SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------
:
In the Matter of :
:
CSW CREDIT, INC. : CERTIFICATE
:
CENTRAL AND SOUTH WEST CORPORATION : OF
:
File No. 70-7218 : NOTIFICATION
:
(Public Utility Holding Company Act of 1935) :
- --------------------------------------------------:
1. CSW Credit, Inc. (Credit) hereby files a balance sheet as of June 30,
1997, statements of income for the three and twelve month periods ended June 30,
1997, and notes to the financial statements as Exhibit 1 attached hereto.
2. Credit hereby certifies that on June 30, 1997, it had $708,200,000 face
amount of commercial paper outstanding at a weighted average cost of 5.64%. This
amount consisted of $360,700,000 issued and sold to Lehman Commercial Paper,
Inc., as dealer, and $347,500,000 issued and sold to Goldman Sachs & Co., as
dealer, as shown in Exhibit 2 attached hereto. Credit hereby further certifies
that it had no other material borrowings outstanding on June 30, 1997.
3. Credit hereby files as Exhibit 3 attached hereto the earnings coverage
for Credit's indebtedness for the period from April 1, 1997 through June 30,
1997 and Credit's capital structure at June 30, 1997. Credit hereby files as
Exhibit 4 attached hereto the twelve month average of outstanding accounts
receivable and bad debt write-offs related to non-affiliated companies during
said period as of the end of each month.
4. With respect to affiliated companies, Central Power and Light Company
(CPL), Public Service Company of Oklahoma (PSO), Southwestern Electric Power
Company (SWEPCO), and West Texas Utilities Company (WTU), Credit hereby
certifies that the allowed returns on common equity for the period from April 1,
1997 through June 30, 1997 were unchanged in all regulatory jurisdictions from
the previous certificate of notification. Credit also hereby files the discount
calculation for affiliated companies, an analysis of the allowed returns on
common equity and the factoring expense savings for affiliated companies as
shown in Exhibits 5, 6 and 7, respectively, attached hereto.
5. With respect to Houston Lighting & Power Company (HLP), Credit had a
twelve month average of outstanding receivables for the period ending June 30,
1997 of $350,941,000. During the quarter ended June 30, 1997 the daily maximum
borrowing relating to the purchase of accounts receivable from HLP was
$414,152,000.
6. Credit hereby certifies it was in compliance with the terms of the
temporary relief as defined in the order issued on March 11, 1997 as shown in
Exhibit 4 attached hereto.
<PAGE>
7. Credit hereby certifies that during the period April 1, 1997 through
June 30, 1997, there were no sales of HLP receivables to The Bank of New York.
8. Credit hereby files as Exhibit 8 attached hereto the calculation, by
month, of the CPL finder fee attributable to the factoring of HLP receivables by
Credit.
9. Credit hereby files as Exhibit 9 attached hereto a copy of any state
regulatory commission decision or analysis addressing the effect of the
factoring of CSW system accounts receivable rates which was issued during the
period April 1, 1997 through June 30, 1997.
10. Credit hereby files as Exhibit 10 attached hereto a copy of the
audited annual financial statements for the year ended December 31, 1996.
11. Credit hereby files as Exhibit 11 attached hereto a copy of the
accounting system procedures and chart of accounts of Credit as maintained by
Central and South West Services, Inc.
12. Said transactions have been carried out in accordance with the terms
and conditions of, and for the purpose represented in, the Form U-1
Application-Declaration of Central and South West Corporation (CSW) and Credit,
in File No. 70-7218, and in accordance with the terms and conditions of the
Commission's orders dated July 31, 1986, February 8, 1988, December 27, 1989,
August 30, 1990, December 21, 1990, December 24, 1991, December 9, 1992,
December 21, 1993, December 16, 1994, and March 11, 1997, permitting said
Application-Declaration to become effective, and the Form U-1
Application-Declaration of CSW, Central Power and Light Company and Credit, in
File No. 70-8037, and in accordance with the terms and conditions of the
Commission's orders dated December 8, 1992 and December 29, 1992, permitting
said Application-Declaration to become effective.
<PAGE>
SIGNATURE
As requested by order of the Securities and Exchange Commission pursuant to the
Public Utility Holding Company Act of 1935, Central and South West Services,
Inc. has duly caused this report to be signed on the 13th day of August 1997.
By: /s/ Lawrence B. Connors
Lawrence B. Connors
Controller
CSW Credit, Inc.
1616 Woodall Rodgers Freeway
P.O. Box 660164
Dallas, Texas 75266-0164
Telephone (214) 777-1000
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Transmission
Number Exhibit Method
- ------- ------- ----------
1 Balance sheet as of June 30, 1997, statements Electronic
of income for the three and twelve month periods
ended June 30, 1997, and notes to the financial
statements.
2 Commercial paper outstanding at June 30, 1997. Electronic
3 Earnings coverage for the period from April 1, 1997 Electronic
through June 30, 1997 and capital structure at
June 30, 1997.
4 Twelve month average as of the end of each month of Electronic
outstanding accounts receivable of affiliated and
non-affiliated companies and bad debt write-offs
related to non-affiliated companies during the period
April 1, 1997 through June 30, 1997.
5 Discount calculation for affiliated companies for the Electronic
three months ended June 30, 1997.
6 Analysis of the allowed returns on common equity for Electronic
affiliated companies at June 30, 1997.
7 Factoring expense savings for the affiliated companies Electronic
for the three months ended June 30, 1997.
8 Calculation, by month, of CPL finder fee attributable Electronic
to factoring of HLP receivables during the period
April 1, 1997 through June 30, 1997.
9 Copy of any state regulatory commission decision or Electronic
analysis addressing the effect of the factoring
of CSW system accounts receivable rates issued during
the period April 1, 1997 through June 30, 1997.
10 Copy of audited annual financial statements for the Electronic
year ended December 31, 1996.
11 Copy of the accounting system procedures and chart of Electronic
accounts of Credit as maintained by Central and South
West Services, Inc.
EXHIBIT 1
Page 1 of 5
CSW CREDIT, INC.
BALANCE SHEET
AS OF JUNE 30, 1997
(Thousands, Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17
Accounts receivable, net of allowance for
doubtful accounts of $2,083 785,533
----------
Total current assets 785,550
OTHER ASSETS:
Deferred income taxes 2,254
Other 2,467
----------
Total other assets 4,721
Total assets $ 790,271
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term debt $ 708,200
Deferred credits 16,444
Unearned revenue 3,171
Other liabilities 3,084
----------
Total current liabilities 730,899
STOCKHOLDER'S EQUITY:
Common stock, no par; authorized 1,000 shares;
issued and outstanding 245 shares 1
Paid-in capital 59,371
----------
Total stockholder's equity 59,372
----------
Total liabilities and stockholder's equity $ 790,271
==========
The accompanying notes to the financial statements are an
integral part of these statements.
