of December 31, 1994 and the related
consolidated statements of income and cash flows for the
fiscal year then ended, reported on by Arthur Andersen LLP
and set forth in the Borrower's 1994 Form 10-K, a copy of
which has been delivered to each of the Banks, fairly
present, in conformity with generally accepted accounting
principles, the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date
and their consolidated results of operations and cash flows
for such fiscal year.
<PAGE> 36
(b) The unaudited consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of
September 30, 1995 and the related unaudited consolidated
statements of income and cash flows for the nine months then
ended, set forth in the Borrower's Latest Form 10-Q, a copy
of which has been delivered to each of the Banks, fairly
present, in conformity with generally accepted accounting
principles applied on a basis consistent with the financial
statements referred to in subsection (a) of this Section,
the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such
three-month period (subject to normal year-end adjustments).
(c) Since September 30, 1995 there has been no material
adverse change in the business, financial position or
results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole.
SECTION 4.5. Litigation. (a) Except for the matters
disclosed in the Borrower's 1994 Form 10-K, the Borrower's
Latest Form 10-Q and the Borrower's current report on Form 8-
K dated September 6, 1995 (the "Disclosed Matters"), there
is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened against or affecting,
the Borrower or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or official in
which there is a reasonable possibility of an adverse
decision which could materially adversely affect the
business, consolidated financial position or consolidated
results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole, or which in any manner
draws into question the validity of this Agreement or the
Notes.
(b) Since the date of the latest filing with the
Commission referred to in Section 4.5(a), there has been no
development in the Disclosed Matters which is likely to
materially and adversely affect the ability of the Borrower
to perform its obligation under this Agreement and the
Notes.
SECTION 4.6. Compliance with ERISA. Each member of the
ERISA Group has fulfilled its obligations under the minimum
funding standards of ERISA and the Internal Revenue Code
with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions
of ERISA and the Internal Revenue Code with respect to each
Plan. No member of the ERISA Group has (i) sought a waiver
of the minimum funding standard under Section 412 of the
<PAGE> 37
Internal Revenue Code in respect of any Plan, (ii) failed to
make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement,
or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security under ERISA
or the Internal Revenue Code or (iii) incurred any liability
under Title IV of ERISA other than a liability to the PBGC
for premiums under Section 4007 of ERISA.
SECTION 4.7. Environmental Matters. In the ordinary
course of its business, the Borrower conducts an ongoing
review of the effect of Environmental Laws on the business,
operations and properties of the Borrower and its
Subsidiaries, in the course of which it identifies and
evaluates liabilities and costs arising under or imposed by
Environmental Laws (including, without limitation, any
capital or operating expenditures required for clean-up or
closure of properties presently or previously owned, any
capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards
imposed by Environmental Law, any related constraints on
operating activities, including any periodic or permanent
shutdown of any facility or reduction in the level of or
change in the nature of operations conducted thereat, any
costs or liabilities in connection with off-site disposal of
wastes or Hazardous Substances, and any actual or potential
liabilities to third parties, including employees). On the
basis of this review, the Borrower has no reason to conclude
that such liabilities and costs arising under, including the
costs of compliance with, Environmental Laws, are likely to
have a material adverse effect on the business, financial
condition or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
SECTION 4.8. Taxes. The Borrower and its Subsidiaries
have filed all United States Federal income tax returns and
all other material tax returns which are required to be
filed by them and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by the
Borrower or any Subsidiary, other than taxes which are not
delinquent, and other than those contested in good faith and
for which adequate reserves have been established in
accordance with generally accepted accounting principles.
The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries in respect of taxes or other
governmental charges are, in the opinion of the Borrower,
adequate.
<PAGE> 38
SECTION 4.9. Subsidiaries. Each of the Borrower's
corporate Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers
and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as
now conducted.
SECTION 4.10. Full Disclosure. All information (taken as a
whole) heretofore furnished in writing by the Borrower to
the Agent or any Bank for purposes of or in connection with
this Agreement or any transaction contemplated hereby is,
and all such information hereafter furnished by the Borrower
to the Agent or any Bank (including, without limitation, all
information used in the preparation of, or which forms part
of, the Confidential Information Memorandum) will be, to the
knowledge of the Borrower, true and accurate in all material
respects on the date as of which such information is stated
or certified. The Borrower has disclosed, either in reports
on Form 10-K, Form 10-Q or Form 8-K (or their equivalents)
filed with the Commission or otherwise in writing to the
Banks, any and all facts known to the Borrower which
materially and adversely affect or may affect (to the extent
the Borrower can now reasonably foresee), the business,
financial condition or results of operations of the Borrower
and its Consolidated Subsidiaries, taken as a whole, or the
ability of the Borrower to perform its obligations under
this Agreement.
SECTION 4.11. No Defaults. On the Effective Date, no
Default or Event of Default exists under this Agreement.
ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any
Commitment hereunder or any amount payable under any Note
remains unpaid:
SECTION 5.1. Information. The Borrower will deliver to the
Agent:
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, the
annual report of the Borrower and its Subsidiaries filed
with the Commission on Form 10-K for such year;
<PAGE> 39
(b) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each
fiscal year of the Borrower, the quarterly report of the
Borrower and its Subsidiaries filed with the Commission on
Form 10-Q for such quarter;
(c) within five days after any officer of the Borrower
obtains knowledge of any Default, if such Default is then
continuing, a certificate of the chief financial officer or
the chief accounting officer of the Borrower setting forth
the details thereof and the action which the Borrower is
taking or proposes to take with respect thereto;
(d) promptly upon the mailing thereof to the shareholders
of the Borrower generally, copies of all financial
statements, reports and proxy statements so mailed;
(e) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and
any registration statements on Form S-8 or its equivalent)
and reports on Form 8-K (or its equivalent) which the
Borrower shall have filed with the Commission;
(f) if and when any member of the ERISA Group (i) gives
notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that the plan administrator of
any Plan has given notice of any such reportable event, a
copy of the notice of such reportable event given to the
PBGC; (ii) receives notice of complete or partial withdrawal
liability under Section 4201, 4203 or 4204 of ERISA or
notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated under Section 4241, 4245 or
4041A of ERISA, a copy of such notice; (iii) receives notice
from the PBGC under Title IV of ERISA of an intent to
terminate, impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or appoint a trustee
to administer any Plan, a copy of such notice; (iv) applies
for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such
application; (v) gives notice of intent to terminate any
Plan under Section 4041(c) of ERISA, a copy of such notice
and other information filed with the PBGC; (vi) gives notice
of withdrawal from any Plan pursuant to Section 4063 of
ERISA, a copy of such notice; or (vii) fails to make any
payment or contribution to any Plan or Multiemployer Plan or
<PAGE> 40
makes any amendment to any Plan which has resulted or which
may reasonably be expected to result in the imposition of a
lien or the posting of a bond or other security under
Section 401(a)(29) or 412(n) of the Internal Revenue Code,
or Section 302(f) or 307 of ERISA, a certificate of the
chief financial officer or the chief accounting officer of
the Borrower setting forth details as to such occurrence and
action, if any, which the Borrower or applicable member of
the ERISA Group is required or proposes to take; and
(g) from time to time such additional information
regarding the financial position or business of the Borrower
and its Subsidiaries as the Agent, at the request of any
Bank, may reasonably request.
SECTION 5.2. Payment of Obligations. The Borrower will pay
and discharge, and will cause each Subsidiary to pay and
discharge, at or before maturity, all their respective
material obligations and liabilities, except where the same
may be contested in good faith by appropriate proceedings,
and will maintain, and will cause each Subsidiary to
maintain, in accordance with and to the extent required by
generally accepted accounting principles, appropriate
reserves for the accrual of any of the same.
SECTION 5.3. Maintenance of Property; Insurance. (a) The
Borrower will keep, and will cause each Subsidiary to keep,
all property useful and necessary in its business in good
working order and condition, ordinary wear and tear
excepted.
(b) The Borrower will, and will cause each of its
Subsidiaries to, maintain (either in the name of the
Borrower or in such Subsidiary's own name) with financially
sound and responsible insurance companies, insurance on all
their respective properties in at least such amounts,
against at least such risks and with no greater than such
risk retention as are customarily maintained, insured
against or retained, as the case may be, in the same general
area by companies of established repute engaged in the same
or a similar business; and will furnish to the Agent, upon
reasonable request from the Agent, information presented in
reasonable detail as to the insurance so carried.
SECTION 5.4. Conduct of Business and Maintenance of
Existence. The Borrower will continue, and will cause each
Material Subsidiary to continue, to engage in business of
the same general type as now conducted by the Borrower and
its Subsidiaries, and will preserve, renew and keep in full
force and effect, and will cause each Subsidiary to
preserve, renew and keep in full force and effect their
<PAGE> 41
respective corporate existence and their respective rights,
privileges and franchises necessary or desirable in the
normal conduct of business; provided that nothing in this
Section 5.4 shall prohibit (i) the merger of a Subsidiary
into the Borrower or the merger or consolidation of a
Subsidiary with or into another Person if the corporation
surviving such consolidation or merger is a Subsidiary and
if, in each case, after giving effect thereto, no Default
shall have occurred and be continuing, (ii) the transfer of
assets, rights, privileges, licenses, franchises or
businesses from one Subsidiary to another Subsidiary or
(iii) the termination of the corporate existence of any
Subsidiary if the Borrower in good faith determines that
such termination is in the best interest of the Borrower and
is not materially disadvantageous to the Banks.
SECTION 5.5 Compliance with Laws. The Borrower will
comply, and cause each Subsidiary to comply, in all material
respects with all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA
and the rules and regulations thereunder) except where the
necessity or fact of compliance therewith is contested in
good faith by appropriate proceedings.
SECTION 5.6. Inspection of Property, Books and Records.
The Borrower will keep, and will cause each Subsidiary to
keep, proper books of record and account in which full, true
and correct entries shall be made of all dealings and
transactions in relation to its business and activities; and
will permit, and will cause each Subsidiary to permit,
representatives of any Bank at such Bank's expense to visit
and inspect any of their respective properties, to examine
and make abstracts from any of their respective books and
records and to discuss their respective affairs, finances
and accounts with their respective officers, employees and
independent public accountants, all at such reasonable times
and as often as may reasonably be desired.
SECTION 5.7. Use of Proceeds. The proceeds of the Loans
made under this Agreement will be used by the Borrower for
general corporate purposes, including the acquisition,
directly or indirectly, of ordinary shares or subordinated
debt of Bidco (the proceeds of such ordinary shares or
subordinated debt of Bidco to be used by Bidco solely (i) to
acquire ordinary shares of the Target, either in the open
market, pursuant to the Offer or otherwise and (ii) to pay
<PAGE> 42
costs and expenses relating to the Offer). None of the
proceeds of the Loans made under this Agreement will be
used, directly or indirectly, for any purpose that entails a
violation of, or that is inconsistent with, the provisions
of the Regulations of the Board of Governors of the Federal
Reserve System of the United States, including without
limitation Regulation U. After giving effect to the
consummation of the Offer and the financing thereof, "margin
stocks" (as defined in Regulation U) will not constitute
more than 25% of the assets of the Borrower and its
Subsidiaries on a consolidated basis.
SECTION 5.8. Negative Pledge. The Borrower will not
create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(a) Liens existing on the date of this Agreement securing
obligations in an aggregate amount not exceeding
$25,000,000;
(b) any Lien on any asset securing Debt incurred or
assumed for the purpose of financing all or any part of the
cost of acquiring such asset; provided that such Lien
attaches to such asset concurrently with or within 90 days
after the acquisition thereof;
(c) any Lien on any asset of any corporation existing at
the time such corporation is merged or consolidated with or
into the Borrower and not created in contemplation of such
event;
(d) any Lien existing on any asset prior to the
acquisition thereof by the Borrower and not created in
contemplation of such acquisition;
(e) any Lien arising out of the refinancing, extension,
renewal or refunding of any Debt secured by any Lien
permitted by any of the foregoing clauses of this Section,
provided that such Debt is not increased and is not secured
by any additional assets;
(f) Liens arising in the ordinary course of its business
which (i) do not secure Debt or Derivatives Obligations,
(ii) do not secure any obligation in an amount exceeding
$25,000,000 and (iii) do not in the aggregate materially
detract from the value of its assets or materially impair
the use thereof in the operation of its business;
<PAGE> 43
(g) Liens on cash and cash equivalents securing
Derivatives Obligations, provided that the aggregate amount
of cash and cash equivalents subject to such Liens may at no
time exceed $25,000,000;
(h) Liens imposed by any governmental authority for
taxes, assessments or charges not yet due or that are being
contested in good faith and by appropriate proceedings if,
unless the amount thereof is not material with respect to it
or its financial condition, adequate reserves with respect
thereto are maintained on the books of the Borrower in
accordance with generally accepted accounting principles;
(i) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary
course of business that are not overdue for a period of more
than 30 days or that are being contested in good faith and
by appropriate proceedings and Liens securing judgments but
only to the extent for an amount and for a period not
resulting in an Event of Default under Section 6.1(i)
hereof;
(j) pledges or deposits under worker's compensation,
unemployment insurance and other social security
legislation;
(k) deposits to secure the performance of bids, trade
contracts (other than for Debt), leases, statutory
obligations, surety bonds, appeal bonds with respect to
judgments not exceeding $25,000,000, performance bonds and
other obligations of a like nature incurred in the ordinary
course of business;
(l) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of
business and encumbrances consisting of zoning restrictions,
easements, licenses, restrictions on the use of property or
minor imperfections in title thereto that, in the aggregate,
are not material in amount, and that do not in any case
materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the
business of the Borrower; and
(m) Liens not otherwise permitted by the foregoing
clauses of this Section securing Debt in an aggregate
principal or face amount at any date not to exceed 5% of
Consolidated Net Worth.
<PAGE> 44
SECTION 5.9. Transactions with Affiliates. The Borrower
will not, and will not permit any Subsidiary to, directly or
indirectly, pay any funds to or for the account of, make any
investment (whether by acquisition of stock or indebtedness,
by loan, advance, transfer of property, guarantee or other
agreement to pay, purchase or service, directly or
indirectly, any Debt, or otherwise) in, lease, sell,
transfer or otherwise dispose of any assets, tangible or
intangible, to, or participate in, or effect, any
transaction with, any Affiliate except on an arms-length
basis on terms at least as favorable to the Borrower or such
Subsidiary than could have been obtained from a third party
who was not an Affiliate; provided that the foregoing
provisions of this Section shall not prohibit any such
Person from declaring or paying any lawful dividend or other
payment ratably in respect of all of its capital stock of
the relevant class so long as, after giving effect thereto,
no Default shall have occurred and be continuing.
SECTION 5.10. Sale of Material Subsidiaries. The Borrower
will not and will not permit any Subsidiary to, at any time,
sell or otherwise transfer, directly or indirectly, any
capital stock of or other equity interest in any Material
Subsidiary if, after giving effect thereto, such Material
Subsidiary would no longer be a Subsidiary.
SECTION 5.11. Prohibition of Fundamental Changes. The
Borrower shall not:
(a) enter into any transaction of merger or consolidation
or amalgamation, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution); or
(b) convey, sell, lease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or
substantially all of its business or property.
Notwithstanding the foregoing provisions of this
Section 5.11, the Borrower may merge or consolidate with any
other Person if the Borrower is the surviving corporation or
the surviving corporation assumes the liabilities of the
Borrower by operation of law or otherwise.
SECTION 5.12. Minimum Consolidated Net Worth. The Borrower
shall not permit its Consolidated Net Worth to be less than
$2,000,000,000 at any time.
<PAGE> 45
SECTION 5.13. Syndication. The Borrower acknowledges that
the Arrangers intend promptly to commence to syndicate their
Commitments or Loans in accordance with the provisions of
Section 9.6. The Borrower agrees actively to assist the
Arrangers in achieving a syndication that is satisfactory to
them and to the Borrower. Such assistance shall include but
not be limited to (i) the preparation with the Arrangers of
a Confidential Information Memorandum and other marketing
materials (collectively, the "Confidential Information
Memorandum") and (ii) direct contact, including the hosting
of one or more bank meetings, between senior management of
the Borrower and its Subsidiaries (including, after
consummation of the Offer, the Target) on the one hand, and
potential Assignees and Participants on the other hand.
ARTICLE 6
DEFAULTS
SECTION 6.1. Events of Default. If one or more of the
following events ("Events of Default") shall have occurred
and be continuing:
(a) the Borrower shall fail to pay when due any principal
of any Loan or shall fail to pay within five days of the due
date thereof any interest, any fees or any other amount
payable hereunder;
(b) the Borrower shall fail to observe or perform its
obligations under Section 5.1(c), 5.7, 5.10, 5.11 or 5.12;
(c) the Borrower shall fail to observe or perform any
covenant or agreement contained in this Agreement (other
than those covered by clause (a) or (b) above) for 30 days
after notice thereof has been given to the Borrower by the
Agent at the request of any Bank;
(d) any representation, warranty, certification or
statement made by the Borrower in this Agreement or in any
certificate, financial statement or other document delivered
pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed
made);
(e) any event or condition shall occur which results in
the acceleration of any Material Debt;
<PAGE> 46
(f) the Borrower or any Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary
case or other proceeding commenced against it, or shall make
a general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due, or shall
take any corporate action to authorize any of the foregoing;
(g) an involuntary case or other proceeding shall be
commenced against the Borrower or any Subsidiary seeking
liquidation, reorganization or other relief with respect to
it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of
60 days; or an order for relief shall be entered against the
Borrower or any Subsidiary under the federal bankruptcy laws
as now or hereafter in effect;
(h) any member of the ERISA Group shall fail to pay when
due an amount or amounts aggregating in excess of
$25,000,000 which it shall have become liable to pay under
Title IV of ERISA; or notice of intent to terminate a
Material Plan shall be filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of
ERISA) in respect of, or to cause a trustee to be appointed
to administer any Material Plan; or a condition shall exist
by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be
terminated; or there shall occur a complete or partial
withdrawal from, or a default, within the meaning of
Section 4219(c)(5) of ERISA, with respect to, one or more
Multiemployer Plans which could cause one or more members of
the ERISA Group to incur a current payment obligation in
excess of $25,000,000;
<PAGE> 47
(i) judgments or orders for the payment of money in
excess of $25,000,000 shall be rendered against the Borrower
or any Subsidiary and such judgments or orders shall
continue unsatisfied and unstayed for a period of 30 days;
or
(j) any person or group of persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of 1934, as
amended) shall have acquired beneficial ownership (within
the meaning of Rule 13d-3 promulgated by the Commission
under said Act) of 30% or more of the outstanding shares of
common stock of the Borrower; or, during any period of 12
consecutive calendar months, individuals (i) who were
directors of the Borrower on the first day of such period,
(ii) whose election or nomination to the board of directors
of the Borrower was approved by individuals referred to in
clause (i) above constituting at the time of such election
or nomination at least a majority of said board or
(iii) whose election or nomination to said board was
approved by individuals referred to in clauses (i) and (ii)
above constituting at the time of such election or
nomination at least a majority of said board, shall cease to
constitute a majority of said board;
then, and in every such event, the Agent shall (i) except as
provided below in this Section 6.1, if requested by Banks
having more than 50% in aggregate amount of the Commitments,
by notice to the Borrower terminate the Commitments and they
shall thereupon terminate, and (ii) if requested by Banks
holding more than 50% of the aggregate unpaid principal
amount of the Loans, by notice to the Borrower declare the
Loans (together with accrued interest thereon) to be, and
the Loans (together with accrued interest thereon) shall
thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower; provided
that (A) in the case of any of the Events of Default
specified in clause 6.1(f) or 6.1(g) above with respect to
the Borrower, without any notice to the Borrower or any
other act by the Agent or the Banks, the Commitments shall
thereupon terminate and the Loans (together with accrued
interest thereon) shall become immediately due and payable
without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower and (B)
except as described in the immediately preceding clause (A),
during Stage 1 the Agent and the Banks shall not be entitled
to terminate the Commitments without the consent of the
Borrower.
<PAGE> 48
SECTION 6.2. Notice of Default. The Agent shall give
notice to the Borrower under Section 6.1(c) promptly upon
being requested to do so by any Bank and shall thereupon
notify all the Banks thereof.
ARTICLE 7
THE AGENT
SECTION 7.1. Appointment and Authorization. Each Bank
irrevocably appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers
under this Agreement and the Notes as are delegated to the
Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.
SECTION 7.2. Agent and Affiliates. Union Bank of
Switzerland shall have the same rights and powers under this
Agreement as any other Bank and may exercise or refrain from
exercising the same as though it were not the Agent, and
Union Bank of Switzerland and its affiliates may accept
deposits from, lend money to, and generally engage in any
kind of business with the Borrower or any Subsidiary or
affiliate of the Borrower as if it were not the Agent.
SECTION 7.3. Action by Agent. The obligations of the
Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Agent
shall not be required to take any action with respect to any
Default, except as expressly provided in Article 6.
SECTION 7.4. Consultation with Experts. The Agent may
consult with legal counsel (who may be counsel for the
Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken
or omitted to be taken by it in good faith in accordance
with the advice of such counsel, accountants or experts.
SECTION 7.5. Liability of Agent. Neither the Agent nor
any of its affiliates nor any of their respective directors,
officers, agents or employees shall be liable for any action
taken or not taken by it in connection herewith (i) with the
consent or at the request of the Required Banks or (ii) in
the absence of its own gross negligence or willful
misconduct. Neither the Agent nor any of its affiliates nor
any of their respective directors, officers, agents or
employees shall be responsible for or have any duty to
<PAGE> 49
ascertain, inquire into or verify (i) any statement,
warranty or representation made in connection with this
Agreement or any borrowing hereunder; (ii) the performance
or observance of any of the covenants or agreements of the
Borrower; (iii) the satisfaction of any condition specified
in Article 3, except receipt of items required to be
delivered to the Agent; or (iv) the validity, effectiveness
or genuineness of this Agreement, the Notes or any other
instrument or writing furnished in connection herewith. The
Agent shall not incur any liability by acting in reliance
upon any notice, consent, certificate, statement, or other
writing (which may be a bank wire, telex, facsimile
transmission or similar writing) believed by it to be
genuine or to be signed by the proper party or parties.
SECTION 7.6. Indemnification. Each Bank shall, ratably in
accordance with its Commitment or, if the Commitments have
terminated, the outstanding principal amount of its Loans,
indemnify the Agent, its affiliates and their respective
directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense
(including counsel fees and disbursements), claim, demand,
action, loss or liability (except such as result from such
indemnitees' gross negligence or willful misconduct) that
such indemnitees may suffer or incur in connection with this
Agreement or any action taken or omitted by such indemnitees
hereunder.
SECTION 7.7. Credit Decision. Each Bank acknowledges that
it has, independently and without reliance upon the Agent,
any Arranger or any other Bank, and based on such documents
and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement.
Each Bank also acknowledges that it will, independently and
without reliance upon the Agent, any Arranger or any other
Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under
this Agreement.
SECTION 7.8. Successor Agent. The Agent may resign at any
time by giving notice thereof to the Banks and the Borrower.
Upon any such resignation, the Required Banks shall have the
right to appoint a successor Agent subject to the approval
of the Borrower. If no successor Agent shall have been so
appointed and approved, and shall have accepted such
appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on
behalf of the Banks, appoint a successor Agent, which shall
be a commercial bank organized or licensed under the laws of
<PAGE> 50
the United States and having a combined capital and surplus
of at least $500,000,000. Upon the acceptance of its
appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested
with all the rights and duties of the retiring Agent, and
the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this
Article shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent. Any
retiring Agent shall refund any unearned portion of its
administrative agency fee.
SECTION 7.9. Agent's Fee. The Borrower shall pay to the
Agent for its own account fees in the amounts and at the
times previously agreed upon between the Borrower and the
Agent.
SECTION 7.10. Arrangers, etc. Nothing in this Agreement
shall impose on any Arranger, the Syndication Agent or the
Documentation Agent, in its capacity as such, any duties or
obligations whatsoever.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.1. Basis for Determining Interest Rate Inadequate
or Unfair. If on or prior to the first day of any Interest
Period for any CD Loan, Euro-Dollar Loan or Money Market
LIBOR Loan:
(a) the Agent is advised by the Reference Banks that
deposits in dollars (in the applicable amounts) are not
being offered to the Reference Banks in the relevant market
for such Interest Period, or
(b) in the case of CD Loans or Euro-Dollar Loans, Banks
having 50% or more of the aggregate principal amount of the
affected Loans advise the Agent that the Adjusted CD Rate or
the London Interbank Offered Rate, as the case may be, as
determined by the Agent will not, together with any
increased costs reimbursable by the Borrower hereunder,
adequately and fairly reflect the cost to such Banks of
funding their CD Loans or Euro-Dollar Loans, as the case may
be, for such Interest Period,
<PAGE> 51
the Agent shall forthwith give notice thereof to the Borrower
and the Banks, whereupon until the Agent notifies the Borrower
that the circumstances giving rise to such suspension no longer
exist, (i) the obligations of the Banks to make CD Loans or Euro-
Dollar Loans, as the case may be, or to continue or convert
outstanding Loans as or into CD Loans or Euro-Dollar Loans,
as the case may be, shall be suspended and (ii) each
outstanding CD Loan or Euro-Dollar Loan, as the case may be,
shall be converted into a Base Rate Loan on the last day of
the then current Interest Period applicable thereto. Unless
the Borrower notifies the Agent at least two Domestic
Business Days before the date of any Fixed Rate Borrowing
for which a Notice of Borrowing has previously been given
that it elects not to borrow on such date, (i) if such Fixed
Rate Borrowing is a Committed Borrowing, such Borrowing
shall instead be made as a Base Rate Borrowing and (ii) if
such Fixed Rate Borrowing is a Money Market LIBOR Borrowing,
the Money Market LIBOR Loans comprising such Borrowing shall
bear interest for each day from and including the first day
to but excluding the last day of the Interest Period
applicable thereto at the Base Rate for such day.
SECTION 8.2. Illegality. If, on or after the date of this
Agreement, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or
regulation, or any change in the interpretation or
administration thereof by any governmental authority,
central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by
any Bank (or its Euro-Dollar Lending Office) with any
request or directive (whether or not having the force of
law) of any such authority, central bank or comparable
agency shall make it unlawful or impossible for any Bank (or
its Euro-Dollar Lending Office) to make, maintain or fund
its Euro-Dollar Loans and such Bank shall so notify the
Agent, the Agent shall forthwith give notice thereof to the
other Banks and the Borrower, whereupon until such Bank
notifies the Borrower and the Agent that the circumstances
giving rise to such suspension no longer exist, the
obligation of such Bank to make Euro-Dollar Loans, or to
convert outstanding Loans into Euro-Dollar Loans, shall be
suspended. Before giving any notice to the Agent pursuant
to this Section, such Bank shall designate a different
Euro-Dollar Lending Office if such designation will avoid
the need for giving such notice and will not, in the
judgment of such Bank, be otherwise disadvantageous to such
Bank. If such notice is given, each Euro-Dollar Loan of
such Bank then outstanding shall be converted to a Base Rate
Loan either (a) on the last day of the then current Interest
<PAGE> 52
Period applicable to such Euro-Dollar Loan if such Bank may
lawfully continue to maintain and fund such Loan to such day
or (b) immediately if such Bank shall determine that it may
not lawfully continue to maintain and fund such Loan to such
day.
SECTION 8.3. Increased Cost and Reduced Return. (a) If on
or after (x) the Effective Date, in the case of any
Committed Loan or any obligation to make Committed Loans or
(y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable
law, rule or regulation, or any change in any applicable
law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority,
central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by
any Bank (or its Applicable Lending Office) with any request
or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency shall
impose, modify or deem applicable any reserve (including,
without limitation, any such requirement imposed by the
Board of Governors of the Federal Reserve System, but
excluding (i) with respect to any CD Loan any such
requirement included in an applicable Domestic Reserve
Percentage and (ii) with respect to any Euro-Dollar Loan any
such requirement for which such Bank is entitled to
compensation for the relevant Interest Period under
Section 2.17), special deposit, insurance assessment
(excluding, with respect to any CD Loan, any such
requirement reflected in an applicable Assessment Rate) or
similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Bank (or its
Applicable Lending Office) or shall impose on any Bank (or
its Applicable Lending Office) or on the United States
market for certificates of deposit or the London interbank
market any other condition affecting its Fixed Rate Loans,
its Note or its obligation to make Fixed Rate Loans and the
result of any of the foregoing is to increase the cost to
such Bank (or its Applicable Lending Office) of making or
maintaining any Fixed Rate Loan, or to reduce the amount of
any sum received or receivable by such Bank (or its
Applicable Lending Office) under this Agreement or under its
Note with respect thereto, by an amount deemed by such Bank
to be material, then, within 15 days after demand by such
Bank (with a copy to the Agent), the Borrower shall pay to
such Bank such additional amount or amounts as will
compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that, after the
date hereof, the adoption of any applicable law, rule or
<PAGE> 53
regulation regarding capital adequacy, or any change in any
such law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with
the interpretation or administration thereof, or any request
or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank
or comparable agency has or would have the effect of
reducing the rate of return on capital of such Bank (or its
Parent) as a consequence of such Bank's obligations
hereunder to a level below that which such Bank (or its
Parent) could have achieved but for such adoption, change,
request or directive (taking into consideration its policies
with respect to capital adequacy) by an amount deemed by
such Bank to be material, then from time to time, within
15 days after demand by such Bank (with a copy to the
Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank (or its
Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the
Agent of any event of which it has knowledge, occurring
after the date hereof, which will entitle such Bank to
compensation pursuant to this Section and will designate a
different Lending Office if such designation will avoid the
need for, or reduce the amount of, such compensation and
will not, in the sole judgment of such Bank, be otherwise
disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section and setting forth
the additional amount or amounts to be paid to it hereunder
shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable
averaging and attribution methods. Notwithstanding the
foregoing subsections (a) and (b) of this Section 8.3, the
Borrower shall only be obligated to compensate any Bank for
any amount arising or accruing during (i) any time or period
commencing not more than 90 days prior to the date on which
such Bank notifies the Agent and the Borrower that it
proposes to demand such compensation and identifies to the
Agent and the Borrower the statute, regulation or other
basis upon which the claimed compensation is or will be
based and (ii) any time or period during which, because of
the retroactive application of such statute, regulation or
other such basis, such Bank did not know that such amount
would arise or accrue.
SECTION 8.4. Taxes. (a) For the purposes of this
Section 8.4, the following terms have the following
meanings:
<PAGE> 54
"Taxes" means any and all present or future taxes,
duties, levies, imposts, deductions, charges or withholdings
with respect to any payment by the Borrower pursuant to this
Agreement or under any Note, and all penalties and interest
with respect thereto, excluding (i) in the case of each Bank and
the Agent, taxes imposed on its income, and franchise or similar taxes
imposed on it, by a jurisdiction under the laws of which such Bank or the
Agent (as the case may be) is organized or in which its
principal executive office is located, in which its
Applicable Lending Office is located or in which it would be
subject to tax due to some connection other than that
created by this Agreement and (ii) in the case of each Bank,
any United States withholding tax imposed on such payments
but only to the extent that such Bank is subject to United
States withholding tax at the time such Bank first becomes a
party to this Agreement.
"Other Taxes" means any present or future stamp or
documentary taxes and any other excise or property taxes, or
similar charges or levies and all penalties and interest
with respect thereto, which arise from the making of any
payment pursuant to this Agreement or under any Note or from
the execution or delivery of this Agreement or any Note.
(b) Any and all payments by the Borrower to or for the
account of any Bank or the Agent hereunder or under any Note
shall be made without deduction for any Taxes or Other
Taxes; provided that, if the Borrower shall be required by
law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as
necessary so that after making all required deductions
(including deductions applicable to additional sums payable
under this Section) such Bank or the Agent (as the case may
be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower
shall make such deductions, (iii) the Borrower shall pay the
full amount deducted to the relevant taxation authority or
other authority in accordance with applicable law and
(iv) the Borrower shall furnish to the Agent, at its address
referred to in Section 9.1, the original or a certified copy
of a receipt evidencing payment thereof.
(c) The Borrower agrees to indemnify each Bank and the
Agent for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes on
amounts payable under this Section) paid by such Bank or the
Agent (as the case may be). This indemnification shall be
paid within 15 days after such Bank or the Agent (as the
case may be) makes appropriate demand therefor.
<PAGE> 55
(d) Each Bank organized under the laws of a jurisdiction
outside the United States, on or prior to the date of its
execution and delivery of this Agreement in the case of each
Bank listed on the signature pages hereof and on or prior to
the date on which it becomes a Bank in the case of each
other Bank, and from time to time thereafter if requested in
writing by the Borrower (but only so long as such Bank
remains lawfully able to do so), shall provide the Borrower
and the Agent with Internal Revenue Service form 1001 or
4224, as appropriate, or any successor form prescribed by
the Internal Revenue Service, certifying that such Bank is
entitled to benefits under an income tax treaty to which the
United States is a party which exempts the Bank from United
States withholding tax or reduces the rate of withholding
tax on payments of interest for the account of such Bank or
certifying that the income receivable pursuant to this
Agreement is effectively connected with the conduct of a
trade or business in the United States.
(e) For any period with respect to which a Bank has
failed to provide the Borrower or the Agent with the
appropriate form pursuant to Section 8.4(d) (unless such
failure is due to a change in treaty, law or regulation
occurring subsequent to the date on which such form
originally was required to be provided), such Bank shall not
be entitled to indemnification under Section 8.4(b) or (c)
with respect to Taxes imposed by the United States; provided
that if a Bank, which is otherwise exempt from or subject to
a reduced rate of withholding tax, becomes subject to Taxes
because of its failure to deliver a form required hereunder,
the Borrower shall take such steps (at the expense of such
Bank) as such Bank shall reasonably request to assist such
Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts
to or for the account of any Bank pursuant to this Section,
then such Bank will change the jurisdiction of its
Applicable Lending Office if, in the judgment of such Bank,
such change (i) will eliminate or reduce any such additional
payment which may thereafter accrue and (ii) is not
otherwise disadvantageous to such Bank in its sole judgment.
SECTION 8.5. Base Rate Loans Substituted for Affected Fixed
Rate Loans. If (i) the obligation of any Bank to make, or
convert outstanding Loans to, Euro-Dollar Loans has been
suspended pursuant to Section 8.2 or (ii) any Bank has
demanded compensation under Section 8.3 or 8.4 with respect
to its CD Loans or Euro-Dollar Loans and the Borrower shall,
by at least five Euro-Dollar Business Days' prior notice to
such Bank through the Agent, have elected that the
<PAGE> 56
provisions of this Section shall apply to such Bank, then,
unless and until such Bank notifies the Borrower that the
circumstances giving rise to such suspension or demand for
compensation no longer exist:
(a) all Loans which would otherwise be made by such Bank
as (or continued as or converted into) CD Loans or
Euro-Dollar Loans, as the case may be, shall instead be Base
Rate Loans (on which interest and principal shall be payable
contemporaneously with the related Fixed Rate Loans of the
other Banks); and
(b) after each of its CD Loans or Euro-Dollar Loans, as
the case may be, has been repaid (or converted to a Base
Rate Loan), all payments of principal which would otherwise
be applied to repay such Fixed Rate Loans shall be applied
to repay its Base Rate Loans instead.
If such Bank notifies the Borrower that the circumstances
giving rise to such notice no longer apply, the principal
amount of each such Base Rate Loan shall be converted into a
CD Loan or Euro-Dollar Loan, as the case may be, on the
first day of the next succeeding Interest Period applicable
to the related CD Loans or Euro-Dollar Loans of the other
Banks.
SECTION 8.6. Replacement of Bank.
(a) In the event that:
(i) any Bank requests compensation pursuant to
Section 8.3 or 8.4 hereof;
(ii) the obligation of any Bank to make Euro-Dollar Loans
or to continue, or to convert Base Rate Loans into, Euro-
Dollar Loans shall be suspended pursuant to Section 8.2
hereof;
(iii) any Bank becomes insolvent or fails to make any
Committed Loan in response to a timely Notice of Committed
Borrowing where the Required Banks have made the respective
Committed Loans to be made by them in response to such
notice; or
(iv) any Bank fails or refuses to agree to a request by
the Borrower to amend or waive, or to grant any consent
under, any provision of the Agreement under circumstances
when such amendment, waiver or consent has been approved by
<PAGE> 57
the Required Banks, such amendment, waiver or consent
requires the approval of all of the Banks to be effective
and such failure or refusal is evidenced by (x) written
objection by such Bank to any such request made to it by the
Agent in writing describing such amendment, waiver or
requested consent in principle, (y) failure by such Bank to
respond in writing to any such request so made to it on or
before the 15th Domestic Business Day after it receives such
request, or (z) failure by such Bank to execute and deliver
definitive documentation furnished to it by the Agent to
effectuate any such amendment, waiver or consent on or
before the 15th Domestic Business Day after it receives such
documentation;
then, so long as such condition exists, the Borrower
may either:
(1) designate another financial
institution (such financial institution being
herein called a "Replacement Bank") acceptable
to the Agent (which acceptance will not be
unreasonably withheld) and which is not an
Affiliate of the Borrower, to assume such
Bank's Commitment hereunder and to purchase the
Loans of such Bank and such Bank's rights under
this Agreement and the Note held by such Bank,
all without recourse to or representation or
warranty by, or expense to such Bank, for a
purchase price equal to the outstanding
principal amount of the Loans payable to such
Bank plus any accrued but unpaid interest on
such Loans and accrued but unpaid fees owing to
such Bank plus any amounts payable to such Bank
under Section 2.15 hereof calculated as if such
purchase constituted a prepayment of Loans plus
any other amounts payable to such Bank under
this Agreement, and upon such assumption,
purchase and substitution, and subject to the
execution and delivery to the Agent by the
Replacement Bank of documentation satisfactory
to the Agent (pursuant to which such
Replacement Bank shall assume the obligations
of such original Bank under this Agreement),
the Replacement Bank shall succeed to the
rights and obligations of such Bank hereunder;
or
<PAGE> 58
(2) with the prior written consent of
the Required Banks, pay to such Bank the
outstanding principal amount of the Loans
payable to such Bank plus any accrued but
unpaid interest on such Loans and accrued but
unpaid fees owing to such Bank plus any amounts
payable to such Bank under Section 2.15 hereof
calculated as if such purchase constituted a
prepayment of Loans. In the event that the
Borrower exercises its rights under the
preceding sentence, the Bank against which such
rights are exercised shall no longer be a party
hereto or have any rights or obligations
hereunder;
provided that the obligations of the
Borrower to such Bank under Article 8 and
Section 9.3 hereof with respect to events
occurring or obligations arising before or as a
result of such replacement shall survive such
exercise.
(b) If the Borrower exercises its rights under clause (2)
of Section 8.6(a) hereof, the Borrower may, not later than
180 days after such exercise, designate a Replacement Bank
acceptable to the Agent (which acceptance will not be
unreasonably withheld) and which is not an Affiliate of the
Borrower, to assume a Commitment or, if the Commitments have
terminated, to make a Loan or Loans hereunder in an amount
not greater than the Commitment or Loans, as the case may
be, of the Bank against which such rights were exercised
and, subject to the execution and delivery to the Agent by
the Replacement Bank of documentation satisfactory to the
Agent the Replacement Bank shall become party to this
Agreement as a Bank.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. Notices. All notices, requests and other
communications to any party hereunder shall be in writing
(including bank wire, telex, facsimile transmission or
similar writing) and shall be given to such party: (a) in
the case of the Borrower or the Agent, at its address,
facsimile number or telex number set forth on the signature
pages hereof, (b) in the case of any Bank, at its address,
<PAGE> 59
facsimile number or telex number set forth in its
Administrative Questionnaire or (c) in the case of any
party, such other address, facsimile number or telex number
as such party may hereafter specify for the purpose by
notice to the Agent and the Borrower. Each such notice,
request or other communication shall be effective (i) if
given by telex, when such telex is transmitted to the telex
number specified in this Section and the appropriate
answerback is received, (ii) if given by facsimile
transmission, when transmitted to the facsimile number
specified in this Section and confirmation of receipt is
received, (iii) if given by mail, 72 hours after such
communication is deposited in the mails with first-class
postage prepaid, addressed as aforesaid or (iv) if given by
any other means, when delivered at the address specified in
this Section; provided that notices to the Agent under
Article 2 or Article 8 shall not be effective until
received.
SECTION 9.2. No Waivers. No failure or delay by the Agent
or any Bank in exercising any right, power or privilege
hereunder or under any Note shall operate as a waiver
thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights
and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 9.3. Expenses; Indemnification. (a) The Borrower
shall pay (i) all reasonable out-of-pocket expenses of the
Agent and each Arranger, including reasonable fees and
disbursements of Cravath, Swaine & Moore, special counsel
for the Agent and the Arrangers, in connection with the
preparation of the Original Credit Agreement and this
Agreement, the syndication contemplated by Section 5.13, any
waiver or consent hereunder or any amendment hereof or any
Default hereunder and (ii) if an Event of Default occurs,
all reasonable out-of-pocket expenses incurred by the Agent
and each Bank, including (without duplication) the
reasonable fees and disbursements of outside counsel and the
allocated cost of inside counsel, in connection with such
Event of Default and collection, bankruptcy, insolvency and
other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify the Agent and each
Bank, their respective affiliates and the respective
directors, officers, agents and employees of the foregoing
(each an "Indemnitee") and hold each Indemnitee harmless
from and against any and all liabilities, losses, damages,
costs and expenses of any kind, including, without
<PAGE> 60
limitation, the reasonable fees and disbursements of
counsel, which may be incurred by such Indemnitee in
connection with any investigative, administrative or
judicial proceeding (whether or not such Indemnitee shall be
designated a party thereto) brought or threatened relating
to the Commitments, the Loans or any actual or proposed use
of proceeds of Loans hereunder; provided that no Indemnitee
shall have the right to be indemnified hereunder for such
Indemnitee's own gross negligence or willful misconduct.
SECTION 9.4. Sharing of Set-Offs. Each Bank agrees that if
it shall, by exercising any right of set-off or counterclaim
or otherwise, receive payment of a proportion of the
aggregate amount of principal and interest due with respect
to any Note held by it which is greater than the proportion
received by any other Bank in respect of the aggregate
amount of principal and interest due with respect to any
Note held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such
participations in the Notes held by the other Banks, and
such other adjustments shall be made, as may be required so
that all such payments of principal and interest with
respect to the Notes held by the Banks shall be shared by
the Banks pro rata; provided that nothing in this
Section shall impair the right of any Bank to exercise any
right of set-off or counterclaim it may have and to apply
the amount subject to such exercise to the payment of
indebtedness of the Borrower other than its indebtedness
hereunder. The Borrower agrees, to the fullest extent it
may effectively do so under applicable law, that any holder
of a participation in a Note, whether or not acquired
pursuant to the foregoing arrangements, may exercise rights
of set-off or counterclaim and other rights with respect to
such participation as fully as if such holder of a
participation were a direct creditor of the Borrower in the
amount of such participation.
SECTION 9.5. Amendments and Waivers. Any provision of this
Agreement or the Notes may be amended or waived if, but only
if, such amendment or waiver is in writing and is signed by
the Borrower and the Required Banks (and, if the rights or
duties of the Agent are affected thereby, by the Agent);
provided that no such amendment or waiver shall, unless
signed by all the Banks, (i) increase or decrease the
Commitment of any Bank (except for a ratable decrease in the
Commitments of all Banks) or subject any Bank to any
additional obligation, (ii) reduce the principal of or rate
of interest on any Loan, or any fees hereunder,
(iii) postpone the date fixed for any payment of principal
of or interest on any Loan, or any fees hereunder or for the
<PAGE> 61
scheduled termination of any Commitment or (iv) change the
percentage of the Commitments or of the aggregate unpaid
principal amount of the Notes, or the number of Banks, which
shall be required for the Banks or any of them to take any
action under this Section or any other provision of this
Agreement.
SECTION 9.6. Successors and Assigns. (a) The provisions
of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective
successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this
Agreement without the prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks
or other institutions (each a "Participant") participating
interests in its Commitment or any or all of its Loans. In
the event of any such grant by a Bank of a participating
interest to a Participant, whether or not upon notice to the
Borrower and the Agent, such Bank shall remain responsible
for the performance of its obligations hereunder, and the
Borrower and the Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's
rights and obligations under this Agreement. Any agreement
pursuant to which any Bank may grant such a participating
interest shall provide that such Bank shall retain the sole
right and responsibility to enforce the obligations of the
Borrower hereunder including, without limitation, the right
to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such
participation agreement may provide that such Bank will not
agree to any modification, amendment or waiver of this
Agreement described in clause (i), (ii), (iii), or (iv) of
Section 9.5 without the consent of the Participant. The
Borrower agrees that each Participant shall, to the extent
provided in its participation agreement, be entitled to the
benefits of Article 8 with respect to its participating
interest. An assignment or other transfer which is not
permitted by subsection (c) or (d) below shall be given
effect for purposes of this Agreement only to the extent of
a participating interest granted in accordance with this
subsection (b).
(c) Any Bank may at any time assign to one or more banks
or other institutions (each an "Assignee") all, or a
proportionate part (equivalent to an initial Commitment of
not less than $15,000,000) of all, of its rights and
obligations under this Agreement and the Notes, and such
Assignee shall assume such rights and obligations, pursuant
to an Assignment and Assumption Agreement in substantially
<PAGE> 62
the form of Exhibit G hereto executed by such Assignee and
such transferor Bank, with (and subject to) the subscribed
consent of the Borrower and the Agent, which shall not be
unreasonably withheld; provided that if an Assignee is an
affiliate of such transferor Bank or was a Bank immediately
prior to such assignment, no such consent shall be required;
and provided further that such assignment may, but need not,
include rights of the transferor Bank in respect of
outstanding Money Market Loans. Upon execution and delivery
of such instrument and payment by such Assignee to such
transferor Bank of an amount equal to the purchase price
agreed between such transferor Bank and such Assignee, such
Assignee shall be a Bank party to this Agreement and shall
have all the rights and obligations of a Bank with a
Commitment as set forth in such instrument of assumption,
and the transferor Bank shall be released from its
obligations hereunder to a corresponding extent, and no
further consent or action by any party shall be required.
Upon the consummation of any assignment pursuant to this
subsection (c), the transferor Bank, the Agent and the
Borrower shall make appropriate arrangements so that, if
required, a new Note is issued to the Assignee. In
connection with any such assignment, the transferor Bank
shall pay to the Agent an administrative fee for processing
such assignment in the amount of $2,500. If the Assignee is
not incorporated under the laws of the United States, it
shall deliver to the Borrower and the Agent certification as
to exemption from deduction or withholding of any United
States federal income taxes in accordance with Section 8.4.