<PAGE>
EXHIBIT 1
Page 2 of 5
CSW CREDIT, INC.
STATEMENTS OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Thousands, Unaudited)
Three Months Ended Twelve Months Ended
1997 1996 1997 1996
--------- --------- --------- ----------
REVENUES $ 16,860 $ 16,170 $ 66,778 $ 66,955
--------- --------- --------- ----------
OPERATING EXPENSES:
Interest 8,283 9,102 36,826 39,939
Provision for bad debts 4,998 3,320 17,440 13,010
Credit line fees 322 239 931 1,121
General and administrative (241) 229 (17) 634
--------- --------- --------- ----------
13,362 12,890 55,180 54,704
--------- --------- --------- ----------
OPERATING INCOME 3,498 3,280 11,598 12,251
--------- --------- --------- ----------
OTHER INCOME AND DEDUCTIONS:
Interest income 15 22 68 229
Tax benefit of parent 45 24 172 60
company loss --------- --------- --------- ----------
60 46 240 289
--------- --------- --------- ----------
INCOME BEFORE FEDERAL
INCOME TAXES 3,558 3,326 11,838 12,540
--------- --------- --------- ----------
FEDERAL INCOME TAXES:
Current 1,687 1,156 2,684 5,674
Deferred (458) 0 1,438 (937)
--------- --------- --------- ----------
1,229 1,156 4,122 4,737
--------- --------- --------- ----------
NET INCOME $ 2,329 $ 2,170 $ 7,716 $ 7,803
========= ========= ========= ==========
The accompanying notes to the financial statements are an integral part of
these statements.
<PAGE>
EXHIBIT 1
Page 3 of 5
CSW CREDIT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
CSW Credit, Inc. (Company) is a wholly owned subsidiary of Central and South
West Corporation (CSW or the Parent Company), whose primary business is to
purchase, without recourse, the accounts receivable of certain CSW subsidiary
companies and non-affiliated companies. Revenue from affiliated companies for
the quarter ended June 30, 1997 was $7.6 million. Significant accounting
policies are summarized below:
Revenue recognition
Revenues are generally recorded for the difference between the face amount of
the receivables purchased and the purchase price.
Allowance for doubtful accounts
The Company maintains an allowance for doubtful accounts at a level which
reflects the amount of receivables not reasonably expected to be collected. The
allowance is determined principally on the basis of collection experience.
Receivables are written off when they are determined to be uncollectable.
Federal income taxes
The Company, together with affiliated companies, files a consolidated Federal
income tax return and participates in a tax sharing agreement with the other
members of the CSW system. Federal income tax expense resulted in an effective
rate of 34.5% for the period ended June 30, 1997.
Deferred income taxes resulted primarily from the differences between book and
tax deductions for bad debt expense. The Internal Revenue Code provides for tax
deductions for bad debts when they are charged off. As a result of a favorable
earnings history, the Company did not record any valuation allowance against
deferred tax assets at June 30, 1997.
Statement of cash flows
Cash equivalents are considered to be highly liquid debt instruments purchased
with a maturity of three months or less. Accordingly, the Company's temporary
cash investments are considered cash equivalents.
<PAGE>
EXHIBIT 1
Page 4 of 5
Related party transactions
Central and South West Services, Inc., a wholly owned subsidiary of CSW,
provides administrative services to the Company and is reimbursed for the cost
of such services.
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.
Reclassification
Certain financial statement items have been reclassified to conform to the 1997
presentation.
2. REGULATION:
The Company is subject to regulation by the Securities and Exchange Commission
(SEC) under the Public Utility Holding Company Act of 1935, as amended. The SEC
has approved the Company's method of calculating the discount associated with
the purchase of CSW subsidiary companies' accounts receivable.
3. SHORT-TERM FINANCING:
The Company issues commercial paper that is secured by the assignment of its
receivables. The weighted average interest rate for the period ending June 30,
1997 was 5.61%. At June 30, 1997, the Company had a revolving credit agreement
aggregating $900 million to back up its commercial paper program. The revolving
credit agreement expires June 28, 1998 and has a fee of .075% on the commitment.
The Company is in compliance with the revolving credit agreement covenants.
4. HOUSTON LIGHTING & POWER COMPANY:
The Company entered into an agreement with Houston Lighting & Power Company
(HLP) to purchase substantially all of its utility receivables. During the three
months ended June 30, 1997, the Company had purchased an average of
approximately $317.5 million of receivables from HLP.
Prior to March 11, 1997, the Company was subject to a SEC restriction (50%
Restriction) which required the average amount of non-affiliated accounts
receivable outstanding to be less than the average amount of affiliated accounts
receivable outstanding for the previous twelve calendar months. The Company
received SEC authority to sell excess HLP receivables to third parties in order
to maintain the Company's compliance with the 50% Restriction.
<PAGE>
EXHIBIT 1
Page 5 of 5
On March 11, 1997, the SEC issued an order granting the Company temporary relief
from the 50% Restriction. The SEC has allowed the Company to factor HLP
receivables up to a maximum of $450 million and to factor other non-affiliated
utility companies' receivables up to a maximum of $100 million. This relief has
been granted through December 31, 2000. At June 30, 1997, the Company was in
compliance with the provisions set forth by the SEC under the terms of the
temporary relief.
5. FINANCIAL INSTRUMENTS:
Cash, cash equivalents, 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.
EXHIBIT 2
Page 1 of 2
CSW CREDIT, INC.
COMMERCIAL PAPER OUTSTANDING
LEHMAN COMMERCIAL PAPER, INC.