(d) Any Bank may at any time assign all or any portion of
its rights under this Agreement and its Note to a Federal
Reserve Bank. No such assignment shall release the
transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any
Bank's rights shall be entitled to receive any greater
payment under Section 8.3 or 8.4 than such Bank would have
been entitled to receive with respect to the rights
transferred, unless such transfer is made with the
Borrower's prior written consent or by reason of the
provisions of Section 8.2, 8.3 or 8.4 requiring such Bank to
designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances
giving rise to such greater payment did not exist.
SECTION 9.7. Collateral. Each of the Banks represents to
the Agent and each of the other Banks that it in good faith
is not relying upon any "margin stock" (as defined in
<PAGE> 63
Regulation U) as collateral in the extension or maintenance
of the credit provided for in this Agreement.
SECTION 9.8. Governing Law; Submission to Jurisdiction.
This Agreement and each Note shall be governed by and
construed in accordance with the laws of the State of New
York. The Borrower hereby submits to the nonexclusive
jurisdiction of the United States District Court for the
Southern District of New York and of any New York State
court sitting in New York City for purposes of all legal
proceedings arising out of or relating to this Agreement or
the transactions contemplated hereby. The Borrower
irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the
laying of the venue of any such proceeding brought in such a
court and any claim that any such proceeding brought in such
a court has been brought in an inconvenient forum.
SECTION 9.9. Counterparts; Integration; Effectiveness.
This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement
and understanding among the parties hereto and supersedes
any and all prior agreements and understandings, oral or
written, relating to the subject matter hereof. This
Agreement shall become effective upon receipt by the Agent
of counterparts hereof signed by each of the parties hereto
(or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the
Agent in form satisfactory to it constituting delivery of
telegraphic, telex, facsimile or other written confirmation
from such party of execution of a counterpart hereof by such
party).
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER,
THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
<PAGE> 64
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective
authorized officers as of the day and year first above
written.
CENTRAL AND SOUTH WEST CORPORATION,
By /s/ Stephen J. McDonnell
Name: Stephen J. McDonnell
Title: Treasurer
Address: 1616 Woodall
Rodgers Freeway
Dallas, TX 75202
Facsimile: 214-777-1223
Commitments
$283,333,333 CITIBANK, N.A.,
By /s/ Sandip Sen
Name: Sandip Sen
Title: Vice President
Address: 399 Park Avenue
New York, NY 10043
Facsimile: 212-793-6130
$283,333,333 CREDIT SUISSE,
By /s/ Marilou Palenzuela
Name: Marilou Palenzuela
Title: Member of Senior Management
Address: 633 West Fifth Street
Los Angeles, CA 90071
Facsimile: 914-955-8245
By /s/ Maria N. Gaspara
Name: Maria N. Gaspara
Title: Associate
<PAGE> 65
$283,333,334 UNION BANK OF SWITZERLAND,
By /s/ Michael F. Donohue, Jr.
Name: Michael F. Donohue, Jr.
Title: Managing Director
Address: 299 Park Avenue
New York, NY 10171
Facsimile: 212-821-3383
By /s/ Bruce T. Richards
Name: Bruce T. Richards
Title: Managing Director
_________________________
Total Commitments
$850,000,000
UNION BANK OF SWITZERLAND, as
Agent,
By /s/ Michael F. Donohue, Jr.
Name: Michael F. Donohue, Jr.
Title: Managing Director
Address: 299 Park Avenue
New York, NY 10171
Facsimile: 212-821-3383
By /s/ Bruce T. Richards
Name: Bruce T. Richards
Title: Managing Director
<PAGE> 1
PRICING SCHEDULE
Each of "Euro-Dollar Margin", "CD Margin" and
"Facility Fee Rate" means, for any date during Stage 1 or
Stage 2, as the case may be, the rates set forth below in
the row opposite such term and in the column corresponding
to the "Pricing Level" that applies at such date:
Stage 1
(in basis points per annum)
LEVEL I LEVEL II LEVEL III
Euro-Dollar 30.00 35.00 50.00
Margin
CD Margin 42.50 47.50 62.50
Stage 2
(in basis points per annum)
Level I Level II Level III
Facility Fee 10.00 12.50 17.50
Rate
Euro-Dollar 20.00 22.50 32.50
Margin
CD Margin 32.50 35.00 45.00
For purposes of this Schedule, the following terms
have the following meanings:
"D&P" means Duff & Phelps Credit Rating Co. or any
successor thereto.
"Level I Pricing" applies at any date if, at such
date, the Borrower's commercial paper ratings achieve at
least two of the following three ratings thresholds:
(x) A-1 or higher by S&P, (y) P-1 or higher by Moody's or
(z) D-1 or higher by D&P.
"Level II Pricing" applies at any date if, at such
date, (i) the Borrower's commercial paper ratings achieve
at least two of the following three ratings thresholds:
<PAGE> 2
(x) A-2 or higher by S&P, (y) P-2 or higher by Moody's or
(z) D-2 or higher by D&P and (ii) Level I Pricing does
not apply.
"Level III Pricing" applies at any date if, at
such date, no other Pricing Level applies.
"Moody's" means Moody's Investors Service, Inc. or
any successor thereto.
"Pricing Level" refers to the determination of
which of Level I, Level II or Level III Pricing applies
at any date.
"S&P" means Standard & Poor's Rating Services or
any successor thereto.
The credit ratings to be utilized for purposes of this
Schedule are those assigned to the unsecured commercial
paper of the Borrower without third-party credit
enhancement, and any rating assigned to any other debt
security of the Borrower shall be disregarded. The
rating in effect at any date is that in effect at the
close of business on such date.
<PAGE> 1
Exhibits A - Note
NOTE
$[ ] New York, New York
___________ __, 199_
For value received, Central and South West
Corporation, a Delaware corporation (the "Borrower"),
promises to pay to the order of ______________________ (the
"Bank"), for the account of its Applicable Lending Office,
the lesser of (i) $[ ] and (ii) the unpaid principal
amount of each Loan made by the Bank to the Borrower
pursuant to the Credit Agreement referred to below on the
maturity date provided for in the Credit Agreement. The
Borrower promises to pay interest on the unpaid principal
amount of each such Loan on the dates and at the rate or
rates provided for in the Credit Agreement. All such
payments of principal and interest shall be made in lawful
money of the United States in Federal or other immediately
available funds at the office of Union Bank of Switzerland,
New York, New York.
All Loans made by the Bank, the respective types
thereof and all prepayments and repayments of the principal
thereof shall be recorded by the Bank and, if the Bank so
elects in connection with any transfer or enforcement
hereof, appropriate notations to evidence the foregoing
information with respect to each such Loan then outstanding
may be endorsed by the Bank on the schedule attached hereto,
or on a continuation of such schedule attached to and made a
part hereof; provided that the failure of the Bank to make
any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Credit
Agreement.
This note is one of the Notes referred to in the
Credit Agreement dated as of November 6, 1995, as amended
<PAGE> 2
and restated as of January 18, 1996, among Central and South
West Corporation, the banks listed on the signature pages
thereof and Union Bank of Switzerland, as Agent (as the same
may be amended from time to time, the "Credit Agreement").
Terms defined in the Credit Agreement are used herein with
the same meanings. Reference is made to the Credit
Agreement for provisions for the prepayment hereof and the
acceleration of the maturity hereof.
Central and South West Corporation
By____________________
Name:
Title:
<PAGE> 3
LOANS AND PAYMENTS OF PRINCIPAL
__________________________________________________________________________
Amount Type Amount of
of of Principal Notation
Date Loan Loan Repaid Made By
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
<PAGE> 1
EXHIBIT B - Money Market Quote Request
Form of Money Market Quote Request
[Date]
To: Union Bank of Switzerland (the "Agent")
From: Central and South West Corporation
Re: Credit Agreement dated as of November 6,
1995, as amended and restated as of January 18,
1996 (the "Credit Agreement"), among Central
and South West Corporation, the Banks party
thereto and the Agent
We hereby give notice pursuant to Section 2.4 of the
Credit Agreement that we request Money Market Quotes for the
following proposed Money Market Borrowing(s):
Date of Borrowing: __________________
Principal Amount1 Interest Period2
$
- ----------------
1 Amount must be $10,000,000 or a larger multiple of $1,000,000.
2 Not less than one month (LIBOR Auction) or not less than 7 days
(Absolute Rate Auction), subject to the provisions of the
definition of Interest Period.
<PAGE> 2
Such Money Market Quotes should offer a Money Market
[Margin] [Absolute Rate]. [The applicable base rate is the
London Interbank Offered Rate.]
Terms used herein have the meanings assigned to them
in the Credit Agreement.
Central and South West Corporation
By________________________
Name:
Title:
EXHIBIT C - Invitation for Money Market Quotes
Form of Invitation for Money Market Quotes
To: [Name of Bank]
Re: Invitation for Money Market Quotes to Central and
South West Corporation (the "Borrower")
Pursuant to Section 2.4 of the Credit Agreement dated
as of November 6, 1995, as amended and restated as of
January 18, 1996, among Central and South West Corporation
(the "Borrower"), the Banks party thereto and the
undersigned, as Agent, we are pleased on behalf of the
Borrower to invite you to submit Money Market Quotes to the
Borrower for the following proposed Money Market
Borrowing(s):
Date of Borrowing: __________________
Principal Amount Interest Period
$
Such Money Market Quotes should offer a Money Market
[Margin] [Absolute Rate]. [The applicable base rate is the
London Interbank Offered Rate.]
Please respond to this invitation by no later than
[4:00 P.M.] [9:30 A.M.] (New York City time) on [date].
UNION BANK OF SWITZERLAND,
As Agent
By______________________
Authorized Officer
<PAGE> 1
EXHIBIT D - Money Market Quote
Form of Money Market Quote
To: Union Bank of Switzerland, as Agent
Re: Money Market Quote to Central and South West
Corporation (the "Borrower")
In response to your invitation on behalf of the
Borrower dated _____________, 19__, we hereby make the
following Money Market Quote on the following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
_____________________________
3. Date of Borrowing: ____________________*
4. We hereby offer to make Money Market Loan(s) in the
following principal amounts, for the following
Interest Periods and at the following rates:
Principal Interest Money Market
Amount** Period*** [Margin****] [Absolute Rate*****]
$
$
[Provided, that the aggregate principal amount of Money
Market Loans for which the above offers may be accepted
shall not exceed $____________.]**
__________
(notes continued on following page)
* As specified in the related Invitation.
** Principal amount bid for each Interest Period may not
exceed principal amount requested. Specify aggregate
<PAGE> 2
limitation if the sum of the individual offers exceeds the
amount the Bank is willing to lend. Bids must be made for
$5,000,000 or a larger multiple of $1,000,000.
We understand and agree that the offer(s) set
forth above, subject to the satisfaction of the
applicable conditions set forth in the Credit Agreement
dated as of November 6, 1995, as amended and restated as
of January 18, 1996, among the Borrower, the Banks party
thereto and yourselves, as Agent, irrevocably obligates
us to make the Money Market Loan(s) for which any
offer(s) are accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated:_______________ By:__________________________
Authorized Officer
__________
(notes continued from previous page)
*** Not less than one month or not less than 7 days, as
specified in the related Invitation. No more than five bids
are permitted for each Interest Period.
**** Margin over or under the London Interbank Offered Rate
determined for the applicable Interest Period. Specify
percentage (to the nearest 1/10,000 of 1%) and specify
whether "PLUS" or "MINUS".
***** Specify rate of interest per annum (to the nearest
1/10,000th of 1%).
EXHIBIT E - Opinion of Special Counsel for the Borrower
OPINION OF
VINSON & ELKINS L.L.P.
________________, 199_
To the Banks and the Agent
Referred to Below
c/o Union Bank of Switzerland
as Agent
299 Park Avenue
New York, New York 10017
Dear Sirs:
We have acted as special counsel to Central and South
West Corporation (the "Borrower") in connection with the
Credit Agreement (the "Credit Agreement") dated as of
November 6, 1995, as amended and restated as of January 18,
1996, between the Borrower, the banks listed on the
signature pages thereof and Union Bank of Switzerland, as
Agent. Except as otherwise provided herein, terms defined
in the Credit Agreement are used herein as defined therein.
This opinion is being delivered pursuant to Section 3.1(a)
of the Credit Agreement.
In rendering the opinions expressed below, we have
examined the following agreements, instruments and other
documents:
(a) the Credit Agreement;
(b) the promissory notes executed and
delivered by the Borrower under the Original
Credit Agreement (the "Notes"); and
(c) such records of the Borrower and such
other documents as we have deemed necessary as
a basis for the opinions expressed below.
<PAGE> 2
In our examination, we have assumed the genuineness
of all signatures, the authenticity of all documents
submitted to us as originals and the conformity with
authentic original documents of all documents submitted to
us as copies. When relevant facts were not independently
established, we have relied upon statements of governmental
officials and upon representations made in or pursuant to
the Credit Agreement and certificates of appropriate
representatives of the Borrower.
In rendering the opinions expressed below, we have
assumed, with respect to all of the documents referred to in
this opinion letter, that (except, to the extent set forth
in the opinions expressed below, as to the Borrower):
(i) such documents have been
duly authorized by, have been duly
executed and delivered by, and constitute
legal, valid and binding and enforceable
obligations of, all of the parties to such
documents;
(ii) all signatories to such documents have been
duly authorized; and
(iii) all of the parties to such documents are duly
organized and validly existing and have the
power and authority (corporate or other) to
execute, deliver and perform such documents.
Based upon and subject to the foregoing and subject
also to the comments and qualifications set forth below, and
having considered such questions of law as we have deemed
necessary as a basis for the opinions expressed below, we
are of the opinion that:
1. The Borrower is a corporation validly existing
and in good standing under the laws of the State of Delaware
and has all corporate powers required to carry on its
business described in its Annual Report on Form 10-K for the
year ended December 31, 1994 (the "10-K").
2. The execution, delivery and performance by the
Borrower of the Credit Agreement and the Notes, and the
borrowings by the Borrower under the Credit Agreement, are
<PAGE> 3
within the corporate powers of the Borrower, have been duly
authorized by all necessary corporate action on the part of
the Borrower and require no action by or in respect of, or
filing with, any governmental or regulatory authority or
agency of the United States of America or the State of New
York, except for the order of the Commission adopted
pursuant to the Public Utility Holding Company Act of 1935,
as amended (the "Act") (Release No. 35-26156; International
Series Release No. 743; 70-8423) as amended by order of the
Commission (Release No. 35-26383) (jointly called the
"Order") which has been obtained and is in full force and
effect, and do not contravene, or constitute a default
under, any provision of applicable law or regulation or of
the certificate of incorporation or by-laws of the Borrower
or of any agreement or instrument governing Material Debt of
the Borrower or of any material agreement, judgment,
injunction, order, decree or other material instrument
binding upon the Borrower or result in the creation or
imposition of any Lien on any asset of the Borrower.
3. The Credit Agreement and the Notes constitute the
legal, valid and binding obligations of the Borrower,
enforceable against it in accordance with their respective
terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to
or affecting the rights of creditors generally and except as
the enforceability of the Credit Agreement and the Notes is
subject to the application of general principles of equity
(regardless of whether 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 remedy and (b) concepts of materiality,
reasonableness, good faith and fair dealing.
The foregoing opinions are subject to the following
comments and qualifications:
(A) The enforceability of Section 9.3 of the Credit
Agreement may be limited by laws limiting the
enforceability of provisions exculpating or exempting a
party, or requiring indemnification of a party for,
liability for its own action or inaction to the extent
the action or inaction involves gross negligence,
recklessness, willful misconduct or unlawful conduct.
<PAGE> 4
(B) The enforceability of provisions in the Credit
Documents to the effect that terms may not be waived or
modified except in writing may be limited under certain
circumstances.
(C) We express no opinion as to (i) the effect of
the laws of any jurisdiction in which any Bank is located
(other than the State of New York) that limit the
interest, fees or other charges such Bank may impose
and (ii) the second sentence of Section 9.8 of the Credit
Agreement, insofar as such sentence relates to the
subject matter jurisdiction of the United States District
Court for the Southern District of New York to adjudicate
any controversy related to any of the Credit Documents.
(D) We express no opinion as to the enforceability
of the following provisions set forth in the Credit
Agreement:
(i) provisions purporting to
waive rights to notice, jury trial, or
other rights or benefits that cannot be
waived under applicable law;
(ii) provisions providing that
remedies are cumulative; and
(iii) provisions that decisions by a party are conclusive.
(E) With respect to our opinions expressed in
paragraph 2 above, we have not undertaken any special
examination of the files of the Borrower or any public
records of judgments, injunctions, orders or decrees
applicable to the Borrower. We have, with your
permission, limited our review of (i) material agreements
and material instruments to those agreements and
instruments listed as material in the exhibit index in
the 10-K and (ii) any Material Debt of the Borrower,
judgments, injunctions, orders and decrees binding on the
Borrower to those identified as such in the Certificate
of an officer of the Borrower attached hereto. We
express no opinion as to compliance with accounting or
financial covenants or requirements contained in any of
<PAGE> 5
the aforesaid orders, decrees, Material Debt, material
agreements or instruments.
(F) In connection with the opinions expressed in
paragraph 2 above, we note that the authority under the
Order for recourse borrowings and investment by the
Borrower and its subsidiaries in exempt wholesale
generators (as defined in Section 32(e) of the Act) and
foreign utility companies (as defined in Section 33(a) of
the Act) is limited to 50% of the Borrower's
"consolidated retained earnings" as determined in
accordance with Rule 53(a)(1)(ii).
The foregoing opinions are limited to matters
involving the federal laws of the United States, the
Delaware General Corporation Law and the law of the State of
New York, and we do not express any opinion as to the laws
of any other jurisdiction.
At the request of our client, this opinion letter is,
pursuant to Section 3.1(a) of the Credit Agreement, provided
to you by us in our capacity as counsel to the Borrower and
may not be relied upon by any other Person (except that any
Person that becomes a party to the Credit Agreement as a
Bank after the date hereof may rely upon this opinion as if
it were addressed to such Person as of the date hereof) or
for any purpose other than in connection with the
transactions contemplated by the Credit Agreement without,
in each instance, our prior written consent.
Very truly yours,
<PAGE> 1
EXHIBIT F - Opinion of Special Counsel for the Agent and the
Arrangers
OPINION OF
CRAVATH, SWAINE & MOORE
______________, 1995
Central and South West Corporation
$850,000,000 Credit Agreement
dated as of November 6, 1995, as amended
and restated as of January 18, 1996
Ladies and Gentlemen:
We have acted as special counsel to Union
Bank of Switzerland, in its capacity as administrative
agent (the "Agent"), and Citibank, N.A., Credit Suisse
and Union Bank of Switzerland, in their respective
capacities as Arrangers, in connection with the
preparation, execution and delivery of the Credit
Agreement dated as of November 6, 1995, as amended and
restated as of January 18, 1996 (the "Credit
Agreement"), among Central and South West Corporation
(the "Borrower"), the Banks named therein (the "Banks")
and the Agent. In that connection, we have examined
executed counterpart copies of the Credit Agreement and
executed copies of the Notes issued under the Original
Credit Agreement (as defined in the Credit Agreement).
In rendering our opinion, we have with your
consent assumed (i) the due authorization, execution
and delivery of the Credit Agreement by each party
thereto and (ii) the authenticity of all documents
submitted to us as originals and the conformity to
original documents of all documents submitted to us as
copies.
<PAGE> 2
Based upon the foregoing, we are of opinion
that the Credit Agreement and the Notes constitute the
legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with
their respective terms, subject to applicable
bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws affecting
creditors' rights generally from time to time in effect
and to general equitable principles (including, without
limitation, concepts of materiality, reasonableness,
good faith and fair dealing), regardless of whether
such enforceability is considered in a proceeding in
equity or at law. In addition, (i) we note that
insofar as provisions contained in the Credit Agreement
provide for indemnification, the enforcement thereof
may be limited by public policy considerations, (ii) we
express no opinion as to the last sentence of
Section 9.4 of the Credit Agreement and (iii) we
express no opinion as to the effect of the law of any
jurisdiction other than the State of New York wherein
any Bank may be located or wherein enforcement of the
Credit Agreement or any Note may be sought that limits
rates of interest legally chargeable or collectable.
We are admitted to practice only in the State
of New York and express no opinion as to matters
governed by any laws other than the laws of the State
of New York and the Federal laws of the United States
of America. This opinion is being delivered to you
pursuant to Section 3.1(b) of the Credit Agreement, and
may not be relied upon by any other person without our
prior written consent, except that any person that
becomes a party to the Credit Agreement as a Bank after
the date hereof may rely upon this opinion as if it
were addressed to such person as of the date hereof.
Very truly yours,
The Agent and the Banks
Referred to Above
In care of Union Bank of Switzerland
as Agent
299 Park Avenue
New York, New York 10017
<PAGE> 1
120A
EXHIBIT G - Assignment and Assumption Agreement
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among <NAME OF
ASSIGNOR> (the "Assignor"), <NAME OF ASSIGNEE> (the
"Assignee"), CENTRAL AND SOUTH WEST CORPORATION (the
"Borrower") and UNION BANK OF SWITZERLAND, as Agent (the
"Agent").
WHEREAS, this Assignment and Assumption Agreement (the
"Agreement") relates to the Credit Agreement dated as of
November 6, 1995, as amended and restated as of January 18,
1996, among the Borrower, the Assignor and the other Banks
party thereto, as Banks, and the Agent (the "Credit
Agreement");
WHEREAS, as provided under the Credit Agreement, the
Assignor has a Commitment to make Loans to the Borrower in
an aggregate principal amount at any time outstanding not to
exceed $__________;
WHEREAS, Committed Loans made to the Borrower by the
Assignor under the Credit Agreement in the aggregate
principal amount of $__________ are outstanding at the date
hereof; and
WHEREAS, the Assignor proposes to assign to the
Assignee all of the rights of the Assignor under the Credit
Agreement in respect of a portion of its Commitment
thereunder in an amount equal to $__________ (the "Assigned
Amount"), together with a corresponding portion of its
Committed Loans, and the Assignee proposes to accept
assignment of such rights and assume the corresponding
obligations from the Assignor on such terms;
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing and
the mutual agreements contained herein, the parties hereto
agree as follows:
Section 1. Definitions. All capitalized terms not
otherwise defined herein shall have the respective meanings
set forth in the Credit Agreement.
Section 2. Assignment. The Assignor hereby assigns
and sells to the Assignee all of the rights of the Assignor
under the Credit Agreement to the extent of the Assigned
Amount, and the Assignee hereby accepts such assignment from
the Assignor and assumes all of the obligations of the
Assignor under the Credit Agreement to the extent of the
Assigned Amount, including the purchase from the Assignor of
the corresponding portion of the principal amount of the
Committed Loans made by the Assignor outstanding at the date
hereof. Upon the execution and delivery hereof by the
Assignor, the Assignee, [the Borrower and the Agent] and the
payment of the amounts specified in Section 3 required to be
paid on the date hereof (i) the Assignee shall, as of the
date hereof, succeed to the rights and be obligated to
perform the obligations of a Bank under the Credit Agreement
with a Commitment in an amount equal to the Assigned Amount,
and (ii) the Commitment of the Assignor shall, as of the
date hereof, be reduced by a like amount and the Assignor
released from its obligations under the Credit Agreement to
the extent such obligations have been assumed by the
Assignee. The assignment provided for herein shall be
without recourse to the Assignor.
Section 3. Payments. As consideration for the
assignment and sale contemplated in Section 2 hereof, the
Assignee shall pay to the Assignor on the date hereof in
Federal funds the amount heretofore agreed between them.(1)
It is understood that commitment and/or facility fees accrued
to the date hereof are for the account of the Assignor and
- ----------------
(1) Amount should combine principal together with accrued
interest and breakage compensation, if any, to be paid by the
Assignee, net of any portion of any upfront fee to be paid
by the Assignor to the Assignee. It may be preferable in an
appropriate case to specify these amounts generically or by
formula rather than as a fixed sum.
<PAGE> 3
such fees accruing from and including the date hereof are
for the account of the Assignee. Each of the Assignor and
the Assignee hereby agrees that if it receives any amount
under the Credit Agreement which is for the account of the
other party hereto, it shall receive the same for the
account of such other party to the extent of such other
party's interest therein and shall promptly pay the same to
such other party.
[Section 4. Consent of the Borrower and the Agent.
This Agreement is conditioned upon the consent of the
Borrower and the Agent pursuant to Section 9.6(c) of the
Credit Agreement. The execution of this Agreement by the
Borrower and the Agent is evidence of this consent.
Pursuant to Section 9.6(c), the Borrower agrees to execute
and deliver a Note payable to the order of the Assignee to
evidence the assignment and assumption provided for herein.]
Section 5. Non-Reliance on Assignor. The Assignor
makes no representation or warranty in connection with, and
shall have no responsibility with respect to, the solvency,
financial condition, or statements of the Borrower, or the
validity and enforceability of the obligations of the
Borrower in respect of the Credit Agreement or any Note.
The Assignee acknowledges that it has, independently and
without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this
Agreement and will continue to be responsible for making its
own independent appraisal of the business, affairs and
financial condition of the Borrower.
Section 6. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York.
Section 7. Counterparts. This Agreement may be signed
in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed and delivered by their duly
authorized officers as of the date first above written.
<PAGE> 4
<NAME OF ASSIGNOR>
By_________________________
Name:
Title:
<NAME OF ASSIGNEE>
By__________________________
Name:
Title:
CENTRAL AND SOUTH WEST CORPORATION
By__________________________
Name:
Title:
UNION BANK OF SWITZERLAND
By__________________________
Name:
Title:
FACILITY AGREEMENT
Dated 5th November, 1995
1,100,000,000 pounds
TERM LOAN FACILITIES
150,000,000 pounds
REVOLVING CREDIT FACILITY
Between
CSW INVESTMENTS
CSW (UK) PLC
as Borrowers and Guarantors
CITIBANK INTERNATIONAL PLC
CREDIT SUISSE
UNION BANK OF SWITZERLAND
as Arrangers
CITIBANK, N.A.
CREDIT SUISSE
UNION BANK OF SWITZERLAND
as Original Banks
CREDIT SUISSE
as Facility Agent and Security Agent
ALLEN & OVERY
London
Ref. B3:47631.5
CONTENTS
Clause Page
1. Interpretation 1
2. Facilities and Related Matters 21
3. Purpose and Responsibility 24
4. Conditions Precendent 25
5. Advances 26
6. The Bill Facility 27
7. Cancellation of Commitments 31
8. Repayment 32
9. Prepayment 32
10. Interest Periods 33
11. Interest 35
12. Payments 36
13. Taxes 38
14. Market Disruption 40
15. Increased Costs 42
16. Illegality 44
17. Mitigation 45
18. Guarantee 46
19. Additional Borrowers 49
20. Representations and Warranties 49
21. Undertakings 53
22. Financial Ratios 68
23. Default 69
24. Indemnities 76
25. Agents, Arrangers and Banks 78
26. Fees, Expenses and Stamp Taxes 83
27. Waivers, Remedies Cumulative 85
28. Notices 85
29. Assignments, Transfers and Substitutions 86
30. Set-Off and Redistribution 90
31. Governing Law and Jurisdiction 91
32. Confidentiality 92
33. Miscellaneous 93
Schedules
A. Notice Details for Borrower and Agents 94
B. Banks' Commitments and Notice Details 97
C. Forms of Request 98
D. Substitution Certificate 101
E. Calculation of Additional Cost 104
F. Accession Agreement 106
G. Documentary Conditions Precedent 109
H. Form of Bill 110
I. Form of Power of Attorney 111
Signatories 113
THIS FACILITY AGREEMENT is dated the 5th November, 1995 and made BETWEEN:-
(1) CSW INVESTMENTS a company incorporated in England and Wales
(No. 3123865) ( the "Company");
(2) CSW (UK) PLC a company incorporated in England and Wales
(No. 3123442) ("Bidco");
(3) CITIBANK INTERNATIONAL PLC, CREDIT SUISSE and UNION BANK OF
SWITZERLAND as Arrangers (in this capacity the "Arrangers");
(4) CITIBANK, N.A., CREDIT SUISSE and UNION BANK OF SWITZERLAND
as original lenders (in this capacity the "Original Banks");
(5) CREDIT SUISSE as facility agent for the Banks (in this
capacity the "Facility Agent"); and
(6) CREDIT SUISSE as security agent and trustee for the Banks
(in this capacity the "Security Agent").
WHEREAS pursuant to arrangements made by the Arrangers and upon
and subject to the terms of this Agreement, the Original Banks
(as defined above) have agreed to make available term loan
facilities aggregating 1,100,000,000 pounds to the Company and a
revolving credit and bills acceptance facility of 150,000,000
pounds to the Borrowers.
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 Defined Terms
In this Agreement:-
"Accession Agreement" means an agreement substantially in
the form of Schedule F made pursuant to Clause 19;
"Accounting Date" means each 30th June, 30th September, 31st
December and 31st March, falling after the date of this
Agreement (or, where contemplated by Clauses 21.2(a)(vii)
and 22.2, up to one year prior to the date of this
Agreement), save as any such date may be adjusted forwards
or backwards with the agreement of the Facility Agent to
avoid an Accounting Date falling on a day which is not a
Business Day and/or to ensure that all Accounting Dates fall
on the same day of the relevant weeks.
"Accounting Period" means any period of approximately three
months or one year ending on an Accounting Date for which
Accounts are required to be prepared for the purposes of
this Agreement, including pro forma Accounting Periods as
contemplated in Clauses 21.2(a)(vii) and 22.2.
"Accounts" means from time to time:-
(a) the latest audited consolidated annual accounts of the
Group;
<PAGE> 2
(b) the latest unaudited consolidated quarterly accounts of
the Group; and
(c) any other audited or unaudited consolidated or
unconsolidated accounts (if any) of the Group or any
member thereof (including without limitation, the pro
forma accounts referred to in Clause 21.2(a)(vii)),
delivered or required to be delivered to the Facility Agent
pursuant to this Agreement (together with any letter
applicable thereto delivered to the Facility Agent pursuant
to Clause 21.2(e)), or such of the foregoing as the context
requires.
"Act" means the Electricity Act 1989 and, unless the
contract otherwise requires, all subordinate legislation
made pursuant thereto.
"Additional Borrower" means the Target upon it becoming, and
any other entity which becomes, party to this Agreement as a
Borrower pursuant to an Accession Agreement.
"Additional Cost" in relation to each Advance or overdue
amount means, for the Interest Period relating to that
Advance or overdue amount, the cost as calculated by the
Facility Agent in accordance with Schedule E imputed to each
Bank participating in such Advance or overdue amount of
compliance with the Mandatory Liquid Assets requirements of
the Bank of England during that Interest Period, expressed
as a percentage rate per annum.
"Adjusted Capital and Reserves" means the amount (including
any share premium) for the time being paid up or credited as
paid up on the issued share capital of the Company;
plus the outstanding amount of any Subordinated Debt;
plus the amount standing to the credit (or, as the case
may be, minus the amount standing to the debit) of the
capital and revenue reserves of the Group;
plus any amount standing to the credit or minus any
amount standing to the debit of the consolidated profit
and loss account of the Group;
plus the amount of goodwill arising upon and in respect
of the acquisition of the Shares pursuant to the Offer;
minus any distribution declared or made by the Company
or any of its Subsidiaries (other than to another
member of the Group) out of profits included within
reserves to the extent that those reserves have not
already been reduced on account thereof;
minus amounts attributable to the interests (if any) of
outside holders of issued share capital in any member
of the Group other than the Company itself;
and for the purposes of the foregoing, no item shall be
effectively deducted or added more than once, all items
shall be calculated on a consolidated basis and (subject
only as may be required in order to reflect the express
inclusion or exclusion of items as specified in this
definition) in accordance with the Applicable Accounting
Principles and, where the calculation is being made as at
the end of any Accounting Period shall be determined from
the balance sheet forming part of the Accounts for that
Accounting Period.
<PAGE> 3
"Advance" means the principal amount of each borrowing under
this Agreement from the Tranche 1 Commitments (a "Tranche 1
Advance") or the Tranche 2 Commitments (a "Tranche 2
Advance") or the Tranche 3 Commitments (a "Tranche 3
Advance") or, in each case, the principal amount of such
borrowing outstanding from time to time.
"Affiliate" means, in relation to a body corporate, any of
its Holding Companies or Subsidiaries or any other
Subsidiary of any of its Holding Companies.
"Agent" means:-
(a) when designated "Facility", Credit Suisse or any of its
successors pursuant to Clause 25.14;
(b) when designated "Security", Credit Suisse or any of its
successors pursuant to Clause 25.14 and any
corresponding provision of any Security Document; and
(c) without any such designation, the Facility Agent or the
Security Agent, as the context requires.
"Announcement Date" means the date on which the Press
Release is issued.
"Applicable Accounting Principles" means accounting
principles and practices, which at the date hereof are
generally accepted in the United Kingdom and approved by the
Institute of Chartered Accountants of England and Wales and
which are consistent with the accounting principles and
practices applied in the preparation of the Base Financial
Statements, and any variation to such accounting principles
and practices which is not material or, if material, has
been agreed in writing by the Majority Banks.
"Applicable Taxes" has the meaning given to it in Clause
13.1.
"Auditors" means a firm of independent public accountants of
international standing recognised and authorised by the
Institute of Chartered Accountants of England and Wales
which is appointed by the Company to audit the consolidated
annual accounts of the Company.
"Authorised Signatory" in relation to any Obligor and any
communication to be made or document to be executed or
certified by that Obligor means, at any time, any person:-
(a) who is at such time duly authorised by a resolution of
the board of directors of that Obligor or by virtue of
his appointment by that Obligor to a particular office
to make that communication or to execute or certify
that document on behalf of that Obligor and in respect
of whom the Facility Agent has received a certificate
of a director or the secretary of that Obligor setting
out the name and signature of that person and
confirming that person's authority so to act; and
(b) in respect of whom no notice has been received by the
Facility Agent from that Obligor to the effect that
that person is no longer an Authorised Signatory for
that Obligor.
"Available Facility Amount" at any time in respect of the
Tranche 3 Facility means the amount of the Tranche 3
Commitments, less the amount of the outstanding Tranche 3
<PAGE> 4
Utilisations at such time taking into account any Tranche 3
Utilisations scheduled to be made, repaid or prepaid by
assuming that the same occurs when due.
"Availability Period" means the period from opening of
business in London on the date of this Agreement to:-
(a) when designated "Tranche 1/2", close of business in
London on whichever is the earlier of (i) the date 180
days after the Announcement Date, (ii) the date falling
three months after the Unconditional Date, and (iii)
the date 200 days after the date hereof;
(b) when designated "Tranche 3", close of business in
London on whichever is the earlier of (i) (if no
Tranche 1 Advance and no Tranche 2 Advance is drawn at
all) the expiry of the Tranche 1/2 Availability Period,
and (ii) the fifth anniversary of the Unconditional
Date;
or in either case such later date as all the Banks may agree
in writing on or after the date hereof.
"Bank" means each of the following:-
(a) each bank whose name is set out in Schedule B;
(b) each bank to which rights and/or obligations under this
Agreement are assigned or transferred pursuant to
Clause 29 or which assumes rights and obligations
pursuant to a Substitution Certificate; and
(c) any successor or successors in title to any of the
foregoing,
provided that upon (i) termination in full of all the
Commitments of any Bank, and (ii) irrevocable payment in
full of all amounts which may be or become payable to such
Bank under the Finance Documents, such Bank shall not be
regarded as being a Bank for the purposes of determining
whether any provision of any of the Finance Documents
requiring consultation with or the consent or approval of or
instructions from the Banks or any of them or the Majority
Banks has been complied with.
"Base Financial Statements" means the audited annual
consolidated accounts of the Target for and as at the end of
the financial year of the Target ended 31st March, 1995.
"Bill" means a Sterling bill of exchange issued pursuant to
the terms of this Agreement substantially in the form of
Schedule H.
"Borrower" means the Company, Bidco and each Additional
Borrower.
"Borrowing" means any indebtedness for, or for interest or
other charges relating to, or otherwise in respect of or
pursuant to:-
(a) moneys borrowed or raised, including, without
limitation, monies raised by the sale of receivables or
other financial assets on terms (and to the extent)
that recourse may be had to the vendor in the event of
non-payment of such receivables or financial assets
when due and monies raised under acceptance credit
facilities and through the issue of bonds, notes,
<PAGE> 5
debentures, bills, loan stocks and other debt
securities (including any debt security convertible,
but not at the relevant time converted, into share
capital), provided that the Subordinated Debt (if any)
shall not constitute a Borrowing;
(b) the acquisition cost of assets or services to the
extent payable on deferred payment terms after the time
of acquisition or possession thereof by the party
liable (whether or not evidenced by any bond, note,
debenture, loan stock or other debt security),
excluding (i) retentions which are normal in the trade
concerned and not entered into primarily as a means of
raising finance, (ii) any payment relating to
construction works or the acquisition of fixed assets
which will become payable only upon fulfilment of
conditions relating to or comprising completion or
commissioning of certain stages in such works or in the
supply programme or the granting of any planning
permission for such works or fixed assets and which has
not yet become payable by reason of the non-fulfilment
of any such condition, and (iii) any such cost payable
on deferred payment terms which are normal in the
business concerned and not entered into primarily as a
means of raising finance, and which do not involve any
deferral of payment of any sum for more than six
months;
(c) moneys received in consideration for the supply of
goods and/or services to the extent received more than
six months before the due date for such supply (but
excluding any liability in respect of bona fide advance
payments and deposits received from customers in the
ordinary course of trade);
(d) instalments under conditional sale agreements entered
into primarily as a method of raising finance;
(e) payments under leases (whether in respect of land,
machinery, equipment or otherwise) and payments under
hire purchase agreements and similar agreements and
instruments, in each case where such leases, agreements
or instruments are treated as finance leases in
accordance with the Applicable Accounting Principles;
(f) (i) any guarantee, indemnity, letter of credit or
other legally binding instrument to
assure payment of, or against loss in respect of
non-payment of, any of the indebtedness specified
in this definition and any counter-indemnity in
respect of any thereof; and/or
(ii) any legally binding agreement or other instrument
entered into in connection with any of the
indebtedness specified in this definition
requiring, or giving any person the right
(contingently or otherwise) to require, that any
other person invest in, make advances to, purchase
assets of or maintain the solvency or financial
condition of any other person;
(g) any interest rate and/or currency swap, and any other
interest or currency protection, hedging or financial
futures transaction or arrangement;
(h) transactions which involve or have the commercial
effect of the borrowing of commodities as part of an
arrangement for or in substitution for the raising of
finance, the value of indebtedness concerned for this
purpose being the sum which must be paid and/or the
value in money terms of the commodities which must be
delivered by the "borrower" to, or to the order of, the
"lender";
<PAGE> 6
provided that in computing an amount of Borrowings of any
person or persons for the purposes of the definition of
Consolidated Net Total Borrowings in Clause 1.1 or for the
purposes of Clause 21.4(a) double counting shall be avoided
and:-
(i) any interest, dividends, commission, fees or other like
financing charges, and any item falling within
paragraph (g), shall be excluded, save in each case to
the extent capitalised or more than 15 days overdue for
payment;
(ii) in respect of any bonds, notes, debentures, loan stocks
and/or other debt securities issued at a discount or
redeemable at a premium and constituting a Borrowing,
the issue price thereof, together with any applicable
discount or premium recognised or required by the
Applicable Accounting Principles to be recognised at
the time of calculation (other than amounts required by
the Applicable Accounting Principles to be accounted
for as interest) in Accounts of the relevant person
(were any then to be prepared), shall be included;
(iii) in respect of paragraphs (d) and (e) (but in the
case of paragraph (d), only where no interest or
similar charge is charged), only the principal amount
thereof as determined by the Applicable Accounting
Principles or (in the case of paragraph (e)) the
capitalised value (as so determined) of any items
falling thereunder shall be included;
(iv) any item falling within paragraph (f) which is in
respect of any sum excluded by item (i) or (iii) of
this proviso shall be excluded; and
(v) any item falling within paragraph (f)(ii) shall be
included only to the extent that the same has been or
(in accordance with the Applicable Accounting
Principles) ought to be given a value in the latest or
next Accounts, or in any notes to those Accounts.
"Business Day" means a day (not being a Saturday or Sunday)
on which banks and foreign exchange markets are open for
business in London.
"CSW" means Central and South West Corporation and/or any
wholly owned Subsidiary or wholly-owned Subsidiaries
thereof.
"Chief Financial Officer" means the finance director of the
Company from time to time or in his absence his deputy
(being an Authorised Signatory of the Company).
"Code" means The City Code on Takeovers and Mergers.
"Commitment" in relation to a Bank means an amount appearing
and designated as such against that Bank's name in Schedule
B or in the Substitution Certificate or other document by
which it became party to or acquired rights under this
Agreement (being a "Tranche 1 Commitment" or a "Tranche 2
Commitment" or a "Tranche 3 Commitment" as therein
indicated), in each case as reduced or increased by
substitution or transfer pursuant to Clause 29 and any
Substitution Certificates to which such Bank is party, and
to the extent not cancelled, reduced or terminated under
this Agreement.
"Consolidated EBITDA" for any period comprising an annual
Accounting Period of the Company or four consecutive
quarterly Accounting Periods (including, where contemplated
<PAGE> 7
by Clauses 21.2(a)(vii) and 22.2, pro forma Accounting
Periods) of the Company (taken together as one period) means
the profit of the Group for such period:
before deducting all depreciation and other
amortisation (including, without limitation,
amortisation of goodwill arising from and upon the
acquisition of the Shares and amortisation of Offer
Costs in accordance with Financial Reporting Standard 4
issued by the Accounting Standards Board);
before taking into account all Extraordinary Items
(whether positive or negative) but after taking into
account all Exceptional Items (whether positive or
negative);
before deducting advanced corporation tax, mainstream
corporation tax and their equivalents in any relevant
jurisdiction;
before taking into account Consolidated Total Interest
Payable for such period;
before deducting any Offer Costs;
after deducting any gain over book value arising in
favour of the Group on the sale, lease or other
disposal of any asset (other than on the sale of
trading stock) during such period and any gain arising
on revaluation of any asset during such period, in each
case to the extent that it would otherwise be taken
into account, whether as an Exceptional Item or
otherwise;
and for the purposes of the foregoing no item shall be
effectively deducted or credited more than once in this
calculation, all items shall be determined on a consolidated
basis and (subject only as may be required in order to
reflect the express inclusion or exclusion of items as
specified in this definition) in accordance with the
Applicable Accounting Principles and as determined from the
consolidated Accounts of the Group for such annual
Accounting Period or for the relevant Accounting Periods
falling within such period.
"Consolidated Net Total Borrowings" at any time means the
aggregate at that time of the Borrowings of the members of
the Group from sources external to the Group (giving effect
to the proviso to the definition of Borrowings in
Clause 1.1.),
plus (to the extent not otherwise included) the amount of
any actual or contingent liability of any member of the
Group (a) for Borrowings at that time of any person in which
any member of the Group has an ownership interest or (b) to
provide funds by loan, subscription for share capital or
otherwise to any person in which any member of the Group has
an ownership interest;
less the cash in hand and cash equivalents of the members of
the Group at that time;
less the aggregate amount of any premium over face value
arising with respect to certain bonds issued by the Target
prior to the date hereof,
calculated on a consolidated basis and (subject only as may
be required in order to reflect the express inclusion or
exclusion of items as specified herein and/or in the
definition of Borrowings in Clause 1.1) in accordance with
the Applicable Accounting Principles and, where the
calculation is being made as at the end of any Accounting
Period for which a consolidated balance sheet of the Group
<PAGE> 8
has been delivered to the Facility Agent, as shown in that
balance sheet.
"Consolidated Total Interest Payable" for any period
comprising an annual Accounting Period of the Company or
four consecutive quarterly Accounting Periods (including,
where contemplated by Clauses 21.2(a)(vii) and 22.2, pro
forma Accounting Periods) of the Company (taken together as
one period) means the Interest accrued during such period as
an obligation of any member or members of the Group (whether
or not paid or capitalised during or deferred for payment
after such period) adjusted to take account of any amount
constituting Interest receivable by any members of the Group
under interest rate and/or currency hedging agreements or
instruments under which all parties are in compliance with
their payment and other material obligations, all determined
on a consolidated basis and (subject only as may be required
in order to reflect the express inclusion or exclusion of
items as specified in this definition) in accordance with
the Applicable Accounting Principles and as shown in the
consolidated Accounts of the Group for such annual
Accounting Period or for the Accounting Periods falling
within such period.
"Dangerous Substance" means any radioactive emissions,
noise, any natural or artificial substance (whether in the
form of a solid, liquid, gas or vapour) the generation,
transportation, storage, treatment, use or disposal of which
(whether alone or in combination with any other substance)
including (without limitation) any controlled, special,
hazardous, toxic, radioactive or dangerous substance or
waste, gives rise to a risk of causing harm to man or any
other living organism or damaging the Environment or public
health or welfare.
"Default" means (a) any Event of Default or (b) any event
which, with the giving of notice and/or the expiry of any
cure period and/or fulfilment of any other condition (apart
from the mere occurrence of such event) stated in any
Finance Document would be or become an Event of Default,
provided that any such event which by reason of express
provisions in any Finance Document requires the satisfaction
of a condition as to materiality before it may become an
Event of Default shall not be a Default unless that
condition is satisfied.
"Director General" means the person appointed from time to
time by the Secretary of State to hold office as the
Director General of Electricity Supply for the purpose of
the Act.
"EBDR" means the rate, as determined by the Facility Agent
at or about 11.00 a.m. on the Utilisation Date for a
Utilisation by way of a Bill, at which Eligible Bills of an
equivalent tenor to such Bill can be discounted in the
London discount market at or about that time.
"Eligible Bill" means a Sterling Bill of exchange eligible
for rediscounting at the Bank of England.
"Encumbrance" means any standard security, assignation in
security, bond and floating charge, mortgage, pledge, lien,
charge, assignment for the purpose of providing security,
hypothecation, right in security, security interest or trust
arrangement for the purpose of providing security, and any
other security agreement or other arrangement having the
effect of providing security (including, without limitation,
the deposit of monies or property with a person with the
primary intention of affording such person a right of set-
off or lien).
"Environment" means all, or any of, the following media, the
air (including, without limitation, the air within buildings
and the air within other natural or man-made structures
above or below ground), water (including, without
<PAGE> 9
limitation, ground and surface water) and land (including,
without limitation, surface and sub-surface soil).