JUNE 30, 1997
(thousands)
MATURITY ISSUE PAR DISCOUNT WEIGHTED
DATE DATE AMOUNT RATE AVERAGE COST
- ---------- ------- ------- ------ ------
8/5/97 6/17/97 $ 7,800 5.6200 5.6633
7/25/97 6/18/97 20,400 5.6100 5.6425
7/22/97 6/17/97 9,200 5.6200 5.6509
8/4/97 6/13/97 24,000 5.5900 5.6355
8/4/97 6/16/97 12,800 5.6000 5.6430
8/11/97 6/23/97 8,200 5.6200 5.6633
8/15/97 6/25/97 12,000 5.6200 5.6651
7/17/97 6/20/97 11,100 5.6200 5.6438
8/6/97 6/19/97 16,800 5.6100 5.6523
7/16/97 6/20/97 4,200 5.6200 5.6429
7/23/97 6/12/97 10,000 5.6000 5.6359
7/9/97 6/4/97 37,000 5.6200 5.6509
7/10/97 6/5/97 27,000 5.6200 5.6509
7/8/97 6/3/97 22,100 5.6200 5.6509
7/7/97 5/27/97 35,000 5.6000 5.6359
7/8/97 5/28/97 8,000 5.6000 5.6359
7/21/97 6/10/97 17,600 5.6000 5.6359
7/23/97 6/11/97 20,000 5.6000 5.6368
7/17/97 6/9/97 19,500 5.6000 5.6333
7/10/97 6/5/97 18,000 5.6200 5.6509
7/16/97 6/6/97 20,000 5.6000 5.6351
------
$360,700
========
<PAGE>
EXHIBIT 2
Page 2 of 2
CSW CREDIT, INC.
COMMERCIAL PAPER OUTSTANDING
GOLDMAN SACHS & CO.
JUNE 30, 1997
(thousands)
MATURITY ISSUE PAR DISCOUNT WEIGHTED
DATE DATE AMOUNT RATE AVERAGE COST
- ----------- ---------- ----------- ---------- -------------
8/4/97 6/16/97 $ 12,800 5.6100 5.6532
8/5/97 6/17/97 17,000 5.6100 5.6532
8/7/97 6/18/97 20,500 5.6100 5.6541
7/25/97 6/11/97 18,400 5.6100 5.6487
7/24/97 6/12/97 22,700 5.6100 5.6470
7/29/97 6/13/97 24,000 5.6000 5.6404
8/4/97 6/26/97 2,400 5.6200 5.6544
7/28/97 6/27/97 6,600 5.6200 5.6473
8/15/97 6/30/97 9,200 5.6300 5.6708
8/6/97 6/19/97 16,800 5.6100 5.6523
8/8/97 6/20/97 15,200 5.6100 5.6532
8/8/97 6/23/97 8,200 5.6200 5.6606
7/10/97 5/28/97 9,500 5.6000 5.6377
7/14/97 6/3/97 13,000 5.6100 5.6461
7/14/97 6/3/97 9,100 5.6200 5.6562
7/2/97 5/22/97 15,700 5.5800 5.6157
7/11/97 5/23/97 20,200 5.5800 5.6227
7/11/97 5/27/97 14,300 5.6000 5.6395
7/22/97 6/9/97 19,400 5.6100 5.6478
7/21/97 6/10/97 16,368 5.6100 5.6461
7/15/97 6/10/97 1,232 5.6100 5.6408
7/15/97 6/4/97 15,000 5.6100 5.6461
7/15/97 6/5/97 19,800 5.6000 5.6351
7/18/97 6/6/97 20,100 5.6000 5.6368
-----------
$ 347,500
===========
TOTAL COMMERCIAL PAPER OUTSTANDING:
Lehman Commercial Paper,Inc. $ 360,700
Goldman Sachs & Co. 347,500
----------
$ 708,200
==========
EXHIBIT 3
CSW CREDIT, INC.
EARNINGS COVERAGE
(thousands, except ratios)
1997
APRIL MAY JUNE
Net Income $483 $1,010 $836
Income Taxes 252 535 442
Tax benefit of
parent company loss (15) (15) (15)
Interest Expense 2,463 2,935 3,207
------------ ------------ ------------
$3,183 $4,465 $4,470
============ ============ ============
Interest Expense $2,463 $2,935 $3,207
Ratio of Earnings
to Fixed Charges 1.29 1.52 1.39
CAPITAL STRUCTURE
JUNE 30, 1997
(thousands)
Short-term Debt $708,200 92%
Common Equity 59,372 8%
------------ ------------
Total $767,572 100%
============ ============
EXHIBIT 4
CSW CREDIT, INC.
AVERAGE MONTH END ACCOUNTS RECEIVABLE
USING TEMPORARY RELIEF PROVISIONS
(thousands)
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
April 30, 1997 May 31, 1997 June 30, 1997
---------------- --------------- ---------------
AFFILIATES
- ----------------
CPL $ 130,157 $ 128,618 $ 126,003
PSO 86,408 86,065 85,224
SWEPCO 97,403 98,944 99,912
WTU 36,983 36,844 36,451
---------------- --------------- ---------------
Total Affiliates: $ 350,951 $ 350,471 $ 347,590
---------------- --------------- ---------------
NON-AFFILIATES
- ----------------
TX-NM POWER $ 33,196 $ 32,838 $ 32,605
HLP 352,082 351,244 350,941
---------------- --------------- ---------------
Total Non-Affiliates $ 385,278 $ 384,082 $ 383,546
---------------- --------------- ---------------
BAD DEBT WRITE-OFFS
(thousands)
April 30, 1997 May 31, 1997 June 30, 1997
---------------- --------------- ---------------
NON-AFFILIATES
- ----------------
TX-NM POWER $ 134 $ 87 $ 92
HLP 350 506 488
---------------- --------------- ---------------
Total Non-Affiliates: $ 484 $ 593 $ 580
---------------- --------------- ---------------
EXHIBIT 5
Page 1 of 4
CENTRAL POWER AND LIGHT COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED JUNE 30, 1997
Retail Wholesale
--------- -----------
Weighted Cost of Capital 0.062728 0.063244
(Annualized)
Average Days Outstanding 35.54 14.58
--------- -----------
Weighted Cost of Capital (Average
Days Outstanding) 0.006106 0.002517
Collection Experience Factor 0.003665
Agency Fee Rate 0.020000 0.020000
--------- -----------
Total Discount Factor 0.029771 0.022517
========= ===========
ASSUMPTIONS
INTEREST RATE 0.05610
RETAIL ROCE 0.11750
WHOLESALE ROCE 0.12390
TAX RATE 0.38000
DEBT RATIO 0.95000
EQUITY RATIO 0.05000
<PAGE>
EXHIBIT 5
Page 2 of 4
PUBLIC SERVICE COMPANY OF OKLAHOMA
DISCOUNT CALCULATION
THREE MONTHS ENDED JUNE 30, 1997
Retail Wholesale
---------- -----------
Weighted Cost of Capital 0.062123 0.063244
(Annualized)
Average Days Outstanding 38.22 58.10
---------- -----------
Weighted Cost of Capital
(Average Days Outstanding) 0.006499 0.010080
Collection Experience Factor 0.003487
Agency Fee Rate 0.020000 0.020000
---------- -----------
Total Discount Factor 0.029986 0.030080
========== ===========
ASSUMPTIONS
INTEREST RATE 0.05610
RETAIL ROCE 0.11000
WHOLESALE ROCE 0.12390
TAX RATE 0.38000
DEBT RATIO 0.95000
EQUITY RATIO 0.05000
<PAGE>
EXHIBIT 5
Page 3 of 4
SOUTHWESTERN ELECTRIC POWER COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED JUNE 30, 1997
Arkansas Louisiana Texas Wholesale
--------- ----------- --------- ---------
Weighted Cost of Capital
(Annualized) 0.065026 0.064946 0.065913 0.063244
Average Days Outstanding 47.00 42.27 40.70 58.95
--------- ----------- --------- ---------
Weighted Cost of Capital
(Average Days Outstanding) 0.008375 0.007519 0.007355 0.010214
Collection Experience Factor 0.003636 0.002840 0.002367
Agency Fee Rate 0.020000 0.020000 0.020000 0.020000
--------- ----------- --------- ---------
Total Discount Factor 0.032011 0.030359 0.029722 0.030214
========= =========== ========= =========
ASSUMPTIONS
INTEREST RATE 0.05610
ARKANSAS ROCE 0.14600
LOUISIANA ROCE 0.14500
TEXAS ROCE 0.15700
WHOLESALE ROCE 0.12390
TAX RATE 0.38000
DEBT RATIO 0.95000
EQUITY RATIO 0.05000
<PAGE>
EXHIBIT 5
Page 4 of 4
WEST TEXAS UTILITIES COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED JUNE 30, 1997
Retail Wholesale
--------- ----------
Weighted Cost of Capital(Annualized) 0.062425 0.063244
Average Days Outstanding 40.63 19.02
--------- ----------
Weighted Cost of Capital
(Average Days Outstanding) 0.006941 0.003295
Collection Experience Factor 0.004616
Agency Fee Rate 0.020000 0.020000
--------- ----------
Total Discount Factor 0.031557 0.023295
========= ==========
ASSUMPTIONS
INTEREST RATE 0.05610
RETAIL ROCE 0.11375
WHOLESALE ROCE 0.12390
TAX RATE 0.38000
DEBT RATIO 0.95000
EQUITY RATIO 0.05000
EXHIBIT 6
CSW CREDIT, INC.
ALLOWED RETURNS ON COMMON EQUITY
JUNE 30, 1997
ALLOWED
RETURN
CPL
- RETAIL 11.750%
- WHOLESALE 12.390%
PSO
- RETAIL 11.000%
- WHOLESALE 12.390%
SWEPCO
- ARKANSAS 14.600%
- LOUISIANA 14.500%
- TEXAS 15.700%
- WHOLESALE 12.390%
WTU
- RETAIL 11.375%
- WHOLESALE 12.390%
EXHIBIT 7
CSW CREDIT, INC.
AFFILIATED COMPANIES
FACTORING EXPENSE SAVINGS
THREE MONTHS ENDED JUNE 30, 1997
(thousands)
20% 5%
EQUITY EQUITY SAVINGS
--------- --------- --------
CPL $2,179 $1,651 $528
PSO 1,338 1,032 306
SWEPCO 2,382 1,682 700
WTU 615 470 145
--------- --------- --------
TOTAL $6,514 $4,835 $1,679
========= ========= ========
EXHIBIT 8
Page 1 of 3
CSW CREDIT, INC.
FACTORING OF HLP RECEIVABLES
CALCULATION OF CPL FINDER FEE
HLP
Receivables Finder Fee Finder Fee
Date Balance Rate Amount
- ------------- ---------------- -------------- --------------
1 Apr 1997 247,254,630.88 0.000038 $ 9,395.68
2 Apr 1997 246,084,131.92 0.000038 9,351.20
3 Apr 1997 269,265,993.14 0.000038 10,232.11
4 Apr 1997 261,935,289.84 0.000038 9,953.54
5 Apr 1997 261,935,289.84 0.000038 9,953.54
6 Apr 1997 261,935,289.84 0.000038 9,953.54
7 Apr 1997 256,897,168.38 0.000038 9,762.09
8 Apr 1997 261,659,164.05 0.000038 9,943.05
9 Apr 1997 260,040,904.65 0.000038 9,881.55
10 Apr 1997 257,180,628.90 0.000037 9,515.68
11 Apr 1997 265,364,371.93 0.000037 9,818.48
12 Apr 1997 265,364,371.93 0.000037 9,818.48
13 Apr 1997 265,364,371.93 0.000037 9,818.48
14 Apr 1997 264,909,329.15 0.000037 9,801.65
15 Apr 1997 261,476,098.02 0.000037 9,674.62
16 Apr 1997 264,279,364.72 0.000037 9,778.34
17 Apr 1997 265,747,346.72 0.000037 9,832.65
18 Apr 1997 269,364,579.60 0.000037 9,966.49
19 Apr 1997 269,364,579.60 0.000037 9,966.49
20 Apr 1997 269,364,579.60 0.000037 9,966.49
21 Apr 1997 269,284,309.40 0.000037 9,963.52
22 Apr 1997 260,431,143.15 0.000037 9,635.95
23 Apr 1997 268,199,725.57 0.000037 9,923.39
24 Apr 1997 251,153,919.27 0.000037 9,292.70
25 Apr 1997 260,484,096.78 0.000037 9,637.91
26 Apr 1997 260,484,096.78 0.000037 9,637.91
27 Apr 1997 260,484,096.78 0.000037 9,637.91
28 Apr 1997 261,521,607.64 0.000037 9,676.30
29 Apr 1997 258,279,128.26 0.000037 9,556.33
30 Apr 1997 263,032,828.31 0.000037 9,732.21
--------------
Apr 1997 $ 293,078.28
==============
<PAGE>
EXHIBIT 8
Page 2 of 3
CSW CREDIT, INC.