"Environmental Claim" means any claim by any person:
(a) in respect of any loss or liability suffered or
incurred by that person as a result of or in connection
with any violation of Environmental Law; or
(b) that arises as a result of or in connection with
Environmental Contamination and that could give rise to
any remedy or penalty (whether interim or final) that
may be enforced or assessed by private or public legal
action or administrative order or proceedings,
including without limitation, any such claim arising
from injury to persons, property or natural resources.
"Environmental Contamination" means each of the following
and their consequences:
(a) any release, emission, leakage or spillage of any
Dangerous Substance at or from any site owned, occupied
or used by any member of the Group into any part of the
Environment; or
(b) any accident, fire, explosion or sudden event at any
site owned, occupied or used by any member of the Group
which is directly or indirectly caused by or
attributable to any Dangerous Substance; or
(c) any other pollution of the Environment.
"Environmental Law" means all applicable laws (including,
without limitation, common law), regulations, directing
codes of practice, circulars, guidance notices and the like
having legal effect (whether in the United Kingdom or
elsewhere) concerning pollution or the protection of human
health, the Environment, the conditions of the work place or
the generation, transportation, storage, treatment or
disposal of Dangerous Substances.
"Environmental Licence" means any permit, licence,
authorisation, consent or other approval required by any
Environmental Law.
"Event of Default" means, subject to Clause 23.3, any of
the events specified in Clause 23.1.
"Exceptional Items" has the meaning given to it in Financial
Reporting Standard 3 issued by the Accounting Standards
Board (as in force at the date hereof), but shall exclude
any items falling within the definition of Extraordinary
Items.
"Extraordinary Items" has the meaning given to it in
Financial Reporting Standard 3 issued by the Accounting
Standards Board but in addition shall include those items
listed in paragraph 20 thereof.
"Facility" means:
(a) when designated "Tranche 1", the term loan facility
referred to in Clause 2.1(a);
(b) when designated "Tranche 2", the term loan facility
referred to in Clause 2.1(b);
<PAGE> 10
(c) when designated "Tranche 3", the revolving credit and
bill acceptance facility referred to in Clause 2.1(c);
(d) without any such designation, the Tranche 1 Facility,
the Tranche 2 Facility or the Tranche 3 Facility, as
the context requires.
"Facility Office" in relation to a Bank means:-
(a) the office of that Bank in the United Kingdom whose
address appears under its name in Schedule B or is
specified for this purpose in the schedule to the
Substitution Certificate or in any other document by
which such Bank became party to or acquired rights
under this Agreement; and/or
(b) any (and each) other office in the United Kingdom
notified by that Bank to the Facility Agent in
accordance with Clause 29.6 as the office through which
that Bank will participate in the Facilities or any of
them.
"Finance Documents" means this Agreement, the Security
Documents, any Bill, the Intercreditor Agreement and any
other document designated as such by the Facility Agent and
the Company together.
"Finance Party" means each Arranger, each Bank, the Security
Agent and the Facility Agent (together the "Finance
Parties").
"Grid Shares" means shares in the capital of The National
Grid Holding plc beneficially owned by the Target at the
date hereof.
"Group" means the Company and its Subsidiaries from time to
time.
"Guarantor" means each of the Company and Bidco.
"Holding Company" means, in relation to a body corporate,
any other body corporate of which it is a Subsidiary.
"Information Memorandum" means an information memorandum
relating to the Group as, when and if agreed between the
Company and the Arrangers for use in the syndication of the
Facilities.
"Intercreditor Agreement" means an agreement in the agreed
form made or to be made between the Company, the Finance
Parties and the creditors from time to time for any
Subordinated Debt.
"Interest" means:
(a) interest and amounts in the nature of interest accrued
(including, without limitation, the interest elements
of finance leases);
(b) prepayment penalties or premiums incurred in repaying
or prepaying any Borrowing;
<PAGE> 11
(c) discount fees and acceptance fees payable or deducted
in respect of any Borrowing (including all fees payable
in connection with any letter of credit, guarantee or
acceptance); and
(d) any other costs, expenses and deductions of the like
effect (including, without limitation, the interest
element of finance leases) and any net payment (or, if
appropriate in the context, receipt) under any interest
rate hedging agreement or instrument, taking into
account any premiums payable for the same and the
interest element of any net payment (plus or minus any
accrued exchange gains or losses) under any currency
hedging instrument or arrangement and dividends.
For the avoidance of doubt, "Interest" includes commitment,
utilisation and non-utilisation fees (including, without
limitation, those payable hereunder) but excludes agent's
and front-end, management, arrangement and participation
fees with respect to any Borrowing (including, without
limitation, those payable hereunder) and any up-front
premium or front-end fee payable pursuant to any interest
rate hedging agreement or instrument.
"Interest Date" means, in relation to any Advance or any
overdue amount, the last day of an Interest Period relating
thereto.
"Interest Period" means, in relation to any Advance or Bill,
each (or the) period determined in accordance with Clause 10
or Clause 6.2(e) respectively, and, in relation to any
overdue amount, each period determined in accordance with
Clause 11.3.
"LIBOR" in relation to any Advance for any Interest Period
relating thereto, means the arithmetic mean (rounded upward,
if necessary, to four decimal places) of the respective
rates, as supplied to the Facility Agent at its request,
quoted by the Reference Banks to leading banks in the
ordinary course of business in the London Interbank Market
at or about 11.00 a.m. on the first day of such Interest
Period for the offering of deposits in the currency of such
Advance for the same period as such Interest Period,
provided that if any of the Reference Banks shall be unable
or otherwise fails so to supply such offered rate by 1.00
p.m. on the required date, "LIBOR" for the relevant Interest
Period shall be determined, on the basis of the quotations
of the remaining Reference Banks.
"Licence" means a public electricity supply licence held by
a member of the Group and issued pursuant to Section 6(1) of
the Act, as modified or supplemented from time to time.
"Licenceholder" means at any time a member of the Group
which then holds a Licence.
"Licence Undertaking" means any and each undertaking or
assurance given in connection with the Offer by any one or
more of CSW, the Company, Bidco or the Target or any
Affiliate of any of them to the Director General or the
Secretary of State concerning the management and/or
ownership of and/or other matters concerning the Target once
it has become a Subsidiary of the Company.
"Majority Banks" means at any time:
(a) whilst no Advance or Bill is outstanding, a Bank or
Banks the aggregate amount of whose Commitments at the
relevant time represents by value more than sixty-six
and two-thirds per cent. (66 2/3%) of the aggregate
Commitments at such time;
<PAGE> 12
(b) if an Advance or Bill is then outstanding, a Bank or
Banks the aggregate of whose participations in the
Advances and aggregate potential liability under Bills
outstanding at such time represents by value more than
sixty-six and two-thirds per cent. (66 2/3%) of the
aggregate of all the Advances and all the Outstanding
Liability Amounts of all Bills outstanding at such
time;
provided that whilst the Original Banks are the only Banks,
the term "Majority Banks" shall mean all of the Banks
together.
"Margin" means a rate per annum determined by reference to
columns 1 and 3 of the table below (when used for the
purpose of determining any rate of interest to apply
hereunder to any Tranche 1 Advance or to any amount payable
in respect of a Tranche 1 Advance or calculated by reference
to any Tranche 1 Commitment or which in the reasonable
opinion of the Facility Agent, whose opinion shall be
conclusive in the absence of manifest error, is otherwise
referable to a Tranche 1 Advance or any one or more of the
Tranche 1 Commitments) or by reference to columns 1 and 2 of
the table below (for any other purpose):
(1) (2) (3)
Ratio set out in Margin (p.a.) Margin (p.a.)
Clause 22.1 (a)
(a) Greater than 65:100 1.00% 0.75%
(b) Equal to or less than 0.75% 0.50%
65:100 but greater
than 60:100
(c) Equal to or less than 0.50% 0.375%
60:100 but greater
than 55:100
(d) Equal to or less than 0.325% 0.25%
55:100
For this purpose the ratio set out in Clause 22.1(a) shall
be determined by reference to (a) where the Company
considers that such ratio has changed (in each case on one
occasion only) sufficiently as a result of the prepayment of
outstanding Tranche 1 Advances consequent on the sale of
Grid Shares and/or the sale of receivables and application
of the proceeds in reduction of Borrowings that the Margin
should be reduced in accordance with the foregoing table, a
certificate of the Company in a form satisfactory to the
Facility Agent, acting reasonably, confirming the relevant
occurrence and setting out the calculation of the resulting
ratio, and/or (b) the Accounts for each quarterly and/or
annual Accounting Period delivered to the Facility Agent
pursuant to Clause 21.2(a)(i) or Clause 21.2(a)(ii) and the
supporting report and/or certificate referred to in Clause
21.2(a)(iii) or (iv) (as appropriate). The Margin being
determined shall be that set out in the relevant column
opposite the relevant ratio level and shall have effect from
(and including) (in the case of a determination as provided
in (a) above) the date of delivery of the certificate
therein referred to (including with respect to the
determination of rates of interest for Interest Periods then
current) or (in the case of a determination as provided in
(b) above) the Accounting Date as at and for the Accounting
Period ended on which such Accounts have been prepared (but
only with respect to the determination of rates of interest
for Interest Periods commencing after that Accounting Date
and then only where the relevant interest has not fallen due
for payment prior to the date of delivery of such Accounts
<PAGE> 13
and report and/or certificate), in each case until (but
excluding) the effective date for any subsequent change in
the Margin in accordance with this definition.
Notwithstanding the foregoing:
(a) for the period from the date hereof to (but excluding)
the effective date for any change in the Margin in
accordance with this definition , the applicable Margin
shall be that stated in the relevant column in line
(a); and
(b) where any such Accounts or report and/or certificate
for any such Accounting Period have not been delivered
to the Facility Agent on or before the last day for the
delivery of such Accounts in compliance with Clause
21.2(a), the applicable Margin shall be that stated in
the relevant column in line (a) (if any Tranche 1
Advances are then outstanding or if the Margin was at
that level on such last day) or in line (b) (in any
other case), until (but excluding) the effective date
for any subsequent determination of the Margin in
accordance with this definition; and
(c) if at the time when the Margin would otherwise decrease
in accordance with the foregoing a Default exists of
which notice has been given by the Facility Agent to
the Company (whether pursuant to Clause 23.2(a) or
otherwise) such decrease shall not take effect for any
purpose before the date when such Default is cured (and
the Facility Agent is notified of that fact by the
Company in writing) or waived by a Waiver Letter which
makes reference to this paragraph of this definition.
"Material Adverse Effect" means any effect which is or is
reasonably likely:
(a) to be materially adverse to (i) the ability of the
Company, Bidco or the Target to perform its payment
obligations under any of the Finance Documents, or (ii)
the financial condition of the Group taken as a whole;
and/or
(b) to result in modification of the Licence in any manner
which in the reasonable opinion of the Majority Banks
would have (whether immediately or over time but prior
to the Tranche 2/3 Repayment Date) a Material Adverse
Effect as described in paragraph (a) above; and/or
(c) result in the termination of the Licence without a new
public electricity supply licence being issued
simultaneously to the Company or a wholly-owned
Subsidiary pursuant to Section 6(1) of the Act whose
terms are not materially less favourable than those of
the Licence.
"Maturity Date" means the last day of the Interest Period
relative to a Bill.
"Obligor" means each Borrower and each Guarantor.
"Offer" means the offers for the Shares to be made by CS
First Boston Limited on behalf of Bidco substantially on the
terms and conditions referred to in the Press Release, as
the same may be amended, varied or waived in compliance with
Clause 21.10.
"Offer Costs" means all banking, brokerage, accounting,
legal, public relations and other fees and commissions, out-
of-pocket costs and expenses and stamp, registration,
transfer and similar taxes incurred by or on behalf of the
Company or any Subsidiary thereof (including any member of
<PAGE> 14
the Target Group which becomes such a Subsidiary pursuant to
the Offer) in connection with the negotiation, preparation
and execution of this Agreement or otherwise in connection
with the Offer.
"Offer Document" means the document in the agreed form to be
delivered to the shareholders of the Target containing the
formal Offer.
"Offer Termination Date" means the earliest date (as
notified by Bidco to the Facility Agent in writing) on which
all of the following have occurred: (a) all payments in
respect of acceptances of the cash alternative in the Offer
have been made in full, (b) no further such acceptances are
possible, and (c) all procedures pursuant to section 428 et
seq. Companies Act 1985 which are capable of being
implemented have been completed and all payments pursuant
thereto to shareholders in the Target have been made in
full.
"Option Schemes" means the Target's savings related employee
share schemes and executive share option schemes as in
effect at the Unconditional Date.
"Optionholders" means holders for the time being of options
issued under any of the Option Schemes.
"Outstanding Liability Amount" means in relation to an
outstanding Bill, the full face amount thereof.
"Panel" means The Panel on Takeovers and Mergers.
"Pooling and Settlement Agreement" means an agreement dated
30th March, 1990 made by the Target with the National Grid
Company plc and others setting out the rules and procedures
for the operation of an electricity trading pool and of a
settlement system and, while the same has effect, the
"Initial Settlement Agreement" also dated 30th March, 1990
and made between the same parties, as amended from time to
time.
"Power of Attorney" means a Power of Attorney issued by a
Borrower to the Facility Agent substantially in the form set
out in Schedule I.
"Press Release" means the agreed form of press release by
which the Offer is announced.
"Principal Subsidiary" means each member of the Group (a)
which is a Licenceholder, or (b) whose pre-tax profits
represent at least ten per cent. of the consolidated pre-tax
profits of the Group, or (c) the book value of whose gross
assets represents at least ten per cent. of the consolidated
gross assets of the Group, and for this purpose:
(i) in the case of a company which itself has Subsidiaries,
the calculation shall be made by using the consolidated
pre-tax profits or gross assets, as the case may be, of
it and its Subsidiaries;
(ii) all calculations of consolidated pre-tax profits or
gross assets shall be made by reference to:
(A) the latest accounts of the relevant company (or,
as the case may be, a consolidation of the
accounts of it and its Subsidiaries) used for the
purpose of the then latest unaudited quarterly or
<PAGE> 15
audited annual consolidated Accounts of the Group
delivered to the Facility Agent under Clause 21.2;
and
(B) those unaudited quarterly or audited annual
consolidated Accounts (as the case may be) of the
Group;
and shall be made in accordance with the Applicable
Accounting Principles;
(c) the Target (once it becomes a Subsidiary of the
Company) shall be deemed to be a Principal Subsidiary
until it is shown to the Facility Agent's reasonable
satisfaction not to be a Principal Subsidiary under
paragraph (b) above;
(d) any member of the Group which is not a Principal
Subsidiary to which any Principal Subsidiary transfers
in any annual Accounting Period any fixed assets in any
transaction or series of transactions (related or not)
with an aggregate book value or market value in excess
of 25,000,000 pounds shall be deemed to be a Principal
Subsidiary (and the Principal Subsidiary from which the
assets were transferred shall be deemed to continue to
be a Principal Subsidiary) unless and until it is shown
(in each such case) to the Facility Agent's reasonable
satisfaction not to be a Principal Subsidiary under
paragraph (b) above;
(e) in the event of any dispute as to whether a Subsidiary
is or is not at any time a Principal Subsidiary the
question shall be referred to the Auditors for
determination according to the foregoing provisions of
this definition (acting as experts at the cost of the
Company) and their decision shall be conclusive and
binding on the parties hereto in the absence of
manifest error.
"Project Finance Subsidiary" means any Subsidiary of the
Company (other than a Licenceholder):
(a) which is a company whose principal assets and business
are constituted by the ownership, acquisition,
development and/or operation of an asset whether
directly or indirectly;
(b) none of whose Borrowings in respect of the financing of
such ownership, acquisition, development and/or
operation of an asset benefits from any recourse
whatsoever to any member of the Group (other than the
Subsidiary itself or another Project Finance
Subsidiary) in respect of the repayment thereof, except
as expressly referred to in paragraph (b)(iii) of the
definition of Project Finance Indebtedness in this
Clause 1.1; and
(c) which has been designated as such by the Company by
written notice to the Facility Agent, provided that the
Company may give written notice to the Facility Agent
at any time that any Project Finance Subsidiary is no
longer a Project Finance Subsidiary, whereupon it shall
cease to be a Project Finance Subsidiary.
"Project Finance Indebtedness" means any Borrowing which
finances the acquisition, development, ownership and/or
operation of an asset:
(a) which is incurred by a Project Finance Subsidiary; or
<PAGE> 16
(b) in respect of which the person or persons to whom such
Borrowing is or may be owed by the relevant debtor
(whether or not a member of the Group) has or have no
recourse whatsoever to any member of the Group (other
than to a Project Finance Subsidiary) for the repayment
thereof other than:
(i) recourse to such debtor for amounts limited to the
cash flow or net cash flow (other than historic
cash flow or historic net cash flow) from such
asset; and/or
(ii) recourse to such debtor for the purpose only of
enabling amounts to be claimed in respect of such
Borrowing in an enforcement of any Encumbrance
given by such debtor over such asset or the
income, cash flow or other proceeds deriving
therefrom (or given by any shareholder or the like
in the debtor over its shares or like interest in
the capital of the debtor) to secure such
Borrowing, provided that (I) the extent of such
recourse to such debtor is limited solely to the
amount of any recoveries made on any such
enforcement, and (II) such person or persons are
not entitled, by virtue of any right or claim
arising out of in connection with such Borrowing,
to commence proceedings for the winding up or
dissolution of the debtor or to appoint or procure
the appointment of any receiver, trustee or
similar person or officer in respect of the
borrower or any of its assets (save only for the
assets the subject of such Encumbrance); and/or
(iii) recourse to such debtor generally, or
directly or indirectly to a member of the Group,
under any form of assurance, undertaking or
support, which recourse is limited to a claim for
damages (other than liquidated damages and damages
required to be calculated in a specified way) for
breach of an obligation (not being a payment
obligation or an obligation to procure payment by
another or an indemnity in respect thereof or any
obligation to comply or to procure compliance by
another with any financial ratios or other tests
of financial condition) by the person against whom
such recourse is available.
"Recognised Bank" means at any time:
(a) a bank which is recognised by the Inland Revenue as
carrying on a bona fide banking business in the United
Kingdom for the purposes of Section 349 of the Income
and Corporation Taxes Act 1988 (or any statutory re-
enactment or modification thereof, in substantially the
same form and content as at the date hereof) and which
brings into account as a trading receipt of that
business all payments of interest received by it
hereunder; or
(b) if at any time Section 349 of the Income and
Corporation Taxes Act 1988 (or a statutory re-enactment
or modification thereof, in substantially the same form
and context as at the date hereof) shall not at any
time continue in full force and effect or shall be
modified with the result that a bank or certain banks
shall cease to be so recognised, a bank carrying on a
bona fide banking business in the United Kingdom which
brings into account as a trading receipt of that
business all payments of interest received by it
hereunder.
<PAGE> 17
"Reference Banks" means the principal London offices of
Citibank, N.A., Credit Suisse and Union Bank of Switzerland
and/or of such other Banks (if any) as may become Reference
Banks pursuant to Clause 29.5.
"Repayment Date" means each of (a) the date 364 days after
the date on which the first Tranche 1 Advance shall be made
hereunder (the "Tranche 1 Repayment Date"), and (b) the
fifth anniversary of the Unconditional Date (the "Tranche
2/3 Repayment Date").
"Request" means a request, substantially in the form of
Schedule C Part I or Part II (as appropriate), made by a
Borrower to the Facility Agent for an Advance to be made or
for a Bill to be accepted under this Agreement.
"Reservations" means the principle that equitable remedies
are remedies which may be granted or refused at the
discretion of the court, the limitation of enforcement by
laws relating to bankruptcy, insolvency, liquidation,
reorganisation, court schemes, moratoria, administration and
other laws generally affecting the rights of creditors, the
time barring of claims under the Limitation Acts, the
possibility that following the judgement in the case of In
re Charge Card Services Limited (1986) it may not be
possible for a bank to obtain a charge to secure obligations
owed to it over monies deposited with it, the possibility
that an undertaking to assume liability for or to indemnify
a person against non-payment of UK stamp duty may be void,
defences of set-off or counterclaim and similar principles,
rights and defences under the laws of any foreign
jurisdictions in which relevant obligations may have to be
performed.
"Same Day Funds" means freely transferable funds denominated
in Sterling settled for same day value through the Clearing
House Automated Payment System or through such other
clearing system as the Facility Agent shall notify to the
Company and the Banks as being customary for the settlement
of Sterling transactions of the type contemplated by this
Agreement.
"Secretary of State" means the Secretary of State as
referred to in the Act.
"Security Documents" means the Debenture of even date
herewith executed by both the Company and Bidco, together
with such other documents (if any) as may be required to
be entered into by the Company and/or Bidco pursuant to the
terms thereof.
"Shares" means existing unconditionally allotted or issued
and fully paid shares in the Target and any further shares
in the Target which are unconditionally allotted or issued
before the date on which the Offer ceases to be open for
acceptances (or such earlier date as the Company and the
Banks may, subject to the Code agree) upon the exercise of
any options granted under the Option Schemes or otherwise.
"Sterling" and "pound" means the lawful currency for the time
being of the United Kingdom.
"Subordinated Debt" means separate unsecured loans to the
Company from CSW and/or any other person permitted pursuant
to Clause 21.6(c) which (a) have a maturity date falling
after the Tranche 2/3 Repayment Date, (b) are not capable of
acceleration whilst any amount may be or become payable by
any Obligor hereunder or any of the Commitments remain in
effect, (c) are subordinated (as regards priority of
payment, ranking, rights of enforcement and all other
<PAGE> 18
rights) as to principal, interest and all other amounts
payable on or in respect thereof and any and all claims
(including for damages) related thereto to all amounts which
may be or become payable by the Company under the Finance
Documents on the terms set out in the Intercreditor
Agreement.
"Subscription Agreement" means the subscription agreement
made or to be made between the Company and CSW in the agreed
form pursuant to which CSW agrees to subscribe for shares in
the capital of the Company and/or Subordinated Debt of the
Company.
"Subsidiary" means (a) a subsidiary as defined in Section
736 of the Companies Act 1985 as amended, and (b) a
subsidiary undertaking as defined in Section 258 of the
Companies Act 1985 as amended, or, in either case, any
statutory re-enactment or replacement thereof, provided that
an entity falling only within paragraph (b) shall come
within the definition of "Subsidiary" only (i) if it is a
Licenceholder (in which case it shall be a Subsidiary for
all purposes of this Agreement) and/or (ii) for the purposes
of Clauses 21.4, 21.6(a) and 22 (and the defined terms used
in those Clauses) and all Accounts and other financial
information to be delivered pursuant to Clause 21.2.
"Substitution Certificate" has the meaning ascribed to it in
Clause 29.4 (together the "Substitution Certificates"), and
references to "substitutes" shall be construed as references
to persons becoming party to this Agreement pursuant to
Substitution Certificates.
"Target" means SEEBOARD plc.
"Target Group" means Target and all those companies which
immediately prior to the first Utilisation Date are
Subsidiaries of Target and will remain so immediately
thereafter.
"Taxes" means all income and other taxes and levies,
imposts, duties, charges, deductions and withholdings in the
nature or on account of tax together with interest thereon
and penalties with respect thereto, if any, and any payments
made on or in respect thereof, and "Tax" and "Taxation"
shall be construed accordingly.
"Transaction Documents" means the Finance Documents, the
Subscription Agreement, the Licence and any and each Licence
Undertaking.
"Unconditional Date" means the date upon which the Offer
becomes or is declared unconditional in all respects without
any breach of Clause 21.10.
"Utilisation" means a utilisation of a Facility under this
Agreement, being, when designated "Tranche 1", a utilisation
of the Tranche 1 Facility by way of Advance, when designated
"Tranche 2", a utilisation of the Tranche 2 Facility by way
of Advance, and when designated "Tranche 3", a utilisation
of the Tranche 3 Facility by way of Advance or Bill.
"Utilisation Date" means in relation to each Advance or
Bill, the date specified as such in the relative Request
therefor or, on and after the making and/or issue thereof
pursuant to such Request, the date on which it was made
and/or issued.
"Waiver Letter" means any letter or other document setting
out the terms (if any) upon which (a) compliance with any
provision of any Finance Document is waived, or (b) any
<PAGE> 19
amendment to or variation of or departure from the terms of
any Finance Document is approved, or (c) any consent or
approval required or requested to be given is given, in each
case by the Facility Agent with the agreement of the
Majority Banks or if so required by the terms of this
Agreement or any other Finance Document, all of the Banks.
1.2 Construction
In this Agreement, save where the context otherwise requires:-
(a) references to documents being in the "agreed form"
means documents either (i) in a form previously agreed
in writing by or on behalf of the Facility Agent and
the Company, or (ii) in form and substance satisfactory
to the Original Banks and initialled by or on behalf of
the Company and the Facility Agent on or prior to the
date hereof for the purposes of identification, or
(iii) in a form substantially as set out in any
Schedule to any Finance Document, or (iv) (if not
falling within (i) to (iii) above) in form and
substance satisfactory to the Original Banks acting
reasonably;
(b) references to "assets" shall include revenues and the
right thereto and property and rights of every kind,
present, future and contingent and whether tangible or
intangible (including uncalled share capital)
references to "shares" shall include stock;
(c) the expressions "hereof", "herein", "hereunder" and
similar expressions shall be construed as references to
this Agreement as a whole (including all Schedules) and
shall not be limited to the particular clause or
provision in which the relevant expression appears, and
references to "this Agreement" and all like indications
shall include references to this Agreement as
supplemented by the Accession Agreements, the
Substitution Certificates, the Waiver Letters and any
other agreement or instrument supplementing or amending
this Agreement;
(d) references to "indebtedness" shall be construed so as
to include any obligation or liability (whether present
or future, actual or contingent) for the payment,
repayment or redemption of any obligation expressed by
reference to monetary value or quantity or value of
commodities (whether such obligation is performable by
the payment of money or in some other way);
(e) references to a "person" shall be construed as a
reference to any person, firm, company, corporation,
government, state or agency of a state or any
association or partnership (whether or not having
separate legal personality) of two or more of the
foregoing;
(f) references to any of the Transaction Documents and any
other agreement or instrument shall be construed as a
reference to the same as amended, varied, supplemented
or novated from time to time (including, where
relevant, by any Accession Agreement and/or
Substitution Certificate);
(g) unless otherwise specified, references to Clauses and
Schedules are references to, respectively, clauses of
and schedules to this Agreement;
(h) words importing the singular shall include the plural
and vice versa;
<PAGE> 20
(i) references (by whatever term, including by name) to the
Company, Bidco, the Target, each Obligor, the Arranger,
each Bank, each Reference Bank, the Facility Agent, the
Security Agent, CSW or the parties to this Agreement
shall, where relevant and subject as otherwise provided
in this Agreement, be deemed to be references to or to
include, as appropriate, their respective successors,
replacements and assigns, transferees and substitutes
permitted by the terms of the relevant Finance
Documents;
(j) reference to a time of day is, unless otherwise stated,
a reference to London time and references to a "month"
are references to a period starting on a particular day
in a calendar month and ending on the numerically
corresponding day in the next calendar month provided
that if a period starts on the last day in a calendar
month or if there is no numerically corresponding day
in the month in which the relevant period ends, that
period shall, save as otherwise provided in this
Agreement, end on the last day in such later month (and
references to "months" shall be construed accordingly).
(k) the contents page of, and headings in, this Agreement
are for convenience only and shall be ignored in
construing this Agreement;
(l) all references to statutes and other legislation
include all re-enactments and amendments of those
statutes and that legislation;
(m) an outstanding Bill is "repaid" or "prepaid" by
providing (in accordance with the terms hereof) cash
cover therefor in the same currency as that in which
such Bill is denominated in an amount determined in
accordance with Clause 6.13, by reducing the
Outstanding Liability Amount of such Bill or by
cancelling such Bill and returning the original to the
Facility Agent on behalf of the Banks which accepted
the same (as appropriate) or providing other evidence
(in form and substance satisfactory to the Facility
Agent) that no further liability exists thereunder for
any Bank; references to Utilisations being prepaid are
to be construed accordingly insofar as those
Utilisations involve Bills;
(n) an amount "outstanding" at any time under or in respect
of a Bill (or the "principal amount" thereof at any
time) is the Outstanding Liability Amount of such Bill
and a "drawing" under the Tranche 3 Facility includes
the acceptance of a Bill by a Bank and each provision
of this Agreement which contains reference to the
concepts contained in this paragraph (n) shall be
construed accordingly;
(o) any reference to "certificate", "certification" (or any
like term) in relation to an amount shall be a
reference to a certificate containing such detail as is
reasonably necessary in order to determine how such
amount was calculated; and
(p) any reference to a document being "certified" means a
document certified by an Authorised Signatory of the
party providing the document, or by lawyers acting on
his behalf, as being genuine and in full force and
effect and, if a copy, a true and complete copy of the
original.
<PAGE> 21
2. FACILITIES AND RELATED MATTERS
2.1 Facilities
Subject to the terms of this Agreement, and in reliance upon
the representations and warranties set out in Clause 20.1 as
repeated from time to time pursuant to Clause 20.2, the
Banks grant to the relevant Borrowers the following
facilities:
(a) Tranche 1 Facility: a term loan facility whereby,
subject as aforesaid, the Banks, when requested by the
Company pursuant to a Request, will make Tranche 1
Advances denominated in Sterling to the Company during
the Tranche 1/2 Availability Period in an aggregate
principal amount not exceeding the aggregate Tranche 1
Commitments;
(b) Tranche 2 Facility: a term loan facility whereby,
subject as aforesaid, the Banks, when requested by the
Company pursuant to a Request, will make Tranche 2
Advances denominated in Sterling to the Company during
the Tranche 1/2 Availability Period in an aggregate
principal amount not exceeding the aggregate Tranche 2
Commitments; and
(c) Tranche 3 Facility: a revolving credit facility
whereby, subject as aforesaid, the Banks, when
requested by a Borrower or the Company pursuant to a
Request, during the Tranche 3 Availability Period will
make to the Borrower specified in or giving such
Request Tranche 3 Advances denominated in Sterling or
accept Bills denominated in Sterling drawn by such
Borrower, up to an aggregate amount at any one time
outstanding with respect to all the Borrowers and all
Utilisations taken together equal to the aggregate
Tranche 3 Commitments.
2.2 Limitations
Subject to the terms of this Agreement unless otherwise
agreed by the Facility Agent and the Banks:
(a) no Utilisation of any Facility may be made before the
Unconditional Date;
(b) Tranche 1 Utilisations and Tranche 2 Utilisations may
be made only by the Company;
(c) Tranche 1 Utilisations may not be made unless a member
of the Group owns Grid Shares at the relevant
Utilisation Date, and may not be made on or after the
later of 31st January, 1996 and the date 30 days after
the date on which shares in The National Grid Holding
plc are first listed on The Stock Exchange or (if no
such listing has occurred) are first able to be freely
disposed of by holders thereof;
(d) the aggregate of the outstanding Tranche 3 Utilisations
at any time may not exceed the Tranche 3 Commitments
then in effect; and
(e) no Tranche 3 Utilisation may be made before there has
been (or unless there is on the same day occurring) a
drawing of the Tranche 1 or Tranche 2 Commitments.
<PAGE> 22
2.3 Nature of the Banks' rights and obligations hereunder
(a) Banks' Commitments: No Bank is obliged to participate in
the making of any Utilisation (i) in the case of a Tranche 1
Advance, in an amount exceeding its undrawn Tranche 1
Commitment, (ii) in the case of a Tranche 2 Advance, in an
amount exceeding its undrawn Tranche 2 Commitment, and (iii)
in the case of a Tranche 3 Utilisation, if to do so would
cause the aggregate of the amounts of (A) its participations
in the Tranche 3 Advances outstanding under this Agreement,
and (B) the Outstanding Liability Amounts in respect of all
outstanding Bills accepted by such Bank, to exceed its
Tranche 3 Commitment.
(b) Obligations several: The obligations of each Bank under
this Agreement are several. The failure of a Bank to carry
out its obligations under this Agreement shall not relieve
any other party of its obligations under any Finance
Document. No Bank shall be responsible for the obligations
of any other Bank under this Agreement.
(c) Agents not responsible: The Facility Agent and the Security
Agent, in their capacities as such, shall not be responsible
for the non-performance by any Bank of its obligations under
this Agreement.
(d) Rights several: The obligations of each Obligor to the
Finance Parties under the Finance Documents are owed to each
of them as separate and independent obligations. Each
Finance Party may, except as otherwise stated herein,
separately enforce its rights hereunder without joining in
any other Finance Party.
2.4 Nature of Borrowers' rights and obligations hereunder
(a) Rights and Obligations: The obligations of the Borrowers
under this Agreement in their capacities as such shall be
separate and independent and not joint and several, and the
Company and not the other Borrowers shall be liable for:-
(i) payment of all amounts becoming due under Clause 15 to
the extent that such amounts are not referable to
Utilisations made by or to monies received or
receivable from a particular Borrower or are not
otherwise in the reasonable opinion of the Facility
Agent referable to a particular Borrower; and
(ii) payment of all amounts due under Clause 24, to the
extent that in the reasonable opinion of the Facility
Agent such amounts are not referable to a particular
Borrower.
(b) Facility Agent's determination: The written determination of
the Facility Agent acting reasonably with regard to any
matter which, according to Clause 2.4(a), is to be
determined according to its reasonable opinion shall be
conclusive save in the case of manifest error. No person
shall have any recourse to the Facility Agent in relation to
any such determination if it proves to be the case that its
opinion was incorrect unless the Facility Agent was
negligent or fraudulent in making any such determination.
(c) Company as Obligors' Agent: Any and each Obligor (other than
the Company) by and upon its execution of an Accession
Agreement, irrevocably appoints the Company to act on its
behalf as its agent in relation to the Finance Documents and
irrevocably authorises the Company on its behalf to give all
notices and instructions (including Requests) to execute on
its behalf any Accession Agreement and to make such
agreements capable of being given or made by such Obligor
<PAGE> 23
notwithstanding that they may affect such Obligor, without
further reference to or the consent of such Obligor and such
Obligor shall be bound thereby as though such Obligor itself
had given such notices and instructions (including, without
limitation, any Requests) or executed or made such
agreements.
(d) Company's acts binding: Every act, omission, agreement,
undertaking, settlement, waiver, notice or other
communication given or made by the Company under this
Agreement, or in connection with this Agreement (whether or
not known to any other Obligor and whether occurring before
or after such other Obligor became an Obligor under this
Agreement) shall be binding for all purposes on all the
Obligors as if the Obligors had expressly concurred with the
same. In the event of any conflict between any notices or
other communications of the Company and any other Obligor,
those of the Company shall prevail.
2.5 Issues Relative to the Offer
(a) Each of the Facility Agent and the Banks acknowledges that
issues ("Issues") involving the possibility of amendment to
the Offer or waiver of or determination of satisfaction (or
otherwise) as to conditions to the Offer are likely to arise
which will require to be determined at short notice if the
efficient conduct of the Offer is not to be impeded.
(b) Each of the Company, Bidco, the Facility Agent and the Banks
acknowledges that, depending on the Issue involved, the
agreement of the Banks or Majority Banks may be required
before an Issue can be addressed in the manner in which the
Company or Bidco wishes to address it whilst complying with
the provisions of Clause 21.10 and other provisions of this
Agreement.
(c) The Facility Agent has identified to the Company and Bidco
the names and contact details of certain persons to whom
Issues should be referred for the purpose of initiating the
process by which any agreement of the Banks or Majority
Banks required in relation thereto may be sought. Each of
the Banks has identified to the Facility Agent the names and
contact details of certain persons to whom the Facility
Agent should in turn refer such Issues for a determination
as to whether such Bank will give or withhold its agreement
where the agreement of the Banks or Majority Banks is
required.
(d) The Facility Agent undertakes to the Company and Bidco that
it will use its reasonable endeavours to ensure the
availability of appropriate personnel at all times to deal
promptly on its behalf with any referral to the Facility
Agent and the Banks of any Issues in relation to which any
agreement of the Banks or Majority Banks is required and
with the obtaining of the decision of the Banks or Majority
Banks (as appropriate) as to whether or not to give such
agreement, and that it will use its reasonable endeavours to
ensure that each request for any such agreement is dealt
with and responded to by it and the Banks within the time
horizon communicated to it by the Company or Bidco.
(e) Each Bank undertakes to each of the Facility Agent and the
Company and Bidco that it will use its reasonable
endeavours to ensure the availability of appropriate
personnel at all times to deal promptly on its behalf with
any referral to it by the Facility Agent of any Issue in
relation to which its agreement is requested in order that
its decision as to whether to give or withhold such
agreement may be communicated promptly to the Facility
Agent, and that it will use its reasonable endeavours to
ensure that each such request is dealt with and responded to
within the time horizon communicated to it by the Facility
Agent.
<PAGE> 24
(f) In addition to the undertakings of the Facility Agent and
the Banks contained in paragraphs (d) and (e) above, the
Facility Agent and each Bank acknowledges that (i) during
the final phase of the Offer period and when notified by the
Company or Bidco, authorised Bank personnel will have to be
available on a 24 hour basis to consider Issues, and (ii)
failure by any Bank to give a prompt response in relation to
any Issue during such final phase could jeopardise the
success of the Offer. Accordingly each Bank agrees that (so
far as practicable, and taking into account the materiality
of any particular Issue) it will establish an appropriate
internal approval process to enable it to provide such a
response.
3. PURPOSE AND RESPONSIBILITY
3.1 Purpose
(a) The proceeds of each Advance shall be applied only in or
towards financing the following:
(i) in the case of Tranche 1 Advances and Tranche 2
Advances, payment of Offer Costs by the Company and/or
subscription in cash for shares in Bidco (or making
loans to Bidco subordinated to the obligations of Bidco
under the Finance Documents on terms satisfactory to
the Majority Banks) the proceeds of which will be used
by Bidco to finance (A) the acquisition by Bidco of
Shares pursuant to the Offer, (B) payments by Bidco to
the Optionholders under proposals with respect to the
Option Schemes put to them in connection with the
Offer, (C) payment of Offer Costs by Bidco and/or (D)
the refinancing of Borrowings by the Target from third
parties; and
(ii) in the case of Tranche 3 Advances, (A) the general
working capital requirements of the Borrowers and their
Subsidiaries, (B) subject to the proviso set out below,
any of the purposes described in paragraph (ii) above,
and (C) other general corporate purposes of the
Borrowers and their Subsidiaries permitted under the
terms of this Agreement, provided always that no more
than 50,000,000 pounds may be drawn and outstanding on any
day as Tranche 3 Utilisations where the proceeds have
been applied directly or indirectly towards financing
any of the purposes set out in sub-paragraphs (A), (B)
or (C) of paragraph (i) above.
(b) Each Borrower undertakes that the proceeds of each
Utilisation by it shall be used only for the purposes
permitted for such Utilisations by Clause 3.1, and that no
Utilisation in any event shall be used in any way which
would be illegal under, or would cause the invalidity or
unenforceability (in each case in whole or in part) of any
Finance Document under, any applicable law (including,
without limitation, section 151 of the Companies Act 1985).
3.2 Responsibility
Without prejudice to the foregoing and the remaining
provisions of this Agreement, none of the Finance Parties
shall be bound to enquire as to the use or application of
the proceeds of any Utilisation, nor shall any of them be
responsible for or for the consequences of such use or
application.
<PAGE> 25
4. CONDITIONS PRECEDENT
4.1 Conditions precedent to first Utilisation
The obligations of each Finance Party to the Company and
each Borrower under this Agreement with respect to the
making of any Utilisations hereunder are subject to the
conditions precedent that on or before the date of the first
Utilisation hereunder:
(a) Documents: the Facility Agent shall have received all
of the documents listed in Schedule G in the agreed
form and each of the documents referred to in Schedule
G as being certified shall be certified by or on behalf
of the relevant Obligor as being a true and complete
copy, and in full force and effect as at the date such
document is required to be delivered;
(b) Equity: the Original Banks shall be satisfied, and
shall have received such evidence as they may
reasonably require, that CSW has subscribed in full in
cash in the amount heretofore agreed in writing
between the Company and the Facility Agent for
ordinary shares and/or Subordinated Debt of the
Company, and that such shares have been issued to, and
are unconditionally owned by CSW and have been
registered in its or their names in the books of the
Company; and
(c) Offer: the Offer shall have become or been declared
unconditional in all respects without Bidco having
declared the Offer or permitted the Offer to become
unconditional in circumstances where any provision of
Clause 21.10 (other than paragraphs (a)(ii) and/or
(iii)) is breached thereby.
4.2 Further Conditions Precedent
The obligations of each Finance Party with respect to the
making of any Utilisation are subject to the further
conditions precedent that both at the date of the Request
for and at the Utilisation Date for such Utilisation:
(a) no breach of Clause 21.10 (other than paragraphs
(a)(ii) and/or (iii)) shall have occurred and be
continuing which has not been waived by a Waiver
Letter; and
(b) all of the representations and warranties in Clause
20.1(a), (b), (c), (d), (f)(i) and (ii), (j), (n) and
(p) are and will be correct (as if then made)
immediately before the Unconditional Date, ignoring any
references to Subsidiaries (other than Bidco),
Principal Subsidiaries (other than Bidco), the Target
and their respective businesses and assets.
4.3 Further Conditions Precedent
The obligations of the Finance Parties in respect of each
Utilisation (other than a Tranche 1 Advance, a Tranche 2
Advance or a Tranche 3 Advance the proceeds of which in each
case are to be applied directly in financing, or in
refinancing a Tranche 3 Advance the proceeds of which were
applied in financing or refinancing, the payment of special
dividends as referred to in Clause 3.1(a)(i) and/or the
acquisition of Shares pursuant to the Offer and/or pursuant
to procedures implemented under section 428 et seq.
Companies Act 1985 directly or indirectly as described in
Clause 3.1(a)(ii) or (iii)) are subject to the further
conditions precedent that both at the date of the Request
for and at the Utilisation Date for such Utilisation:-
<PAGE> 26
(a) in respect of each Utilisation by the drawing of a
Tranche 3 Advance by a Borrower to the extent that it
does not exceed a Tranche 3 Advance made to such
Borrower which is repaid on the date of such
Utilisation by such Borrower (a "Rollover
Utilisation"), no Event of Default shall have occurred
and be continuing which has been declared pursuant to
Clause 23.2 and not waived; and
(b) (other than in respect of a Rollover Utilisation) (i)
no Default shall have occurred and be continuing or
would result from the making of such Utilisation which
has not been waived pursuant to a Waiver Letter, and
(ii) the representations and warranties in Clause 20.1
to be repeated on those dates are correct in all
material respects and will be correct in all material
respects immediately after the making of such
Utilisation.
4.4 Additional Borrower
The obligations of each Finance Party to each Additional
Borrower under this Agreement with respect to the making of
the first Utilisation by such Additional Borrower under this
Agreement are further subject to the condition precedent
that the Facility Agent shall have received in respect of
the Additional Borrower and the Accession Agreement to which
it is a party certified copies of all of the documents
listed in Schedule G paragraphs 1, 5, 6, 7 and 8 in form and
substance reasonably satisfactory to the Facility Agent.
5. ADVANCES
5.1 Delivery of Request
Subject to the terms of this Agreement, the Company (in the
case of the Tranche 1 Facility or the Tranche 2 Facility) or
any Borrower (in the case of the Tranche 3 Facility) may
request an Advance by delivering to the Facility Agent by
facsimile transmission (provided that the original is
received by the Facility Agent prior to 10.00 a.m. on the
proposed Utilisation Date) or letter, prior to 10.00 a.m. on
the second Business Day before the proposed Utilisation Date
(or in any such case at such later time and/or date as may
be agreed by the Facility Agent in writing), a duly
completed Request.
5.2 Form of Request
Each Request shall specify:
(a) the Borrower in relation thereto (being, in the case of
a Tranche 1 Advance, and a Tranche 2 Advance the
Company and in the case of a Tranche 3 Advance to be
applied in financing the acquisition of Shares pursuant
to the Offer and/or pursuant to procedures implemented
under section 428 et seq. Companies Act 1985 or the
payment of Offer Costs, Bidco or the Company and, in
the case of any other Tranche 3 Advance, any Borrower);
(b) the Tranche designation for the requested Advance;
(c) the proposed Utilisation Date, which shall be a
Business Day falling during the applicable Availability
Period and complying with any other applicable
provisions of this Agreement;
(d) the amount of the proposed Advance (the "Requested
Amount") which shall be (i) in the case of any Tranche
1 Advance or Tranche 2 Advance, an amount not less than
40,000,000 pounds or such other amount as the Facility
Agent may agree and (ii) in the case of a Tranche 3 Advance,
<PAGE> 27
an amount not less than 10,000,000 pounds, provided always
that no Requested Amount for a Tranche 3 Advance may
exceed the then Available Facility Amount;
(e) the duration of its (or, in the case of a Tranche 1
Advance or Tranche 2 Advance, its first) Interest
Period, in the manner required by and subject to the
terms of Clause 10; and
(f) unless previously notified to the Facility Agent in
writing and not revoked) the details of the bank and
account to which the proceeds of the proposed Advance
are to be made available.
Subject to the terms of this Agreement, each Request shall
be irrevocable and the Borrower named in the same shall be
bound to borrow an Advance in accordance with such Request.
The Facility Agent shall promptly notify each Bank of each
Request.
5.3 Participations in Advances
Subject to the terms of this Agreement each Bank shall, on
the date specified in any Request for an Advance, make
available to the Facility Agent in Sterling for the account
of the relevant Borrower the amount of its participation in
that Advance in the proportion (applied to the Requested
Amount) which its Commitment bearing the same Tranche
designation as such Advance bears to the aggregate amount of
the Commitments having such designation. All such amounts
shall be made available to the Facility Agent in accordance
with Clause 12.1 for disbursement to or to the order of the
relevant Borrower in accordance with the provisions of this
Agreement.
6. THE BILL FACILITY
6.1 Delivery of Bill Request
Subject to the terms of this Agreement, the Company or any
Borrower directly may request a Utilisation of the Tranche 3
Facility by acceptance of Bills by delivering to the
Facility Agent by facsimile transmission (provided that the
original is received by the Facility Agent prior to 10.00
a.m. on the proposed Utilisation Date) or letter, prior to
10.00 a.m. on the second Business Day before the proposed
Utilisation Date (or in any such case at such later time
and/or date as may be agreed in a Waiver Letter), a duly
completed Request.
6.2 Form of Bill Request
Each Request for a Utilisation by acceptance of Bills shall
specify:
(a) the Borrower in relation thereto;
(b) the proposed Utilisation Date, which shall be a
Business Day falling during the Tranche 3 Availability
Period;
(c) the amount of the proposed Utilisation (the "Requested
Amount") which shall be a minimum amount of 10,000,000
pounds and an integral multiple of 1,000,000 pounds,
provided that the Requested Amount may not exceed the
then Available Facility Amount;
<PAGE> 28
(d) the purpose for which the Bills are requested;
(e) the duration of the Interest Period for the Bills
(being a period of between 7 and 183 days (inclusive)
ending on or prior to the Tranche 2/3 Repayment Date;
(f) (unless previously notified to the Facility Agent in
writing and not revoked) the details of the bank and
account to which the proceeds of the discounting of
such Bills are to be made available.