FACTORING OF HLP RECEIVABLES
CALCULATION OF CPL FINDER FEE
HLP
Receivables Finder Fee Finder Fee
Date Balance Rate Amount
- ------------- --------------- -------------- --------------
1 May 1997 267,778,957.76 0.000037 $ 9,907.82
2 May 1997 275,632,556.10 0.000037 10,198.40
3 May 1997 275,632,556.10 0.000037 10,198.40
4 May 1997 275,632,556.10 0.000037 10,198.40
5 May 1997 274,075,028.82 0.000037 10,140.78
6 May 1997 291,059,635.00 0.000037 10,769.21
7 May 1997 301,204,135.59 0.000037 11,144.55
8 May 1997 297,092,742.92 0.000037 10,992.43
9 May 1997 300,072,133.41 0.000037 11,102.67
10 May 1997 300,072,133.41 0.000037 11,102.67
11 May 1997 300,072,133.41 0.000037 11,102.67
12 May 1997 308,486,906.89 0.000037 11,414.02
13 May 1997 310,515,871.27 0.000037 11,489.09
14 May 1997 310,257,858.39 0.000037 11,479.54
15 May 1997 308,836,059.54 0.000037 11,426.93
16 May 1997 312,499,597.30 0.000037 11,562.49
17 May 1997 312,499,597.30 0.000037 11,562.49
18 May 1997 312,499,597.30 0.000037 11,562.49
19 May 1997 316,781,418.21 0.000037 11,720.91
20 May 1997 314,853,507.74 0.000037 11,649.58
21 May 1997 316,916,432.90 0.000037 11,725.91
22 May 1997 306,169,960.02 0.000037 11,328.29
23 May 1997 300,845,999.71 0.000037 11,131.30
24 May 1997 300,845,999.71 0.000037 11,131.30
25 May 1997 300,845,999.71 0.000037 11,131.30
26 May 1997 300,845,999.71 0.000037 11,131.30
27 May 1997 305,651,069.24 0.000037 11,309.09
28 May 1997 312,058,096.04 0.000037 11,546.15
29 May 1997 322,309,612.69 0.000037 11,925.46
30 May 1997 300,915,261.63 0.000037 11,133.86
31 May 1997 300,915,261.63 0.000037 11,133.86
--------------
May 1997 $ 345,353.36
==============
<PAGE>
EXHIBIT 8
Page 3 of 3
CSW CREDIT, INC.
FACTORING OF HLP RECEIVABLES
CALCULATION OF CPL FINDER FEE
HLP
Receivables Finder Fee Finder Fee
Date Balance Rate Amount
- ------------- ---------------- -------------- --------------
1 Jun 1997 300,915,261.63 0.000037 $ 11,133.86
2 Jun 1997 302,092,083.46 0.000037 11,177.41
3 Jun 1997 306,588,853.28 0.000037 11,343.79
4 Jun 1997 314,307,278.75 0.000037 11,629.37
5 Jun 1997 359,252,154.08 0.000037 13,292.33
6 Jun 1997 375,259,877.15 0.000037 13,884.62
7 Jun 1997 375,259,877.15 0.000037 13,884.62
8 Jun 1997 375,259,877.15 0.000037 13,884.62
9 Jun 1997 384,506,196.59 0.000037 14,226.73
10 Jun 1997 392,860,737.75 0.000037 14,535.85
11 Jun 1997 403,046,495.75 0.000037 14,912.72
12 Jun 1997 402,363,524.83 0.000037 14,887.45
13 Jun 1997 410,575,312.09 0.000037 15,191.29
14 Jun 1997 410,575,312.09 0.000037 15,191.29
15 Jun 1997 410,575,312.09 0.000037 15,191.29
16 Jun 1997 407,362,511.46 0.000037 15,072.41
17 Jun 1997 406,927,061.44 0.000037 15,056.30
18 Jun 1997 413,553,656.13 0.000037 15,301.49
19 Jun 1997 409,214,769.93 0.000037 15,140.95
20 Jun 1997 414,151,525.96 0.000037 15,323.61
21 Jun 1997 414,151,525.96 0.000037 15,323.61
22 Jun 1997 414,151,525.96 0.000037 15,323.61
23 Jun 1997 411,397,667.93 0.000037 15,221.71
24 Jun 1997 407,952,139.74 0.000037 15,094.23
25 Jun 1997 404,953,318.59 0.000037 14,983.27
26 Jun 1997 408,022,335.70 0.000037 15,096.83
27 Jun 1997 412,619,677.47 0.000037 15,266.93
28 Jun 1997 412,619,677.47 0.000037 15,266.93
29 Jun 1997 412,619,677.47 0.000037 15,266.93
30 Jun 1997 413,744,155.89 0.000037 15,308.53
--------------
Jun 1997 $ 432,414.58
==============
EXHIBIT 9
STATE REGULATORY COMMISSION DECISIONS OR ANALYSIS
During the period from April 1, 1997 through June 30, 1997 there were not any
state regulatory commission decisions or analysis issued addressing the effect
of the factoring of CSW system accounts receivable rates.
EXHIBIT 10
Page 1 of 9
CSW CREDIT, INC.
1996 FINANCIAL STATEMENTS
<PAGE>
EXHIBIT 10
Page 2 of 9
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of CSW Credit, Inc.:
We have audited the accompanying balance sheets of CSW Credit, Inc. (a Delaware
corporation and wholly owned subsidiary of Central and South West Corporation)
as of December 31, 1996 and 1995, and the related statements of income,
stockholder's equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company'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 CSW Credit, Inc. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Dallas, Texas
February 28, 1997
<PAGE>
EXHIBIT 10
Page 3 of 9
CSW CREDIT, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
-------------- --------------
(thousands)
REVENUES $66,320 $65,948
-------------- --------------
OPERATING EXPENSES:
Interest 38,977 40,288
Provision for bad debts 14,112 12,129
Credit line fees 924 945
General and administrative 882 775
-------------- --------------
54,895 54,137
-------------- --------------
OPERATING INCOME 11,425 11,811
-------------- --------------
OTHER INCOME AND DEDUCTIONS:
Interest income 179 188
Tax benefit of parent company loss 122 -
-------------- --------------
301 188
-------------- --------------
INCOME BEFORE FEDERAL INCOME TAXES 11,726 11,999
-------------- --------------
FEDERAL INCOME TAXES:
Current 3,064 220
Deferred 1,036 4,250
-------------- --------------
4,100 4,470
-------------- --------------
NET INCOME $7,626 $7,529
============== ==============
The accompanying notes to the financial statements are an
integral part of these statements.
<PAGE>
EXHIBIT 10
Page 4 of 9
CSW CREDIT, INC.