Subject to the terms of this Agreement, each such Request
shall be irrevocable and the Borrower named in the same
shall be bound to make a drawing by the acceptance of Bills
in accordance with such Request. The Facility Agent shall
promptly notify each Bank of each such Request.
6.3 Power of Attorney
The Company shall procure that a Power of Attorney duly
executed by any Borrower which is to make a Utilisation of
the Tranche 3 Facility by acceptance of Bills shall be given
to the Facility Agent at the same time as (or before) any
Request for such Utilisation unless there is already in
effect at that time an existing Power of Attorney executed
by such Borrower.
6.4 Amount of Bills to be accepted by each Bank
Subject to the terms of this Agreement, including without
limitation Clause 6.7, the aggregate principal amount of the
Bills to be accepted by a Bank will be the proportion of the
Requested Amount which its Tranche 3 Commitment bears to the
aggregate Tranche 3 Commitments on the proposed Utilisation
Date.
6.5 Notification of the Banks
The Facility Agent shall, not later than 1.00 p.m. one
Business Day prior to the Utilisation Date, notify each Bank
of the details of the requested Bills and of the aggregate
principal amount of the Bills to be accepted by it.
6.6 Acceptance of Bills
(a) The Facility Agent shall, not later than 10.30 a.m. on the
Utilisation Date, deliver to each Bank Bills completed in
accordance with Clause 6.9.
(b) Each Bank shall accept the Bills delivered to it in
accordance with paragraph (a) above.
(c) The Facility Agent shall, not later than 11.30 a.m. on the
Utilisation Date, notify the relevant Borrower and each Bank
(except a Bank to which Clause 6.7 applies) of the
applicable EBDR.
(d) Subject to the terms of this Agreement, each Bank shall pay
to the Facility Agent for value on the Utilisation Date for
the relevant Borrower an amount equal to:
(i) the amount which the Bank would have received as the
proceeds of discounting if it had discounted the Bills
accepted by it at the applicable EBDR; less
(ii) acceptance commission calculated at the rate of the
then applicable Margin on the aggregate principal
amount of those Bills for the Interest Period relative
thereto.
<PAGE> 29
6.7 Advances as an alternative
(a) If it would be contrary to any law or regulation for a Bank
to accept any Bills or a Bank is not eligible to accept and
discount Bills in the London Discount Market, then it may
notify the Facility Agent accordingly by no later than 3.00
p.m. one Business Day prior to the proposed Utilisation
Date.
(b) If a Bank notifies the agent in accordance with paragraph
(a) above, then, subject to the terms of this Agreement,
that Bank shall instead make a Tranche 3 Advance in
accordance with Clause 5 in Sterling on the relevant
Utilisation Date in a principal amount equal to the
aggregate principal amount of the Bills which it would
otherwise have been obliged to accept pursuant to this
Clause 6 and for an Interest Period equal to the Interest
Period of those Bills.
6.8 Acceptance Commission
Acceptance commission on any Bill shall be calculated on the
basis of a year of 365 days and for the actual number of
days in the relevant Interest Period.
6.9 Holding and completion of Bills
(a) The Company and each Borrower shall ensure that the Facility
Agent has a sufficient stock of Bills before delivering any
Request for Bills. The Facility Agent shall, subject to the
terms of this Agreement, hold such Bills to the order of the
Borrower in whose favour they are drawn.
(b) Each Bill shall:
(i) be drawn in its own favour by and be signed by the
relevant Borrower and endorsed by it in blank;
(ii) be undated;
(iii) have the Maturity Date and the face amount left
blank; and
(iv) be claused in a manner which complies with the Bank of
England's requirements for Eligible Bills at that time.
(c) Subject to the terms of this Agreement, the Facility Agent
shall:
(i) date each Bill with the relevant Utilisation Date;
(ii) insert in each Bill the name of the Bank on which it is
drawn, its face amount and its Maturity Date; and
(iii) deliver the requisite number of completed Bills to
the relevant Banks for acceptance in accordance with
this Agreement.
(d) If the Power of Attorney given to the Facility Agent by the
relevant Borrower is in effect on the relevant Utilisation
Date and no notice of revocation thereof has been received
by the Agent and the Agent has not notified that Borrower in
writing at least two Business Days prior to such proposed
Utilisation Date that it will no longer exercise the powers
given to it under the Power of Attorney, the Facility Agent,
for and on behalf of the relevant Borrower, shall draw,
endorse and deliver Bills complying with the requirements of
paragraph (b) above to implement the relevant drawing in
satisfaction of that Borrower's obligations thereunder.
<PAGE> 30
Having executed the Bills in accordance with the Power of
Attorney, the Facility Agent will hold the Bills and shall
only release the Bills in accordance with the terms of this
Agreement.
(e) The Facility Agent shall be liable to the relevant Borrower
for any loss or liability incurred by that Borrower as a
result of any loss, theft, fraudulent usage or other
misapplication of any Bill only to the extent that such loss
or liability was incurred directly as a result of the
Facility Agent failing to take reasonable care to safeguard
the Bills.
6.10 Discounting of Bills
Each Bank will arrange for each Bill accepted by it to be
discounted on its behalf by a bank carrying on a bona fide
banking business or a person bona fide carrying on the
business of a discount house, in the United Kingdom in each
case (which may include the Bank discounting the Bill
itself).
6.11 Information relating to Bills
Each Borrower, promptly on request by a Finance Party, shall
supply to the Facility Agent for that Finance Party any
information relating to any Bill (including the underlying
trade transaction for that Bill) as that Finance Party may
reasonably require or which may be required by the Bank of
England or any other fiscal or monetary authority in the
United Kingdom.
6.12 Eligible Bills
Each Borrower shall ensure that each Bill drawn by it and
accepted by a Bank is, assuming that the relevant Bank is a
bank whose acceptances are then being treated as eligible
acceptances by the Bank of England, eligible for
rediscounting at the Bank of England.
6.13 Cash Cover
(a) If any Borrower shall prepay any Bill pursuant to any of
Clauses 9.2, 13.6, 14.5, 15.2 or 16 by providing cash cover
therefor, the amount to be so provided shall be the face
amount of that Bill discounted on the basis of such normal
commercial rates prevailing at the time of prepayment for
Sterling deposits of an amount equal to such face amount for
the period from the date of prepayment to the Maturity Date
of such Bill as the Facility Agent (after consultation with
the Company and the relevant Bank) shall reasonably
determine.
(b) If any Borrower shall be required to provide cash cover for
any Bill pursuant to Clause 23.2(e), the amount to be so
provided and deposited with the Facility Agent shall be the
face amount of such Bill, and the Facility Agent, promptly
upon receipt, shall in turn deposit an amount equal to the
amount so received by it for the period from the date of
payment to the Maturity Date for such Bill at the then
prevailing market rates for like deposits. Upon receipt of
interest on such deposit, the Facility Agent shall pay an
amount equal thereto to the Company (after deduction of any
applicable tax) by way of interest on the cash cover
deposited with it, unless a Default is then continuing in
which event such amount shall be applied in payment of any
overdue amount or, if none, added to the cash cover
deposited with the Facility Agent.
<PAGE> 31
7. CANCELLATION OF COMMITMENTS
7.1 Tranche 1 Commitments
Any part of the Tranche 1 Commitments not borrowed hereunder
before the expiry of the Tranche 1/2 Availability Period
shall be cancelled automatically at close of business in
London on such expiry.
7.2 Tranche 2 Commitments
Any part of the Tranche 2 Commitments not borrowed hereunder
before the expiry of the Tranche 1/2 Availability Period
shall be cancelled automatically at the close of business in
London on such expiry.
7.3 Tranche 3 Commitments
The Tranche 3 Commitments shall be cancelled at close of
business in London on the last day of the Tranche 3
Availability Period.
7.4 Voluntary Cancellation
The Company may, on giving not less than three Business
Days' prior written notice to the Facility Agent (which
shall promptly give notice of the same to the Banks) at any
time cancel or reduce the Tranche 1 Commitments, the Tranche
2 Commitments or the Tranche 3 Commitments in whole or in
part (but, if in part, by a minimum of and in whole
multiples of 10,000,000 pounds in each case and so that such
reduction shall be applied pro rata to all the Tranche 1
Commitments, Tranche 2 Commitments or Tranche 3 Commitments
(as the case may be)) without incurring any penalty or other
cost, provided that such cancellation or reduction may only
be effected to the extent of the amount of the Tranche 1
Commitments, Tranche 2 Commitments or Tranche 3 Commitments
(as the case may be) undrawn on the date therefor taking
into account any repayment or prepayment of any Utilisation
due to be made on that date. Any such notice by the Company
shall be irrevocable and shall specify the date upon which
the reduction is to become effective and the amount of the
reduction.
7.5 Reduction consequent on Repayment or Prepayment
(a) Subject to Clause 7.5(b), the Tranche 1 Commitments shall be
reduced and cancelled (such reduction being applied pro rata
as between the Tranche 1 Commitments of all of the Banks),
by the amount of any repayment or prepayment of any Tranche
1 Advance made pursuant to any provision of this Agreement.
Subject as aforesaid, the Tranche 2 Commitments shall be
reduced and cancelled (such reduction being applied pro rata
as between the Tranche 2 Commitments of all the Banks) by
the amount of any repayment or prepayment of any Tranche 2
Advance made pursuant to any provision of this Agreement.
(b) Each Bank's Tranche 1 Commitment shall be reduced and
cancelled by the amount of any prepayment of that Bank's
participation in any Tranche 1 Advance made pursuant to any
of Clauses 13.6, 14.5, 15.2 or 16. Each Bank's Tranche 2
Commitment shall be reduced and cancelled by the amount of
any prepayment of that Bank's participation in any Tranche 2
Advance made pursuant to any of Clauses 13.6, 14.5, 15.2 or
16.
<PAGE> 32
7.6 Limitations
Save as expressly provided in this Agreement any amount of
the Commitments cancelled or otherwise extinguished under
this Agreement may not be reinstated. Save as expressly
provided in this Agreement none of the Commitments may be
reduced or cancelled under this Agreement.
8. REPAYMENT
8.1 Repayment of the Tranche 1 Advances
The Company, subject to the application of Clause 9, shall
repay the Tranche 1 Advances in full on the Tranche 1
Repayment Date.
8.2 Repayment of the Tranche 2 Advances
The Company, subject to the application of Clause 9, shall
repay the Tranche 2 Advances in full on the Tranche 2/3
Repayment Date.
8.3 Repayment of the Tranche 3 Utilisations
(a) Each Borrower shall repay the full amount of each Tranche 3
Advance made to it on the last day of the Interest Period
relating to that Tranche 3 Advance, provided always that
each Tranche 3 Advance then outstanding shall be repaid in
full on the Tranche 2/3 Repayment Date.
(b) Each Borrower shall pay an amount equal to the face amount
of each Bill on its Maturity Date to the Facility Agent for
the Bank which accepted such Bill, provided always that each
Bill then outstanding shall be repaid in full on the Tranche
2/3 Repayment Date.
9. PREPAYMENT
9.1 Prohibition
No Borrower may prepay all or any part of any Utilisation
except as expressly provided in this Agreement.
9.2 Voluntary Prepayment
(a) Subject to Clause 9.2(b), the Company, on giving not less
than three Business Days' prior written notice to the
Facility Agent (which shall promptly give notice of the same
to the Banks) specifying, inter alia, the amount and date
for prepayment and identifying the Utilisation concerned,
may procure that any Utilisation is prepaid at any time in
whole or in part by the Borrower by which it was made,
provided that any prepayment shall be (if in part) in the
case of a Tranche 1 Advance or a Tranche 2 Advance of an
amount which is at least 10,000,000 pounds or, in the case
of a Tranche 3 Utilisation, of an amount which is a minimum
(and, if more, a whole multiple) of 1,000,000 pounds.
(b) Any such prepayment and any prepayment pursuant to Clause
9.3 shall be applied pro rata against the participations of
the Banks in the Utilisation prepaid.
<PAGE> 33
9.3 Mandatory Prepayment
The Company and Bidco shall procure that the Net Proceeds of
sales of Grid Shares by any member of the Group to any
person who is not a member of the Group shall be applied in
or towards prepayment of Tranche 1 Advances promptly after
receipt of such Net Proceeds by the relevant member of the
Group, provided that such Net Proceeds may be deposited in
an interest bearing account with the Facility Agent with
irrevocable instructions being given to the Facility Agent
in a form satisfactory to it to apply such Net Proceeds on
the next Interest Date(s) relative to the Tranche 1 Advances
in or towards prepayment of the Tranche 1 Advances. For
this purpose "Net Proceeds" means the consideration received
by any member or members of the Group in respect of the
disposal from the Group to any third party of the Grid
Shares concerned, after deduction of all amounts for or on
account of Taxes applicable to, or to any gain (including
any deemed gain) resulting from, the disposal and all costs,
fees, expenses and the like properly incurred by members of
the Group in arranging and effecting that disposal.
9.4 Bills
(a) If and to the extent that any prepayment of Tranche 3
Utilisations made or required to be made under any provision
of this Agreement could be satisfied by a prepayment of
Tranche 3 Advances, then Tranche 3 Advances rather than
Bills shall be prepaid.
(b) For the avoidance of doubt, Clauses 1.2(m) and 6.13 describe
the manner in which a Utilisation by Bill may be prepaid for
the purposes of this Agreement, and any prepayment of such a
Utilisation shall be effected in that manner.
9.5 General provisions relating to prepayment
(a) Any notice of prepayment given under this Agreement shall be
irrevocable, and the Company or the Borrower named in such
notice shall be bound to prepay (or, in the case of the
Company, to procure prepayment) in accordance with such
notice.
(b) Amounts repaid and prepaid in respect of any Tranche 1
Advance or Tranche 2 Advance under any provision of this
Agreement may not be reborrowed hereunder.
(c) Amounts repaid or prepaid pursuant to Clause 8.3 or 9.2 in
respect of Tranche 3 Utilisations may, prior to the Tranche
2/3 Repayment Date but subject to the terms of this
Agreement, be redrawn as Tranche 3 Utilisations. Any
amounts repaid or prepaid in respect of Tranche 3
Utilisations under any other provision of this Agreement may
not be redrawn.
(d) Any prepayment of any Advance under any provision of this
Agreement shall be made together with interest accrued on
the amount prepaid, but (subject to clause 24.2(c)), without
premium or penalty.
10. INTEREST PERIODS
10.1 Selection and agreement
The relevant Borrower shall give notice to the Facility
Agent not later than 10.00 a.m. on the second Business Day
prior to the commencement of each (or the) Interest Period
relative to any Advance made hereunder (or in the Request
therefor in the case of the first Interest Period relative
to any Tranche 1 Advance or Tranche 2 Advance or the
Interest Period in the case of any Tranche 3 Advance)
<PAGE> 34
specifying the duration of such Interest Period, which in
the case of any Tranche 1 Advance or Tranche 2 Advance shall
be of one, three or six months and in the case of any
Tranche 3 Advance shall be of one, two, three or six
months, or in each case such other duration as may be agreed
by the Facility Agent after consultation with the Reference
Banks or as may be required in order to comply with
Clause 10.3 (provided that if such duration is over six
months then the Facility Agent may only agree with the
unanimous consent of the Banks participating in such
Advance). If the relevant Borrower fails to specify the
duration of an Interest Period for any Advance the duration
of that Interest Period shall be three months subject as
otherwise required in order to comply with any other
provision of this Agreement.
10.2 Splitting
The relevant Borrower may, in any notice given pursuant to
Clause 10.1 (or in any Request therefor) split any Tranche 1
Advance or Tranche 2 Advance into any number of separate
Tranche 1 Advances or Tranche 2 Advances, respectively (each
having an Interest Period of a different duration,
separately designated in such notice or Request), provided
that each such separate Advance must be of a minimum amount
of 100,000,000 pounds. Each Advance resulting from any such
splitting shall continue as a separate Advance unless and
until consolidated with another Advance having the same
Tranche designation.
10.3 Restrictions on selection
(a) Each Borrower shall use its reasonable endeavours (i) to
ensure the selection by it of the duration of Interest
Periods pursuant to Clause 10.1 so that the Tranche 1
Repayment Date will also be an Interest Date relative to all
outstanding Tranche 1 Advances and that the Tranche 2/3
Repayment Date will also be an Interest Date relative to all
outstanding Tranche 2 Advances and Tranche 3 Advances,
(ii) in relation to the Tranche 1 Advances and Tranche 2
Advances, to ensure the selection by it of the duration of
Interest Periods pursuant to Clause 10.1 so that Tranche 1
Advances and Tranche 2 Advances are aggregated and
consolidated pursuant to Clause 10.4 into Tranche 1 Advances
and Tranche 2 Advances respectively of not less than
100,000,000 pounds each and (iii) to select the duration of
Interest Periods pursuant to Clause 10.1 so as to ensure
that no Advance shall have an Interest Period expiring after
the Repayment Date relative thereto.
(b) If it appears to the Facility Agent in good faith that the
requirements of paragraph (a) above will not be met by a
Borrower's selection of any Interest Period, the Facility
Agent, on behalf of and after consultation with that
Borrower, may select a different duration for such Interest
Period (which shall prevail over that selected by that
Borrower) in order to facilitate the meeting of such
requirements.
10.4 Duration and Consolidation
(a) The first (or the) Interest Period relative to each Advance
shall commence on its Utilisation Date and end on the last
day of the period selected or provided for in accordance
with this Clause. Any subsequent Interest Periods in
relation to a Tranche 1 Advance or Tranche 2 Advance shall
commence on the expiry of the immediately preceding Interest
Period relating thereto and end on the last day of the
period so selected or provided therefor. If any Interest
Period for any Advance would otherwise end on a day which is
not a Business Day, such Interest Period shall end instead
on the next Business Day.
<PAGE> 35
(b) If any Interest Period relating to any Tranche 1 or Tranche
2 Advance expires on an Interest Date relative to
(respectively) another Tranche 1 Advance or Tranche 2
Advance (as the case may be), then, with effect from such
Interest Date, such Tranche 1 Advances or Tranche 2 Advances
(as the case may be), subject to Clauses 10.1, 10.2 and
10.3, shall be aggregated and consolidated to form
(respectively) a single Tranche 1 Advance or Tranche 2
Advance.
10.5 Notification
The Facility Agent will notify the relevant Banks and the
Company and (if different) the relevant Borrower of the
duration of each Interest Period relating to each Advance
promptly after ascertaining the same.
11. INTEREST
11.1 Rate
The rate of interest applicable to each Advance for each (or
the) Interest Period relative to it shall be the rate per
annum determined by the Facility Agent to be the aggregate
of:-
(a) the Margin;
(b) LIBOR relative to such Advance for such Interest
Period; and
(c) the Additional Cost, if any, relative to such Advance
from time to time during such Interest Period.
11.2 Due dates
Save as otherwise provided herein, interest accrued on each
Advance for each Interest Period relative thereto shall be
paid by the Borrower in respect of such Advance in Sterling
in arrear on the last day of such Interest Period and also,
in the case of an Interest Period of a duration exceeding
six months, on the last day of each consecutive period of
six months from the first day of such Interest Period.
11.3 Default interest
If any Obligor fails to pay any amount payable by it under
this Agreement on the due date therefor, such Obligor, on
demand by the Facility Agent from time to time, shall pay
interest on such overdue amount (including overdue default
interest) in the currency in which such overdue amount is
for the time being denominated from the due date up to the
date of actual payment, both before and after judgement, at
a rate determined by the Facility Agent to be one per cent.
(1%) per annum above that which would be payable if such
overdue amount constituted, during the period of non-payment
thereof, an Advance made to such Obligor in the same
currency as the overdue amount for successive Interest
Periods of such duration of up to three months as the
Facility Agent, after consultation with the Company to the
extent practicable in the circumstances, may designate from
time to time. Such rate shall be determined or redetermined
on the first Business Day of each such Interest Period. In
calculating the amount of default interest due from the
Guarantor in respect of any overdue amount due from any
Borrower, the amount of default interest accrued due from
such Borrower and the amount of overdue default interest
accrued due from the Guarantor shall not be double counted.
<PAGE> 36
11.4 Bank basis
Interest shall accrue from day to day, and be computed on
the basis of a year of 365 days for the actual number of
days elapsed.
11.5 Determination conclusive; notification
Each determination of a rate of interest by the Facility
Agent under this Agreement shall, in the absence of manifest
error, be conclusive and shall be promptly notified to the
Company, the relevant Borrower and the Banks.
12. PAYMENTS
12.1 Funds, place and currency
Unless otherwise agreed between the Banks, the Facility
Agent and the Company, all payments to be made to the
Facility Agent by any Obligor under any Finance Document or
by any Bank under this Agreement shall be made on the due
date to the Facility Agent at The Royal Bank of Scotland
plc, sort code 16-00-34, for credit to Account Number
10000643 or to such other account at such bank or office as
the Facility Agent shall designate by not less than three
Business Days' notice to the Company or such Bank (as the
case may be).
12.2 Application
Each payment received by the Facility Agent for the account
of another person pursuant to Clause 12.1 shall:-
(a) in the case of a payment received for the account of
any Borrower, be made available by the Facility Agent
to that Borrower by application, on the date and in the
funds of receipt:-
(i) first, in or towards payment of any amounts then
due and payable (and unpaid) by that Borrower
under this Agreement; and
(ii) second, in payment to such account as that
Borrower shall have properly designated for the
purpose in the relevant Request or otherwise in
writing; and
(b) in the case of any other payment, be made available by
the Facility Agent to the person for whose account the
payment was received (in the case of a Bank, for the
account of its Facility Office) on the date and in the
currency and funds of receipt to such account of the
person with the office or bank in the country of the
currency concerned as that person shall have previously
notified to the Facility Agent for the purposes of this
Agreement.
The Facility Agent (or the Security Agent in the case of
monies received pursuant to the Security Documents) shall
promptly distribute monies received for the account of the
Banks among the Banks pro rata to their respective
entitlements and in the funds and currency of receipt,
provided that the Facility Agent or Security Agent (as the
case may be) may deduct therefrom any amount due to the
Facility Agent pursuant to Clause 12.4 or 30.2.
<PAGE> 37
12.3 Currency
Any amount payable under this Agreement, unless otherwise
provided, shall be payable in Sterling.
12.4 Recovery of payments
Unless the Facility Agent shall have received notice from a
Bank or a Borrower not later than 11.00 a.m. on the Business
Day prior to the date upon which such Bank or a Borrower
(the "Party Liable") is to pay an amount to the Facility
Agent for transfer to any Borrower or any Bank respectively
(the "Payee") that the Party Liable does not intend to make
that amount available to the Facility Agent on the due date,
the Facility Agent may assume that the Party Liable has paid
that amount to the Facility Agent on that date in accordance
with this Agreement. In reliance upon that assumption, the
Facility Agent may (but shall not be obliged to) make
available to the Payee(s) a corresponding sum. If that
amount is not in fact so made available to the Facility
Agent, the Payee(s) shall forthwith on demand repay that sum
to the Facility Agent together with interest on such sum
until its repayment at a rate determined by the Facility
Agent to reflect its cost of funds incurred in making
available the corresponding amount to that Payee(s) (any
such determination to be conclusive in the absence of
manifest error). The Facility Agent may make a demand on a
Borrower as Payee only if and to the extent that the
Facility Agent has demanded the appropriate funds from the
relevant Bank and those funds have not been paid by that
Bank forthwith after the demand. The provisions of this
Clause are without prejudice to any rights the Facility
Agent and the Payee may have against the Party Liable.
12.5 Non-Business Days
Whenever any payment under any Finance Document shall become
due on a day which is not a Business Day, the due date for
that payment shall be extended to the next Business Day.
During any such extension of the due date for payment of any
principal, interest shall be payable on such principal at
the rate payable on the original due date.
12.6 Appropriations
Other than in the case of prepayment to a specific Bank
permitted by the terms of this Agreement, in the case of a
partial payment by any Obligor of amounts due and payable
under any Finance Document, the Facility Agent or, as the
case may be, the Security Agent may appropriate such payment
towards such of the amounts due and payable by such Obligor
under this Agreement as the Facility Agent or, as the case
may be, the Security Agent may with the approval of the
Majority Banks decide (subject to the requirement that such
payment shall be appropriated first towards those overdue
amounts which attract the higher Margin), and each part of
any payment so appropriated towards a particular amount due
and payable under any Finance Document shall be treated as
received by the Facility Agent or, as the case may be, the
Security Agent for the account of the Banks to whom such
particular amount is due, in each case pro rata to the
respective amounts thereof due to each of them from such
Obligor. Any such appropriation shall override any
appropriation made by any Obligor.
<PAGE> 38
12.7 Certifications
Save as otherwise provided herein, any certification or
determination of a rate or amount or other matter as
referred to herein and made by the Facility Agent or a Bank,
as the case may be, shall be prima facie evidence of the
same.
13. TAXES
13.1 Applicable Taxes
As used in this Agreement, "Applicable Taxes" means all
Taxes imposed by or in the jurisdiction in which the
relevant Obligor is resident or any other country through or
out of which the relevant payment is made or by any
federation or organisation of which that country may be a
member or by or through any taxation authority of that
country, federation or organisation on any payment by any
Obligor or any Finance Party to any Finance Party, under any
Finance Document, other than Taxes imposed on that payment
which would not have been imposed on that payment if the
Finance Party to which or for whose account that payment was
made was a Recognised Bank.
13.2 No Set-Off or Deductions
All payments to be made by any Obligor under any of the
Finance Documents shall be made:-
(a) without set-off or counterclaim; and
(b) free and clear of all and without deduction for or on
account of any Applicable Taxes, except to the extent
that such Obligor is compelled by law to make payment
subject to the Applicable Taxes.
13.3 Gross-up
If any Applicable Taxes or amounts in respect thereof must
be deducted from any payment by an Obligor under any Finance
Document or any other deductions must be made from any
amounts paid by any Obligor (or from any corresponding
payment by any Finance Party to any other Finance Party
under or pursuant to the terms of any Finance Document), or
any such payment shall otherwise be required to be made
subject to any Applicable Tax, such Obligor shall pay such
additional amounts as may be necessary to ensure that each
Finance Party receives a net amount after deduction for and
payment of all Applicable Taxes equal to the full amount
which it would have received had payment not been made
subject to the Applicable Tax. All Applicable Taxes
required to be deducted from any payment by any Obligor
under any Finance Document shall be deducted and paid when
due by such Obligor to the applicable Tax authorities. Each
Finance Party shall notify each Obligor through the Facility
Agent of the application of this Clause 13.3 to any payment
then due or to become due to it under any Finance Document
promptly upon its becoming aware of the same.
13.4 Tax Receipts
As soon as reasonably practicable after each payment by any
Obligor of any Applicable Tax (or any Tax which would be an
Applicable Tax save for the exceptions contained in
Clauses 13.1(a) or (b)) on any payment by it under any
Finance Document, such Obligor shall deliver to the Facility
<PAGE> 39
Agent for the relevant payee Finance Party or other party to
this Agreement evidence reasonably satisfactory to the payee
(including copies of relevant Tax receipts received by such
Obligor, which such Obligor shall use its reasonable
endeavours to obtain) that the relevant Tax has been duly
remitted to the appropriate authority.
13.5 Tax Saving
(a) In the event that, following the imposition of any
Applicable Tax on any payment by any Obligor (or any
corresponding payment by any Finance Party to any other
Finance Party under this Agreement) in consequence of which
such Obligor is required under Clause 13.3 to pay such
Applicable Tax or to pay any additional amount in respect of
it, any Finance Party shall in its sole opinion and based on
its own interpretation of any relevant laws or regulations
(but acting in good faith) receive or be granted a credit
against or remission for or deduction from or in respect of
any Applicable Tax payable by it, or shall obtain any other
relief in respect of Applicable Tax on its profits or
income, which in such Finance Party's opinion in good faith
is both reasonably identifiable and quantifiable by it
without requiring such Finance Party or its professional
advisers to expend a material amount of time or incur a
material cost in so identifying or quantifying (any of the
foregoing, to the extent so reasonably identifiable and
quantifiable, being referred to as a "saving"), such Finance
Party shall, to the extent that it can do so without
prejudice to the retention of the relevant saving and
subject to such Obligor's obligation to repay the amount to
such Finance Party if the relevant saving is subsequently
disallowed or cancelled (which repayment shall be made
promptly on receipt of notice by such Finance Party of such
disallowance or cancellation), reimburse such Obligor
promptly after receipt of such saving by such Finance Party
with such amount as such Finance Party shall in its sole
opinion but in good faith have concluded to be the amount or
value of the relevant saving.
(b) Nothing contained in this Agreement shall interfere with the
right of any Finance Party to arrange its Tax and other
affairs in whatever manner it thinks fit and, in particular,
no Finance Party shall be under any obligation to claim
relief from Tax on its corporate profits, or from any
similar Tax liability, in respect of the Applicable Tax, or
to claim relief in priority to any other claims, reliefs,
credits or deductions available to it or to disclose details
of its Tax affairs. No Finance Party shall be required to
disclose any confidential information relating to the
organisation of its affairs.
(c) Each Finance Party will notify the relevant Obligor promptly
of the receipt by such Finance Party of any saving and of
such Finance Party's opinion as to the amount or value of
that saving.
13.6 Right to Prepay
In the event that any such Applicable Tax is required to be
deducted from any payment to be made by any Borrower to any
Finance Party under this Agreement (or on any corresponding
payment by the Finance Party to any other Finance Party
under this Agreement) and, in consequence, any Borrower is
or would be obliged under Clause 13.3 to pay any additional
amounts to such Finance Party in respect of the Applicable
Tax, such Borrower may prepay the whole (but not part) of
the then outstanding amount of such Finance Party's
participation in the Utilisations made by it, together with
all interest and other charges accrued on those
participations and all other amounts payable to such Finance
Party under the Finance Documents, on giving not less than
<PAGE> 40
ten Business Days' prior written notice to such Finance
Party (through the Facility Agent).
13.7 Recognised Bank
Each Finance Party confirms to the Company that it is a
Recognised Bank and agrees to notify the Company promptly if
it becomes aware that (a) it is no longer a Recognised Bank,
or (b) Clause 13.3 may for any other reason apply in respect
of payments made to it or to the Facility Agent for its
account.
14. MARKET DISRUPTION
14.1 Disruption events
If, in relation to any Advance or proposed Advance and any
(or the) Interest Period relative thereto:-
(a) no (or where there is more than one Reference Bank,
only one) Reference Bank supplies an interest rate to
the Facility Agent as required by the definition of
LIBOR after the Facility Agent has requested such a
rate from the Reference Banks; or
(b) the Facility Agent shall have received notification
from a Bank or Banks whose participations in such
Advance constitute at least fifty per cent. (50%) by
value of such Advance that by reason of circumstances
affecting the London Interbank Market:
(i) deposits in Sterling for the same period as such
Interest Period will not be readily available to
them in the London Interbank Market in sufficient
amounts in the ordinary course of business to fund
their respective participations in such Advance
for such Interest Period; or
(ii) whilst such deposits are so available, the cost of
such deposits exceeds LIBOR as determined in
relation to such Advance for such Interest Period,
the Facility Agent shall promptly give written notice of
such determination or notification to the relevant Borrower,
the Company (if different) and each of the Banks.
14.2 Effect
The giving of any notice by the Facility Agent pursuant to
Clause 14.1(a) or 14.1(b) shall not relieve any Bank of any
obligation it may have under this Agreement to advance, on
the relative Utilisation Date, its participation in any
Advance (including any Advance for which a Request was given
prior to such notice by the Facility Agent).
14.3 Negotiation and Substitute Basis
During the period of 15 days after the giving of any notice
by the Facility Agent pursuant to Clause 14.1, the Facility
Agent (in consultation with the Banks) shall negotiate with
the relevant Borrower and the Company in good faith with a
view to ascertaining whether a substitute basis (a
"Substitute Basis") may be agreed for the making of further
Advances and/or the maintaining of any existing Advances to
which such notice by the Facility Agent related for the
current Interest Period relative to those Advances. If a
Substitute Basis is agreed by all the Banks, the relevant
<PAGE> 41
Borrower and the Company it shall apply in accordance with
its terms from the commencement of such Interest Period.
The Facility Agent shall not agree any Substitute Basis on
behalf of any Bank without the prior consent of that Bank.
14.4 Cost of Funds
If a Substitute Basis is not so agreed by the relevant
Borrower, the Company and all the Banks by the end of the
15 day period, each Bank's participation in each then
existing Advance to which the notice by the Facility Agent
related shall bear interest during the current Interest
Period relative thereto at the rate certified by such Bank
to be its cost of funds (from such sources as it may
reasonably select out of those sources then available to it)
for such Interest Period in relation to such Advance, plus
the applicable Margin.
14.5 Right to Prepay
Where Clause 14.4 applies the relevant Borrower, upon giving
not less than five Business Days' prior written notice
(through the Facility Agent) to any Bank , may prepay the
whole (but not part) of the participation of that Bank in
all (but not some only of) the existing Advances to which
the notice by the Facility Agent related and, if so
specified in the notice, in all (but not some only of) the
other outstanding Utilisations of that Borrower, together
with all interest accrued on those Advances and all other
amounts payable under this Agreement in connection with the
Utilisations prepaid.
14.6 Review of Substitute Basis
So long as any Substitute Basis is in force or Clause 14.4
shall apply in relation to any Advance, the Facility Agent,
in consultation with the relevant Borrower, the Company and
each Reference Bank shall from time to time, but not less
often than monthly, review whether or not the circumstances
referred to in Clause 14.1 still prevail with a view to
returning to the normal interest provisions of this
Agreement.
14.7 Bills
(a) If, in relation to any Bills:
(i) the Facility Agent determines that adequate and fair
means do not exist for ascertaining the applicable
EBDR; or
(ii) the Facility Agent determines that the Bills do not
comply with the then current Bank of England
regulations for Sterling bankers' acceptances (save in
consequence of the Bank on which they are drawn not
being a bank whose acceptances are eligible for
discounting at the Bank of England according to the
Bank of England's eligibility criteria in force at the
date hereof),
the Agent shall promptly notify the relevant Borrower and
each of the Banks of that fact and that this Clause 14.7 is
in operation.
(b) After any notification under paragraph (a) above:
(i) the relevant Bills shall not be accepted;
<PAGE> 42
(ii) in the case of sub-paragraph (a)(i) above, no further
Requests for Utilisations by way of Bills may be
delivered until the Facility Agent notifies the Company
that it is once again able to determine EBDR; and
(iii) any Request given by or on behalf of any Borrower
pursuant to clause 6.1 prior to such notification for
Bills not yet accepted shall be treated as if it were
instead a request for an Advance made pursuant to
clause 5.1 specifying an Interest Period of one month
(provided that period does not extend beyond the
Tranche 3 Availability Period) of an amount equal to
the principal amount of the requested Bills, provided
that for the purposes of Clause 11.1 (Interest Rate),
if necessary, LIBOR may be determined by the Facility
Agent at or about 1.00 p.m. on the applicable
Utilisation Date.
15. INCREASED COSTS
15.1 Increased Costs
Subject to Clause 15.3, if the result of:-
(a) any change after the date hereof in or the introduction
after the date hereof of, or any change after the date
hereof in the interpretation, administration or
application by any competent court, authority or
organisation in the relevant jurisdiction of, any law,
regulation or treaty or in or of any official directive
or official request from, or the rules of, any
governmental, fiscal, monetary or regulatory (including
self-regulatory) authority, organisation or agency
(whether or not having the force of law but, if not
having the force of law, being a regulation, treaty,
official directive, official request or rule which it
is the practice of banks in the relevant jurisdiction
to comply with) after the date hereof which affects
banks or financial institutions of the same type as any
Finance Party in that jurisdiction; or
(b) compliance by any Finance Party (or any Holding Company
of such Finance Party) with any such change or
introduction;
including, in each case without limitation, those relating
to Taxation, reserves, special deposit, cash ratio,
liquidity or capital adequacy requirements or other forms of
banking, fiscal, monetary or regulatory controls, is that:-
(i) any Finance Party (or any Holding Company of such
Finance Party) incurs an increased cost as a result of
its (or such Finance Party's) having entered into,
and/or performing and/or maintaining and/or funding its
(or such Finance Party's) obligations under, any
Finance Document; or
(ii) any Finance Party (or any Holding Company of such
Finance Party) incurs an increased cost in making,
funding or maintaining all or any advances comprised in
a class of advances or acceptances formed by or
including its (or such Finance Party's) participation
in some or all of the Utilisations made or to be made
under this Agreement; or
(iii) any amount receivable by any Finance Party under
any Finance Document is reduced (save to the extent
matched by a reduction in the cost of providing the
Facilities) or the effective rate of return to any
<PAGE> 43
Finance Party (or any Holding Company of such Finance
Party) under any Finance Document or on its (or such
Holding Company's) capital employed for the purposes of
this Agreement is reduced; or
(iv) any Bank (or any Holding Company of such Finance Party)
makes any payment or forgoes any interest or other
return on or calculated by reference to any amount
received or receivable by it (or by such Bank) from any
Obligor or the Facility Agent or the Security Agent or
any other Bank under any Finance Document;
and such increased cost (or the relevant proportion
thereof), reduction, payment, forgone interest or other
return is not compensated for by any other provision of this
Agreement (including, without limitation, by any Additional
Cost payable pursuant to Clause 11.1(c)), then and in each
such case:-
(A) such Finance Party shall notify the Company through the
Facility Agent in writing of that event promptly upon
its becoming aware of the event including, in
reasonable detail, particulars of the event;
(B) subject as provided below and to Clause 2.4(a), within
five Business Days after receipt by any Borrower
(directly or through the Company) of a written demand
from time to time by such Finance Party through the
Facility Agent accompanied by a certificate of such
Finance Party specifying the amount of compensation
claimed and setting out the calculation of the amount
in reasonable detail, such Borrower shall pay to the
Facility Agent for the account of such Finance Party
(or, as the case may be, Holding Company of such
Finance Party) such amount as shall compensate such
Finance Party (or such Holding Company) for such
increased cost (or, in the case of (i) or (ii) above,
the portion of such increased cost as is attributable
to its making, funding or maintaining Advances and/or
accepting and paying Bills or maintaining its
obligation, if any, to participate in Utilisations
under this Agreement), reduction, payment or forgone
interest or other return. Nothing in this Clause shall
oblige any Finance Party (or any Holding Company of
such Finance Party) or the Facility Agent or the
Security Agent to disclose any confidential information
relating to the organisation of its affairs.
Notwithstanding the foregoing, any claim by any Bank
pursuant to this Clause 15.1 in respect of any period
more than 90 days before such Bank gave notice pursuant
to paragraph (A) above of the relevant event shall be
disallowed.
15.2 Right to Prepay
Where Clause 15.1 applies the relevant Borrower, upon giving
not less than five Business Days' notice to that Finance
Party (being a Bank) may prepay the whole (but not part
only) of that Finance Party's participation in all (and not
some only of) the outstanding Advances and Bills made or
issued to or for the account of that Borrower, together with
all interest and other charges on or in respect thereof, and
all other amounts payable by it under the Finance Documents
to such Finance Party, provided always that any such notice
by such Borrower is given whilst circumstances exist
entitling such Finance Party to claim compensation under
this Clause 15.
<PAGE> 44
15.3 Exceptions
Clause 15.1 shall not apply so as to oblige the Company or
any other Borrower to compensate any Finance Party for
Applicable Taxes (to the extent that the provisions of
Clause 13.3 fully and effectively compensate therefor) or
for any Taxes which would have been Applicable Taxes save
only for any failure by the relevant Finance Party to
satisfy the exception to Clause 13.1 or for any increased
cost, reduction, payment or forgone interest or other
return:-
(a) resulting from any change in or the introduction of, or
any change in the interpretation or application of, any
law, regulation, treaty, directive, request or rules
relating to, or any change in the rate of, Taxation on
the overall net income of such Bank imposed in the
jurisdiction in which such Finance Party's principal
office for the time being is situate or on the overall
net income of such Finance Party's Facility Office
imposed in the jurisdiction in which that office is
situate; or
(b) resulting from the implementation by the applicable
authorities having jurisdiction over such Finance Party
and/or its Facility Office of the matters set out in
the statement of the Basle Committee on Banking
Regulation and Supervisory Practices dated July, 1988
and entitled "International Convergence of Capital
Measurement and Capital Standards", to the extent, at
the rates and according to the timetable provided for
therein; or
(c) attributable to such Finance Party after the date of
this Agreement entering into a commitment to lend to a
third party which is, at the time that commitment is
entered into, in breach of any law, regulation, treaty,
directive, request or rule relating thereto as
aforesaid.
16. ILLEGALITY
If any change after the date hereof in or the introduction
after the date hereof of any law, regulation, treaty or
(whether or not having the force of law but, if not having
the force of law, being one with which it is the practice of
banks in the relevant jurisdiction to comply) official
directive or rule of any governmental, fiscal, monetary or
regulatory (including self regulatory) authority,
organisation or agency, having jurisdiction (together
"Laws"), or any change after the date hereof in the
interpretation, administration or application of Laws by a
competent court or the relevant authority, organisation or
agency or compliance by any Finance Party with any such
change or introduction of Laws or change in interpretation,
administration or application of Laws, shall make it (or
make it apparent that it is) unlawful or a breach of Laws
for any Finance Party to make available or fund or maintain
the Utilisations or any part of the Utilisations under this
Agreement or to give effect to its obligations and exercise
its rights as contemplated by this Agreement, that Finance
Party may, by notice to the Obligors' Agent through the
Facility Agent, declare that to the extent necessary to
avoid any such illegality or breach of Laws its obligations
to the Company and the other Borrowers under the Finance
Documents shall be terminated forthwith or, if later, on the
latest date to which the obligations may remain in effect
without causing the Finance Party to be in breach of Laws,
whereupon:-
(a) Prepay: each Borrower will forthwith, or by such later
date as shall be immediately prior to the illegality or
breach in question taking effect, prepay such part of
such Finance Party's participation in the Utilisations
made by such Borrower together with all interest and
other charges accrued thereon to the date of the
prepayment and all other amounts payable to such
<PAGE> 45
Finance Party under the Finance Documents as shall be
necessary to avoid any such illegality or breach by
such Finance Party of any Laws; and
(b) Commitments: to the extent necessary to avoid any such
illegality or breach of Laws such Finance Party's
Commitments shall be cancelled and reduced to nil.
17. MITIGATION
17.1 Mitigation
If circumstances arise in respect of any Finance Party which
would, or upon the giving of notice would, result in the
operation of Clause 13, 14, 15 or 16 to the detriment of any
Borrower:-
(a) such Finance Party shall promptly upon becoming aware
of the same notify the Company and, upon the written
request of such Borrower, shall enter into discussions
with the Company and such Borrower with a view to
determining what mitigating action might be taken by
such Finance Party, including discussion of the
possibility of a change in its Facility Office or
transfer of its participation in the Facilities and its
Commitments to another bank; and
(b) at the request of the Company, the Facility Agent will
enter into discussions with the Company with a view to
determining what mitigating action might be taken by
the Facility Agent with respect to the administration
of this Agreement by the Facility Agent;
Without limiting or reducing the obligations of the Obligors
(or any of them) under Clauses 13, 14, 15 or 16, the
relevant Finance Party, shall upon the written request of
the Company take such reasonable steps as may be practical
and open to it to mitigate or remove the effects of such
circumstances including, without limitation, a change in its
Facility Office or transfer of its participation in the
Facilities and its Commitments to another bank (or
termination of its Commitments and prepayment of its
participation in the Utilisations coupled with the
assumption by another bank of a like participation and
Commitment) reasonably acceptable to or nominated by the
relevant Borrower and the Company or the restructuring of
its participation in this Agreement in a manner which will
avoid the circumstances in question and on terms acceptable
to the Facility Agent, such Finance Party and the relevant
Borrower and the Company, provided that nothing in this
Clause shall oblige any Finance Party or the Facility Agent
to take any such step if, in the opinion of such Finance
Party or the Facility Agent (such opinion being conclusive),
as the case may be, any such step might reasonably be
expected to have an adverse effect upon its business,
operations or financial condition or the management of its
Tax affairs or its return in relation to its participation
in the Utilisations or cause it to incur any material costs
or expenses.
17.2 Costs and Expenses
Any costs and expenses reasonably incurred by any Finance
Party pursuant to this Clause 17 shall be paid by the
relevant Borrowers within five Business Days after receipt
of a written demand specifying the same in reasonable
detail.
<PAGE> 46
18. GUARANTEE
18.1 Guarantee
In consideration of the Finance Parties entering into this
Agreement and/or becoming party to this Agreement pursuant
to a Substitution Certificate or otherwise and/or
participating or agreeing to participate in any Utilisation,
each Guarantor hereby irrevocably and unconditionally and
jointly and severally:-
(a) guarantees to each Finance Party, as principal obligor
and not merely as surety (or similar in any applicable
jurisdiction), prompt performance by each other Obligor
of all its payment obligations under the Finance
Documents and the payment of all sums payable now or in
the future to such Finance Party by each other Obligor
under or in connection with the Finance Documents when
and as the same shall become due;
(b) undertakes with each Finance Party that, if and
whenever any other Obligor does not pay any amount when
due from it under or in connection with any Finance
Document, such Guarantor will on demand pay such amount
as if such Guarantor instead of such other Obligor were
expressed to be the primary obligor, together with
interest on that sum at the rate per annum from time to
time payable by that other Obligor on that sum from the
date when that sum becomes payable by such Guarantor
under this Agreement until payment of that sum in full;
and
(c) indemnifies each Finance Party on demand against any
loss or liability suffered by it under any Finance
Document as a result of any obligation guaranteed by
such Guarantor being or becoming unenforceable, invalid
or illegal.
18.2 Continuing Guarantee
This guarantee is a continuing guarantee and shall extend to
the ultimate balance of all sums payable by the Obligors or
any of them under the Finance Documents.
18.3 Reinstatement
Where any discharge (whether in respect of the obligations
of any Obligor, any security for such obligations or
otherwise) is made in whole or in part or any arrangement is
made on the faith of any payment, security or other
disposition which is avoided or must be repaid on
insolvency, administration, liquidation or otherwise without
limitation, the liability of each Guarantor under this
guarantee shall continue as if there had been no such
discharge or arrangement. Each Finance Party shall be
entitled to concede or compromise any claim that any such
payment, security or other disposition is liable to
avoidance or repayment.