BALANCE SHEETS - DECEMBER 31,1996 AND 1995
1996 1995
----------- -----------
(thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $8,816 $41,777
Accounts receivable, net of allowance for
doubtful accounts of $3,230 in 1996
and $6,632 in 1995 615,214 658,155
----------- -----------
Total current assets 624,030 699,932
OTHER ASSETS:
Deferred income taxes 2,655 3,691
Other 3,625 4,017
----------- -----------
Total other assets 6,280 7,708
Total assets $630,310 $707,640
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term debt $579,300 $646,300
Deferred credits 13,266 13,415
Unearned revenue 3,380 2,492
Other liabilities 2,588 1,830
----------- -----------
Total current liabilities 598,534 664,037
STOCKHOLDER'S EQUITY:
Common stock, no par; authorized 1,000 shares;
issued and outstanding 237 and 234 shares 1 1
Paid-in capital 31,775 43,602
----------- -----------
Total stockholder's equity 31,776 43,603
----------- -----------
Total liabilities and stockholder's equity $630,310 $707,640
=========== ===========
The accompanying notes to the financial statements are an
integral part of these statements.
<PAGE>
EXHIBIT 10
Page 5 of 9
CSW CREDIT, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31
(thousands)
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
BALANCE DECEMBER 31, 1994 $1 $43,066 $43,067
-
Capital contributions - 536 - 536
Net income - - 7,529 7,529
Common stock dividends - - (7,529) (7,529)
------------ ------------ ----------- -------------
BALANCE DECEMBER 31, 1995 1 43,602 - 43,603
Capital contributions - (11,827) - (11,827)
Net income - - 7,626 7,626
Common stock dividends - - (7,626) (7,626)
------------ ------------ ----------- -------------
BALANCE DECEMBER 31, 1996 $1 $31,775 $0 $31,776
============ ============ =========== =============
The accompanying notes to the financial statements are an
integral part of these statements.
<PAGE>
EXHIBIT 10
Page 6 of 9
CSW CREDIT, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
------------ -------------
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $7,626 $7,529
Adjustments to reconcile net income to net cash
provided by operating activities-
Changes in assets and liabilities-
Decrease (increase) in accounts
receivable 42,941 (25,716)
Decrease in deferred income taxes 1,036 4,250
Decrease (increase) in other assets 392 (846)
(Decrease) increase in deferred credits (149) 470
Increase (decrease) in unearned revenue 888 (630)
Increase (decrease) in other liabilities 758 (9,613)
---------- -------------
Net cash provided by (used in) 53,492 (24,556)
operating activities ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt (67,000) (7,179)
Capital contributions (11,827) 536
Payment of dividends (7,626) (7,529)
------------ -------------
Net cash used in financing activities (86,453) (14,172)
------------ -------------
DECREASE IN CASH AND CASH EQUIVALENTS (32,961) (38,728)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 41,777 80,505
------------ -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $8,816 $41,777
============ =============
SUPPLEMENTARY INFORMATION:
Interest paid $39,881 $40,246
============ =============
Income taxes paid (refunded) $4,237 ($2,069)
============ =============
The accompanying notes to the financial statements are an
integral part of these statements.
<PAGE>
EXHIBIT 10
Page 7 of 9
CSW CREDIT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
CSW Credit, Inc. (Company) is a wholly owned subsidiary of Central and South
West Corporation (CSW or the Parent Company), whose primary business is to
purchase, without recourse, the accounts receivable of certain CSW subsidiary
companies and non-affiliated companies. Revenues from affiliated companies in
1996 and 1995 were $32.2 million and $32.8 million, respectively. Significant
accounting policies are summarized below:
Revenue recognition
Revenues are generally recorded for the difference between the face amount of
the receivables purchased and the purchase price.
Allowance for doubtful accounts
The Company maintains an allowance for doubtful accounts at a level which
reflects the amount of receivables not reasonably expected to be collected. The
allowance is determined principally on the basis of collection experience.
Receivables are written off when they are determined to be uncollectable.
Federal income taxes
The Company, together with affiliated companies, files a consolidated Federal
income tax return and participates in a tax sharing agreement with the other
members of the CSW system. Federal income tax expense resulted in effective
rates of 35% and 37% in 1996 and 1995, respectively. The difference in the
effective rates is due primarily to consolidated allocations and true-ups of
prior year income tax accruals.
Deferred income taxes resulted primarily from the differences between book and
tax deductions for bad debt expense. The Internal Revenue Code provides for tax
deductions for bad debts when they are charged off. As a result of a favorable
earnings history, the Company did not record any valuation allowance against
deferred tax assets at December 31, 1996 and 1995.
<PAGE>
EXHIBIT 10
Page 8 of 9
Statements of cash flows
Cash equivalents are considered to be highly liquid debt instruments purchased
with a maturity of three months or less. Accordingly, the Company's temporary
cash investments are considered cash equivalents.
Related party transactions
Central and South West Services, Inc., a wholly owned subsidiary of CSW,
provides administrative services to the Company and is reimbursed for the cost
of such services.
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.
Reclassification
Certain financial statement items for the prior year have been reclassified to
conform to the 1996 presentation.
2. REGULATION:
The Company is subject to regulation by the Securities and Exchange Commission
(SEC) under the Public Utility Holding Company Act of 1935, as amended. The SEC
has approved the Company's method of calculating the discount associated with
the purchase of CSW subsidiary companies' accounts receivable.
3. SHORT-TERM FINANCING:
The Company issues commercial paper that is secured by the assignment of its
receivables. The weighted average interest rates for 1996 and 1995 were 5.5% and
6.0%, respectively. At December 31, 1996, the Company had a revolving credit
agreement aggregating $830 million to back up its commercial paper program. The
revolving credit agreement expires June 27, 1997 and has a fee of .075% on the
commitment. At December 31, 1996, the Company was in compliance with the
revolving credit agreement covenants.
<PAGE>
EXHIBIT 10
Page 9 of 9
4. HOUSTON LIGHTING & POWER COMPANY:
The Company entered into an agreement with Houston Lighting & Power Company
(HLP) to purchase substantially all of its utility receivables. During the
twelve months ended December 31, 1996 and 1995, the Company had month ending
average HLP receivables of $340,796,000 and $327,062,000, respectively.
The Company is currently subject to a SEC restriction (50% Restriction) such
that the average amount of non-affiliated receivables is less that the average
of the preceding twelve calendar month-end balances of affiliated account
receivables outstanding. The Company received SEC authority to sell a sufficient
amount of HLP receivables acquired by the Company from HLP to third parties such
that the Company remains in compliance with the 50% Restriction. At December 31,
1996 the Company was in compliance with the 50% Restriction.