18.4 Waiver of Defences
Except to the extent that such Guarantor is specifically
released in writing or its obligations are specifically
waived in a Waiver Letter, the obligations of each Guarantor
under this Agreement shall not be affected by any
circumstance, act, omission, matter or thing which but for
this provision might operate to release or otherwise
exonerate such Guarantor from its obligations hereunder in
whole or in part, including without limitation and whether
or not known to any Obligor or any Finance Party:-
<PAGE> 47
(a) any time, indulgence or waiver granted to or
composition with any other Obligor or any other person;
or
(b) the taking, variation, compromise, exchange, renewal or
release of, or refusal or neglect to perfect or take up
or enforce any rights or remedies against any security
or any other Obligor or any other person or any non-
presentment or non-observance of any formality or other
requirements in respect of any instruments or any
failure to obtain the full value of any security; or
(c) any legal limitation, disability, incapacity, lack of
power, authority or legal personality of, or
dissolution or change in the members or status of, or
other circumstance relating to any other Obligor or any
other person; or
(d) any variation (however fundamental and whether or not
involving any increase in the liability of any other
Obligor thereunder) or replacement of any Finance
Document or any other document or security (including
without limitation any Substitute Basis agreed pursuant
to Clause 14 and any agreement contemplated by this
Agreement) so that references to such Finance Document
or other document or security in this guarantee shall
include each such variation or replacement; or
(e) any unenforceability, illegality, invalidity or
frustration of any obligations of any other Obligor or
any other person under any Finance Document or any
other document or security, or any failure of any other
Obligor or proposed Additional Obligor to become bound
by the terms of any other Finance Document, in each
case whether through any want of power or authority or
otherwise; or
(f) any postponement, discharge, reduction, non-provability
or other similar circumstance affecting any obligation
of any other Obligor under a Finance Document resulting
from any insolvency, liquidation or dissolution
proceedings or from any law, regulation or order,
to the intent that such Guarantor's obligations under this
Agreement shall remain in full force and this guarantee be
construed accordingly as if there were no such circumstance,
act, omission, matter or thing.
18.5 Immediate Recourse
Each Guarantor waives any right it may have of first
requiring any Finance Party to proceed against or enforce
any other rights or security of or claim payment from or
file any proof or claim in any insolvency, administration,
winding up, bankruptcy or liquidation proceedings relating
to, any other Obligor or any other person before claiming
from such Guarantor under this Agreement.
18.6 Preservation of Rights
Until all amounts which may be or become payable by any and
all Obligors under or in connection with the Finance
Documents have been irrevocably paid and discharged in full
(whether by any Borrower or Guarantor or otherwise), after a
claim has been made pursuant to this guarantee each Finance
Party may:-
<PAGE> 48
(a) refrain from applying or enforcing any other security,
monies or rights held or received by such Finance
Party, as the case may be, in respect of (or capable of
being applied in respect of) such amounts or apply and
enforce the same in such manner and order as such
Finance Party sees fit (whether against such amounts or
otherwise) and no Guarantor shall be entitled to the
benefit of the same; and
(b) hold in a suspense account (with liability to pay
interest on the monies held therein at the rate payable
to its corporate customers for deposits in the same
currency on like terms and in like amounts) any monies
received from any Guarantor or on account of any
Guarantor's liability under this Agreement.
18.7 Non-competition
Until all amounts which may be or become payable by any and
all Obligors under or in connection with the Finance
Documents have been irrevocably paid in full (whether by any
Borrower or Guarantor or otherwise), no Guarantor shall,
after a claim has been made on it pursuant to this
guarantee:-
(a) be subrogated to any rights, security or monies held,
received or receivable by any Finance Party or be
entitled to any right of contribution or indemnity in
respect of any payment made or monies received on
account of any Obligor's liability under any Finance
Document and, to the extent that any Guarantor is so
subrogated or entitled by law, such Guarantor hereby
(to the fullest extent permitted by law) waives and
agrees not to exercise those rights or security or that
right of contribution or indemnity;
(b) be entitled or claim to rank as a creditor in the
insolvency, administration, winding-up, bankruptcy or
liquidation of any Obligor in competition with any
Finance Party unless otherwise required by the Facility
Agent or by law (in which case the proceeds, if any, of
any claim in respect of any rights, security or monies
of any Finance Party to which such Guarantor was
subrogated, filed by such Guarantor with a receiver or
other similar official, will be paid by such Guarantor
to the Facility Agent to be applied in accordance with
the provisions of the Finance Documents); or
(c) be entitled to receive, claim or have the benefit of
any payment, distribution or security from or on
account of any Obligor or exercise any right of set-off
as against any Obligor (and, without prejudice to the
foregoing, each Guarantor shall forthwith pay to the
Facility Agent for the Finance Parties an amount equal
to any such set-off in fact exercised by it and
forthwith pay or transfer, as the case may be, to the
Finance Parties any such payment or distribution or
benefit of security in fact received by it).
18.8 Additional Security
This guarantee shall be in addition to and shall not in any
way be prejudiced by any other security (including, without
limitation, the Security Documents) now or hereafter held by
any Finance Party as security for or capable of being
applied against the obligations of any Obligor.
18.9 Certificate
A certificate of the Facility Agent as to any amount due
from any Borrower under this Agreement shall, in the absence
of manifest error, be prima facie evidence of such amount as
against each Guarantor.
<PAGE> 49
19. ADDITIONAL BORROWERS
(a) If any Subsidiary of the Company wishes to become a Borrower
under this Agreement it and the Company shall each so notify
the Facility Agent (which shall in turn notify the Banks and
the Security Agent).
(b) If all the Banks confirm to the Facility Agent in writing
that they are in principle prepared to accept that
Subsidiary (and the Banks hereby so confirm with respect to
the Target once the Offer has become or been declared
unconditional in all respects and the Target has become a
Subsidiary of the Company) as a Borrower hereunder (subject
to such limitations as they may advise in the case of any
Subsidiary other than the Target), the Facility Agent shall
so notify the Banks and shall prepare and deliver to the
Company an Accession Agreement (appropriately completed and
subject to such limitations as are imposed).
(c) Upon receipt by the Facility Agent of the Accession
Agreement, signed on behalf of the Company for itself and
the existing Obligors, and by the proposed Additional
Borrower, the Facility Agent shall execute the same for
itself and on behalf of the Finance Parties and the Banks
and shall as promptly as practicable give notice of such
execution to all of the parties to the Accession Agreement.
Upon execution of such Accession Agreement as aforesaid, it
shall take effect in accordance with, but subject to, the
terms hereof and thereof.
20. REPRESENTATIONS AND WARRANTIES
20.1 Representations and Warranties
Each Obligor (or in the case of Clause 20.1(l), the Company
and Bidco only) represents and warrants to each of the
Finance Parties that:-
(a) Status: It is (and each of its Principal Subsidiaries
is) a company, duly incorporated and validly existing
under the laws of the place of its incorporation and
has the power to own its property and assets and carry
on its business as it is now being and will be
conducted. No Event of Default falling within any of
paragraphs (f) to (l) inclusive of Clause 23.1 has
occurred with respect to it or any of its Principal
Subsidiaries or any of its (or their) assets.
(b) Powers and authority: It has the power to enter into
and perform the Finance Documents and any other
Transaction Documents to which it is a party and the
transactions to be implemented pursuant thereto and has
taken all necessary action to authorise the entry into
and performance of those documents and transactions.
(c) Legal validity: Subject to the Reservations, this
Agreement constitutes, and any and each other
Transaction Document to which it is or will become a
party (when executed by it or on its behalf) will
constitute, its legal, valid and binding obligations
and (without limiting the generality of the foregoing)
any Security Document to which it is a party creates
the security interests which that Security Document
purports to create or, as the case may be, accurately
evidences a security interest which has been validly
created (except that no warranty is given as to whether
any such security interest is fixed or floating). To
the best of its knowledge and belief after reasonable
enquiry all such Transaction Documents (other than the
Finance Documents) have been duly authorised and
approved by the other parties thereto and constitute,
subject to the Reservations, the legal, valid and
binding obligations of those parties.
<PAGE> 50
(d) Non-conflict: The entry into and performance by it of
this Agreement and any and each other Transaction
Document to which it is a party and the transactions to
be implemented pursuant to those documents do not and
will not conflict with:
(i) any law or regulation or any official or judicial
order applicable to it or any Licence or any
Licence Undertaking,
(ii) its memorandum or articles of association,
statutes, by-laws or other constitutional or
governing documents or any of its resolutions
(having current effect), or
(iii) any agreement or instrument to which it or
any Subsidiary of it is a party or which is
binding upon any of them or on its assets or those
of any such Subsidiary in such a manner or to such
an extent as to have a Material Adverse Effect or
in a manner or to an extent which is reasonably
likely to result in any material liability on the
part of any of the Finance Parties to any third
party by reason of any such conflict, nor will it
result in the creation or imposition of any
Encumbrance on any of its assets or those of any
Principal Subsidiary (save, in the case of the
Company and Bidco, for any Encumbrance created
pursuant to the Security Documents).
(e) No Default: (i) No Event of Default has occurred and
is continuing which has not been waived, and (ii) no
event has occurred and is continuing which has not been
waived and which constitutes or which, with the giving
of notice, expiry of any cure period, determination of
materiality or satisfaction of any other condition in
each case provided for in any such agreement or
document (other than the mere occurrence of such
event), is reasonably likely to constitute a default
under or in respect of any other agreement or document
to which it or any Subsidiary of it is a party in such
a manner or to such an extent as to have a Material
Adverse Effect.
(f) Consents: Any and all authorisations, approvals,
consents, licences, exemptions, filings, registrations
and other matters required on the part of any Obligor
or the Target pursuant to any law or the terms of the
Licence or any Licence Undertaking for or in
consequence of (i) the Offer, and/or (ii) the entry
into and performance by it of and/or the validity of
any of the Finance Documents and the Transaction
Documents to which it is a party or the transactions to
be implemented pursuant thereto and/or (iii) the
continued carrying on of the business of the Target and
the Group in the ordinary course, have been obtained or
effected or will be obtained or effected prior to the
date required by law to the extent that failure to do
so would have a Material Adverse Effect, save (in the
case of (ii)) for the filing in the United Kingdom of
the prescribed particulars of the Security Documents
pursuant to Section 395 of the Companies Act 1985 (as
amended), the registration of the transfers of the
shares which are the subject of mortgages and other
Encumbrances created by the Security Documents and
other filings and registrations necessary in connection
with the enforcement of the Security Documents.
(g) Accounts:
(i) Its Accounts most recently delivered to the
Facility Agent under Clause 21.2(a) have been
prepared, save as disclosed in notes to or
accompanying those Accounts, in accordance with
<PAGE> 51
the provisions of Clause 21.2(d) and (in the case
of audited annual Accounts) present a true and
fair view of or (in the case of unaudited
Accounts) fairly present its and (if consolidated
Accounts) its Subsidiaries' financial position as
at the Accounting Date to which the same were
prepared and/or (as appropriate) the results of
operations and (in the case of annual Accounts)
changes in financial position during the
Accounting Period ending on the relevant
Accounting Date, subject, in the case of quarterly
and monthly Accounts, to normal year end
adjustments and to the lack of notes thereto.
(ii) Each of the information, reports and documents
delivered to the Facility Agent under Clause
21.2(b) was true and accurate in all material
respects as of the date thereof and did not omit
any material information required to be included
therein.
(h) Litigation: No litigation, arbitration or
administrative or regulatory proceedings or
investigations for which process or initiation claims
have been served on it or any of its Subsidiaries and,
to its knowledge, no litigation, arbitration,
administrative or regulatory proceedings involving it
or any of its Subsidiaries are pending or threatened,
which are reasonably likely to be determined adversely
to it or to such Subsidiary, and which, if so adversely
determined, would have a Material Adverse Effect.
(i) Tax liabilities: No claims are being or are reasonably
likely to be asserted against it or any of its
Subsidiaries with respect to Taxes which are reasonably
likely to be determined adversely to it or to such
Subsidiary and which, if so adversely determined, would
have a Material Adverse Effect. It and each of its
Subsidiaries is not materially overdue in the filing of
any Tax returns required to be filed and it and any of
its Subsidiaries has paid all Taxes shown to be due on
any Tax returns required to be filed by it or on any
assessments made against it (other than any being
contested in good faith by appropriate process in
respect of which adequate reserves are being
maintained) non-payment, or a claim for payment, of
which would in each such case have a Material Adverse
Effect.
(j) Encumbrances: No Encumbrance exists over its or any of
its Subsidiaries' assets which would cause a breach of
Clause 21.3(a) of this Agreement.
(k) Information Memorandum: (This representation and
warranty is given only upon issue and approval by the
Company in writing of an Information Memorandum.) All
material factual information contained in the
Information Memorandum was true (or, in the case of
information provided by any person other than the
Company or Bidco its or their advisors, was true to the
best of its knowledge and belief in all material
respects at the date (if any) ascribed thereto in the
Information Memorandum or (if none) at the date of the
relevant component of the Information Memorandum. Any
and all expressions of opinion or intention and any
forecasts and projections contained in the Information
Memorandum were arrived at after careful consideration,
were fair and were based on reasonable grounds, and the
Information Memorandum, taken as a whole, as of its
date was not misleading in any material respect and did
not omit to disclose any matter failure to disclose
which would result in any material information
contained in the Information Memorandum being
misleading in any material respect in the context of
this Agreement.
<PAGE> 52
(l) Acquired Assets: All of the Shares which are acquired
by it pursuant to the Offer will be beneficially owned
by Bidco and Bidco will be entitled forthwith (but
subject to registration in the shareholders' register
of the Target of the transfer of those Shares, which
registration will be completed as soon as reasonably
practicable) to become the legal registered owner of
such Shares free from all Encumbrances, claims and
competing interests whatsoever save as expressly
permitted or created under this Agreement and the other
Finance Documents.
(m) Ownership of assets: Save to the extent disposed of
without breaching the terms of any of the Finance
Documents, it and each of its Subsidiaries has good
title to or valid leases or licences of or is otherwise
entitled to use all material assets necessary properly
to conduct its business the absence of which would have
a Material Adverse Effect.
(n) Documents:
(i) The documents delivered to the Facility Agent by
or on behalf of any Obligor pursuant to Clause 4.1
and any other provision of the Finance Documents
were genuine and in the case of copy documents,
were true, complete and accurate copies in all
material respects, of originals which had not been
amended, varied, supplemented or superseded in any
way which would be likely to affect materially and
adversely the interests of the Banks under the
Finance Documents, save as consented to pursuant
to a Waiver Letter.
(ii) The Press Release and Offer Document and any other
documents relating to the Offer furnished to the
Facility Agent, contain all the material terms of
the Offer. The Offer Document corresponds to the
terms of the Press Release in all material
respects. The Articles of Association of the
Company, the Subscription Agreement and the
Intercreditor Agreement contain all the material
terms of the agreements and arrangements between
CSW and the Company (and between CSW and any other
member of the Group) relating to the Company.
(o) Environmental Matters:
(i) It and its Subsidiaries have obtained any and all
requisite Environmental Licences required for the
carrying on of its business as currently conducted
and have at all times complied in all material
respects with (A) the terms and conditions of such
Environmental Licences and (B) all other
applicable Environmental Law which in each case,
if not complied with, would have a Material
Adverse Effect, and there are to its knowledge no
circumstances which may prevent or interfere with
such compliance in the future;
(ii) so far as it is aware (after due enquiry) no
Dangerous Substance has been used, disposed of,
generated, stored, transported, dumped, released,
deposited, buried or emitted at, on, from or under
any site or premises (whether or not owned,
leased, occupied or controlled by any Obligor or
any of its Subsidiaries and including any offsite
waste management or disposal location utilised by
any Obligor or any such Subsidiary) in
circumstances where this would be likely to result
<PAGE> 53
in the imposition of a liability on any Obligor
which would have a Material Adverse Effect;
(iii) so far as it is aware (after due enquiry)
there is no Environmental Claim (whether in
respect of any site previously or currently owned
or occupied by any member of the Group or
otherwise) pending or threatened, and there are no
past or present acts, omissions, events or
circumstances that would be likely to form the
basis of any Environmental Claim (whether in
respect of any site previously or currently owned
or occupied by any member of the Group or
otherwise), against that Obligor which in each
case is reasonably likely to be determined against
that Obligor and which if so decided would have a
Material Adverse Effect.
(p) The Company: At the first Utilisation Date, save as
arises under the Transaction Documents and/or in
consequence of acceptances of the Offer and save also
for Offer Costs, neither the Company nor Bidco had any
material commitments or indebtedness.
(q) Licence:
(i) The Licence is in full force and effect, there
exist no material breaches of the terms of the
Licence or any Licence Undertakings and there are
no circumstances in existence which would entitle
the Director General or the Secretary of State to
seek to revoke the Licence;
(ii) There are no Licence Undertakings, other than
those copies of which have been delivered to the
Facility Agent pursuant to Clause 4.1.
20.2 Repetition
The representations and warranties set out in Clause 20.1
shall survive the execution of this Agreement and the making
of each Utilisation hereunder and shall be made on the date
hereof and be deemed to be repeated on the date of delivery
of each Request hereunder and on each Utilisation Date and
on each Interest Date, with reference to the facts and
circumstances then subsisting, as if made at each such time,
provided that:
(a) the representation and warranty set out in
Clause 20.1(k) shall be made only on the date of issue
and approval by the Company or Bidco in writing of any
Information Memorandum; and
(b) the representations and warranties set out in Clauses
20.1 (e), (h), (i), (l), (n)(ii), (p) and (q) shall not
be repeated after the first Utilisation Date.
21. UNDERTAKINGS
21.1 Duration
The undertakings in this Clause 21 shall remain in force
from and after the date of this Agreement and so long as any
amount is or may be outstanding under this Agreement or any
Commitment is in force.
21.2 Information and Accounting Standards
<PAGE> 54
(a) Accounts: The Company shall furnish or procure that there
shall be furnished to the Facility Agent in sufficient
copies for each of the Banks:
(i) as soon as practicable (and in any event within 120
days) after the end of each annual Accounting Period:
(I) the audited consolidated accounts of the Group for
such Accounting Period
(II) the audited accounts of each Principal Subsidiary
for such Accounting Period,
in each case comprising at least an audited (in the
case of the Company and Bidco, consolidated) balance
sheet and profit and loss account and cash flow
statement for such Accounting Period;
(ii) as soon as practicable (and in any event within 60
days) after the end of each quarterly Accounting Period
commencing with the first quarterly Accounting Period
to commence after the Unconditional Date (other than
the final quarterly Accounting Period in any annual
Accounting Period), the unaudited consolidated accounts
of the Group for such Accounting Period approved by the
board of directors of the Company showing at least the
detailed information necessary to determine the
Company's compliance with its obligations under Clause
22.1, and in each case comprising at least a
consolidated balance sheet, profit and loss account and
cash flow statement for such Accounting Period,
including a written report by the Chief Financial
Officer on the main operating and financial issues
arising during such Accounting Period (if any);
(iii) at the same time as the Accounts for any annual
Accounting Period are delivered (or, if not delivered,
required to be delivered) pursuant to paragraph (i)
above:
(I) a report of the Auditors (A) setting out in
reasonable detail computations establishing, as at
the date of such Accounts, whether each of the
financial ratios set out in Clause 22.1 were
complied with, and (B) stating that the Auditors
did not in the course of their audit discover any
breach of the obligations set out in Clause 22.1
or, if they did, describing the same; and
(II) a certificate signed by two Authorised Signatories
of the Company (one of whom shall be the Chief
Financial Officer), stating that as at the date of
such certificate no Default has occurred and is
then continuing which has not previously been
waived pursuant to a Waiver Letter or providing
details of any such Default and of the remedial
action proposed to be taken;
(iv) at the same time as the Accounts for any quarterly
Accounting Period are delivered (or, if not delivered,
required to be delivered) pursuant to paragraph (ii)
above a certificate, signed by two Authorised
Signatories of the Company (one of which shall be the
Chief Financial Officer):
(I) setting out in reasonable detail computations
establishing, as at the date of such Accounts,
whether each of the financial ratios set out in
Clause 22.1 was complied with; and
<PAGE> 55
(II) stating that as at the date of such certificate no
Default has occurred and is then continuing which
has not been previously waived pursuant to a
Waiver Letter or providing details of any such
Default and of the remedial action proposed to be
taken.
(v) at the same time as delivered to the Director General
pursuant to Condition 2 of Part II of any Licence held
by any member of the Group, copies of the accounting
statements delivered to the Director General pursuant
thereto.
(vi) as soon as practicable after the Unconditional Date
(and in any event no later than the date of delivery,
or, if not delivered, the last date for delivery, of
Accounts pursuant to Clause 21.2(a)(ii) for the first
full quarterly Accounting Period commencing after the
Unconditional Date) consolidated unaudited accounts of
the Company and its Subsidiaries prepared on a pro
forma basis for the three consecutive quarterly
Accounting Periods last commencing (on a pro forma
basis as described below) before the Unconditional
Date, showing at least the detailed information
necessary to determine the Company's compliance with
its obligations under Clause 22.1 and comprising at
least a consolidated balance sheet, profit and loss
account and cash flow statement for such Accounting
Periods and all prepared as if:
(A) the Unconditional Date had occurred on the first
day of the first of those three pro forma
Accounting Periods (and as if the Company had then
been in existence);
(B) all Utilisations had been made on dates falling at
the same intervals after the Unconditional Date
taken to have occurred as aforesaid as was the
case relative to the actual Unconditional Date
(but nevertheless applying the actual interest
rates determined and applicable hereunder); and
(C) any disposal of the Grid Shares by any member of
the Group (in the case of a disposal by the
Target, only if it occurs whilst the Target is a
member of the Group) and the consequent prepayment
of the Tranche 1 Advances had occurred on the
dates following the same number of days after the
Unconditional Date taken to have occurred as
aforesaid as was the case relative to the actual
Unconditional Date.
If Grid Shares are disposed of as aforesaid after
the preparation of such pro-forma accounts, the
Company shall promptly prepare and deliver revised
pro-forma accounts as aforesaid so as to include
such disposal and the consequent prepayment of the
Tranche 1 Advances in the manner described above.
(b) Notifications: The Company shall furnish or procure that
there shall be furnished to the Facility Agent in sufficient
copies for each of the Banks:-
(i) promptly, all notices, reports or other documents
despatched by the Company to its shareholders (in their
capacity as shareholders convening or concerning
shareholders meetings or to which they are entitled by
statute or under the Company's Articles of Association)
generally (or any class of them);
<PAGE> 56
(ii) promptly after becoming aware of the same being
instituted or threatened, details of any litigation,
arbitration or administrative proceedings involving it
or any of its Subsidiaries which, if adversely
determined, would have a Material Adverse Effect or
which would involve liability or potential liability or
alleged liability in excess of 10,000,000 pounds or its
equivalent in other currencies or which involves the
Director General, the Secretary of State, any Licence
held by any member of the Group or any Licence
Undertaking;
(iii) promptly, such further information regarding its
financial condition, business and assets and that of
the Group and/or any member thereof (including any
requested amplification or explanation of any item in
any Accounts, forecasts, projections or other material
provided by any Obligor hereunder) as the Facility
Agent or the Majority Banks through the Facility Agent
may reasonably request from time to time;
(iv) promptly, upon being notified of the same, details of
all transfers of shares in the share capital of any
Obligor, and details of any issue or transfer of shares
in the capital of any member of the Group made after
the date hereof to any person who is not a member of
the Group;
(v) written details of any Default forthwith upon becoming
aware of the same, and of all remedial steps being
taken and proposed to be taken in respect of that
Default;
(vi) during the period from the date of issue and approval
by the Company to the earlier of (A) the date six
months thereafter, and (B) the close of syndication of
the Facilities as determined and confirmed to the
Company by the Facility Agent, the Company will notify
the Facility Agent in reasonable detail of any matters
(whether occurring prior to or after the date of
approval and issue of the Information Memorandum) which
cause the Information Memorandum when read without
knowledge of such matters to be inaccurate or
misleading in any material respect; and
(vii) promptly upon being aware that any modifications
to the Licence are being proposed by the Director
General or the Target and/or that any Licence
Undertaking is being requested by the Director General
or the Secretary of State, reasonable details thereof,
to be updated from time to time to reflect any changes.
(c) Audit and Accounting Dates: The Company will ensure that:-
(i) the annual Accounts to be delivered to the Facility
Agent pursuant to Clause 21.2(a)(i)(I) are audited by
the Auditors;
(ii) the Company shall at all times have duly appointed
Auditors or, in the event of resignation of the
Auditors, shall appoint replacement Auditors within a
reasonable time;
(iii) each financial year and each quarterly Accounting
Period of the Group shall end on an Accounting Date;
(iv) each of its financial years and each financial year of
each Subsidiary shall end on 31st March, and no member
of the Group will change its financial year end (other
than to 31st March) without the prior written consent
of the Facility Agent.
<PAGE> 57
(d) Accounting Standards: The Company will ensure that all
Accounts shall be prepared in accordance with the Applicable
Accounting Principles and (except in the case of annual
audited Accounts provided pursuant to Clause 21.2(a)(i)(I))
in substantially the same format and with substantially the
same headings and other characterisations as in the Base
Financial Statements, or shall indicate in notes to or a
letter accompanying such Accounts any material departures
from the Applicable Accounting Principles and/or such
format, headings and characterisations..
(e) Accounts Letter: Where any Accounts have been prepared in
any respect so as to depart materially from the Applicable
Accounting Principles and/or the format, headings and
characterisations as applied and/or set out in the Base
Financial Statement, the Company shall provide or procure
that there is provided to the Facility Agent a written
explanation of such departure which the Facility Agent shall
forward to the Banks. If the Majority Banks and the Company
agree, such departure shall become part of the Applicable
Accounting Principles. If the Majority Banks and the
Company do not so agree, such departure shall not become
part of the Applicable Accounting Principles and the
Majority Banks may require that the Company furnish to the
Facility Agent for the Banks a statement that such departure
has not altered any of the numerical information required
for the purpose of establishing whether or not the Company
is in compliance with its obligations under Clause 22.1 or
(if it has) setting out the effects of such alteration in
reasonable detail.
21.3 Security Value
(a) Negative Pledge: No Obligor will, and each Obligor will
procure that no other member of the Group will, create or
permit to subsist any Encumbrance on the whole or any part
of its respective present or future business, assets or
undertaking, except for the following:-
(i) Encumbrances constituted or evidenced by the Security
Documents;
(ii) Encumbrances expressly permitted by a Waiver Letter,
provided that, except to the extent permitted by any of
the following exceptions, the principal amount of the
indebtedness secured by such Encumbrances shall not at
any time be increased beyond the amount so permitted,
save as permitted by a further Waiver Letter;
(iii) Encumbrances arising by operation of law (or by
agreement to the same effect) in the ordinary course of
business and not as a result of any default or omission
on the part of any member of the Group, including
without limitation (but subject as aforesaid) (A) any
rights of set-off with respect to demand or time
deposits with financial institutions and bankers' liens
with respect to property held by financial
institutions, save in each case where such arrangements
are deliberately established for the purpose of
affording security to the bank or financial institution
concerned and (B) Encumbrances with respect to Taxes;
(iv) Encumbrances over goods and documents of title to goods
(and related insurances) arising in the ordinary course
of letter of credit transactions entered into in the
ordinary course of trade;
(v) Encumbrances over assets (other than the Shares)
acquired by members of the Group and existing at the
date of their acquisition but not created in
contemplation of their acquisition, provided that (A)
<PAGE> 58
the principal amount secured by any such Encumbrances
shall not be increased beyond the amount secured
thereby at the date of such acquisition and (B) such
Encumbrances are released and discharged within six
months after such acquisition;
(vi) Encumbrances over credit balances on bank accounts of
members of the Group created in order to facilitate the
operation of such bank accounts and other bank accounts
of such members of the Group with the same bank on a
net balance basis with credit balances and debit
balances on the various accounts being netted off for
interest purposes;
(vii) any Encumbrance created under or in connection
with or arising out of any pooling settlement,
arrangements or agreements (including, but without
limitation, the Pooling and Settlement Agreement) of
the electricity generation, supply and distribution
industry or any transactions or arrangements entered
into in a form usual in such industry in connection
with the management of risks relating thereto;
(viii) any Encumbrance created by a Project Finance
Subsidiary over an asset and/or the income, cash flow
or other proceeds deriving from an asset owned by it
which secures only Project Finance Indebtedness of that
Project Finance Subsidiary incurred for the purpose of
financing the acquisition, development, ownership and
operation of that asset;
(ix) any Encumbrance created over (and giving the creditor
recourse only to) the shares in the capital of a
Project Finance Subsidiary securing only Project
Finance Indebtedness of that Project Finance
Subsidiary; or
(x) Encumbrances (other than over the Shares) not otherwise
permitted pursuant to paragraphs (i)-(ix) (inclusive)
above together securing indebtedness in an aggregate
principal amount not exceeding 50,000,000 pounds (or its
equivalent in other currencies).
(b) Transactions similar to security: No Obligor will, and each
Obligor will procure that no member of the Group will, save
as permitted by a Waiver Letter:
(i) sell or otherwise dispose of any of its assets on terms
where such asset may be leased to or re-acquired by any
member of the Group; or
(ii) purchase any asset on terms providing for a retention
of title by the vendor or on conditional sale terms or
on terms having a like substantive effect to any of the
foregoing, except for assets purchased in the ordinary
course of business.
(c) Disposals: No Obligor will, and each Obligor will procure
that no member of the Group will, save as permitted by a
Waiver Letter either in a single transaction or in a series
of transactions whether related or not and whether
voluntarily or involuntarily, sell, transfer, lease or
otherwise dispose of:
(i) any shares in any member of the Group except for any
disposal to the Company and the disposal of shares in a
member of the Group holding only some or all of the
businesses and assets to whose disposal the Original
Banks have consented pursuant to paragraph (ii)(H)
below;
<PAGE> 59
(ii) all or any substantial part of its respective assets or
undertaking (not being an asset referred to in
paragraph (i) above), other than:
(A) disposals of trading assets in the ordinary course
of trading on arm's length terms;
(B) disposals of assets (other than any interest in
real property) where the net proceeds of such
disposal will be applied with reasonable
promptness in or towards acquiring other assets,
in the reasonable opinion of the person effecting
the disposal, comparable or superior as to type,
value and quality;
(C) disposals of plant and equipment or other like
assets, not required for the efficient operation
of its business substantially as currently
conducted, on arm's length terms;
(D) transfers of cash in the ordinary course of its
business unless otherwise prohibited by the terms
of the Finance Documents;
(E) the disposal of investments on arm's length terms
for cash or in exchange for other such
investments;
(F) disposals of assets by a member of the Group to
the Company or another member of the Group in
which the Company owns directly or indirectly a
corresponding percentage of the ownership
interest;
(G) the disposal of Grid Shares for cash on arm's
length terms;
(H) any disposals to which the Original Banks have
consented in writing on or prior to the date
hereof; and
(I) the disposal of receivables on arm's length terms.
All disposals (save where indicated) shall be made only
for cash consideration and on arm's length terms.
If any member of the Group shall be or, as a result of
the Target becoming a member of the Group whilst owning
Grid Shares, shall become the owner of any Grid Shares,
the Company and Bidco shall procure that those Grid
Shares are sold to a person or persons who are not
members of the Group for cash consideration and on
arm's length terms by not later than the later of 31st
January, 1996 and the date 30 days after the date on
which shares in The National Grid Holding plc are first
listed on The Stock Exchange or (if no such listing has
occurred) are first able to be freely disposed of by
holders thereof.
(d) Pari passu ranking: Each Obligor undertakes that its
obligations under this Agreement rank and will at all times
rank at least pari passu in right and priority of payment
and in point of security (save by reason of and to the
extent of the security afforded thereto by the Security
Documents) with all its other present and future unsecured
and unsubordinated obligations, other than obligations
applicable generally to companies incorporated in its
jurisdiction of incorporation which have priority by
operation of law (including, without prejudice to the
<PAGE> 60
generality of the foregoing, in respect of employees'
remuneration, Taxes and like obligations).
21.4 Liabilities
(a) Borrowings:
(i) The Company will procure that the aggregate Borrowings
of the Target and its Subsidiaries taken together on a
consolidated basis (including the amount of any
Borrowings thereof permitted pursuant to Clause 21.4(b)
and (c) and giving effect to the proviso to the
definition of Borrowings in Clause 1.1) plus (to the
extent not otherwise included in Borrowings of the
Target and/or its Subsidiaries) the amount of any
actual or contingent liability of the Target and/or its
Subsidiaries (1) for Borrowings at that time of any
person in which the Target or any of its Subsidiaries
has an ownership interest, or (2) to provide funds by
loan, subscription for share capital or otherwise to
any person in which the Target or any of its
Subsidiaries has an ownership interest, will not exceed
the sum of the following:
(A) the outstanding principal amount from time to time
of any Tranche 3 Utilisations made by such
companies;
(B) the principal amount of all Borrowings of such
companies outstanding at the Unconditional Date
save to the extent refinanced by Tranche 3
Utilisations made by such companies and excluding
all Borrowings outstanding at the Unconditional
Date under the 400,000,000 pounds revolving credit
facility available to the Target under an
Agreement dated 26th July, 1995;
(C) the outstanding principal amount from time to time
of all Borrowings of such companies for which the
only creditor is the Company or Bidco;
(D) Project Finance Indebtedness of the Target and/or
its Subsidiaries outstanding from time to time;
and
(E) 50,000,000 pounds or such higher amount (if any) as
may be permitted by a Waiver Letter.
(ii) The Company will procure that the members of the Group
do not incur Borrowings of such amounts as result in
the Company failing to be in compliance with Clause
22.1.
(b) Third party guarantees: No Obligor will, and each Obligor
will procure that no other member of the Group will, incur
or permit to be outstanding, save as permitted by a Waiver
Letter, any Borrowing falling within the provisions of
paragraph (f) of the definition of that term in Clause 1.1,
other than any such Borrowing (A) arising under the Finance
Documents, or (B) arising out of the endorsement of
negotiable instruments for the purpose and in the ordinary
course of carrying on the relevant entity's trade (if and to
the extent that the same would fall within the definition of
Borrowings in Clause 1.1), or (C) arising out of guarantees
and indemnities by members of the Group in favour of a bank
to facilitate the operation of bank accounts of members of
the Group which are maintained with such bank on a net
balance basis, or (D) arising out of guarantees and
indemnities given by members of the Group (other than the
Company) in respect of Borrowings of other members of the
Group where the obligation guaranteed or indemnified is
permitted under the terms of this Agreement, or (E) any
<PAGE> 61
guarantee, indemnity or similar assurance against financial
loss given under or in connection with any pooling and
settlement arrangements or agreements (including, but
without limitation, the Pooling and Settlement Agreement) of
the electricity generation, supply and distribution industry
or in connection with any transactions or arrangements
entered into in a form usual in such industry in connection
with the management of risk relating thereto (if and to the
extent that the same would fall within the definition of
Borrowings in Clause 1.1).
(c) Treasury Transactions: No Obligor will, and each Obligor
will ensure that none of its Subsidiaries will, save as
permitted by a Waiver Letter, enter into any interest rate
swap, cap, ceiling, collar or floor or any currency swap,
futures, foreign exchange or commodity contract or option
(whether over the counter or exchange traded) or any similar
treasury transaction, other than spot foreign exchange
contracts entered into in the ordinary course of business,
and transactions for the hedging of actual or projected
interest rate, currency and/or commodity and/or electricity
price exposures arising in the ordinary course of the
trading activities of such member of the Group and for
hedging against a drop in the price of Grid Shares.
21.5 Loans out: No Obligor will, and each Obligor will procure
that no member of the Group will, be the creditor in respect
of any Borrowings, save for:-
(a) any Borrowing approved pursuant to a Waiver Letter;
(b) any Borrowing under paragraph (b) of the definition of
"Borrowing" in Clause 1.1 where trade credit is
extended by any member of the Group on normal
commercial terms and in the ordinary course of its
business on substantially the same terms (or terms more
favourable to it) and in similar circumstances as for
trade credit extended prior to the date hereof by the
Target;
(c) loans made by one member of the Group to another member
of the Group the proceeds of which are used by the
latter member of the Group in the ordinary course of
its business carried on in compliance with the terms of
this Agreement;
(d) Borrowings not otherwise permitted pursuant to
paragraphs (a) - (c) above in an aggregate amount for
the Group as a whole at any time outstanding not
exceeding 5,000,000 pounds.
21.6 Dividends, Share Capital and Subordinated Debt
(a) Dividends
The Company will not, save as permitted by a Waiver Letter,
declare, make or pay any dividend (or interest on any unpaid
dividend), charge, fee or other distribution (whether in
cash or in kind) on or in respect of its share capital (or
any class of its share capital) or distribute any dividend
or share premiums reserves or pay interest or other charges
on Subordinated Debt (together "Dividends"), provided that
the Company may pay in cash Dividends if (and only if) each
of the following conditions are met:
(i) no material Default has occurred and is continuing
which has not been waived pursuant to a Waiver Letter
at the time or would occur or be continuing immediately
<PAGE> 62
after the payment or declaration of the Dividend
(whether or not caused by such payment or declaration);
(ii) not more than 75% of the profit before tax of the Group
for any annual Accounting Period shall be distributed
by the Company by way of Dividends and/or repayment of
Subordinated Debt (aggregated together) (the "Annual
Distribution Entitlement"), provided that the Annual
Distribution Entitlement in respect of any annual
Accounting Period shall remain available (subject as
provided in this Clause 21.6(a)) for distribution until
(but not beyond) the date eighteen months after the end
of the annual Accounting Period in respect of which it
has arisen, and if not distributed by that date, shall
only be distributed with the consent of the Majority
Banks;
(iii) the ratio of Consolidated Net Total Borrowings to
the aggregate of Adjusted Capital and Reserves and
Consolidated Net Total Borrowings is, and will be
immediately after payment of the Dividends and/or
repayment of the Subordinated Debt, not more than
55:100.
(b) Certification of Payment Amounts
Where any payment of Dividends or repayment of Subordinated
Debt is proposed to be made by the Company the Company shall
prior to making such payment provide to the Facility Agent
not less than 10 Business Days before the proposed date for
payment a certificate signed by two Authorised Signatories
of the Company (one of whom shall be the Chief Financial
Officer) in a form reasonably satisfactory to the Facility
Agent showing (i) the date and amount of such proposed
payment and (ii) such calculations in reasonable detail as
are necessary to show that Clauses 21.6(a)(ii) and 22.1(a)
are and immediately after the making of such payment will be
complied with.
(c) Share Capital and Subordinated Debt
The Company will not, and (in the case of paragraph (ii)) no
Obligor will, and each Obligor will procure that no other
member of the Group will, save as permitted by a Waiver
Letter:
(i) redeem, repurchase, defease, retire, return or repay
any of its share capital or Subordinated Debt, or
resolve to do so, save, in the case of Subordinated
Debt, (A) out of the proceeds of a further issue of
share capital or Subordinated Debt permitted pursuant
to paragraph (ii) below, or (B) to the extent that such
redemption, repurchase, defeasance, retirement, return
or repayment would be permitted pursuant to Clause
21.6(a) and (b) were it to comprise instead the payment
of Dividends in the same amount; or
(ii) save (in the case of the Company) as contemplated by
the Subscription Agreement, issue any new share capital
or Subordinated Debt or grant any option to any person
to subscribe for any shares in its capital other than
(save in the case of the Company) to another member of
the Group, provided that the Company may issue (A) to
CSW and/or (provided that no Event of Default under
Clause 23.1(n) is then in existence or will result) any
other person share capital of a type substantially
similar to the shares to be issued by it to CSW
pursuant to the Subscription Agreement, which is
subscribed for in full in cash at the time of issue,
and/or (B) to CSW and/or any person who holds at least
5% of the issued share capital of the Company without
<PAGE> 63
an Event of Default under Clause 23.1(n) existing or
resulting from such ownership and is or has become
party to the Intercreditor Agreement, Subordinated Debt
which is subscribed for in full in cash.
21.7 Environmental matters
Each Obligor will and will procure that each member of the
Group will:
(a) obtain all requisite Environmental Licences and comply
in all material respects with (i) the terms and
conditions of all Environmental Licences applicable to
it and (ii) all other applicable Environmental Law in
each case where failure to do so would have a Material
Adverse Effect;
(b) promptly upon receipt of the same, notify the Facility
Agent and the Security Agent of any claim, notice or
other communication served on it in respect of any
alleged breach of or corrective or remedial obligation
or liability under any Environmental Law which would,
if substantiated, have a Material Adverse Effect.
21.8 Insurance
Each Obligor will, and will procure that each member of the
Group will, insure and keep insured all its property and
assets (including those taken on lease) of an insurable
nature and which are customarily insured (either generally
or by companies carrying on a similar business) against loss
or damage by fire and other risks normally insured against
by persons carrying on the same class of business as that
carried on by it in a similar location and in a sum or sums
and with deductibles and other terms consistent with prudent
market practice for companies carrying on a similar business
in a similar location. Each Obligor will, and will procure
that each member of the Group will, with reasonable
promptness after becoming aware of the relevant requirement
effect and maintain all insurances required by any
applicable law or by the Licence.
21.9 General Undertakings
(a) Change of business: No Obligor will, and each Obligor will
procure that no other member of the Group will, save as
permitted by a Waiver Letter, make or threaten to make any
substantial change in the nature of its respective business
as compared to that conducted at the date hereof or carry on
any other business which, in either case, results in any
material change in the nature of the business carried on by
the Group as a whole compared to that conducted at the date
hereof.
(b) Mergers: Neither the Company nor the Target nor any other
Obligor will, and each Obligor will procure that no other
member of the Group will, save as permitted by a Waiver
Letter, enter into any merger or consolidation, provided
that members of the Group other than the Company, Bidco, the
Target and any Obligor may merge or consolidate with other
such members of the Group.
(c) Holding Company: Save as permitted by a Waiver Letter,
neither the Company nor Bidco shall carry on any business
(other than the holding of shares in and the provision of
administrative services to members of the Group) or acquire
any assets other than Cash, investments which are cash
equivalents as that term is defined for the purposes of
<PAGE> 64
Financial Reporting Standard 1 "Cash Flow Statements" issued
by the Accounting Standards Board or shares which (i) in the
case of the Company, are shares in Bidco , or (ii) in the
case of Bidco are Shares, acquired in the Target by Bidco
pursuant to the Offer or are Grid Shares, or (iii) in the
case of the Company and/or Bidco are shares are in companies
which are already members of the Group, and in the case of
(i), (ii) and (iii) are or become on acquisition mortgaged,
pledged or otherwise charged to the Security Agent pursuant
to the Security Documents.
(d) Administration and winding-up orders etc.: No Obligor will,
and each Obligor will procure that no other member of the
Group will, save as permitted by a Waiver Letter, make or
join in making any application to any court for an
administration, winding-up, receivership or other similar
order to be made in relation to any member of the Group,
other than in respect of a solvent winding-up or dissolution
of a member of the Group which is not an Obligor where such
application or the granting of any such application would
not have a Material Adverse Effect.
(e) Arm's-length terms: No Obligor will, and each Obligor will
procure that no other member of the Group will, enter into
any material transaction with any person (including, without
limitation, CSW or any of its Affiliates or associated
companies) otherwise than on arms length terms, save as
permitted by a Waiver Letter, and save for (i) loans made by
one member of the Group to another member of the Group which
are permitted by Clause 21.5(c), (ii) disposals by one
member of the Group to another member of the Group permitted
by Clause 21.3(c), (iii) transactions entered into on terms
more favourable to a member of the Group than would have
been the case had the transaction been entered into on arms
length terms, and (iv) transactions (including the issue of
Subordinated Debt as and to the extent permitted hereunder)
expressly permitted by this Agreement.
(f) Amendments to documents: No Obligor will, and each Obligor
will procure that no other member of the Group, save as
permitted by a Waiver Letter, will or will agree to amend,
supplement, supersede or waive any term of the Transaction
Documents, if on or prior to the first Utilisation Date,
without the prior written consent of the Majority Banks, and
thereafter in any way which would be likely materially and
adversely to affect the interests of the Banks under the
Finance Documents.
(g) Constitutional Documents: No Obligor will, and each Obligor
will procure that no other member of the Group will, save as
permitted by a Waiver Letter or as required by law, amend or
seek or agree to amend or replace the memorandum or articles
of association or other constitutional documents or by-laws
of any member of the Group in any way which would be likely
materially and adversely to affect the interests of the
Banks under the Finance Documents, provided that if any such
undertaking would not be enforceable (having regard to the
rule in Russell v. Northern Bank Development Corporation
Limited & Ors) against any Obligor it shall not be given by
that Obligor.
(h) Compliance with laws: Each Obligor will, and will procure
that each other member of the Group will, comply in all
material respects with all applicable laws, rules,
regulations and orders of any governmental authority,
whether domestic or foreign, having jurisdiction over it or
any of its assets, failure to comply with which would have a
Material Adverse Effect.
(i) Consents: Each Obligor will, and will procure that each
other member of the Group will, obtain, promptly renew from
time to time and maintain in full force and effect, and if
so requested promptly furnish certified copies to the
Facility Agent of all such material authorisations,
<PAGE> 65
approvals, consents, licences and exemptions as may be
required under any applicable law or regulation or under the
Licence or any Licence Undertaking:
(i) to enable each Obligor to perform its respective
material obligations under the Finance Documents to
which it is a party or required for the validity or
enforceability of such Finance Documents or of any
security provided for thereby; and/or
(ii) to carry on its business as it is being conducted from
time to time where failure to obtain, renew or maintain
any such authorisation, approval, consent, licence or
exemption or non-compliance with the terms of the same
would have a Material Adverse Effect.
(j) Pension Schemes: The Company will if requested by the
Facility Agent deliver to the Facility Agent at such time as
those reports are prepared in order to comply with then
current statutory or auditing requirements actuarial reports
in relation to the pension schemes for the time being
operated by members of the Group, and will ensure that all
such pension schemes are fully funded based on reasonable
actuarial assumptions applicable in the United Kingdom.
(k) Syndication: The Company shall ensure that all members of
the Group will provide assistance to the Facility Agent and
the Arrangers in the preparation of the information
memorandum for syndication of the Facilities and comply with
all reasonable requests for information from potential
syndicate members made through the Facility Agent or the
Arrangers.
(l) Revocation or Modification of Licence: The Company and
Bidco will procure that the Target, once it has become a
Subsidiary of the Company, and any and each other Licence
holder shall comply in all respects with the terms of its
Licence and shall not consent, without the prior written
consent of the Majority Banks, to any revocation of its
Licence or to any material modification to the terms thereof
if such modification, in the reasonable opinion of the
Majority Banks, would have (whether immediately or in the
course of time prior to the Tranche 2/3 Repayment Date) a
Material Adverse Effect.
(m) Licence Undertakings: The Company and Bidco will consult
with the Original Banks with regard to the terms of any
Licence Undertaking which it or any Holding Company of it or
CSW or the Target may be required to give to the Director
General or the Secretary of State in connection with the
Offer and will not give and will procure that such Holding
Company, CSW and (once it has become a Subsidiary of Bidco)
the Target will not give any such Licence Undertaking
without the prior consent of the Majority Banks (such
consent not to be unreasonably withheld).
21.10 The Offer
(a) Each of the Company and Bidco undertakes that:
(i) without the prior agreement of the Majority Banks, (the
agreement of the Majority Banks being conclusively
evidenced by a written notice from the Facility Agent
to the Company) neither the Company (in the case of (G)
only) nor Bidco will:
(A) amend or vary any material term or condition of
the Offer;
<PAGE> 66
(B) do or permit to be done (otherwise than on the
instructions of the Panel and otherwise than
permitting the Offer to become or declaring the
Offer unconditional without any breach of this
Clause 21.10 (other than paragraph (a)(ii) and/or
(iii) and otherwise than as permitted pursuant to
Clause 21.10(b) or (c)) anything which would cause
the Panel to regard any material term or condition
of the Offer as having been waived, withdrawn or
(in the case of the Judgment Conditions (as
defined below)) satisfied;
(C) subject to paragraph (b) below, waive, withdraw or
agree or decide not to enforce any material term
or condition of the Offer;
(D) subject to paragraph (c) below, declare or accept
or treat as satisfied any Judgment Condition;
(E) declare, decide or accept any percentage below 50
per cent. plus one Share for the purposes of any
of the conditions set out in paragraph A of
Appendix 1 to the Press Release;
(F) take or permit to be taken any step as a result of
which the offer price stated in the Offer is, or
may be required to be, increased beyond the level
agreed between Bidco and the Banks from time to
time;
(G) issue any press release or other publicity which
makes reference to the Facilities or to some or
all of the Finance Parties unless the publicity is
required by law or by the Code (in which case the
Company or Bidco shall notify the Facility Agent
and the Banks thereof as soon as practicable upon
becoming aware of the requirement).
(ii) in all material respects relevant in the context of the
Offer, it will comply with the Code (subject to any
waivers granted by the Panel), the Financial Services
Act 1986, the Companies Act 1985 and all other
applicable statutes, laws and regulations.
(iii) it will keep the Facility Agent informed as to the
status of and progress with respect to the Offer and in
particular will from time to time and promptly upon
request, give to the Facility Agent for the Banks
reasonable details as to (A) the current level of
acceptances of the Offer, and (B) such other matters
relevant to the Offer as the Facility Agent may
reasonably request. The Company or Bidco will also
promptly deliver to the Facility Agent a copy of every
certificate delivered by the receiving agents to Bidco
and/or its advisers pursuant to the Code.
(b) (i) If Bidco is not aware and has not been informed by
a Finance Party in writing of a circumstance or event
which is or could reasonably be construed to be covered
by a material term or condition to the Offer which, if
not waived, would entitle Bidco (with the Panel's
consent, if needed) to lapse the Offer, Bidco, by
waiving, withdrawing or agreeing or deciding not to
enforce that term or condition shall not breach Clause
21.10(a)(i)(C), provided that in any case involving the
following conditions (as set out in Appendix 1 to the
Press Release) Bidco has first taken the action
provided for below:
<PAGE> 67
(A) in the case of conditions (D) and (E), Bidco has
made enquiry of the Director General as to the
subject matter thereof, has requested an urgent
response and has allowed a reasonable time for
that response to be given;
(B) in the case of conditions (F) and (G), Bidco has
sought and received appropriate advice from its
legal advisers to the effect that such condition
has been satisfied in all material respects in so
far as requirements under English law are
concerned;
(C) in the case of conditions (E), (F), (H), (I), (J),
(K), (L) and (M) where (but only where) the Offer
is at the relevant time recommended by the Board
of Directors of the Target, Bidco has made enquiry
of the Board of Directors of the Target as to
whether there were in existence any circumstances
or have occurred any events which would cause any
such condition not to be met, has requested an
urgent response and has allowed a reasonable time
for that response to be given;
(D) In the case of conditions (B) and (C),: no action
shall be required for the purpose of this
paragraph (b)(i).
(ii) If Bidco becomes aware (whether through notice from any
Finance Party or otherwise) of a circumstance or event
which is or could reasonably be construed to be covered
by a condition of the Offer which, if not waived, would
entitle Bidco (with the Panel's consent, if needed) to
lapse the Offer, Bidco shall notify the Facility Agent
and the following shall apply:
(A) if Bidco wishes to waive, withdraw or agree or
decide not to enforce the condition and the
Majority Banks agree, Bidco may do so;
(B) if the Majority Banks do not so agree and state
that in their opinion such circumstance or event
would materially and adversely affect the ability
of Bidco to comply with its material obligations
under the Finance Documents, Bidco will request
the Panel to agree that the Offer may lapse as a
result of non-satisfaction of that condition or of
the conditions as to acceptances (as set out in
paragraph A of Appendix 1 to the Press Release)
and that such lapsing will not give rise to a
breach of the Code. If the Panel does not so
agree, then Bidco may, without the Banks'
agreement, waive, withdraw or agree or decide not
to enforce such condition.
(c) (i) In relation to each of conditions (B) and (C) (as
set out Appendix 1 to the Press Release), Bidco shall
disclose to the Facility Agent any and all conditions
attaching to, respectively, the announcement by the UK
Office of Fair Trading (in the case of condition (B))
or the indication by the Director General (in the case
of condition (C).
(ii) In relation to condition (D) Bidco shall disclose to
the Facility Agent the terms of all undertakings and
assurances sought by the Director General as referred
to therein and proposed to be given.
(iii) In relation to conditions (H), (I), (J), (K), (L)
and (M), if Bidco becomes aware (whether through notice
from any Finance Party or otherwise) of a circumstance
or event which is or could reasonably be construed to
<PAGE> 68
be covered by such condition (ignoring for this purpose
the last sentence of paragraph (d) below) and which
could reasonably be expected materially and adversely
to affect the ability of Bidco to comply with its
material obligations under the Finance Documents, Bidco
shall notify the Facility Agent.
(iv) In relation to each Judgment Condition, Bidco shall
give advance notice to the Facility Agent of its
intention to be satisfied with respect to that Judgment
Condition, and (where paragraphs (i), (ii) or (iii)
have application in relation to such Judgment
Condition) of the reasons for such intention to be
satisfied;
(v) If, in relation to a Judgment Condition, Bidco notifies
the Facility Agent of its intention to be satisfied
with respect to that Judgment Condition, and the
Majority Banks do not promptly notify Bidco that it
should not be so satisfied on grounds that the
circumstances (which shall be specified in such notice)
in relation to that Judgment Condition are such as in
their opinion materially and adversely to affect the
ability of Bidco to comply with its material
obligations under the Finance Documents, Bidco may
declare or accept or treat as satisfied such Judgment
Condition. If the Majority Banks do so notify Bidco as
aforesaid, the Majority Banks may then request Bidco to
(and Bidco in such circumstances will) request the
Panel to agree that the Offer may lapse as a result of
non-satisfaction of that Judgment Condition or of the
conditions as to acceptances (as set out in paragraph A
of Appendix 1 to the Press Release) and that such
lapsing will not give rise to a breach of the Code. If
the Panel does not so agree, then Bidco may, without
the Banks' agreement, be and declare itself to be
satisfied as to such Judgment Condition.
(d) As used in this Clause 21.10 "Judgment Condition" means a
material term or condition of the Offer which refers to
Bidco being satisfied, or making a determination, as to any
matter. For the purposes of this Clause 21.10, each of
conditions (H), (I), (J), (K), (L) and (M) as set out
Appendix 1 to the Press Release shall be deemed to include a
requirement that Bidco be satisfied as to the existence or
non-existence (as the case may be) of circumstances or
events which would cause such condition to be met or not to
be met (as the case may be).
22. FINANCIAL RATIOS
22.1 Financial Ratios
The Company will procure that, save as agreed pursuant to a
Waiver Letter:-
(a) Adjusted Capital and Reserves to Consolidated Net Total
Borrowings:
The ratio of Consolidated Net Total Borrowings to the
aggregate of Adjusted Capital and Reserves and
Consolidated Net Total Borrowings shall not be more
than 75:100 at any time on or before the Grid Disposal
Date or 65:100 at any time after the Grid Disposal
Date; and
(b) Consolidated EBITDA to Consolidated Total Interest
Payable:
Consolidated EBITDA for any period comprising an annual
Accounting Period of the Company or four consecutive
quarterly Accounting Periods of the Company (taken
<PAGE> 69
together as one period) shall not be less than 1.65
times Consolidated Total Interest Payable for such
period in the case of any such period ending on or
before the commencement of the first quarterly
Accounting Period to commence after the Grid Disposal
Date or 2.25 times Consolidated Total Interest Payable
for such period in the case of any such period ending
on or after the expiry of the first quarterly
Accounting Period to commence after the Grid Disposal
Date.
In this Clause 22.1, "Grid Disposal Date" means
whichever is the earlier of (i) the Unconditional Date
(if on that date none of the Company, Bidco or the
Target own any Grid Shares) or (otherwise) the date on
which all Grid Shares owned by members of the Group are
sold, and (ii) (if the date in (i) above is not the
Unconditional Date) the later of 31st January, 1996 and
the date 30 days after the date on which shares in The
National Grid Holding plc are first listed on The Stock
Exchange or (if no such listing has occurred) are first
able to be freely disposed of by holders thereof.
22.2 Initial Consolidated EBITDA/Consolidated Total Interest
Payable Tests
The first test of the covenant set out in Clause 22.1(b)
shall be made in respect of a period ending on the expiry of
the quarterly Accounting Period commencing on, or (if none)
on the expiry of the first quarterly Accounting Period
commencing after, the Unconditional Date. The first three
tests of such covenant shall be made in respect of periods
which shall include such number of pro forma Accounting
Periods commencing before the Unconditional Date as shall be
required in order that each test is made for a period
comprising four quarterly Accounting Periods and on the
basis of pro forma Accounts for those pro forma Accounting
Periods delivered to the Facility Agent pursuant to Clause
21.2(a)(vi) and Accounts delivered to the Facility Agent
pursuant to Clause 21.2(a)(ii).
23. DEFAULT
23.1 Events of default
Each of the events set out below is an Event of Default
(whether or not caused by any reason outside the control of
any or all of the Obligors or of any other person):-
(a) Non-payment: any Obligor does not pay on the due date
any amount payable by it under any Finance Document at
the place, in the currency and in the funds expressed
to be payable, provided that this sub-clause shall not
apply to unpaid amounts which are paid in full within
five days of the due date; or
(b) Breach of Obligation:
(i) any Obligor fails to comply with any provision of
Clause 22 (Financial Undertakings); or
(ii) any Obligor fails to comply with any other
provision of this Agreement (irrespective of
whether or not such provision is valid and
enforceable against such Obligor) and/or any other
provision of any other Finance Document and, if
such failure is in the reasonable opinion of the
Majority Banks capable of remedy within such
period, such Obligor shall have failed to remedy
such failure within 21 days after the earlier of
<PAGE> 70
the relevant Obligor becoming aware of such
default and receipt by the relevant Obligor of
written notice from the Facility Agent to such
Obligor requiring the failure to be remedied; or
(iii) any Obligor shall do any of the things
prohibited in Clauses 21.6(a) (Dividends) or
21.6(c) (Share Capital), or any of the things
prohibited in Clause 21.9(g) (Constitutional
Documents) shall be done to or by any Obligor,
whether or not (having regarding to the rule in
Russell v. Northern Bank Development Corporation
Limited & Ors.) such undertaking is enforceable
against that Obligor, and the thing, if remediable
in the reasonable opinion of the Majority Banks,
shall not have been remedied within 21 days after
the earlier of the relevant Obligor becoming aware
thereof and receipt by the relevant Obligors of
written notice from the Facility Agent to such
Obligor requiring the thing to be remedied; or
(c) Misrepresentation/Breach of Warranty: any
representation, warranty or statement made or repeated
by or on behalf of any Obligor, in any Finance Document
or in any certificate or statement delivered by or on
behalf of any Obligor or other member of the Group
under or in connection with any Finance Document, is
incorrect or misleading in any respect which in the
reasonable opinion of the Majority Banks is material
when made or deemed to be made or repeated by reference
to the facts and circumstances then subsisting and, if
the circumstances causing such misrepresentation are in
the reasonable opinion of the Majority Banks capable of
remedy within such period, such Obligor shall have
failed to remedy such circumstances within 21 days
after the earlier of the relevant Obligor becoming
aware of such misrepresentation and receipt by the
relevant Obligor of written notice from the Facility
Agent to such Obligor requiring the circumstances
causing such misrepresentation to be remedied; or
(d) Invalidity: any of the Finance Documents shall cease to
be in full force and effect in any material respect or
shall cease to (or be alleged by any Obligor not to)
constitute the legal, valid and binding obligation of
any Obligor party to it or, in the case of any Security
Document, fail to (or be alleged by any Obligor not to)
provide effective security in favour of the Security
Agent and the Banks over the assets over which security
is intended to be given by that Security Document, in
each case in a manner and to an extent reasonably
considered by the Majority Banks to be materially
adverse to the interests of the Banks under the Finance
Documents or it shall be unlawful for any Obligor to
perform any of its material obligations under any of
the Finance Documents, provided that where the relevant
Finance Documents are re-executed in the same form in
all material respects and none of the circumstances
described in this paragraph apply in respect of those
Finance Documents as so re-executed and the interests
of the Banks under the Finance Documents are not
continuing to be materially and adversely affected as a
result of any of the foregoing circumstances having
occurred, the relevant Event of Default under this
paragraph shall be treated as having been cured; or
(e) Cross-acceleration:
(i) any Borrowings of any one or more members of the
Group (taken together if more than one)
aggregating 25,000,000 pounds (or the equivalent in
other currencies) or more at any one time
outstanding become due and payable or due for
redemption before their normal maturity date or
<PAGE> 71
are placed on demand, in each such case by reason
of the occurrence of an event of default
(howsoever characterised) or any event having the
same effect, or any such Borrowings which are
payable on demand shall be demanded other than
where the Borrowings or the demand therefor is
being contested in good faith and the Facility
Agent is reasonably satisfied that the relevant
member of the Group has available sufficient
reserves to pay such Borrowings); or
(ii) any such Borrowings aggregating 25,000,000 pounds
(or the equivalent in other currencies) or more, or
any sum or sums payable in respect of any such
Borrowings, are not paid when due (or, in the case
of demand facilities, within 3 Business Days of
their due date) (whether falling due by demand, at
scheduled maturity or otherwise) or within any
applicable grace period provided for in the
original document evidencing or constituting those
Borrowings; or
(iii) (if funds aggregating 25,000,000 pounds (or the
equivalent thereof in other currencies) are
outstanding in respect thereof) any commitment for
or underwriting of any facility for Borrowings of
any member of the Group is cancelled or suspended
by the provider of that facility by reason of the
occurrence of an event of default (howsoever
characterised); or
(iv) any Encumbrances over assets of any one or more
members of the Group (taken together if more than
one) securing an aggregate of 25,000,000 pounds (or
its equivalent in other currencies) or more become
enforceable and steps are taken to enforce the
same;
provided that if the Borrowings concerned are Project
Finance Indebtedness (and in relation to paragraph (iv)
above any such Encumbrance extends only over the shares
in or assets of a Project Finance Subsidiary securing
only Project Finance Indebtedness), the foregoing
events or circumstances shall not constitute Events of
Default; or
(f) Liquidation: any order is made or resolution passed or
any legal proceedings are initiated or are consented to
by any Obligor or any petition shall be presented or
legal proceedings commenced by any person (and not,
where that person is unconnected with that member of
the Group save for being a creditor of such member,
discharged or stayed within twenty-one days in the case
of both legal proceedings and such petition) for the
suspension of payments generally or for any process
giving protection against creditors or for the
dissolution, termination of existence, liquidation,
winding up, bankruptcy or other like process of the
Company, Bidco or any Principal Subsidiary (other than
a solvent liquidation, dissolution or winding up of a
member of the Group (not being an Obligor)); or
(g) Moratorium: a moratorium in respect of all or any debts
of the Company, Bidco or the Company, Bidco or any
Principal Subsidiary or a composition or an arrangement
with creditors generally of the Company, Bidco or any
Principal Subsidiary or any other arrangement whereby
its affairs and/or assets are submitted to the control
of or are protected from its creditors is applied for,
ordered or declared; or
(h) Administrator: an application is made for the
appointment of an administrator (as such term is used
in the Insolvency Act 1986) or similar official in
relation to the Company, Bidco or any Principal
<PAGE> 72
Subsidiary or an effective resolution is passed by the
directors or shareholders of the Company, Bidco or any
Principal Subsidiary for such an application to be made
or an administrator or administrative receiver is
appointed in respect of the Company, Bidco or any
Principal Subsidiary; or
(i) Receiver: a liquidator or provisional liquidator (save
as excepted in paragraph (f) above) or, a trustee,
receiver, administrative receiver, manager (being a
person acting on behalf of all or any creditors) or
similar officer is appointed in respect of the Company,
Bidco or any Principal Subsidiary or in respect of (or
takes possession of) all or any part of its assets with
a value in excess of 25,000,000 pounds (or the equivalent
in other currencies); or
(j) Insolvency: the Company, Bidco or any Principal
Subsidiary is declared or deemed pursuant to any
applicable legislation to be insolvent or is or is
deemed pursuant to any applicable legislation to be
unable, or admits in writing its inability, to pay its
debts as they fall due or stops or threatens to stop
payment of its debts generally or becomes insolvent
within the terms of any applicable law excluding
Section 123(1)(a) of the Insolvency Act, 1986; or
(k) Distress: any distress, execution, attachment,
registration or other process affects the Company,
Bidco or any Principal Subsidiary having an aggregate
value of 25,000,000 pounds save where (i) the relevant
member is, in good faith, contesting the distress, execution,
attachment, sequestration or other process by
appropriate proceedings diligently pursued and (ii) the
Majority Banks acting reasonably are satisfied that the
ability of any Obligor to comply with its obligations
under the Finance Documents will not be materially and
adversely affected whilst such distress, execution,
attachment, diligence or other process is being so
contested; or
(l) Analogous Proceedings: there occurs, in relation to the
Company, Bidco or any Principal Subsidiary in any
country or territory in which it is incorporated or
carries on business or to the jurisdiction of whose
courts it or any part of its assets is subject, any
event which, in the reasonable opinion of the Majority
Banks, corresponds in that country or territory with
any of the events mentioned in paragraphs (f) to (k)
(inclusive) above, or the Company, Bidco or any
Principal Subsidiary otherwise becomes subject, in any
of those countries or territories, to any law or
proceedings relating to insolvency, bankruptcy,
liquidation, reorganisation or dissolution having a
similar effect to the events mentioned in paragraphs
(f) to (k) (inclusive) above; or
(m) Cessation: the Company, Bidco or any Principal
Subsidiary ceases to carry on all or a substantial part
of its business (save in consequence of any
reorganisation, reconstruction or amalgamation
permitted under this Agreement or approved pursuant to
a Waiver Letter and save as may result from any
disposal of assets permitted by the terms of this
Agreement or any solvent liquidation, dissolution or
winding-up of any of the Group (not being an Obligor)
which would not have a Material Adverse Effect); or
(n) Control: without the prior written consent of the
Majority Banks, any single person or group of persons
acting in concert (as defined in the City Code on
Takeovers and Mergers) acquires control (as defined in
Section 416 of the Income and Corporation Taxes Act
1988) of the Company or Bidco or the Target (unless
such person or group of persons shall be CSW) or CSW
shall cease to own directly or indirectly for its own
<PAGE> 73
account a majority of all classes of the share capital
of the Company or Bidco or Target (once it has become a
Subsidiary of the Company) shall cease to be
Subsidiaries of CSW; or
(o) Proceedings: there is current or pending at the
Unconditional Date or there shall occur thereafter any
litigation, arbitration, administrative, regulatory or
other proceedings or enquiry (including without
limitation, any such by the Office of Fair Trading, the
Monopolies and Mergers Commission, the Department of
Trade and Industry, or any equivalent body in any other
jurisdiction or the European Commission or any division
of any thereof or authority deriving power from any
thereof) concerning or arising in consequence of any of
the Transaction Documents and/or the implementation of
any matter or transaction provided for in the
Transaction Documents or otherwise concerning or
involving any member of the Group and the same has a
Material Adverse Effect; or
(p) Expropriation: the authority or ability of the
Company, Bidco or the Target to conduct its business is
wholly or substantially curtailed by any seizure,
expropriation, intervention, renationalisation or other
action by or on behalf of any governmental, regulatory
or other authority; or
(q) Revocation and Modification of Licence: without the
prior consent of the Majority Banks, any Licence (or
any replacement Licence as contemplated in paragraph
(i) below) is:
(i) revoked or surrendered other than in circumstances
which permit the Company or another member of the
Group to carry on the electricity distribution and
supply business of the Target substantially as is
envisaged at the date of this Agreement either
without a Licence (as a result of a change to the
Act) or with a new Licence whose terms are not
materially less favourable than those of the
Licence in force prior to such revocation or
surrender; or
(ii) modified in any manner which in the reasonable
opinion of the Majority Banks would have (whether
immediately or over time) a Material Adverse
Effect; or
(r) Compliance with Act: the Target fails to comply with a
final order (within the meaning of Section 25 of the
Electricity Act) or with a provisional order (within
the meaning of that section) which has been confirmed
under that section (and not since been revoked); or
(s) Pooling and Settlement Agreement: any notice requiring
the Target to cease to be a party to the Pooling and
Settlement Agreement is given to the Target under
Clauses 60.1.3 or 60.2.2 of the Pooling and Settlement
Agreement; or
(t) Intercreditor Agreement and Subordinated Creditors:
(i) any creditor for any Subordinated Debt fails to
comply with any of the material provisions of, or
its material obligations under, the Intercreditor
Agreement; or
<PAGE> 74
(ii) any warranty made by any creditor for any
Subordinated Debt in the Intercreditor Agreement
is incorrect when made; or
(iii) the Intercreditor Agreement is not or ceases
to be binding on or enforceable against any
creditor for any Subordinated Debt by reason of
any act or omission by the Company or such
creditor;
and in each such case in the reasonable opinion of the
Majority Banks the interests of the Banks under the
Finance Documents or any of them shall be materially
prejudiced thereby.
23.2 Sanctions
Subject, where applicable, to Clause 23.3, upon the
occurrence of an Event of Default and at any time thereafter
while the same is continuing and has not been waived
pursuant to a Waiver Letter, the Facility Agent may, and
shall if so directed by the Majority Banks, by notice to the
Company:-
(a) declare that an Event of Default has occurred; and/or
(b) declare that the Total Commitments shall be cancelled
or reduced forthwith to the level specified by the
Facility Agent, whereupon the same shall be so
cancelled and all fees payable in relation to the
amount of the Total Commitments so cancelled or reduced
shall become immediately due and payable, provided that
until all the Shares have been acquired pursuant to the
Offer and/or the procedure set out in Section 428 et
seq. Companies Act, 1985 or the Offer Termination Date
has occurred this power shall not be exercised so as to
result in (i) the maximum aggregate amount from time to
time remaining to be paid (on the assumption that all
outstanding Shares will be acquired) to accepting
shareholders pursuant to the Offer and/or pursuant to
procedures implemented or to be implemented under
Section 428 et seq. Companies Act 1985, less (ii) the
amount (if any) by which the aggregate amount
subscribed to the Company by CSW in cash for share
capital and Subordinated Debt from time to time exceeds
the amount which has actually been paid to accepting
shareholders pursuant to the Offer from time to time,
exceeding (iii) the amount of the undrawn Commitments
the proceeds of drawings of which are capable in
accordance with Clause 3.1 of being applied in payment
to accepting shareholders in the Target pursuant to the
Offer; and/or
(c) declare that some or all of the Utilisations to some or
all of the Borrowers (as specified in such notice),
together with all interest, commissions and other
charges accrued with respect to those Utilisations and
all other amounts payable by some or all of the
Borrowers (as specified in such notice) or any of them
under the Finance Documents from time to time, shall
thenceforth be repayable on demand being made by the
Facility Agent (and in the event of any such demand
those Utilisations, such interest, commissions and
other charges and such other amounts shall be
immediately due and payable); and/or
(d) declare some or all of the Utilisations by some or all
of the Borrowers (as specified in such notice)
immediately due and repayable, whereupon they shall
become immediately due for payment or repayment
together with all interest, commissions and other
<PAGE> 75
charges accrued on those with respect to those
Utilisations and all other amounts payable by those
Borrowers under the Finance Documents; and/or
(e) declare that some or all of the Borrowers shall
forthwith pay or procure the payment to the Facility
Agent of a sufficient sum to cover the Outstanding
Liability Amounts under outstanding Bills constituting
Utilisations by those Borrowers (as specified in such
notice), whereupon the same shall become immediately
due and payable and, once paid, shall be held by the
Facility Agent in an interest bearing account for
application in reimbursing the Banks, as the case may
be, forthwith for all payments made or to be made under
such outstanding Bills, provided that any sum remaining
after settling such payments shall be applied first in
settlement of any other amounts then due and payable to
any Facility Agent and/or the Banks under the Finance
Documents and, subject to that, any balances shall be
promptly repaid to the relevant Borrowers or other
person entitled to the balance.
23.3 Clean up Period
If during the period of three months from the Unconditional
Date any event or circumstance which (but for this
Clause 23.3) would constitute a Default (the "Potential
Event of Default") shall exist which consists of, or is a
direct consequence of any event or circumstance which
occurred in relation to the Target or any of its
Subsidiaries (or its or any of their business, assets or
liabilities) on or before the Unconditional Date, then the
following shall apply:
(a) the Company or Bidco or the Target shall notify the
Facility Agent of that fact by fax promptly after
becoming aware thereof, giving a reasonable description
of:
(i) the Potential Event of Default and its causes; and
(ii) the remedial action in relation to that Potential
Event of Default which the Company and/or Bidco
and/or the Target propose to take;
(b) that Potential Event of Default shall not constitute a
Default, and the Facility Agent shall not with respect
to that Potential Event of Default (but, for the
avoidance of doubt, not so as to restrict the Facility
Agent's rights to take such action with respect to any
other Event of Default which is not a Potential Event
of Default) be entitled to take any of the actions set
out in Clause 23.2, until (assuming that the Potential
Event of Default is then continuing) the earlier of:
(i) the date three months after the Unconditional
Date; or
(ii) the Facility Agent confirming in writing to the
Company and Bidco that in the reasonable opinion
of the Facility Agent it is likely that a Material
Adverse Effect would result from such Potential
Event of Default or from the effects thereof or
from the continued inaction by the Facility Agent
as regards the exercise of rights under this
Agreement; or
(iii) a Material Adverse Effect actually occurring.
Provided that (A) the foregoing shall not apply with respect
to any Potential Event of Default under any of the following
Clauses 23.1(a), (b)(i) (insofar as it relates to Clause
22.1(b)), (b)(iii), (d), (f), (g), (h), (i), (n), (p), (q),
<PAGE> 76
(r) or (s), in each case irrespective of whether or not that
Potential Event of Default occurred in consequence of any
event or circumstance which occurred before the
Unconditional Date, and (B) any Potential Event of Default
shall nevertheless constitute a Default for the purposes of
Clause 4.3, save (in the case only of a Potential Event of
Default consisting of a Default arising under Clause 23.1
(b)(ii), (c) or (e)) where it is demonstrated to the
reasonable satisfaction of the Majority Banks that such
Potential Event of Default is likely to be cured within
three months after the Unconditional Date without any
Material Adverse Effect occurring, and (C) where the
Potential Event of Default consists of a breach of Clause
22.1(a), the date referred to in paragraph (i) above shall
be taken as the earlier of the date when the Company has
issued further share capital or incurred further
Subordinated Debt as referred to in Clause 21.6(d)(i) and
the expiry of the period referred to in the first lines of
Clause 21.6(d).
24. INDEMNITIES
24.1 Currency Indemnity
(a) If any amount payable by any Obligor under or in connection
with any Finance Document is received by any Finance Party
in a currency (the "Payment Currency") other than that
agreed to be payable under that Finance Document (the
"Agreed Currency"), whether as a result of any judgement or
order or the enforcement of the same, the liquidation of
such Obligor or otherwise and the amount produced by
converting the Payment Currency so received into the Agreed
Currency at market rates prevailing at or about the time of
receipt of the Payment Currency is less than the amount of
the Agreed Currency due under that Finance Document, then
the Obligors shall, as an independent and additional
obligation, indemnify each Finance Party for the deficiency
and any loss sustained as a result.
(b) The above indemnities shall constitute separate and
independent obligations of each of the Obligors from their
other obligations under the Finance Documents and shall
apply irrespective of any indulgence granted by any Finance
Party. The Obligors shall pay the reasonable costs of
making any conversion from the Payment Currency to the
Agreed Currency.
(c) Each Obligor waives any right it may have in any
jurisdiction to pay any amount under this Agreement in a
currency other than that in which it is expressed to be
payable under that Finance Document.
24.2 Other indemnities
The Obligors shall indemnify each Finance Party against any
losses (excluding loss of the applicable Margin save in the
case of paragraphs (a) and (b) below), charges or expenses
which such Finance Party may sustain or incur as a
consequence of:-
(a) the occurrence of any Default; or
(b) the operation of Clause 23.2; or
(c) any repayment or prepayment of an Advance or payment of
an overdue amount being made otherwise than on its
Interest Date; or
<PAGE> 77
(d) (other than by reason of default by any Finance Party)
any Utilisation not being made (or not being made in
full) to any Borrower after a Request has been given
pursuant to Clause 5 or Clause 6 (as the case may be),
including but not limited to any losses, charges or expenses
on account of funds acquired, contracted for or utilised to
fund any amount payable under this Agreement, any amount
repaid or prepaid or any Utilisation (as the case may be).
A certificate of such Finance Party as to the amount of any
such loss or expense shall be prima facie evidence in the
absence of manifest error.
24.3 Indemnity Relating to Facilities
(a) The Company agrees to indemnify each Finance Party and each
of their respective directors, officers and employees
against any and all claims, damages, liabilities, costs and
expenses (including legal fees) which may be incurred by or
asserted against such Finance Party or their respective
directors, officers and employees in connection with or
arising out of any such proceedings, actions or enquiry by
any regulatory authority of a type referred to in
Clause 23.1(o) (ignoring the provision as to materiality
contained therein) or any litigation or other proceedings
connected with the Offer. It is agreed that:
(i) Each Finance Party shall notify the Company in
reasonable detail of any potential claim by it or its
directors, officers or employees on the Company under
this Clause 24.3 promptly upon its becoming aware of
that potential claim; and
(ii) If the Company wishes any Finance Party to enter into
any negotiations with a view to settlement of any
dispute with any third party likely to give rise to any
claims, damages, liability, costs and expenses for
which a claim may be made under this Agreement, it
shall notify that Finance Party accordingly, which
Finance Party will then enter into such negotiations in
good faith on a without prejudice basis but shall not
be bound so to settle; and
(iii) Any payments required to be made by reason of this
indemnity shall be in addition to any other amounts
provided for in this Agreement or agreed to be paid in
respect of the Facilities.
(b) Each Finance Party shall give promptly to the Company such
details and copies of legal opinions and process served
concerning (or concerning the circumstances giving rise to)
any claims, damages, liabilities, costs and expenses which
may form the basis of any claim by it on the Company
hereunder, as the Company may reasonably request.
(c) At the request of the Company, from time to time, each
Finance Party will discuss with the Company and will give
careful consideration in good faith to the views of the
Company concerning the appointment of professional advisers
in connection with any such claims, damages, liabilities,
costs and expenses (and in connection with the circumstances
giving rise thereto and any proceedings current, pending or
threatened relating thereto) and the conduct of any
proceedings, and will use reasonable endeavours to procure
that (once appointed) all professional advisers acting for
it in relation thereto shall do likewise and that where
possible and where such Finance Party does not reasonably
consider that it is against such Finance Party's best
interest, one firm of professional advisers only is
appointed to represent all of the Finance Parties.
<PAGE> 78
(d) Notwithstanding the foregoing provisions of this
Clause 24.3, no Finance Party shall be required to disclose
to the Company or any other Obligor any matter with regard
to which it is under a duty of non-disclosure. All
information which may be disclosed by any Finance Party
pursuant to this Clause 24.3 shall be disclosed on the same
conditions as to confidentiality, as are set out in
Clause 32.
25. AGENTS, ARRANGERS AND BANKS
25.1 Appointment
Each Bank hereby appoints the Facility Agent and the
Security Agent to act as its agent hereunder and with
respect to the Finance Documents and irrevocably authorises
the Facility Agent on such Bank's behalf to:
(a) enter into any Accession Agreement or Security
Agreement (whereupon and by which act such Bank shall
become bound thereby); and
(b) perform such duties and exercise such rights and powers
under the Finance Documents as are specifically
delegated to such Agent by the terms thereof, together
with such rights and powers as are reasonably
incidental thereto.
Each Agent shall have only those duties and powers which are
expressly specified in the Finance Documents. Each Agent's
duties under the Finance Documents each are intended to be
of a mechanical and administrative nature.
25.2 Majority Banks' Directions
In the exercise of any right or power granted and as to any
matter not expressly provided for by the Finance Documents,
each Agent shall act in accordance with the instructions of
the Majority Banks or as this Agreement may require and
shall be fully protected in so doing. Any such instructions
shall be binding on all the Banks. Subject to Clauses 25.7
and 25.16, in the absence of any such instructions and/or
any relevant requirement contained in any Finance Document,
each Agent may act or refrain from acting with respect to
such right or power and as to any such matter as it shall
see fit.
25.3 Relationship
(a) The relationship between each Bank and each Agent is that of
principal and agent. Nothing herein (other than in relation
to the Security Agent and the Security Documents as to which
the Security Agent shall be a trustee for the Banks) shall
constitute the Facility Agent a trustee or (save, with
regard to any Bank, as necessarily results from its agency
relationship with that Bank) fiduciary for any Bank, any
Obligor or any other person.
(b) No Agent shall be liable to any Obligor for any breach by
any Bank of this Agreement or be liable to any Bank for any
breach by any Obligor of any Finance Document.
<PAGE> 79
25.4 Delegation
Without prejudice to its obligations hereunder, each Agent
may act under the Finance Documents through its personnel
and through agents selected by it with reasonable care (who
shall be entitled to the same protections as those given to
the Agents under this Clause 25).
25.5 Documentation
Neither any Agent or any of the Arrangers nor any of its
officers, employees or agents shall be responsible to any
Bank or to each other for:-
(a) the execution, genuineness, validity, enforceability or
sufficiency of any Finance Document or any other
document in connection therewith; or
(b) the collectibility of amounts payable thereunder; or
(c) the accuracy of any statements (whether written or
oral) made in or in connection with any Finance
Document or other document in connection therewith.
25.6 Default
No Agent shall be required to ascertain or inquire as to the
performance or observance by any Obligor of the terms of any
Finance Document or any other document in connection
therewith. No Agent shall be deemed to have knowledge of
the occurrence of any Default unless that Agent has received
notice from a party hereto describing such Default and
stating that such notice is a "Notice of Default". If any
Agent receives such a notice of default or officers of any
Agent engaged in the performance of that Agent's functions
under the Finance Documents otherwise acquire actual
knowledge that a Default has occurred, that Agent shall give
notice thereof promptly to the Banks. Each Agent shall take
or refrain from taking such action with respect to such
Default as shall be directed by the Majority Banks, provided
that nothing herein contained shall oblige any Agent to
institute any legal action or proceedings on behalf of any
Bank. Until any Agent shall have received such directions,
it may (but shall not be obliged to) take or refrain from
taking such action with respect to such Default as it shall
see fit.
25.7 Exoneration
Neither Agent nor any of its officers, employees or agents
shall be liable to any Bank for any action taken or omitted
under or in connection with any Finance Document unless
caused by its or their negligence or wilful misconduct.
25.8 Reliance
Each Agent may rely on any communication or document
reasonably believed by it to be genuine and correct and may
rely on any statement made by a director or employee of any
person regarding any matters which may reasonably be assumed
to be within his knowledge or within his power to verify.
Each Agent may engage, pay for and rely on legal or other
professional advisers selected by it and shall be protected
in so relying.
<PAGE> 80
25.9 Credit approval
Each of the Banks severally represents and warrants to each
Agent and each of the Arrangers that it has made its own
independent investigation and assessment of the financial
condition and affairs of each Obligor and their related
entities and other parties considered by it to be relevant
in connection with its participation in this Agreement and
has not relied exclusively on any information, including the
Information Memorandum provided to such Bank by any Agent or
any Arranger in connection herewith. Each Bank represents,
warrants and undertakes to each Agent and each Arranger that
it shall continue to make its own independent appraisal of
the creditworthiness of the Obligors and other parties
considered by it to be relevant in connection with the
Finance Documents and their related entities while any
amount is or may be outstanding under the Finance Documents.
25.10 Information
(a) The Facility Agent shall promptly furnish each Bank with a
copy of any documents received by it under Clause 21.2. If
so requested by any Bank, the Facility Agent shall furnish
to such Bank (at the expense of the Company) a copy of any
of the documents listed in Schedule G delivered on or prior
to Closing.
(b) The Facility Agent shall, without any liability on its part
in the event of any failure to do so except in the case of
its negligence or wilful default, send to the Banks (at the
expense of the Company) any document (or a summary of the
material details of such document) received by it from any
Obligor pursuant to this Agreement which contains any
information which the Facility Agent considers to be of
direct and material interest and significance to the Banks
and their interests under this Agreement and which can
lawfully be distributed by the Facility Agent without
incurring any liability to any person whatsoever.
(c) Save as provided in paragraph (a) above neither Agent nor
any Arranger shall have any duty either initially or on a
continuing basis to provide any Bank with any credit or
other information with respect to the financial condition or
affairs of any Obligor or any of their related entities
whether coming into its possession or that of any related
entities of the Facility Agent or any Arranger before the
entry into of this Agreement or at any time thereafter.
(d) Unless specifically requested to do so by a Bank, neither
Agent shall have any duty to request any certificates or
other documents from any Obligor under any of the Finance
Documents.
(e) No Agent need disclose any information relating to any
Obligor or any of their related entities or any other person
if such disclosure would or might in the reasonable opinion
of the Facility Agent constitute a breach of any law or
regulation or be otherwise actionable at the suit of any
person.
25.11 The Facility Agent and the Arrangers individually
(a) Each Agent and each Arranger shall have the same rights and
powers hereunder as any other Bank and may exercise the same
as though it were not the Facility Agent or an Arranger.
(b) Each Agent and each Arranger may accept deposits from, lend
money to and generally engage in any kind of banking, trust,
advisory or other business whatsoever with any Obligor and
their related entities and accept and retain any fees
payable by any Obligors or any related entities for its own
<PAGE> 81
account in connection herewith and/or therewith without
liability to account therefor to any Bank or any Arranger.
25.12 Indemnity
Each Bank agrees to indemnify each Agent on demand (to the
extent not reimbursed by any Obligor and without prejudice
to the liability of any Obligor under any Finance Document)
for any and all liabilities, losses, damages, penalties,
actions, judgements, costs, expenses or disbursements of any
kind whatsoever which may be imposed on, incurred by or
asserted against such Agent in any way relating to or
arising out of its acting as an Agent under any of the
Finance Documents or performing its duties thereunder or any
action taken or omitted by any Agent thereunder (including,
without limitation, the charges and expenses referred to in
Clause 26.5 and all stamp Taxes on or in connection with any
of the Finance Documents but excluding payment of its agency
fee pursuant to Clause 26.3 and the normal administrative
costs and expenses incidental to the performance of its
agency duties hereunder save to the extent increased in
consequence of a Default). Such indemnification by each
Bank shall be pro rata to its Commitments. Notwithstanding
the foregoing, no Bank shall be liable for any portion of
the foregoing resulting from any Agent's negligence or
wilful misconduct.
25.13 Legal restrictions
Each Agent may refrain from doing anything which would or
might in its reasonable opinion (a) be contrary to the law
of any applicable jurisdiction or any applicable official
directive or regulation or (b) render it liable to any
person, and may do anything which in its reasonable opinion
(acting on legal advice) is necessary to comply with any
such law or directive.
25.14 Resignation
Each Agent may (after consultation with the Company) resign
by giving notice thereof to the Banks and the Company and
may be removed by the Majority Banks giving notice to that
effect to such Agent and the Company. In that event the
Majority Banks, with the consent of the Company where the
relevant Agent has so resigned (such consent not to be
unreasonably withheld or delayed and the Company shall be
deemed to have consented if it has not given notice refusing
consent within 14 days of any request for consent) and in
any event after consultation with the Company to the extent
practicable, may appoint a successor for the relevant Agent
which shall be a reputable and experienced bank,
incorporated in or having a branch in England and acting
through such branch. If the Majority Banks have not, within
30 days after such notice of resignation or removal, so
appointed a successor Agent which shall have accepted such
appointment, the retiring Agent, after consultation with the
Company, shall have the right to appoint a successor Agent
which shall be a reputable and experienced Bank incorporated
or having a branch in England and acting through such
branch. The resignation or removal of the retiring Agent
and the appointment of any successor Agent or Security Agent
shall both become effective upon the successor Facility
Agent or Security Agent notifying all the parties hereto in
writing that it accepts such appointment, whereupon the
successor Facility Agent or Security Agent shall succeed to
the position of the retiring Facility Agent or Security
Agent and the terms "Facility Agent" and "Security Agent" in
all of the Finance Documents shall include such successor
Agent where appropriate. This Clause 25 shall continue to
benefit a retiring Agent in respect of any action taken or
omitted by it hereunder while it was an Agent.
<PAGE> 82
25.15 Assignments
Each Agent may treat each Bank named as a party hereto as
continuing to be such a party, as entitled to payments
hereunder and as acting hereunder through its Facility
Office until it has received notice from such Bank to the
contrary.
25.16 Amendments
(a) If authorised by the Majority Banks, the Facility Agent or
(in the case of the Security Documents) the Security Agent
may (except where any other authority is required for the
same by the express provisions of this Agreement) grant
waivers or consents or (with the agreement of the Company)
vary the terms of the Finance Documents. Any such waiver,
consent or variation so authorised and effected by the
Facility Agent or, as the case may be, the Security Agent
shall be binding on all the Banks and the Facility Agent or,
as the case may be, the Security Agent shall be under no
liability whatsoever in respect of any such waiver, consent
or variation, provided always that, except with the prior
written consent of all the Banks and the Company, nothing in
this Clause 25.16(a) shall authorise:-
(i) the extension of any Availability Period; or
(ii) any variation of the definition of "Majority Banks" in
Clause 1.1; or
(iii) any extension of the date for, or alteration in
the amount or currency of, or waiver of any payment of
principal, interest, Margin, fee, commission or any
other amount payable under any of the Finance
Documents; or
(iv) any change to any Bank's Commitment; or
(v) any variation of Clauses 12.2, 13, 30.2, 32 or this
Clause 25.16; or
(vi) any variation of any provision wherein (before such
variation) it is provided that certain things may not
be done without or may be done with the consent or
approval of all the Banks.
(b) If authorised by the Majority Banks, the Security Agent may
grant any waiver or consent in relation to, or variation of
the material provisions of, any Security Document (but not,
for the avoidance of doubt, so as to release any security).
Subject as otherwise provided for in this Agreement, any
release of the security provided by any Security Document
over the Shares requires the consent of all the Banks,.
25.17 Security Agent as Trustee
(a) The Security Agent in its capacity as Trustee or otherwise
shall not be liable for any failure, omission, or defect in
perfecting the security constituted by any Security Document
or any security created thereby including, without
limitation, any failure to register the same in accordance
with the provisions of any of the documents of title of the
relevant Obligor to any of the property thereby charged.
<PAGE> 83
(b) The Security Agent in its capacity as Trustee or otherwise
may accept without enquiry such title as any Obligor may
have to the property over which security is intended to be
created by any Security Document.
(c) Save where the Security Agent holds a legal mortgage over or
over an interest in, real property or shares, the Security
Agent in its capacity as Trustee or otherwise shall not be
under any obligation to hold any title deeds, Security
Documents or any other documents in connection with the
property charged by any Security Document or any other such
security in its own possession or to take any steps to
protect or preserve the same. The Security Agent may permit
the relevant Obligor to retain all such title deeds and
other documents in its possession.
(d) Save as otherwise provided in the Security Documents, all
moneys which under the trusts herein or therein contained
are received by the Security Agent in its capacity as
Trustee or otherwise may be invested in the name of or under
the control of the Security Agent in any investment for the
time being authorised by English law for the investment by
trustees of trust money or in any other investments which
may be selected by the Security Agent with the consent of
the Majority Banks. Additionally, the same may be placed on
deposit in the name of or under the control of the Security
Agent at such bank or institution (including any Agent) and
upon such terms as the Security Agent may think fit. Any
and all such monies and all interest thereon shall be paid
over to the Facility Agent forthwith upon demand by the
Facility Agent.
(e) Each Bank hereby confirms its approval of the Finance
Documents and any security created or to be created pursuant
thereto and hereby authorises, empowers and directs the
Security Agent (by itself or by such person(s) as it may
nominate) to execute and enforce the same as trustee or as
otherwise provided (and whether or not expressly in the
Banks' names) on its behalf.
26. FEES, EXPENSES AND STAMP TAXES
26.1 Commitment Fee
(a) The Company will pay (or will procure that there is paid) to
the Facility Agent for distribution among the Banks pro rata
to the aggregate of their respective Tranche 1 Commitments,
Tranche 2 Commitments and Tranche 3 Commitments, as the case
may be, a commitment fee computed at the rate of (i) zero
point one zero per cent. (0.10%) per annum on the daily
undrawn balance of the Tranche 1 Commitments, the Tranche 2
Commitments and the Tranche 3 Commitments during the period
from and including the date hereof until the earlier of the
Unconditional Date and the expiry of the applicable
Availability Period, (ii) zero point three seven five per
cent. (0.375%) per annum on the daily undrawn balance of the
Tranche 1 Commitments, the Tranche 2 Commitments and the
Tranche 3 Commitments during the period from and including
the Unconditional Date until the earlier of the first
Utilisation Date and the expiry of the applicable
Availability Period, and (iii) 50% of the applicable Margin
(being that chargeable from time to time in relation to
calculations involving the relevant Commitments) from and
including the first Utilisation Date.