5. FINANCIAL INSTRUMENTS:
Cash, cash equivalents, 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.
EXHIBIT 11
Page 1 of 10
CSW CREDIT, INC.
CHART OF ACCOUNTS
Standard Accounts - Quick Reference
BALANCE SHEET ACCOUNTS (1310-2820)
Description Account Number
Assets
Cash 1310.XXXX
Cash 1310.0100
Temporary Cash Investments 1360.XXXX
Temporary Investments 1360.0100
Notes Receivable 1410.XXXX
Interest Receivable 1410.5000
Due From Broker 1410.7100
Other Accounts Receivable 1430.XXXX
Accounts Receivable 1430.4700
Factored Unbilled Accounts Receivable 1430.4900
Accumulated Provision for Uncollectible Accounts - Credit 1440.XXXX
Allowance for Bad Debt 1440.0100
Accounts Receivable from Associated Companies 1460.XXXX
A/R - Associated Companies 1460.1000
Prepayments 1650.XXXX
Prepayments Credit Line Fees 1650.0200
Prepayments Interest 1650.0300
Prepayments Taxes 1650.6200
Liabilities
Common Stock Issued 2010.XXXX
Common Stock 2010.0000
Miscellaneous Paid-in Capital 2110.XXXX
Paid-in Capital 2110.0000
Appropriated Retained Earnings 2150.XXXX
Retained Earnings 2150.0100
Notes Payable 2310.XXXX
Commercial Paper 2310.0100
Notes Payable to Associated Companies 2330.XXXX
Accounts Payable to Associated Companies 2340.XXXX
Accounts Payable - CSW 2340.1000
Accounts Payable - Associated 2340.4900
Accounts Payable - CSWS 2340.9900
Taxes Accrued 2360.XXXX
Accrued Taxes Payable 2360.0100
Accrued Franchise Tax Payable 2360.0300
Interest Accrued 2370.XXXX
Credit Line Fees Payable 2370.8801
Dividends Declared 2380.XXXX
Accrued Dividend Payable - CSW 2380.0100
Other Deferred Credits 2530.XXXX
Deferred Credits 2530.0100
Unearned Revenue 2530.0200
Accumulated Deferred Income Taxes - Other Property 2820.XXXX
Deferred Federal Income Taxes 2820.0200
<PAGE>
EXHIBIT 11
Page 2 of 10
CSW CREDIT, INC.
CHART OF ACCOUNTS
Standard Accounts - Quick Reference
INCOME STATEMENT ACCOUNTS (4081-9302)
Description Account Number
Revenues
Miscellaneous Nonoperating Income 4210.XXXX
Interest Income 4210.0100
Miscellaneous Income 4210.9000
Miscellaneous Service Revenues 4510.XXXX
Unearned Revenue 4510.0200
Bad Debt Revenue 4510.0400
Agency Fee Revenue 4510.0500
Carrying Cost Revenue 4510.0600
Credit Line Fee Revenue 4510.0700
Expenses
Taxes Other than Income Taxes - Utility Operating Income 4081.XXXX
Franchise Tax Expense 4081.0000
Income Taxes - Utility Operating Income 4091.XXXX
Income Tax Expense 4091.0000
Deferred Income Tax Expense 4100.XXXX
Income Tax Expense 4100.0000
Other Deductions 4265.XXXX
Allocated Corp Federal Income Taxes 4265.7000
Other Interest Expense 4310.XXXX
Interest Expense 4310.0100
Interest Expense - Bank of New York 4310.0200
Uncollectible Accounts 9040.XXXX
Bad Debt Expense 9040.0100
Outside Services Employed 9230.XXXX
Outside Services - Legal 9230.7420
Miscellaneous General Expenses 9302.XXXX
Credit Line Expense 9302.1000
Rating Fee Expense 9302.1900
Miscellaneous General Expense 9302.9000
Business Normalization Expense 9302.9100
CSWS Allocations 9302.9900
<PAGE>
EXHIBIT 11
Page 3 of 10
CSW CREDIT, INC.
ACCOUNTING SYSTEM PROCEDURES
INTRODUCTION
CSW Credit, Inc. (Credit), a wholly owned subsidiary of Central and South West
Corporation (CSW), was formed for the purpose of providing a low-cost financing
source for utilities through factoring utility accounts receivable
(receivables). Credit purchases receivables at a discount enabling its customers
to collect their money the same day they deliver its utility service.
Each company selling (factoring) its receivables to Credit has executed a
"Purchase Agreement" and an "Agency Agreement" which outlines how the basic
transactions take place. The Purchase Agreement and Agency Agreement may be
terminated by either party upon 30 days written notice to the other party.
Credit's affiliated customers are Central Power and Light Company (CPL), Public
Service Company of Oklahoma (PSO), Southwestern Electric Power Company (SWEPCO)
and West Texas Utilities Company (WTU). Credit's non-affiliated customers are
Houston Lighting and Power Company (HLP) and Texas-New Mexico Power Company
(TNP). The affiliate and non-affiliate customers are individually known as
"Seller" and collectively known as "Sellers."
Credit is authorized to purchase, without recourse, certain receivables arising
from the sale and delivery of electricity, gas and other related services in the
Seller's ordinary course of business. The price Credit pays the Seller for the
receivables is the dollar amount of receivables less a discount (purchase
price). The determination of the discount is based upon Credit's cost of
financing, the Seller's collection experience and an agency fee.
The Seller has agreed through the Agency Agreement to service, administer and
collect such receivables on behalf of Credit. As long as the Seller acts as the
agent, Credit agrees to pay the Seller an agent collection fee. Payment of the
agent collection fee shall be made simultaneously with collections, by deducting
the fee from funds owed to Credit for receivables collected.
The data received from the Seller must be accurate and timely received. Any
delays or inaccurate information affects the cash exchanged between the Seller
and Credit; therefore, it is critical to Credit's operation that the Seller
provide accurate and timely information. The Seller has also agreed to maintain
individual customer records that support the factored receivables and the
collection of those receivables. These records are available to Credit for
examination and analysis.
The following procedures outline the transactions that take place and the
accounting for these transactions. The detailed sections describe procedures for
Credit as performed by Central and South West Services (CSWS), CSWS
Treasury-Cash Management (CSWS Cash Management), CSWS Accounting, CSWS
Regulatory Reporting and the Sellers. As required by Securities Exchange
Commission (SEC) Order, Credit utilizes the excess capacity of CSWS employees to
handle its operations.