(b) Accrued commitment fee shall be payable quarterly in arrears
and also on the date on which the Tranche 1 Commitments or
the Tranche 2 Commitments or the Tranche 3 Commitments, as
the case may be, shall terminate. Commitment fee shall
accrue from day to day and be calculated on the basis of a
year of 365 days and for the actual number of days elapsed.
The Company shall supply to the Facility Agent promptly on
<PAGE> 84
request such information as is necessary to calculate the
amount of commitment fee payable from time to time.
26.2 Arrangement and Underwriting Fees
On the dates stated in such letter, the Company shall pay to
the Facility Agent for the account of the Arrangers an
arrangement fee and an underwriting fee in the amount stated
in a letter dated on or before the date hereof from the
Facility Agent to the Company, counter-signed by or on
behalf of the Company.
26.3 Agency Fees
The Company shall pay to each of the Facility Agent and the
Security Agent for its own account for use by it as it sees
fit agency fees in the amounts, and on the dates as
specified in letters dated on or before the date hereof from
the Facility Agent to the Company, counter-signed by the
Company.
26.4 Initial and Documentation expenses
(a) On or before the date of the first Utilisation if demanded
before such date and otherwise promptly on demand by the
Facility Agent, the Company shall reimburse the Facility
Agent for the reasonable out-of-pocket charges and expenses
(including, but not limited to, the fees and expenses of
legal advisers) incurred by it or the Arrangers in
connection with the negotiation, preparation, printing and
execution of the Finance Documents (including any thereof
which may be executed at any time after the date of this
Agreement), together in all cases with all value added and
similar Taxes applicable.
(b) The Company shall reimburse the Facility Agent within 30
days of demand for the reasonable out of pocket charges and
expenses (including, but not limited to, the fees and
expenses of legal advisers) incurred by it or the Arrangers
in connection with the syndication by the Original Banks of
the Finance Documents and the Commitments and Utilisations
thereunder and the execution of any further Finance
Documents from time to time, together with all value added
tax and similar Taxes applicable to the same.
(c) Where this Agreement provides that any document or other
information is to be copied or provided by the Facility
Agent to all or any of the Banks or the Security Agent
(including, without limitation, as contemplated in Clause
25.10(a) or (b)) the Company will promptly on demand
reimburse the Facility Agent for the reasonable out-of-
pocket charges and expenses incurred by it in so copying or
providing such document or other information, together with
all value added and similar Taxes applicable to the same.
26.5 Expenses of Administration, Enforcement, Waiver and
Amendment
The Company (or the relevant Borrower where in the
reasonable opinion of the Facility Agent such amounts are
referable to a particular Borrower) shall reimburse each of
the Finance Parties promptly on demand for the out-of-pocket
charges and expenses (including the fees and expenses of
legal advisers and notaries and the fees and expenses of any
accountants or other professional advisers (a) incurred by
any of them in connection with the enforcement of, or the
preservation of any rights under, any of the Finance
Documents, (b) reasonably incurred by any of them in
connection with any waiver or consent which may at any time
be sought by any Obligor under or in relation to any of the
Finance Documents, and (c) reasonably incurred by any of
them in connection with any variation of or supplement to
<PAGE> 85
any of the Finance Documents (other than any Substitution
Certificate or a variation or supplement requested by a
Finance Party), together, in each case, with all value added
and similar Taxes applicable to the same. While any Default
is continuing and has not been waived the Company (or the
relevant Borrower, as the case may be) shall promptly on
demand pay each of the Facility Agent and the Security Agent
for the reasonable cost of the management time properly
charged by the Facility Agent or, as the case may be, the
Security Agent in connection with any additional
administration of the Finance Documents arising in
consequence of such Default.
26.6 Stamp Taxes
The Company shall pay or indemnify the Finance Parties
against any and all stamp, registration and similar Taxes
(excluding such Taxes as are imposed by a jurisdiction other
than the United Kingdom) which may be or become payable in
connection with the entry into, performance or enforcement
against any of the Obligors of any of the Finance Documents.
27. WAIVERS, REMEDIES CUMULATIVE
27.1 Waivers
No failure to exercise and no delay in exercising any right,
power or privilege under any Finance Document by any of the
Finance Parties shall operate as a waiver of the same, nor
shall any single or partial exercise of any such right,
power or privilege preclude any other or further exercise of
the same, or the exercise of any other right, power or
privilege. No waiver by any of the Finance Parties shall be
effective unless it is in writing.
27.2 Remedies Cumulative
The rights and remedies of each of the Finance Parties in
this Agreement may be exercised as often as necessary and
are cumulative and not exclusive of any rights or remedies
provided by law.
28. NOTICES
28.1 Address
Except as otherwise stated in this Agreement, all notices or
other communications hereunder to any party hereto shall be
made by letter or by facsimile transmission and shall be
deemed to be duly given or made when delivered (in the case
of letter or facsimile transmission) to such party addressed
to it at its address or telex number or facsimile number
specified in the relevant Part of Schedule A or Schedule B,
or at such other address or telex number or facsimile number
as such party may after the date of this Agreement specify
for such purpose to the others by notice.
28.2 Non-working days
A notice or other communication received on a non-working
day or after 5.00 p.m. on a working day in the place of
receipt shall be deemed to be served on the next following
working day in such place.
<PAGE> 86
29. ASSIGNMENTS, TRANSFERS AND SUBSTITUTIONS
29.1 Successors
This Agreement shall be binding upon and ensure to the
benefit of the Obligors, the Banks, the Facility Agent, the
Security Agent and their respective successors and permitted
assigns.
29.2 Assignments and Transfers by Obligors
Save as expressly provided in this Agreement, no Obligor may
assign or transfer all or any part of its rights or
obligations under this Agreement without the prior written
consent of all the Banks.
29.3 Assignments and Transfers by Banks
(a) Subject to Clause 29.10 any Bank may at any time assign or
otherwise transfer all or any part of its rights or
obligations under this Agreement and the other Finance
Documents to another bank with the consent of the Company
(such consent not to be unreasonably withheld and not to be
required for assignments or transfers from a Bank to another
Bank or to an Affiliate of any Bank), provided that such
bank is then a Recognised Bank, that if it is a bank having
its principal place of business in the U.S.A. it is a bank
as defined in section 3(a)(6) of the Securities Exchange Act
1934 of the U.S.A. and that in the case of a transfer of
obligations the transferee shall have confirmed to the
Facility Agent and the Company, prior to the transfer taking
effect, that it undertakes to be bound by the terms of the
Finance Documents as a Bank under those documents (such
confirmation to be in form and substance satisfactory to the
Facility Agent and the Company). On any such transfer of
obligations being made the original Bank shall be relieved
of its obligations to the extent of the transfer of such
obligations .
(b) A proportion of the assignor's rights and obligations under
and arising out of the other Finance Documents equal to the
proportion of the assignor's rights under this Agreement
being transferred or assigned, shall automatically be
assigned or transferred, as appropriate, to the assignee or
transferee at the same time as the rights under this
Agreement.
29.4 Substitution Certificates
(a) Subject to Clause 29.10 if any Bank (the "Existing Bank")
wishes to transfer all or any part of its rights, benefits
and/or obligations under the Finance Documents to another
bank (the "New Bank") then, as an alternative to
Clause 29.3, provided that the New Bank is then a Recognised
Bank and that if it is a bank having its principal place of
business in the U.S.A. it is a bank as defined in section
3(a)(6) of the Securities Exchange Act 1934 of the U.S.A.,
the Existing Bank may, with the consent of the Company (such
consent not to be unreasonably withheld and not to be
required for assignments or transfers from a Bank to another
Bank or to an Affiliate of any Bank) effect a substitution
in respect thereof involving the New Bank in respect of all
of its rights, benefits and/or obligations by the delivery
to the Facility Agent and acceptance by it of a duly
completed certificate executed by the Existing Bank and the
New Bank in substantially the form of Schedule D (a
"Substitution Certificate").
(b) Upon delivery to the Facility Agent of any Substitution
Certificate and acceptance of the same by the Facility Agent
(which delivery and acceptance shall be evidenced
exclusively and conclusively by the Agent's countersignature
thereon pursuant to paragraph (d) below):-
<PAGE> 87
(i) the respective rights of the Existing Bank and the
Obligors (or the relevant Obligors) against each other
under the Finance Documents with respect to all or the
relevant part of the Existing Bank's relevant
Commitment and/or relevant Advances (all as specified
in the schedule to such Substitution Certificate),
shall be terminated and each shall be released from all
further obligations to the other under the Finance
Documents with respect to the same, (all such rights
and obligations to be so terminated or released being
referred to as "Discharged Rights and Obligations");
(ii) the relevant Obligors and the New Bank and (through the
Facility Agent) the other parties to the Finance
Documents shall each acquire rights against each other
and assume obligations towards each other which differ
from the Discharged Rights and Obligations only
(subject as provided in Clause 29.7) insofar as the
Obligors, the New Bank and such other parties have
assumed and/or acquired the same in place of the
Obligors, the Existing Bank and such other parties
respectively;
(iii) the Facility Agent, the Security Agent, the New
Bank and the other Banks as well as the other parties
to the Finance Documents shall acquire the same rights
and assume the same obligations between themselves as
they would have acquired and assumed had such New Bank
been an original party to this Agreement as a Bank with
the Discharged Rights and Obligations acquired or
assumed by it in consequence of such Substitution
Certificate;
(iv) the New Bank shall become by the execution by the
Facility Agent of such Substitution Certificate bound
by the terms of the Intercreditor Agreement as if it
were an original party thereto as a Senior Creditor and
shall acquire the same rights and assume the same
obligations towards the other parties to the
Intercreditor Agreement as would have been acquired and
assumed had the New Bank been an original party to the
Intercreditor Agreement as a Senior Creditor; and
(v) a proportion of the Existing Bank's rights and
obligations under all of the Finance Documents, equal
to the proportion of the Existing Bank's rights under
this Agreement being assumed by the New Bank, shall
automatically and simultaneously be assumed by the New
Bank.
(c) Discharged Rights and Obligations shall not include, and
there shall be no termination or release pursuant to this
Clause 29.4 of, any rights or obligations arising pursuant
to Clauses 13 or 15.1 in respect of the period or in respect
of payments made hereunder during the period prior to the
effective date of the relevant Substitution Certificate (as
stated in that certificate).
(d) Each Obligor, the Banks and the Security Agent hereby
irrevocably appoint the Facility Agent to receive and
countersign each Substitution Certificate as agent on its
behalf and, to the extent relevant, the provisions of
Clause 25 shall apply mutatis mutandis with respect to such
appointment. The Facility Agent shall be entitled (but not
obliged) to decline to accept and/or countersign any
proposed Substitution Certificate entered into in breach of
Clause 29.9.
(e) The New Bank party to any Substitution Certificate shall pay
to the Facility Agent an administration fee of 500 pounds on
or before the effective date for that Substitution Certificate
(as specified therein).
<PAGE> 88
(f) Without prejudice to any provision of Clause 25, each New
Bank shall, by its execution of a Substitution Certificate,
accept that neither the Existing Bank party to that
certificate nor the Facility Agent, the other Banks, the
Arrangers or the Security Agent is in any way responsible
for or makes any representation or warranty as to (i) the
accuracy and/or completeness of any information supplied to
such New Bank in connection with the Finance Documents,
(ii) the creditworthiness, condition, affairs, status or
nature of the Obligors or the observance by any of them of
any of their obligations under any Finance Document,
(iii) the legality, validity, effectiveness, adequacy or
enforceability of any Finance Document or (iv) the tax
status of any payments to be made to or for the account of
such New Bank by any Obligors or the Facility Agent or the
Security Agent under any Finance Document and save, in the
case of the Facility Agent or the Security Agent, as
otherwise expressly provided herein, none of such parties
shall be or be deemed to be the agent or trustee of such New
Bank in connection with this Agreement.
(g) Each New Bank shall, by its execution of a Substitution
Certificate, be taken to confirm that it is a financial
institution whose ordinary business is or includes
participation in syndicated facilities of this type and that
it has made its own independent investigation and assessment
of the financial condition and affairs of each Obligor and
their related entities and other parties considered by it to
be relevant in connection with its participation in this
Agreement and has not relied exclusively on any information
provided to it by the Existing Bank or the Facility Agent or
the Security Agent or the Arrangers in connection with any
Finance Document. No other party shall be required to
investigate the truth or otherwise of such confirmation and
all parties to this Agreement shall be entitled fully to
rely on that confirmation for the purposes of this
Agreement.
(h) The Facility Agent shall be entitled to rely on any
Substitution Certificate delivered to it pursuant to the
provisions of this Agreement which is complete and regular
on its face as regards its contents and appears to be signed
on behalf of the Existing Bank and the New Bank named as
party to this Agreement, and the Facility Agent shall have
no liability or responsibility to any party as a consequence
of placing reliance on and acting in accordance with and
counter-signing that Substitution Certificate.
(i) The Facility Agent shall notify the Company promptly of the
receipt and execution on its behalf by the Facility Agent of
any Substitution Certificate and shall deliver a copy of it
to the Company.
29.5 Reference Banks
The Facility Agent may (subject to the Company giving its
consent thereto, such consent not to be unreasonably
withheld) nominate additional Banks or Affiliates thereof to
become Reference Banks and such Banks or Affiliates shall
become Reference Banks upon their indicating to the Facility
Agent that they are prepared to act as such. The Facility
Agent will give the Company written notice of such Banks or
Affiliates having become Reference Banks as soon as
practical thereafter. If a Reference Bank (or the Bank of
which a Reference Bank is an Affiliate, in the case of any
Reference Bank which is not itself a Bank) transfers the
whole of its rights and obligations under this Agreement as
a Bank or ceases to be one of the Banks, the Facility Agent,
subject to agreement by the Company (such agreement not to
be unreasonably withheld or delayed) will appoint another
Bank to replace such Bank or Affiliate as a Reference Bank.
<PAGE> 89
29.6 Change of Facility Office
Each Bank shall participate in this Agreement through its
Facility Office(s), but any Bank may change its Facility
Office with respect to any Utilisation from time to time, on
giving not less than four Business Days' prior notice to the
Facility Agent, to any other location in the United Kingdom.
29.7 Increased Costs and Illegality
(a) Subject as provided in paragraph (b) below, if any
assignment, transfer or substitution of or with respect to
all or any part of the rights or obligations of a Bank under
this Agreement pursuant to Clause 29.3 or 29.4 or any change
in Facility Office pursuant to Clause 29.6 is made which
results (or would but for this Clause result) at the time
thereof in amounts becoming payable under Clauses 13 or
15.1, then the assignee, transferee, New Bank or Bank acting
through its new Facility Office shall be entitled to receive
such amounts only to the extent that the assignor,
transferor, Existing Bank or Bank acting through its
original Facility Office would have been so entitled had
there been no such assignment, transfer, substitution or
change in Facility Office. No such assignment, transfer,
substitution or change in Facility Office shall be made if
the assignee, transferee or substitute or such Bank (in the
case of a change in Facility Office) would be entitled
immediately afterwards to give notice under Clause 16.
(b) The provisions of the first sentence of paragraph (a) above
shall not apply in relation to any assignment, transfer or
substitution of or with respect to the rights or obligations
of the Original Banks, provided that the same is effected by
the Original Banks within six months from the date of this
Agreement.
However, the Original Banks will use reasonable endeavours
(to the extent not materially prejudicial to their ability
successfully to syndicate the Facilities within six months
of the Unconditional Date) to avoid making any assignment,
transfer or substitution to or in favour of any assignee,
transferee or New Bank having an entitlement at the time of
such assignment, transfer or novation to receive amounts
payable under Clauses 15 or 16.1 in amounts greater than
would have been payable by the Obligors hereunder at that
time in the absence of such assignment, transfer or
substitution.
29.8 Sub-participations
Any Bank shall be entitled freely to enter into any sub-
participation or other arrangement with any third party
relating to the Finance Documents which does not transfer to
that third party any obligation and/or any legal or
equitable interest in any of the rights arising under this
Agreement.
29.9 Timing
Each Bank undertakes to the Facility Agent that it will not
effect any assignment or transfer pursuant to Clause 29.3
and will not enter into any Substitution Certificate
pursuant to Clause 29.4 on or within five Business Days
before the due date for any payment to be made under any of
the Finance Documents where it would have the effect of
altering the amount to be paid by the Facility Agent to such
Bank consequent on the receipt by the Facility Agent of such
payment under the Finance Documents.
<PAGE> 90
29.10 Restriction
Notwithstanding anything to the contrary contained in this
Agreement, unless otherwise agreed by the Majority Banks in
any particular case, each Bank may only effect an assignment
or transfer of, or substitution with respect to, outstanding
Utilisations and/or Commitments where the assignment,
transfer or substitution relates to all Utilisations in
which it participates and/or all its Commitments pro rata as
between such Utilisations and/or such Commitments.
30. SET-OFF AND REDISTRIBUTION
30.1 Set-off
Each Bank may (but shall not be obliged to) set off against
any obligation of any Obligor due and payable by it to or
for the account of such Bank under this Agreement and not
paid on the due date any moneys held by such Bank for the
account of such Obligor at any office of such Bank anywhere
and in any currency, whether or not matured. Such Bank may
effect such currency exchanges as are appropriate to
implement the set-off and any usual charges and all
applicable Taxes in relation to such currency exchanges
shall be paid by such Obligor. Any Bank which has set off
shall give prompt notice of that fact to the relevant
Obligor.
30.2 Redistribution
(a) If at any time the proportion which any Bank (the "receiving
Bank") has received or recovered (whether by set-off or
otherwise) on account of any sum due from any Borrower or
any Guarantor under this Agreement is greater (the amount of
the excess being herein referred to as the "excess amount")
than the proportion received or recovered by the Bank
receiving or recovering the smallest proportion (which shall
include a nil receipt) in relation to the sum then due to
the latter Bank from the relevant Borrower or the Guarantors
under this Agreement, then the receiving Bank shall promptly
notify the Facility Agent thereof and:-
(i) the receiving Bank shall promptly and in any event
within ten days of receipt or recovery of the excess
amount pay to the Facility Agent an amount equal to the
excess amount;
(ii) the excess amount shall be treated as having been paid
to or recovered by the receiving Bank for the account
of the Facility Agent for payment to the Banks as
provided in paragraph (iii) below, and the obligations
of the relevant Borrower and the Guarantors to the
receiving Bank shall only be reduced or discharged by
the receipt or recovery by the receiving Bank of such
excess amount to the extent of the receiving Bank's
entitlement to payment by the Facility Agent pursuant
to paragraph (iii) below; and
(iii) the parties to this Agreement shall treat such
payment as if it were a payment by the relevant
Borrower or the Guarantors to the Facility Agent on
account of a sum owed to the Banks and shall pay the
same to the Banks (including the receiving Bank) pro
rata to their respective entitlements in such sum;
provided that where a receiving Bank is subsequently
required to repay to any Obligor any amount received or
recovered by it and dealt with under paragraphs (i), (ii)
and (iii) above, each Bank shall promptly repay to the
Facility Agent for the receiving Bank the portion of such
amount distributed to it, together with interest on it at a
<PAGE> 91
rate sufficient to reimburse the receiving Bank for any
interest which it has been required to pay to such Obligor
in respect of such portion of such amount.
(b) Where a receiving Bank has recovered any amount as a
consequence of the satisfaction or enforcement of a
judgement obtained in any legal action or proceedings to
which it is a party, this Clause 30.2 shall not apply so as
to benefit any other Bank which (being entitled so to do)
did not join with the receiving Bank in such action or
proceedings, unless the receiving Bank did not give prior
notice of its involvement in such action or proceedings to
the Facility Agent for disclosure to the other Banks.
(c) Each Bank shall promptly give notice to the Facility Agent
of:-
(i) the institution by such Bank of any legal action or
proceedings under this Agreement or in connection with
this Agreement prior to such institution; and
(ii) the receipt or recovery by such Bank of any amount
received or recovered by it otherwise than through the
Facility Agent.
Upon receipt of any such notice, the Facility Agent will as
soon as practicable thereafter notify all the other Banks.
30.3 Loss Sharing
Without prejudice to the foregoing provisions of this Clause
30, if it transpires for any reason that after enforcement
in full of the Finance Documents any of the liabilities of
any of the Obligors under the Finance Documents remain
undischarged and for any reason any resulting losses are not
being borne by the Banks pro rata to the amount which their
respective aggregate Commitments bore to the aggregate of
all the Commitments on the date on which an Enforcement
Event occurred, the Banks shall make such payments inter se
as shall be required to ensure that after taking into
account such payments such losses are borne by the Banks pro
rata. For this purpose, "Enforcement Event" means the
Facility Agent first exercising any of its rights under
Clause 23.2(b), (d) or (e) or, having exercised its rights
under Clause 23.2(c), first making demand with respect to
some or all of the Advances. Any assignment, transfer or
substitution by a Bank pursuant to Clause 29 (whether
occurring before or after an Enforcement Event) shall also
be effective to assign, transfer or effect a substitution
pursuant to that Clause with respect to the rights of such
Bank under this Clause 30.3.
31. GOVERNING LAW AND JURISDICTION
31.1 Governing Law
This Agreement shall be governed by and construed in
accordance with English law.
31.2 Courts of England
(a) For the benefit of each of the Finance Parties, each Obligor
hereby irrevocably agrees that the High Courts of Justice in
London, and all appellate courts therefrom have jurisdiction
to settle any disputes which may arise out of or in
connection with any of the Finance Documents and that any
suit, action or proceedings (together "Proceedings") in
connection with any Finance Document may be brought in the
High Courts of Justice in London and all appellate courts
<PAGE> 92
therefrom and accordingly submits to the jurisdiction of the
High Courts of Justice in London and all appellate courts
therefrom.
(b) Each Obligor hereby irrevocably and unconditionally agrees
that nothing in any of the Finance Documents shall affect
the right to serve process in any manner permitted by law.
31.3 No limitation
Nothing in this Clause 31 shall limit the right of any of
the Finance Parties to take Proceedings against any Obligor
in any other court of competent jurisdiction, nor shall the
taking of Proceedings in one or more jurisdiction preclude
the taking of Proceedings in any other jurisdiction, whether
concurrently or not.
32. CONFIDENTIALITY
Each Finance Party hereby severally undertakes to each
Obligor that it will keep confidential and that it will not
make use of for any purposes (otherwise than for the
purposes of the Finance Documents and otherwise than in the
context of an addition to its general experience, knowledge
or expertise), any of the Transaction Documents or other
documents relating to this Agreement and all of the
information distributed on behalf of the Obligors or any of
them during syndication or contained in, received under or
obtained in the course of discussions relating to the
Information Memorandum and/or the Transaction Documents,
other than any such document or information which has become
generally available to banks through no breach by it of this
Clause, provided that each Finance Party shall be entitled
to make disclosure of the same:-
(a) to its auditors, accountants, legal counsel and tax
advisers and to any other professional advisers
appointed to act in connection with the administration
of the Finance Documents or the enforcement of, or
realisation of any security provided under, any of the
Finance Documents;
(b) (whether or not the relevant assignment, transfer,
substitution, sub-participation or other arrangement is
made) to any proposed assignee, transferee or
substitute of, or proposed party to any proposed sub-
participation (or party to any actual sub-
participation) or other arrangement with, any Bank
permitted pursuant to this Agreement, provided that
before any such disclosure such assignee, transferee,
substitute or other party expressly undertakes to the
Company and the Facility Agent in writing to be bound
by this Clause 32 irrespective of whether such
assignment, transfer, substitution or other arrangement
shall proceed;
(c) to any other third party where the relevant Obligor has
previously agreed in writing that disclosure may be
made to that third party;
(d) to any banking or other regulatory or examining
authorities (whether governmental or otherwise) where
such disclosure is requested by them;
(e) pursuant to subpoena or other legal process, or in
connection with any action, suit or proceeding relating
to any of the Finance Documents;
(f) pursuant to any law or regulation having the force of
law; and
<PAGE> 93
(g) to CSW and to any member of the Group.
The provisions of this Clause 32 shall supersede any
undertakings with respect to confidentiality previously
given by any Finance Party in favour of any Obligor.
33. MISCELLANEOUS
33.1 Severability
(a) If any provision of any Finance Document is prohibited or
unenforceable in any jurisdiction, such prohibition or
unenforceability shall not invalidate the remaining
provisions of such Finance Document or affect the validity
or enforceability of such provision in any other
jurisdiction.
(b) If any of the undertakings given in Clause 21.6(a)
(Dividends), 21.6(c) (Share Capital and Subordinated Debt)
or 21.9(g) (Constitutional Documents) are not enforceable
against any Obligor the obligation on each other Obligor to
procure compliance with such undertaking shall remain
enforceable.
33.2 Certifications
Where any person gives any certificates on behalf of any of
the parties to the Finance Documents pursuant to any
provision hereof and such certificate proves to be
incorrect, the individual shall incur no personal liability
in consequence of such certificate being so incorrect save
where such individual acted fraudulently, recklessly or
negligently in giving such certificate (in which case any
liability of such individual shall be determined in
accordance with applicable law).
33.3 Accounts as Evidence
Accounts maintained by the Facility Agent or each Bank in
connection herewith shall constitute prima facie evidence of
sums owing to such Bank under this Agreement.
33.4 Press Announcements
The Company and the Facility Agent shall agree the form of
all press announcements issued in respect of the Finance
Documents.
33.5 Counterparts
This Agreement may be executed in any number of counterparts
and all of such counterparts taken together shall be deemed
to constitute one and the same instrument.
IN WITNESS WHEREOF the parties to this Agreement have caused this
Agreement to be duly executed on the date first written above.
<PAGE> 94
SCHEDULE A
PART I
BORROWERS
CSW INVESTMENTS
State of Incorporation: England and Wales
Registered Office: 65 Fleet Street
London EC4Y 1HS
Registered No: 3123865
Address for Notices: c/o Central and South Western Corporation
PO Box 660164
Dallas
Texas 75266-0164
USA
Attention: Treasurer
Fax: 001 214 7771223
CSW (UK) PLC
State of Incorporation England and Wales
Registered Office: 65 Fleet Street
London EC4Y 1HS
Registered No: 3123442
Address for Notices: c/o Central and South Western Corporation
PO Box 660164
Dallas
Texas 75266-0164
USA
Attention: Treasurer
Fax: 001 214 7771223
<PAGE> 95
PART II
GUARANTORS
CSW INVESTMENTS
State of Incorporation: England and Wales
Registered Office: 65 Fleet Street
London EC4Y 1HS
Registered No: 3123865
Address for Notices: c/o Central and South Western Corporation
PO Box 660164
Dallas
Texas 75266-0164
USA
Attention: Treasurer
Fax: 001 214 777 1223
CSW (UK) PLC
State of Incorporation: England and Wales
Registered Office: 65 Fleet Street
London EC4Y 1HS
Registered No: 3123442
Address for Notices: c/o Central and South Western Corporation
PO Box 660164
Dallas
Texas 75266-0164
USA
Attention: Treasurer
Fax: 001 214 777 1223
<PAGE> 96
PART III
Facility Agent and Security Agent
Credit Suisse,
5 Cabot Square
London E14 4QR
England
Address for notices: as above
Attention: Geoff Ireland/John Chrisford
Tel: 0171-888-8000
Fax: 0171-888-8398
<PAGE> 97
SCHEDULE B
Bank, Facility Office Tranche 1 Tranche 2 Tranche 3
and Notice Details Commitment Commitment Commitment
pounds pounds pounds
CITIBANK, N.A. 83,333,333.33 283,333,333.33 50,000,000
P.O. Box 242
336 Strand
London WC2R 1HB
England
Address for notices: as above
Attention: Loans Administration
Tel: 0171-500-4242
Fax: 0171-500-4482
CREDIT SUISSE 83,333,333.34 283,333,333.34 50,000,000
5 Cabot Square
London E14 4QR
England
Address for notices: as above
Attention: Client Services Unit
Tel: 0171-888-8000
Fax: 0171-888-8398
UNION BANK OF SWITZERLAND 83,333,333.33 283,333,333.33 50,000,000
P.O. Box 428
100 Liverpool Street
London EC2M 2RH
England
Address for notices: as above
Attention: Credit Administration
Tel: 0171 901 1777/4770
Fax: 0171 901 3903/1903
250,000,000 850,000,000 150,000,000
pounds pounds pounds
<PAGE> 98
SCHEDULE C
FORMS OF REQUEST
PART I (ADVANCE)
To: Credit Suisse
5 Cabot Square
London E14 4QR
Attention: [ ]
From: [Company or Borrower] Date: [ ]
REQUEST (ADVANCE)
Facility Agreement dated 5th November, 1995
Dear Sirs,
[On behalf of] [As] the Borrower named below, we hereby give you
notice pursuant to Clause 5.1 of the above Facility Agreement
that we require an Advance to be made to the Borrower named below
under the Facility Agreement, as follows
(a) Borrower: [ ]
(b) Utilisation Date: [ ]
(c) Requested Amount: [ ]
(d) Interest Period: [ ]
(e) Tranche Designation: [ ]
Payment instructions with respect to the proceeds of the Advance
to be made in relation to this Request are as follows, subject
always to Clause 12.2 of the Facility Agreement:
[ ].
+ [We confirm that acceptances of the Offer in respect of an
aggregate of at least [ ] Shares have been received
and that Bidco or its advisers are due to pay a sum of at least
pounds [ ] to accepting shareholders in the Target within
the next five Business Days. We further confirm that the
proceeds of the Advance hereby requested will be applied in
accordance with the relevant part of Clause 3.1.
OR
+ Include only in Request for Tranche 2 Advances save where the
proceeds of those Advances are to be used for an alternative
purpose permitted by Clause 3.1, in which case the purpose
should be stated in the Request.
<PAGE> 99
Purpose:
Terms used in this Request and defined in the Facility Agreement
have the same meaning in this Request as in the Facility
Agreement.
We confirm that all of the conditions precedent to the
obligations of the Banks with respect to the making of the
proposed Advance provided for in Clause 4 of the Facility
Agreement are satisfied or have been waived pursuant to a Waiver
Letter.
Yours faithfully
[Authorised Signatory]
[for and on behalf of
[ ]
<PAGE> 100
PART II (BILLS)
To: Credit Suisse
5 Cabot Square
London E14 4QR
From: [Company or Borrower] Date: [ ]
REQUEST (BILL)
Facility Agreement dated 5th November, 1995
Dear Sirs,
[On behalf of] [As] the Borrower named below, we hereby give you
notice pursuant to Clause 6.1 of the above Facility Agreement of
the following proposed utilisation of the bill facility under the
Tranche 3 Facility:
(a) Borrower: [ ]
(b) Utilisation Date: [ ]
(c) Requested Amount: [ ]
(d) Purpose: [ ]
(e) Interest Period: [7 to 183 days' duration]
Payment instructions with respect to the proceeds of the
Utilisation to be made in relation to this Request are as
follows, subject always to Clause 12.2 of the Facility Agreement:
[ ].
Terms used in this Request and defined in the Facility Agreement
have the same meaning in this Request as in the Facility
Agreement.
We confirm that all of the conditions precedent to the
obligations of the Banks with respect to the making of the
proposed Utilisation provided for in Clause 4 of the Facility
Agreement are satisfied or have been waived pursuant to a Waiver
Letter no Default has occurred and is continuing or would result
from the proposed Utilisation.
Yours faithfully
[Authorised Signatory]
for and on behalf of
<PAGE> 101
SCHEDULE D
SUBSTITUTION CERTIFICATE
To: CREDIT SUISSE
(the "Facility Agent")
for itself and on behalf of
the other parties to the Facility
Agreement and Intercreditor Agreement
referred to below.
This Certificate ("Substitution Certificate") relates to a
Facility Agreement (together with and as supplemented and amended
by all Accession Agreements, Substitution Certificates and other
agreements from time to time entered into in relation to it, the
"Facility Agreement") dated 5th November, 1995 made between CSW
Investments as the Company, CSW (UK) plc as Bidco, the Arrangers
and the Banks (all as defined in the Facility Agreement), and
Credit Suisse as Facility Agent and Security Agent for the Banks
in respect of term loan facilities of up to 1,100,000,000 pounds
and a revolving credit facility of up to 150,000,000 pounds, and
to the Intercreditor Agreement referred to in the Facility Agreement.
Terms defined in the Facility Agreement shall, unless otherwise
defined herein, have the same meanings herein as in the Facility
Agreement.
1. [Existing Bank] (the "Existing Bank"):-
(a) confirms that the details appearing in the Schedule
hereto under the headings "Existing Bank's Commitments
(Portion Substituted)" and "Existing Bank's
Participations in Utilisations (Portion Substituted)"
are accurate; and
(b) requests [ ] (the "New Bank")
to accept and procure the substitution pursuant to
Clause 29.4 of the Facility Agreement of the Existing
Bank by the New Bank in respect of the portion of its
relevant Commitment(s) specified under the heading
"Existing Bank's Commitments (Portion Substituted)" in
the Schedule hereto and/or in respect of the
Utilisations referred to under the heading "Existing
Banks' Participations in Utilisations (Portion
Substituted)" by counter-signing the copy of this
Substitution Certificate executed by the Existing Bank
and delivering the same to the Facility Agent.
2. The New Bank hereby requests the Obligors, the Arranger, the
Banks, the Facility Agent and the Security Agent and the
other parties to the Intercreditor Agreement to accept this
duly executed Substitution Certificate as being delivered
pursuant to and for the purposes of Clause 29.4 of the
Facility Agreement and Clause 18 of the Intercreditor
Agreement so as to take effect in accordance with its terms
under such Clauses on [insert date of substitution].
3. The New Bank hereby (a) confirms receipt of a copy of the
Finance Documents as at the date hereof and all such other
documents and information as it has required in connection
herewith, (b) accepts and confirms the application of the
provisions of Clause 29.4 of the Facility Agreement and
Clause 18 of the Intercreditor Agreement as they apply in
connection herewith and the transactions and matters to
occur in consequence hereof, and (c) confirms the
correctness of the details specified with respect to it in
the schedule hereto.
<PAGE> 102
4. The New Bank hereby undertakes to counter-indemnify the
Existing Bank for the New Bank's pro rata share of all
amounts payable by the Existing Bank under the Bills in
respect of which any liability is intended to be transferred
hereunder, which Bills are identified in the Schedule.
5. The New Bank confirms that:
(a) it has received a copy of the Finance Documents
together with such other documents and information as
it has required in connection with this transaction;
(b) it has not relied and will not hereafter rely on the
Existing Bank to check or enquire on its behalf into
the legality, validity, effectiveness, adequacy,
accuracy or completeness of any such documents or
information;
(c) it has made its own independent investigation and
assessment of the financial affairs of each Obligor and
their related entities and the other parties considered
by it to be relevant in connection with this
transaction and agrees that it has not relied and will
not rely on the Existing Bank, the Arrangers, the
Facility Agent, the Security Agent or the Banks to
assess or keep under review on its behalf the financial
condition, creditworthiness, condition, affairs, status
or nature of any member of the Group or any other party
to the Finance Documents (save as otherwise expressly
provided therein);
(d) it has power and authority to become a party to the
Finance Documents and has taken all necessary action to
authorise execution of this Substitution Certificate
and has obtained all necessary approvals and consents
to the assumption of its obligations under the Facility
Agreement and the Intercreditor Agreement; and
(e) it is a Recognised Bank.
6. The New Bank hereby undertakes with the Existing Bank and
each of the other parties to the Facility Agreement and the
Intercreditor Agreement that it will perform in accordance
with its terms all those obligations which by the terms of
the Facility Agreement and the Intercreditor Agreement will
be assumed by it thereunder after delivery of the executed
copies of this Substitution Certificate to the Facility
Agent and countersignature thereof by the Facility Agent,
and the New Bank hereby undertakes to be bound by the
provisions of the Facility Agreement and the Intercreditor
Agreement as if the New Bank were an original party thereto.
7. The Existing Bank hereby gives notice that nothing herein or
in any Finance Document (or any other document relating
thereto) shall oblige the Existing Bank (i) to accept a re-
transfer from or novation by the New Bank of the whole or
any part of its rights, benefits and/or obligations under
the Finance Documents or (ii) to support any losses directly
or indirectly sustained or incurred by the New Bank for any
reason whatsoever including, without limitation, the non-
performance by any Obligor or any other party to the Finance
Documents (or any document relating thereto) of their
obligations under any such document. The New Bank hereby
acknowledges the absence of any such obligation as is
referred to in paragraphs (i) and (ii) above.
8. This Substitution Certificate shall be governed by and
construed in accordance with English law.
9. This Substitution Certificate may be executed in any number
of counterparts and all of such counterparts taken together
shall be deemed to constitute one and the same instrument.
<PAGE> 103
Schedule to Substitution Certificate
Existing Bank's Commitments (Portion Substituted)
Tranche 1 Commitment:
Tranche 2 Commitment:
Tranche 3 Commitment:
Existing Bank's Participations in Utilisations (Portion
Substituted)
Tranch Amount Amount hereby Type of Utilisation Next
of Existing Substituted Utilisation Date Interest
Bank's
participation Payment Date
Details of Bills:
Existing Bank: New Bank:
[Name] [Name]
By: By:
Date: Date:
Facility Office:
Address for Notices:
Attention:
Telex:
Fax:
CREDIT SUISSE
for itself and as Facility Agent and for and
on behalf of the Obligors, the Arrangers,
the Banks and the Security Agent and each
of the parties to the Intercreditor Agreement
By: By:
Date:
<PAGE> 104
SCHEDULE E
CALCULATION OF ADDITIONAL COST
(1) The Additional Cost relative to each Advance where (and to
the extent that) Banks making such Advance are subject to
the Mandatory Liquid Asset requirements of the Bank of
England, will be, subject as hereinafter provided, for the
Interest Period relating to such Advance (or, if longer than
three months, for each consecutive period of three months
within such Interest Period and for any balance of such
Interest Period) (which Interest Period if not longer than
three months and each other such period is herein referred
to as a "Relevant Period") the percentage rate (or the
arithmetic average of the percentage rates where there is
more than one Reference Bank supplying the same) supplied by
the Reference Banks (or such of them as supply it to the
Facility Agent) arrived at by applying the following formula
in relation to each Reference Bank:-
Additional Cost = BY + L(Y-X) + S(Y-Z) % per annum
100-(B + S)
Where:-
B = The percentage of such Reference Bank's
eligible liabilities then required to be held on a
non-interest-bearing deposit account with the Bank
of England pursuant to the cash ratio requirements
of the Bank of England.
Y = The rate at which Sterling deposits in an
amount approximately equal to the principal amount
of such Advance are offered by such Reference Bank
to leading banks in the London Interbank Market at
or about 11.00 a.m. on the Utilisation Date
relative to such Advance (or the first day of the
relevant Interest Period) for a period comparable
to the Relevant Period in relation to such
Advance.
L = The average percentage of eligible
liabilities which the Bank of England from time to
time requires each Reference Bank to maintain as
secured money with members of the London Discount
Market Association and/or as secured call money
with those money brokers and gilt-edged market
makers recognised by the Bank of England.
X = The rate at which secured Sterling deposits
in an amount approximately equal to the principal
amount of such Advance may be placed by such
Reference Bank with members of the London Discount
Market Association and/or as secured call money
with money brokers and gilt-edged market makers at
or about 11.00 a.m. on such Utilisation Date (or
the first day of the relevant Interest Period) for
a period comparable to the Relevant Period in
relation to such Advance.
S = The percentage of such Reference Bank's
eligible liabilities then required to be placed as
a special deposit with the Bank of England.
<PAGE> 105
Z = The percentage interest rate per annum
allowed by the Bank of England on special
deposits.
For the purposes of this paragraph "eligible liabilities"
and "special deposits" shall bear the meanings ascribed to
them from time to time by the Bank of England.
(2) In the application of the above formula, B, Y, L, X, S and Z
will be included in the formula as figures and not as
percentages, e.g. if B = 0.5% and Y = 15%, BY will be
calculated as 0.5 x 15 and not as 0.5% x 15%.
(3) The Additional Cost computed by the Facility Agent in
accordance with this schedule shall be rounded upward, if
necessary, to four decimal places.
(4) The calculation in respect of the Additional Cost for each
Advance denominated in Sterling will be made by the Facility
Agent on the first day of each Relevant Period.
(5) Calculations will be made on the basis of a year of 365 days
and the actual number of days elapsed.
(6) If no Reference Bank furnishes the appropriate information
for the purposes of this Schedule, the Additional Cost shall
be determined by the Facility Agent on the basis of such
other information and quotations as the Facility Agent shall
reasonably determine to be appropriate.
(7) In the event of a change in circumstances (including the
imposition of alternative or additional official
requirements, excluding capital adequacy requirements) which
renders the above formula inappropriate in the reasonable
opinion of the Facility Agent, the Facility Agent shall
promptly notify the Company and the Banks thereof and (after
consultation with the Reference Banks and the Company) shall
notify the Borrowers of the manner in which the Additional
Cost shall thereafter be determined (which manner shall be
determined in a bona fide manner and provide a fair
assessment of the Additional Cost) and the Obligors and the
Banks shall be bound thereby.
<PAGE> 106
SCHEDULE F
ACCESSION AGREEMENT
THIS ACCESSION AGREEMENT is dated the day of ,
19 and made BETWEEN [ ] (the "Additional
Borrower") (1), (the "Company" and an "Existing Borrower" and a
"Guarantor") (2), CSW (UK) PLC ("Bidco") and an "Existing
Borrower" and a "Guarantor") (3) [ ] (each
also an "Existing Borrower") (4), and CREDIT SUISSE in its
capacities as Arranger, Facility Agent and Security Agent under
the Facility Agreement referred to in Recital (A) hereof and on
behalf of the other Arrangers and the Banks parties to and
defined as such in such Facility Agreement and on behalf of each
of the parties to the Intercreditor Agreement (5) other than the
Obligors.
WHEREAS:
(A) By and upon and subject to the terms of a facility agreement
(the "Facility Agreement", which term includes any
supplements and amendments thereto which may at any time be
made in relation thereto and also any Substitution
Certificates and Accession Agreements) dated 5th November,
1995 made between the Company and Bidco as Borrowers and
Guarantors as therein defined, the Arrangers, the several
banks parties thereto as Banks, Credit Suisse as Facility
Agent and Security Agent, term loan facilities and a
revolving credit facility were made available to certain of
the Borrowers (as defined in the Facility Agreement).
(B) Each of the entities expressed to be party hereto (other
than the Additional Borrower), whether directly or through
signature hereof by the Facility Agent or the Company on its
behalf, is a party to the Facility Agreement and the
Intercreditor Agreement either by having been an original
party thereto or pursuant to an Accession Agreement or a
Substitution Certificate to which it is party or otherwise.
(C) The Additional Borrower wishes to become party to the
Facility Agreement as a Borrower pursuant to the procedure
established in Clause 19 of the Facility Agreement and a
party to the Intercreditor Agreement pursuant to the
procedure established in Clause 18 of the Intercreditor
Agreement, by the execution of this Accession Agreement.
NOW IT IS HEREBY AGREED as follows:-
1. Definitions
Terms used herein which are defined in or to which a meaning
or construction is assigned by or in the Facility Agreement
shall, unless otherwise defined herein, have the same
meaning and construction herein as therein.
2. Agreements, Confirmations and Representations
(a) The Additional Borrower hereby:-
(i) confirms that it has received a copy of the Facility
Agreement and the Intercreditor Agreement, together
with such other documents and information as it has
required in connection herewith and therewith;
<PAGE> 107
(ii) agrees to become, with effect from the date of this
Accession Agreement a Borrower under the Facility
Agreement and an Obligor under the Intercreditor
Agreement and agrees to be bound in such capacity with
effect from such date by the terms of the Facility
Agreement and the Intercreditor Agreement and
undertakes accordingly to perform its obligations as a
Borrower or, as the case may be, Obligor thereunder;
(iii) confirms the accuracy of the information set out
under its name at the end of this Accession Agreement;
(iv) represents and warrants as a Borrower to the Arranger,
the Banks, the Security Agent and the Facility Agent in
the terms of Clause 20.1 (other than paragraphs [(k),
(l), (m), and (o)(ii),] of the Facility Agreement by
reference to the facts and circumstances existing at
the date hereof; and
(v) confirms that it has not relied on any of the Finance
Parties, to assess or inform it as to the legality,
validity, effect or enforceability of the Facility
Agreement or the Intercreditor Agreement or any other
document referred to therein or the accuracy or
completeness of any such information as is referred to
in paragraph (i) above or the creditworthiness,
affairs, condition or status of any of the parties to
the Facility Agreement or the Intercreditor Agreement,
or any such other document.
(b) The Existing Borrower(s), the Guarantors and the Finance
Parties and the parties to the Intercreditor Agreement
hereby agree amongst themselves and with the Additional
Borrower that the Additional Borrower shall become party to
the Facility Agreement and the Intercreditor Agreement with
effect from the date of this Accession Agreement.
3. Law
This Accession Agreement shall be governed by and construed
in accordance with English law.
IN WITNESS WHEREOF the parties hereto have caused this Accession
Agreement to be duly executed on the date first written above.
Additional Borrower:
Company:
CSW INVESTMENTS
for itself and as agent for and on
behalf of the Existing Borrowers and
the Guarantors
By:
<PAGE> 108
Facility Agent:
CREDIT SUISSE
for itself and as Facility Agent and
for and on behalf of the Arrangers,
the Banks and the Security Agent
and all parties to the
Intercreditor Agreement
other than the Obligors
By:
<PAGE> 109
SCHEDULE G
DOCUMENTARY CONDITIONS PRECEDENT
1. A certified copy of the memorandum and articles of
association (if any), statutes or by-laws and of each other
constitutional or governing document of each Obligor.
2. A certified copy or originals of all other Transaction
Documents.
3. The fee letter(s) referred to in Clause 26.2 and 26.3 duly
executed by the Company.
4. At least two originals of (a) the Security Documents, duly
executed by each relevant Obligor, and (b) (if Subordinated
Debt is to be subscribed) the Intercreditor Agreement, duly
executed by all parties other than the Finance Parties.
5. A certified copy of a resolution of the Directors of each
Obligor approving the transactions and matters contemplated
by this Agreement and the other Finance Documents to which
it is a party and authorising an Authorised Signatory of
such Obligor to execute respectively on their behalf all the
Finance Documents to which they are party and in the case of
documents to be executed under seal or as a deed,
authorising the execution thereof as a deed or the
affixation of the seal and the witnessing thereof by the
appropriate officers in accordance with the relevant
Obligor's articles of association, statutes, by-laws or
other constitutional documents.
6. A copy of (and of all applications for) any and all
approvals, consents, licences, exemptions and other
requirements of governmental and other authorities required
for the entering into or performance of the Finance
Documents and any other Transaction Document.
7. A specimen, of the signature of each person (each being an
Authorised Signatory) authorised to execute any of the
Finance Documents on behalf of any Obligor and/or to sign
all notices, certificates and other documents or
communications to be delivered by such Obligor thereunder.
8. An opinion, addressed to the Facility Agent and the Banks,
of English legal advisers to the Facility Agent and the
Banks as to such matters relating to the Obligors and their
obligations under the Finance Documents as the Facility
Agent may reasonably require.
9. The Offer Document, reflecting the text of the Press
Release.
10. The Press Release.
11. A copy of any and each Licence Undertaking.
12. A copy of any amendments to be made to the Licence
consequent on the acquisition of the Shares by the Company.
<PAGE> 110
SCHEDULE H
Form of Bill
Face of Bill
No. for pounds ...................
Commitment pounds .......... 19.....
To
On ................................... 19.... pay against this
Bill of Exchange to our order the sum of
.................................................... for value
received against [ ].
For and on behalf of
....................
Authorised Signatory
Reverse of Bill
For and on behalf of
....................
Authorised Signatory
<PAGE> 111
SCHEDULE I
Form of Power of Attorney
THIS POWER OF ATTORNEY is made as a deed the day of
199[ ] by [ ] (registered number
[ ]) (the "Borrower") for the purposes of
a Facility Agreement dated 5th November, 1995 (the "Facility
Agreement") made between (inter alios) the Borrower, the
Arrangers, the Banks and Credit Suisse as Facility Agent and
Security Agent.
1. Terms defined in the Facility Agreement have their defined
meanings when used in this Deed.
2. The Borrower hereby appoints Credit Suisse to be the
attorney of the Borrower, on behalf of the Borrower, to
draw, endorse and deliver, in accordance with the following
provisions of this Deed, any Bills which the Borrower is
obliged under Clause 6 of the Facility Agreement to ensure
that the Facility Agent receives as a result of any
Utilisations of the Tranche 3 Facility by the Borrower by
way of Bills.
3. The powers conferred on Credit Suisse under paragraph 2 of
this Deed shall be exerciseable jointly by any two persons
(whether or not directors) who are for the time being
authorised signatories of Credit Suisse.
4. In exercising those powers, such authorised signatories
shall:
(i) act as the agents of Credit Suisse in its capacity as
the Borrower's attorney under this Deed; and
(ii) sign on behalf of Credit Suisse and the Borrower as
follows:
"For and on behalf of [ ] by Credit Suisse as
Attorney.
....................
Authorised Signatory"
5. Any authorised signatory of Credit Suisse may make such
arrangements as are customary for facilities of this type
for the Bills drawn and endorsed under this Deed to be
delivered in accordance with the Facility Agreement.
6. Any Bills drawn, endorsed and delivered in accordance with
this Deed shall be binding upon the Borrower for all
purposes and the Borrower hereby agrees to ratify any action
taken by or on behalf of Credit Suisse in accordance with
the terms of this Deed.
7. This Deed shall remain in full force and effect and may be
acted upon until the receipt by Credit Suisse of a notice in
writing which is signed by a director or the secretary of
the Borrower, is addressed to Geoff Ireland or John
Chrisford of Credit Suisse, is left at (not posted to) the
offices of Credit Suisse and expressly revokes this Deed.
<PAGE> 112
8. Notwithstanding the foregoing such revocation shall not take
effect with respect to any Bills in relation to which a
Drawdown Notice has been issued prior to the time of receipt
by Credit Suisse of the notice of revocation referred to in
paragraph 7 above and in relation to which the powers of
Credit Suisse contained in this Deed shall remain in full
force and effect.
9. This Deed shall be governed by English law.
IN WITNESS whereof the Borrower has executed this Deed on the
date first before written.
Executed as a deed by )
[ ] )
acting by )
and )
..........................
director
..........................
director/secretary
<PAGE> 113
SIGNATORIES TO FACILITY AGREEMENT
The Company
CSW INVESTMENTS
By: S. MCDONNELL
Bidco
CSW (UK) PLC
By: S. MCDONNELL
The Arrangers
CITIBANK INTERNATIONAL PLC
By: E. ROBINSON
CREDIT SUISSE
By: S. JACKSON By: R. SMITH-MORGAN
UNION BANK OF SWITZERLAND
By: B. MILLS By: P. COSTELLO
The Original Banks
CITIBANK, N.A.
By: S. ZAMAN
CREDIT SUISSE
By: S. JACKSON By: R. SMITH-MORGAN
UNION BANK OF SWITZERLAND
By: B. MILLS By: P. COSTELLO
The Facility Agent and the Security Agent
CREDIT SUISSE
By: S. JACKSON By: R. SMITH-MORGAN
Exhibit 12.1
Central Power and Light Company
Ratio of Earnings to Fixed Charges
For Years Ended December 31
1995 1994 1993 1992 1991
(thousands, except ratios)
Operating income $282,184 $256,251 $190,079 $266,665 $249,573
Adjustments:
Income taxes 51,755 51,329 (18,954) 34,726 42,869
Provision for
deferred income
taxes (30,025) 26,659 90,520 48,610 36,821
Deferred investment
tax credits (5,789) (5,789) (5,806) (5,837) (5,831)
Other income
and deductions 14,880 1,272 1,663 890 2,522
Allowance for
borrowed and equity
funds used during
construction 4,514 3,689 2,618 1,171 2,124
Mirror CWIP
amortization 41,000 68,000 75,702 82,527 96,671
Earnings $358,519 $401,411 $335,822 $428,752 $424,749
Fixed charges:
Interest on long-
term debt $116,205 $111,408 $112,939 $125,476 $124,987
Interest on short-
term debt and other 19,926 12,365 11,993 7,266 8,697
Fixed charges $136,131 $123,773 $124,932 $132,742 $133,684
Ratio of earnings
to fixed charges 2.63 3.24 2.69 3.23 3.18
Exhibit 12.2
Public Service Company of Oklahoma
Consolidated Ratio of Earnings to Fixed Charges
For Years Ended December 31
1995 1994 1993 1992 1991
(thousands, except ratios)
Operating income $111,769 $98,258 $72,156 $78,096 $86,796
Adjustments:
Income taxes 37,490 27,954 13,554 (835) 18,321
Provision for
deferred income
taxes 2,704 7,779 9,537 21,157 10,133
Deferred investment
tax credits (2,789) (2,789) (2,838) (2,711) (2,925)
Other income
and deductions 2,274 933 531 (940) (1,667)
Allowance for
borrowed and equity
funds used during
construction 3,734 2,513 1,948 740 1,931
Interest portion of
financing leases -- -- 17 37 34
Earnings $155,182 $134,648 $94,905 $95,544 $112,623
Fixed charges:
Interest on long-
term debt $29,594 $29,594 $31,410 $30,688 $30,545
Interest on short-
term debt and other 6,355 3,844 2,729 1,646 3,286
Interest portion of
financing leases -- -- 17 37 34
Fixed charges $35,949 $33,438 $34,156 $32,371 $33,865
Ratio of earnings to
fixed charges 4.32 4.03 2.78 2.95 3.33
Exhibit 12.3
Southwestern Electric Power Company
Ratio of Earnings to Fixed Charges
For Years Ended December 31
1995 1994 1993 1992 1991
(thousands, except ratios)
Operating income $162,776 $145,922 $118,057 $145,727 $143,317
Adjustments:
Income taxes 41,131 20,622 37,108 31,478 39,785
Provision for
deferred income
taxes 6,287 22,248 (648) 10,258 5,566
Deferred investment
tax credits (4,786) (4,278) (5,193) (6,864) (4,938)
Other income and
deductions 178 4,656 3,658 537 3,883
Allowance for borrowed
and equity funds used
during construction 9,334 6,097 2,580 182 978
Interest portion of
financing leases 1,896 2,562 2,534 2,783 2,946
Earnings $216,816 $197,829 $158,096 $184,101 $191,537
Fixed charges:
Interest on long-
term debt $44,468 $43,395 $40,958 $47,490 $48,382
Interest on short-
term debt and
other 10,706 7,568 4,866 4,073 3,172
Interest portion of
financing leases 1,896 2,562 2,534 2,783 2,946
Fixed charges $57,070 $53,525 $48,358 $54,346 $54,500
Ratio of earnings
to fixed charges 3.80 3.70 3.27 3.39 3.51
Exhibit 12.4
West Texas Utilities Company
Ratio of Earnings to Fixed Charges
For Years Ended December 31
1995 1994 1993 1992 1991
(thousands, except ratios)
Operating income $59,486 $54,763 $46,576 $57,302 $57,925
Adjustments:
Income taxes 6,456 7,900 10,869 12,387 13,283
Provision for
deferred income
taxes 1,971 8,377 3,593 6,426 5,216
Deferred investment
tax credits (1,321) (1,321) (1,321) (1,515) (1,349)
Other income and
deductions (463) 4,210 1,907 1,114 1,603
Allowance for
borrowed and equity
funds used during
construction 1,030 474 247 156 146
Earnings $67,159 $74,403 $61,871 $75,870 $76,824
Fixed charges:
Interest on long-
term debt $21,413 $18,547 $19,225 $21,368 $21,339
Interest on short-
term debt and other 4,110 3,534 2,988 2,197 1,967
Fixed charges $25,523 $22,081 $22,213 $23,565 $23,306
Ratio of earnings
to fixed charges 2.63 3.37 2.79 3.22 3.30
Exhibit 21
Central And South West Corporation
Subsidiaries Of The Registrant
As Of December 31, 1995
Company Name
Business Conducted Under Same Name State or Jurisdiction of
Incorporation
Central Power and Light Company Texas
539 North Carancahua Street
Corpus Christi, Texas 78401-2802
Public Service Company of Oklahoma Oklahoma
212 East 6th Street
Tulsa, Oklahoma 74119-1212
Southwestern Electric Power Company Delaware
428 Travis Street
Shreveport, Louisiana 71156-0001
West Texas Utilities Company Texas
301 Cypress Street
Abilene, Texas 79601-5820
SEEBOARD, plc United Kingdom
Registered Office
Forest Gate, Brighton Road
Crawley, West Sussex RH11 9BH
Transok, Inc. Oklahoma
110 West 7th Street
Tulsa, Oklahoma 74119-1044
Central and South West Services, Inc. Texas
2 West Second Street
Tulsa, Oklahoma 74103-3102
and
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
CSW Communications, Inc. Delaware
1705 South Capital of Texas Highway
Suite 400
Austin, Texas 78746
CSW Credit, Inc. Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
CSW Energy, Inc. Texas
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
CSW International, Inc. Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
CSW Leasing, Inc. Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
EnerShop Inc. Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
Exhibit 23.1
Consent of Independent Public Accountants
To the Stockholders and Board of Directors of
Central and South West Corporation:
As independent public accountants, we hereby consent to the
incorporation of our reports dated February 28, 1996, included in,
and incorporated by reference in this Form 10-K, into Central and
South West Corporation's previously filed registration statements on
Form S-8 (File Nos. 2-70746, 33-12992, 33-49301, 33-63027 and 33-
64233) and on Form S-3 (File No. 33-50193 and 333-00911).
Arthur Andersen LLP
Dallas, Texas
March 27, 1996
Exhibit 23.2
Consent of Independent Public Accountants
To the Stockholders and Board of Directors of
Central Power and Light Company:
As independent public accountants, we hereby consent to the
incorporation of our reports dated February 28, 1996, included in,
and incorporated by reference in this Form 10-K, into Central Power
and Light Company's previously filed registration statement on Form S-
3 (File Nos. 33-49577 and 33-52759).
Arthur Andersen LLP
Dallas, Texas
March 27, 1996
Exhibit 23.3
Consent of Independent Public Accountants
To the Stockholders and Board of Directors of
Public Service Company of Oklahoma:
As independent public accountants, we hereby consent to the
incorporation of our reports dated February 28, 1996, included in,
and incorporated by reference in this Form 10-K, into Public Service
Company of Oklahoma's previously filed registration statement on Form
S-3 (File No. 333-00973).
Arthur Andersen LLP
Dallas, Texas
March 27, 1996
Exhibit 23.4
Consent of Independent Public Accountants
To the Stockholders and Board of Directors of
West Texas Utilities Company:
As independent public accountants, we hereby consent to the
incorporation of our reports dated February 28, 1996, included in,
and incorporated by reference in this Form 10-K, into West Texas
Utilities Company's previously filed registration statement on Form S-
3 (File No. 33-60801).
Arthur Andersen LLP
Dallas, Texas
March 27, 1996
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned, as President and Chief Executive Officer of
Central and South West Corporation (the "Corporation"),
hereby makes, constitutes and appoints Glenn D. Rosilier and
Wendy G. Hargus and each of them severally, his true and
lawful attorneys-in-fact and agents, each with full power
and authority (acting alone and without the others) to
execute in the name and on behalf of the undersigned, in any
and all capacities, the Corporation's Annual Report on Form
10-K for 1995 and any and all amendments thereto, to be
filed under the Securities Exchange Act of 1934, as amended,
and any other documents and instruments incidental thereto,
and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and
Exchange Commission, hereby granting to such attorneys-in-
fact, and agents, and each of them, full power and authority
of substitution and revocation in the premises and full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
E. R. Brooks
President & Chief Executive Officer
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.2
POWER OF ATTORNEY
The undersigned, as Senior Vice President and Chief
Financial Officer of Central and South West Corporation (the
"Corporation"), hereby makes, constitutes and appoints E. R.
Brooks and Wendy G. Hargus, and each of them severally, his
true and lawful attorneys-in-fact and agents, each with full
power and authority (acting alone and without the others) to
execute in the name and on behalf of the undersigned, in any
and all capacities, the Corporation's Annual Report on Form
10-K for 1995 and any and all amendments thereto, to be
filed under the Securities Exchange Act of 1934, as amended,
and any other documents and instruments incidental thereto,
and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and
Exchange Commission, hereby granting to such attorneys-in-
fact, and agents, and each of them, full power and authority
of substitution and revocation in the premises and full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
Glenn D. Rosilier
Senior Vice President and Chief Financial Officer
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3,1998
EXHIBIT 24.3
POWER OF ATTORNEY
The undersigned, as Controller of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks and Glenn D. Rosilier, and each of
them severally, her true and lawful attorney-in-fact and
agents, each with full power and authority (acting alone and
without the other) to execute in the name and on behalf of
the undersigned, in any and all capacities, the
Corporation's Annual Report on Form 10-K for 1995 and any
and all amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorney-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorney-in-fact and agent, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
Wendy G. Hargus
Controller
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks, Glenn D. Rosilier and Wendy G.
Hargus, and each of them severally, his true and lawful
attorneys-in-fact and agents, each with full power and
authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and
agents, and each of them, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
Glenn Biggs
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks, Glenn D. Rosilier and Wendy G.
Hargus, and each of them severally, his true and lawful
attorneys-in-fact and agents, each with full power and
authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and
agents, and each of them, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
Molly Shi Boren
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks, Glenn D. Rosilier and Wendy G.
Hargus, and each of them severally, his true and lawful
attorneys-in-fact and agents, each with full power and
authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and
agents, and each of them, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
Donald M. Carlton
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks, Glenn D. Rosilier and Wendy G.
Hargus, and each of them severally, his true and lawful
attorneys-in-fact and agents, each with full power and
authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and
agents, and each of them, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
Thomas H. Cruikshank
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks, Glenn D. Rosilier and Wendy G.
Hargus, and each of them severally, his true and lawful
attorneys-in-fact and agents, each with full power and
authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and
agents, and each of them, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
Joe H. Foy
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks, Glenn D. Rosilier and Wendy G.
Hargus, and each of them severally, his true and lawful
attorneys-in-fact and agents, each with full power and
authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and
agents, and each of them, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
Robert W. Lawless
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks, Glenn D. Rosilier and Wendy G.
Hargus, and each of them severally, his true and lawful
attorneys-in-fact and agents, each with full power and
authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and
agents, and each of them, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
Harry D. Mattison
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks, Glenn D. Rosilier and Wendy G.
Hargus, and each of them severally, his true and lawful
attorneys-in-fact and agents, each with full power and
authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and
agents, and each of them, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
James L. Powell
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks, Glenn D. Rosilier and Wendy G.
Hargus, and each of them severally, his true and lawful
attorneys-in-fact and agents, each with full power and
authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and
agents, and each of them, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
Thomas V. Shockley, III
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks, Glenn D. Rosilier and Wendy G.
Hargus, and each of them severally, his true and lawful
attorneys-in-fact and agents, each with full power and
authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and
agents, and each of them, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
J. C. Templeton
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks, Glenn D. Rosilier and Wendy G.
Hargus, and each of them severally, his true and lawful
attorneys-in-fact and agents, each with full power and
authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and
agents, and each of them, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
Lloyd D. Ward
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West
Corporation (the "Corporation"), hereby makes, constitutes
and appoints E. R. Brooks, Glenn D. Rosilier and Wendy G.
Hargus, and each of them severally, his true and lawful
attorneys-in-fact and agents, each with full power and
authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and
agents, and each of them, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
or any of them, may do or cause to be done by virtue of this
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 18th day of January, 1996.
T. J. Ellis
Subscribed and sworn to before me this 18th day of January,
1996.
Frederic L. Frawley
Notary Public
My Commission Expires:
December 3, 1998
EXHIBIT 24.5
POWER OF ATTORNEY
The undersigned, as President and Chief Executive Officer of
Central Power and Light Company (the "Company"), hereby
makes, constitutes and appoints R. Russell Davis his true
and lawful attorneys-in-fact and agents, with full power and
authority to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorney-in-fact, and agent, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agent,
may do or cause to be done by virtue of this Power of
Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 19th day of January, 1996.
Robert R. Carey
Subscribed and sworn to before me this 19th day of January,
1996 by Robert R. Carey.
Alice G. Crisp
Notary Public
My Commission Expires:
8-3-98
EXHIBIT 24.6
POWER OF ATTORNEY
The undersigned, as Controller of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey his true and lawful attorney-in-
fact and agent, with full power and authority to execute in
the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorney-in-fact, and
agent, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorney-in-fact and agent, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 19th day of January, 1996.
R. Russell Davis
Subscribed and sworn to before me this 19th day of January,
1996 by R. Russell Davis.
Kit Hill
Notary Public
My Commission Expires:
6-14-97
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 19th day of January, 1996.
John F. Brimberry
Director
Subscribed and sworn to before me this 19th day of January,
1996 by John F. Brimberry.
Alice G. Crisp
Notary Public
My Commission Expires:
8-3-98
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
E. R. Brooks
Director
Subscribed and sworn to before me this 23rd day of January,
1996 by E. R. Brooks.
Alice G. Crisp
Notary Public
My Commission Expires:
8-3-98
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 24th day of January, 1996.
Ruben M. Garcia
Director
Subscribed and sworn to before me this 24th day of January,
1996 by Ruben M. Garcia.
Phyllis A. Pego
Notary Public
My Commission Expires:
12-9-97
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 19th day of January, 1996.
David L. Hooper
Director
Subscribed and sworn to before me this 19th day of January,
1996 by David L. Hooper.
Alice G. Crisp
Notary Public
My Commission Expires:
8-3-98
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 19th day of January, 1996.
Harry D. Mattison
Director
Subscribed and sworn to before me this 19th day of January,
1996 by Harry D. Mattison.
Alice G. Crisp
Notary Public
My Commission Expires:
8-3-98
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 19th day of January, 1996.
Robert A. McAllen
Director
Subscribed and sworn to before me this 19th day of January,
1996 by Robert A. McAllen.
Alice G. Crisp
Notary Public
My Commission Expires:
8-3-98
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 19th day of January, 1996.
Pete J. Morales, Jr.
Director
Subscribed and sworn to before me this 19th day of January,
1996 by Pete J. Morales, Jr.
Alice G. Crisp
Notary Public
My Commission Expires:
8-3-98
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 19th day of January, 1996.
S. Loyd Neal, Jr.
Director
Subscribed and sworn to before me this 19th day of January,
1996 by S. Loyd Neal, Jr.
Alice G. Crisp
Notary Public
My Commission Expires:
8-3-98
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 19th day of January, 1996.
H. Lee Richards
Director
Subscribed and sworn to before me this 22nd day of January,
1996 by H. Lee Richards.
Marilyn M. Wilkins
Notary Public
My Commission Expires:
10-29-98
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 19th day of January, 1996.
Melanie J. Richardson
Director
Subscribed and sworn to before me this 19th day of January,
1996 by Melanie J. Richardson.
Alice G. Crisp
Notary Public
My Commission Expires:
8-3-98
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 19th day of January, 1996.
J. Gonzalo Sandoval
Director
Subscribed and sworn to before me this 19th day of January,
1996 by J. Gonzalo Sandoval.
Alice G. Crisp
Notary Public
My Commission Expires:
8-3-98
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light
Company (the "Company"), hereby makes, constitutes and
appoints Robert R. Carey and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 19th day of January, 1996.
Gerald E. Vaughn
Director
Subscribed and sworn to before me this 19th day of January,
1996 by Gerald E. Vaughn.
Alice G. Crisp
Notary Public
My Commission Expires:
8-3-98
EXHIBIT 24.8
POWER OF ATTORNEY
The undersigned, as President and Chief Executive Officer of
Public Service Company of Oklahoma (the "Company"), hereby
makes, constitutes and appoints R. Russell Davis his true
and lawful attorneys-in-fact and agents, with full power and
authority to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorney-in-fact, and agents, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agents,
may do or cause to be done by virtue of this Power of
Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 16th day of January, 1996.
Robert L. Zemanek
Subscribed and sworn to before me this 16th day of January,
1996 by Robert L. Zemanek.
Lina P. Holm
Notary Public
My Commission Expires:
January 28, 1999
EXHIBIT 24.9
POWER OF ATTORNEY
The undersigned, as Controller of Public Service Company of
Oklahoma (the "Company"), hereby makes, constitutes and
appoints Robert L. Zemanek his true and lawful attorney-in-
fact and agent, with full power and authority to execute in
the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorney-in-fact, and
agent, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorney-in-fact and agent, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 16th day of January, 1996.
R. Russell Davis
Subscribed and sworn to before me this 16th day of January,
1996 by R. Russell Davis.
Lina P. Holm
Notary Public
My Commission Expires:
January 28, 1999
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of
Oklahoma (the "Company"), hereby makes, constitutes and
appoints Robert L. Zemanek and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 16th day of January, 1996.
Harry A. Clarke
Subscribed and sworn to before me this 16th day of January,
1996 by Harry A. Clarke.
Lina P. Holm
Notary Public
My Commission Expires:
January 28, 1999
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of
Oklahoma (the "Company"), hereby makes, constitutes and
appoints Robert L. Zemanek and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 16th day of January, 1996.
Harry D. Mattison
Subscribed and sworn to before me this 16th day of January,
1996 by Harry D. Mattison.
Lina P. Holm
Notary Public
My Commission Expires:
January 28, 1999
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of
Oklahoma (the "Company"), hereby makes, constitutes and
appoints Robert L. Zemanek and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 16th day of January, 1996.
E. R. Brooks
Subscribed and sworn to before me this 16th day of January,
1996 by E. R. Brooks.
Lina P. Holm
Notary Public
My Commission Expires:
January 28, 1999
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of
Oklahoma (the "Company"), hereby makes, constitutes and
appoints Robert L. Zemanek and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 16th day of January, 1996.
Robert B. Taylor, Jr.
Subscribed and sworn to before me this 16th day of January,
1996 by Robert B. Taylor, Jr.
Lina P. Holm
Notary Public
My Commission Expires:
January 28, 1999
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of
Oklahoma (the "Company"), hereby makes, constitutes and
appoints Robert L. Zemanek and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 16th day of January, 1996.
Paul K. Lackey, Jr.
Subscribed and sworn to before me this 16th day of January,
1996 by Paul K. Lackey, Jr.
Lina P. Holm
Notary Public
My Commission Expires:
January 28, 1999
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of
Oklahoma (the "Company"), hereby makes, constitutes and
appoints Robert L. Zemanek and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 26th day of January, 1996.
Paula Marshall-Chapman
Subscribed and sworn to before me this 26th day of January,
1996 by Paula Marshall-Chapman.
Lina P. Holm
Notary Public
My Commission Expires:
January 28, 1999
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of
Oklahoma (the "Company"), hereby makes, constitutes and
appoints Robert L. Zemanek and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 16th day of January, 1996.
William R. McKamey
Subscribed and sworn to before me this 16th day of January,
1996 by William R. McKamey.
Lina P. Holm
Notary Public
My Commission Expires:
January 28, 1999
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of
Oklahoma (the "Company"), hereby makes, constitutes and
appoints Robert L. Zemanek and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 16th day of January, 1996.
Mary M. Polfer
Subscribed and sworn to before me this 16th day of January,
1996 by Mary M. Polfer.
Lina P. Holm
Notary Public
My Commission Expires:
January 28, 1999
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of
Oklahoma (the "Company"), hereby makes, constitutes and
appoints Robert L. Zemanek and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 16th day of January, 1996.
Waldo Zerger, Jr.
Subscribed and sworn to before me this 16th day of January,
1996 by Waldo Zerger, Jr.
Lina P. Holm
Notary Public
My Commission Expires:
January 28, 1999
EXHIBIT 24.11
POWER OF ATTORNEY
The undersigned, as President and Chief Executive Officer of
Southwestern Electric Power Company (the "Company"), hereby
makes, constitutes and appoints R. Russell Davis his true
and lawful attorneys-in-fact and agents, with full power and
authority to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorney-in-fact, and agent, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agent,
may do or cause to be done by virtue of this Power of
Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 24th day of January, 1996.
Richard H. Bremer
Subscribed and sworn to before me this 24th day of January,
1996 by Richard H. Bremer.
Judith W. Culver
Notary Public
Commission is for Life
EXHIBIT 24.12
POWER OF ATTORNEY
The undersigned, as Controller of Southwestern Electric
Power Company (the "Company"), hereby makes, constitutes and
appoints Richard H. Bremer his true and lawful attorney-in-
fact and agent, with full power and authority to execute in
the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorney-in-fact, and
agent, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorney-in-fact and agent, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 24th day of January, 1996.
R. Russell Davis
Subscribed and sworn to before me this 24th day of January,
1996 by R. Russell Davis.
Kit Hill
Notary Public
My Commission Expires:
6-14-97
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric
Power Company (the "Company"), hereby makes, constitutes and
appoints Richard H. Bremer and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 31st day of January, 1996.
E. R. Brooks
Director
Subscribed and sworn to before me this 31st day of January,
1996 by E. R. Brooks.
L. J. Jimmerson
Notary Public
My Commission Expires:
May 11, 1996
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric
Power Company (the "Company"), hereby makes, constitutes and
appoints Richard H. Bremer and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 24th day of January, 1996.
James E. Davison
Director
Subscribed and sworn to before me this 24th day of January,
1996 by James E. Davison.
Judith W. Culver
Notary Public
My Commission Expires:
My commission is for Life
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric
Power Company (the "Company"), hereby makes, constitutes and
appoints Richard H. Bremer and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 24th day of January, 1996.
Al P. Eason, Jr.
Director
Subscribed and sworn to before me this 24th day of January,
1996 by Al P. Eason, Jr.
Judith W. Culver
Notary Public
My Commission Expires:
My commission is for Life
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric
Power Company (the "Company"), hereby makes, constitutes and
appoints Richard H. Bremer and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 24th day of January, 1996.
W. J. Googe, Jr.
Director
Subscribed and sworn to before me this 24th day of January,
1996 by W. J. Googe, Jr.
Judith W. Culver
Notary Public
My Commission Expires:
My commission is for Life
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric
Power Company (the "Company"), hereby makes, constitutes and
appoints Richard H. Bremer and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 24th day of January, 1996.
Dr. Frederick E. Joyce
Director
Subscribed and sworn to before me this 24th day of January,
1996 by Dr. Frederick E. Joyce.
Judith W. Culver
Notary Public
My Commission Expires:
My commission is for Life
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric
Power Company (the "Company"), hereby makes, constitutes and
appoints Richard H. Bremer and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 24th day of January, 1996.
Michael H. Madison
Director
Subscribed and sworn to before me this 24th day of January,
1996 by Michael H. Madison.
Judith W. Culver
Notary Public
My Commission Expires:
My commission is for Life
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric
Power Company (the "Company"), hereby makes, constitutes and
appoints Richard H. Bremer and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 24th day of January, 1996.
Harry D. Mattison
Director
Subscribed and sworn to before me this 24th day of January,
1996 by Harry D. Mattison.
Judith W. Culver
Notary Public
My Commission Expires:
My commission is for Life
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric
Power Company (the "Company"), hereby makes, constitutes and
appoints Richard H. Bremer and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 24th day of January, 1996.
Marvin R. McGregor
Director
Subscribed and sworn to before me this 24th day of January,
1996 by Marvin R. McGregor.
Judith W. Culver
Notary Public
My Commission Expires:
My commission is for Life
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric
Power Company (the "Company"), hereby makes, constitutes and
appoints Richard H. Bremer and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 24th day of January, 1996.
William C. Peatross
Director
Subscribed and sworn to before me this 24th day of January,
1996 by William C. Peatross.
Judith W. Culver
Notary Public
My Commission Expires:
My commission is for Life
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric
Power Company (the "Company"), hereby makes, constitutes and
appoints Richard H. Bremer and R. Russell Davis, and each of
them severally, his true and lawful attorneys-in-fact and
agents, each with full power and authority (acting alone and
without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1995 and any and all
amendments thereto, to be filed under the Securities
Exchange Act of 1934, as amended, and any other documents
and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys-in-fact, and agents, and
each of them, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 24th day of January, 1996.
Maxine P. Sarpy
Director
Subscribed and sworn to before me this 24th day of January,
1996 by Maxine P. Sarpy.
Judith W. Culver
Notary Public
My Commission Expires:
My commission is for Life
EXHIBIT 24.14
POWER OF ATTORNEY
The undersigned, as President and Chief Executive Officer of
West Texas Utilities Company (the "Company"), hereby makes,
constitutes and appoints R. Russell Davis his true and
lawful attorneys-in-fact and agents, with full power and
authority to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorney-in-fact, and agent, full power and authority of
substitution and revocation in the premises and full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the
undersigned might or could do in person and hereby ratifying
and confirming all that such attorneys-in-fact and agent,
may do or cause to be done by virtue of this Power of
Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
Glenn Files
Subscribed and sworn to before me this 23rd day of January,
1996 by Glenn Files.
Martha Murray
Notary Public
My Commission Expires:
11-19-96
EXHIBIT 24.15
POWER OF ATTORNEY
The undersigned, as Controller of West Texas Utilities
Company (the "Company"), hereby makes, constitutes and
appoints Glenn Files his true and lawful attorney-in-fact
and agent, with full power and authority to execute in the
name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for
1995 and any and all amendments thereto, to be filed under
the Securities Exchange Act of 1934, as amended, and any
other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorney-in-fact, and
agent, full power and authority of substitution and
revocation in the premises and full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could
do in person and hereby ratifying and confirming all that
such attorney-in-fact and agent, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
R. Russell Davis
Subscribed and sworn to before me this 23rd day of January,
1996 by R. Russell Davis.
Kit Hill
Notary Public
My Commission Expires:
6-14-97
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities
Company (the "Company"), hereby makes, constitutes and
appoints Glenn Files and R. Russell Davis, and each of them
severally, his true and lawful attorneys-in-fact and agents,
each with full power and authority (acting alone and without
the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power
and authority of substitution and revocation in the premises
and full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and
purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorneys-in-
fact and agents, or any of them, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
Richard Bacon
Director
Subscribed and sworn to before me this 23rd day of January,
1996 by Richard Bacon.
Martha Murray
Notary Public
My Commission Expires:
11-19-96
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities
Company (the "Company"), hereby makes, constitutes and
appoints Glenn Files and R. Russell Davis, and each of them
severally, his true and lawful attorneys-in-fact and agents,
each with full power and authority (acting alone and without
the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power
and authority of substitution and revocation in the premises
and full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and
purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorneys-in-
fact and agents, or any of them, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
Harwell Barber
Director
Subscribed and sworn to before me this 23rd day of January,
1996 by Harwell Barber.
Martha Murray
Notary Public
My Commission Expires:
11-19-96
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities
Company (the "Company"), hereby makes, constitutes and
appoints Glenn Files and R. Russell Davis, and each of them
severally, his true and lawful attorneys-in-fact and agents,
each with full power and authority (acting alone and without
the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power
and authority of substitution and revocation in the premises
and full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and
purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorneys-in-
fact and agents, or any of them, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
Paul J. Brower
Director
Subscribed and sworn to before me this 23rd day of January,
1996 by Paul J. Brower.
Martha Murray
Notary Public
My Commission Expires:
11-19-96
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities
Company (the "Company"), hereby makes, constitutes and
appoints Glenn Files and R. Russell Davis, and each of them
severally, his true and lawful attorneys-in-fact and agents,
each with full power and authority (acting alone and without
the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power
and authority of substitution and revocation in the premises
and full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and
purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorneys-in-
fact and agents, or any of them, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
T. D. Churchwell
Director
Subscribed and sworn to before me this 23rd day of January,
1996 by T. D. Churchwell.
Martha Murray
Notary Public
My Commission Expires:
11-19-96
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities
Company (the "Company"), hereby makes, constitutes and
appoints Glenn Files and R. Russell Davis, and each of them
severally, his true and lawful attorneys-in-fact and agents,
each with full power and authority (acting alone and without
the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power
and authority of substitution and revocation in the premises
and full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and
purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorneys-in-
fact and agents, or any of them, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
Harry D. Mattison
Director
Subscribed and sworn to before me this 23rd day of January,
1996 by Harry Mattison.
Martha Murray
Notary Public
My Commission Expires:
11-19-96
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities
Company (the "Company"), hereby makes, constitutes and
appoints Glenn Files and R. Russell Davis, and each of them
severally, his true and lawful attorneys-in-fact and agents,
each with full power and authority (acting alone and without
the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power
and authority of substitution and revocation in the premises
and full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and
purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorneys-in-
fact and agents, or any of them, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
Tommy Morris
Director
Subscribed and sworn to before me this 23rd day of January,
1996 by Tommy Morris.
Martha Murray
Notary Public
My Commission Expires:
11-19-96
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities
Company (the "Company"), hereby makes, constitutes and
appoints Glenn Files and R. Russell Davis, and each of them
severally, his true and lawful attorneys-in-fact and agents,
each with full power and authority (acting alone and without
the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power
and authority of substitution and revocation in the premises
and full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and
purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorneys-in-
fact and agents, or any of them, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
Dian G. Owen
Director
Subscribed and sworn to before me this 23rd day of January,
1996 by Dian G. Owen.
Martha Murray
Notary Public
My Commission Expires:
11-19-96
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities
Company (the "Company"), hereby makes, constitutes and
appoints Glenn Files and R. Russell Davis, and each of them
severally, his true and lawful attorneys-in-fact and agents,
each with full power and authority (acting alone and without
the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power
and authority of substitution and revocation in the premises
and full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and
purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorneys-in-
fact and agents, or any of them, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
James Parker
Director
Subscribed and sworn to before me this 23rd day of January,
1996 by James Parker.
Martha Murray
Notary Public
My Commission Expires:
11-19-96
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities
Company (the "Company"), hereby makes, constitutes and
appoints Glenn Files and R. Russell Davis, and each of them
severally, his true and lawful attorneys-in-fact and agents,
each with full power and authority (acting alone and without
the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power
and authority of substitution and revocation in the premises
and full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and
purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorneys-in-
fact and agents, or any of them, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
F. L. Stephens
Director
Subscribed and sworn to before me this 23rd day of January,
1996 by F. L. Stephens.
Martha Murray
Notary Public
My Commission Expires:
11-19-96
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities
Company (the "Company"), hereby makes, constitutes and
appoints Glenn Files and R. Russell Davis, and each of them
severally, his true and lawful attorneys-in-fact and agents,
each with full power and authority (acting alone and without
the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Company's Annual
Report on Form 10-K for 1995 and any and all amendments
thereto, to be filed under the Securities Exchange Act of
1934, as amended, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power
and authority of substitution and revocation in the premises
and full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and
purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorneys-in-
fact and agents, or any of them, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of
Attorney this 23rd day of January, 1996.
Dennis M. Sharkey
Director
Subscribed and sworn to before me this 23rd day of January,
1996 by Dennis M. Sharkey.
Martha Murray
Notary Public
My Commission Expires:
11-19-96
<TABLE> <S> <C>
<ARTICLE> UT
<SUBSIDIARY>
<NUMBER> 001
<NAME> CENTRAL AND SOUTH WEST CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<PERIOD-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 8,269 7,295 0
<OTHER-PROPERTY-AND-INVEST> 748 703 0
<TOTAL-CURRENT-ASSETS> 2,039 1,346 0
<TOTAL-DEFERRED-CHARGES> 514 516 0
<OTHER-ASSETS> 2,299 1,206 0
<TOTAL-ASSETS> 13,869 11,066 0
<COMMON> 675 667 0
<CAPITAL-SURPLUS-PAID-IN> 610 561 0
<RETAINED-EARNINGS> 1,893 1,824 0
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,178 3,052 0
34 35 0
292 292 0
<LONG-TERM-DEBT-NET> 3,854 2,876 0
<SHORT-TERM-NOTES> 0 0 0
<LONG-TERM-NOTES-PAYABLE> 50 50 0
<COMMERCIAL-PAPER-OBLIGATIONS> 1,338 1,564 0
<LONG-TERM-DEBT-CURRENT-PORT> 25 2 0
1 1 0
<CAPITAL-LEASE-OBLIGATIONS> 10 14 0
<LEASES-CURRENT> 4 4 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,083 3,176 0
<TOT-CAPITALIZATION-AND-LIAB> 13,869 11,066 0
<GROSS-OPERATING-REVENUE> 3,735 3,623 3,687
<INCOME-TAX-EXPENSE> 105 189 131
<OTHER-OPERATING-EXPENSES> 2,974 2,840 3,099
<TOTAL-OPERATING-EXPENSES> 3,079 3,029 3,230
<OPERATING-INCOME-LOSS> 656 594 457
<OTHER-INCOME-NET> 99 111 139
<INCOME-BEFORE-INTEREST-EXPEN> 755 705 596
<TOTAL-INTEREST-EXPENSE> 334 293 269
<NET-INCOME> 421 412 327
19 18 19
<EARNINGS-AVAILABLE-FOR-COMM> 402 394 308
<COMMON-STOCK-DIVIDENDS> 329 322 306
<TOTAL-INTEREST-ON-BONDS> 212 204 217
<CASH-FLOW-OPERATIONS> 799 764 694
<EPS-PRIMARY> 2.10 2.08 1.63
<EPS-DILUTED> 2.10 2.08 1.63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000018734
<NAME> CENTRAL POWER AND LIGHT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,469,945
<OTHER-PROPERTY-AND-INVEST> 1,531
<TOTAL-CURRENT-ASSETS> 170,360
<TOTAL-DEFERRED-CHARGES> 1,187,719
<OTHER-ASSETS> 51,581
<TOTAL-ASSETS> 4,881,136
<COMMON> 168,888
<CAPITAL-SURPLUS-PAID-IN> 405,000
<RETAINED-EARNINGS> 863,444
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,437,332
0
250,351
<LONG-TERM-DEBT-NET> 1,517,347
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 231
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 74
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,675,801
<TOT-CAPITALIZATION-AND-LIAB> 4,881,136
<GROSS-OPERATING-REVENUE> 1,073,469
<INCOME-TAX-EXPENSE> 15,812
<OTHER-OPERATING-EXPENSES> 775,473
<TOTAL-OPERATING-EXPENSES> 791,285
<OPERATING-INCOME-LOSS> 282,184
<OTHER-INCOME-NET> 56,322
<INCOME-BEFORE-INTEREST-EXPEN> 338,506
<TOTAL-INTEREST-EXPENSE> 132,059
<NET-INCOME> 206,447
14,469
<EARNINGS-AVAILABLE-FOR-COMM> 191,978
<COMMON-STOCK-DIVIDENDS> 186,000
<TOTAL-INTEREST-ON-BONDS> 116,205
<CASH-FLOW-OPERATIONS> 299,818
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<SUBSIDIARY>
<NUMBER> 004
<NAME> PUBLIC SERVICE COMPANY OF OKLAHOMA
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<PERIOD-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,330,376 1,304,518 0
<OTHER-PROPERTY-AND-INVEST> 6,498 8,694 0
<TOTAL-CURRENT-ASSETS> 88,484 99,251 0
<TOTAL-DEFERRED-CHARGES> 16,449 18,411 0
<OTHER-ASSETS> 39,009 34,240 0
<TOTAL-ASSETS> 1,480,816 1,465,114 0
<COMMON> 157,230 157,230 0
<CAPITAL-SURPLUS-PAID-IN> 180,000 180,000 0
<RETAINED-EARNINGS> 150,281 124,269 0
<TOTAL-COMMON-STOCKHOLDERS-EQ> 487,511 461,499 0
0 0 0
19,826 19,826 0
<LONG-TERM-DEBT-NET> 379,250 402,752 0
<SHORT-TERM-NOTES> 70,510 55,160 0
<LONG-TERM-NOTES-PAYABLE> 0 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 25,000 0 0
0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0 0
<LEASES-CURRENT> 0 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 498,719 525,877 0
<TOT-CAPITALIZATION-AND-LIAB> 1,480,816 1,465,114 0
<GROSS-OPERATING-REVENUE> 690,823 740,496 707,536
<INCOME-TAX-EXPENSE> 37,602 37,138 21,967
<OTHER-OPERATING-EXPENSES> 541,452 605,100 613,413
<TOTAL-OPERATING-EXPENSES> 579,054 642,238 635,380
<OPERATING-INCOME-LOSS> 111,769 98,258 72,156
<OTHER-INCOME-NET> 3,544 2,027 7,850
<INCOME-BEFORE-INTEREST-EXPEN> 115,313 100,285 80,006
<TOTAL-INTEREST-EXPENSE> 33,485 32,019 33,287
<NET-INCOME> 81,828 68,266 46,719
816 816 816
<EARNINGS-AVAILABLE-FOR-COMM> 81,012 67,450 45,903
<COMMON-STOCK-DIVIDENDS> 55,000 41,000 40,000
<TOTAL-INTEREST-ON-BONDS> 29,594 29,594 31,410
<CASH-FLOW-OPERATIONS> 143,888 151,801 134,092
<EPS-PRIMARY> .42 .36 .24
<EPS-DILUTED> .42 .36 .24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<SUBSIDIARY>
<NUMBER> 005
<NAME> SOUTHWESTERN ELECTRIC POWER COMPANY
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<PERIOD-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,879,656 1,856,558 0
<OTHER-PROPERTY-AND-INVEST> 3,467 3,452 0
<TOTAL-CURRENT-ASSETS> 178,448 165,113 0
<TOTAL-DEFERRED-CHARGES> 16,906 33,219 0
<OTHER-ASSETS> 38,242 20,865 0
<TOTAL-ASSETS> 2,116,719 2,079,207 0
<COMMON> 135,660 135,660 0
<CAPITAL-SURPLUS-PAID-IN> 245,000 245,000 0
<RETAINED-EARNINGS> 302,334 297,462 0
<TOTAL-COMMON-STOCKHOLDERS-EQ> 682,994 678,122 0
33,628 34,828 0
16,032 16,032 0
<LONG-TERM-DEBT-NET> 538,709 531,836 0
<SHORT-TERM-NOTES> 0 0 0
<LONG-TERM-NOTES-PAYABLE> 50,000 50,000 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 145 145 0
1,200 1,200 0
<CAPITAL-LEASE-OBLIGATIONS> 10,242 13,997 0
<LEASES-CURRENT> 3,754 3,925 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 780,015 749,122 0
<TOT-CAPITALIZATION-AND-LIAB> 2,116,719 2,079,207 0
<GROSS-OPERATING-REVENUE> 836,705 825,296 837,192
<INCOME-TAX-EXPENSE> 43,353 42,303 29,561
<OTHER-OPERATING-EXPENSES> 630,576 637,071 689,574
<TOTAL-OPERATING-EXPENSES> 673,929 679,374 719,135
<OPERATING-INCOME-LOSS> 162,776 145,922 118,057
<OTHER-INCOME-NET> 4,468 8,235 8,623
<INCOME-BEFORE-INTEREST-EXPEN> 167,244 154,157 126,680
<TOTAL-INTEREST-EXPENSE> 50,130 48,445 44,804
<NET-INCOME> 117,114 105,712 81,876
3,244 3,361 3,362
<EARNINGS-AVAILABLE-FOR-COMM> 113,870 102,351 78,514
<COMMON-STOCK-DIVIDENDS> 109,000 70,000 80,000
<TOTAL-INTEREST-ON-BONDS> 44,468 43,395 40,958
<CASH-FLOW-OPERATIONS> 213,514 178,121 232,098
<EPS-PRIMARY> .59 .54 .42
<EPS-DILUTED> .59 .54 .42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<SUBSIDIARY>
<NUMBER> 006
<NAME> WEST TEXAS UTILITIES COMPANY
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 680,572 663,855
<OTHER-PROPERTY-AND-INVEST> 872 982
<TOTAL-CURRENT-ASSETS> 66,496 62,015
<TOTAL-DEFERRED-CHARGES> 26,092 26,914
<OTHER-ASSETS> 41,582 18,211
<TOTAL-ASSETS> 815,614 771,977
<COMMON> 137,214 137,214
<CAPITAL-SURPLUS-PAID-IN> 2,236 2,236
<RETAINED-EARNINGS> 125,770 132,504
<TOTAL-COMMON-STOCKHOLDERS-EQ> 265,220 271,594
0 0
6,291 6,291
<LONG-TERM-DEBT-NET> 273,245 210,047
<SHORT-TERM-NOTES> 19,820 46,315
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 650
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 251,038 236,720
<TOT-CAPITALIZATION-AND-LIAB> 815,614 771,977
<GROSS-OPERATING-REVENUE> 319,835 342,991
<INCOME-TAX-EXPENSE> 5,542 17,954
<OTHER-OPERATING-EXPENSES> 254,807 270,274
<TOTAL-OPERATING-EXPENSES> 260,349 288,228
<OPERATING-INCOME-LOSS> 59,486 54,763
<OTHER-INCOME-NET> (85) 4,360
<INCOME-BEFORE-INTEREST-EXPEN> 59,401 59,123
<TOTAL-INTEREST-EXPENSE> 24,871 21,757
<NET-INCOME> 34,530 37,366
264 452
<EARNINGS-AVAILABLE-FOR-COMM> 34,266 36,914
<COMMON-STOCK-DIVIDENDS> 41,000 31,000
<TOTAL-INTEREST-ON-BONDS> 21,413 18,547
<CASH-FLOW-OPERATIONS> 53,340 28,004
<EPS-PRIMARY> .18 .19
<EPS-DILUTED> .18 .19
</TABLE>