<PAGE>
EXHIBIT 11
Page 4 of 10
INITIAL TRANSACTION
The initial transaction between Credit and the Seller is based on the
receivables and allowance for bad debts recorded on the Seller's books at an
agreed upon date. The amount of receivables purchased by Credit is determined by
applying the carrying cost portion and agency fee portion of the discount rate
factor to the balance of receivables less the balance of the allowance for bad
debts. Credit will remit the net transaction amount to the Seller on the initial
transaction date by wire transfer. Credit records on its books the amount of
gross receivables and the allowance for bad debts.
DAILY TRANSACTIONS
Information Received From Sellers
Automated Billings
These are the amounts of gross receivables billed by the Seller each day. This
information is provided by state jurisdiction and further broken down by retail
and wholesale designation. The information is provided the morning after the
actual billing date. The discounts and purchase price are calculated and
verified with the Seller.
Automated Collections
These amounts include all collections of receivables and billing adjustments
that change the amounts due from customers. This information is provided by
state jurisdiction and further broken down by retail and wholesale designation.
The information is provided the morning after the collections are processed. The
collections are subtracted from the purchase price to determine the net cash
transaction for the day and the balance of purchased receivables.
Manual Billings
Some of the large wholesale customers served are not billed on an automated
system. Therefore, it is necessary for the Seller to report these "manual
billings" separately to Credit. These transactions are reported to Credit the
day after they occur. These transactions are summarized with the automated
billings before a purchase price is determined.
Manual Collections
For accounts that are manually billed, collections are reported to Credit as
they occur. These amounts are combined with the automated collections to
determine the net cash transaction and the balance of purchased receivables.
Unbilled Revenues & Estimated Billings Sold
Unbilled revenues represent receivables created by the delivery of electricity
to customers which the customer is legally obligated to pay, and is recorded on
the customer's meter but has not yet been billed by the Seller. Credit purchases
both billed and unbilled receivables as stipulated in the Purchase Agreement.
<PAGE>
EXHIBIT 11
Page 5 of 10
Credit's approach to purchasing unbilled revenues is to purchase on a daily
basis a portion of all billing cycles for an upcoming month. When the actual
cycle billing occurs, an adjustment is made to that day's transaction for the
difference between the amount previously purchased for that cycle and the actual
billing. Estimates of unbilled revenues are based upon the Seller's projected
billings and historical cycle billings adjusted for any known changes.
Other Manual Adjustments
Other manual adjustments are periodically necessary to correct previous
transactions. These adjustments are timely reported to Credit. These amounts are
included with the items discussed above in the determination of the purchase
price and the net cash transaction for the current day's transaction.
Daily Procedures Performed by CSWS Cash Management
Determination of Face Amount Purchased
The dollar amount of receivables purchased by Credit from the Seller is known as
the "face amount purchased." The face amount purchased consists of the Seller's
daily cycle billings plus daily unbilled revenues minus unbilled revenues
previously purchased for the current day's billing cycle.
Determination of Discount Rate
The purchase price Credit pays to the Seller is the face amount purchased,
reduced by the discount rate. The discount taken compensates Credit for costs
associated with financing and recovering receivables purchased without recourse.
Three components determine the
discount rate:
* carrying cost component
* collection experience component
* agency fee component
Each of these components are described below.
Carrying Cost Component
The calculation of this component consists of three factors:
* Debt factor - Compensates Credit for its interest cost in obtaining funding
from external sources. Credit maintains a capital structure ratio of 95% debt
and 5% equity on all affiliated companies. The capital structure for HLP is
maintained at an 80% debt to 20% equity ratio. TNP's calculation is solely
based upon a spread over the cost of funds. This capitalization structure has
been approved by the SEC. The calculation consists of multiplying the daily
interest cost incurred by Credit by the above debt ratios.
<PAGE>
EXHIBIT 11
Page 6 of 10
* Equity factor - Provides a return to Credit for the equity that is provided
by CSW. The calculation consists of multiplying the allowed return on equity
by the appropriate equity ratios and then dividing by the tax effect (1 - tax
rate) to allow for income taxes. The return on equity that the SEC allows for
the purchase of retail receivables is based on the allowed equity returns of
the Seller as approved by its respective state commission. For affiliated
wholesale receivables, the SEC allows Credit a return on equity equal to the
weighted average retail returns on equity for the affiliate companies.
* Average days outstanding factor - Average days outstanding are computed for
each state jurisdiction and further broken down by retail and wholesale
designation. The average days outstanding is calculated and reset monthly on
the fifth business day by dividing the average daily balance of outstanding
receivables by average receivables purchased per day, based on the previous
month's transactions.
The carrying cost component is determined by adding the debt factor and the
equity factor to determine the overall annual carrying cost charge. This annual
carrying cost charge is divided by 365, except HLP which is 360, to get a daily
rate which is then multiplied by the average days outstanding factor to
determine the carrying cost component.
Collection Experience Component
The collection experience component compensates Credit for uncollectible
receivables and is calculated and reset monthly on the fifth business day. The
component is calculated by dividing the net amount of receivables charged-off
over the last 12 months by the amount of receivables purchased for the same time
period. The net amount of receivables charged-off is the dollar amount
charged-off as uncollectible less any recoveries previously charged-off plus an
excess of 90-day past due receivables (90-day surcharge). The 90-day surcharge
penalizes the Seller's failure to charge-off a receivable by adding excessive
aged accounts to the collection experience factoring rate.
Agency Fee Component
The agency fee component provides Credit with additional protection from
excessive charge-offs. At the time receivables are purchased, 2% of the face
amount purchased is withheld from the Seller until collection. Upon collection
of the receivables, Credit returns the 2% held back to the Seller. If the
Seller's net charge-offs become excessive, the portion of the net monthly
charge-off that exceeds the charge-off limit will be withheld for 12 months. The
charge-off limit is 1% of the sum of the last 12 months' collections divided by
12.
Daily Transactions Summary
The face amount purchased from the Seller is multiplied by the discount rate to
get the discount amount. The total discount amount is subtracted from the total
face amount purchased resulting in the price Credit pays the Seller for the
receivables. The amount collected from the customers is subtracted from the
purchase price to get the net cash transaction for the day.
<PAGE>
EXHIBIT 11
Page 7 of 10
The amount billed, purchase price, amount collected and net cash transactions
are confirmed with the Seller. The net cash transactions are then authorized to
be wire transferred between the bank accounts of the Seller and Credit. Cash
transactions are netted to avoid multiple daily wires between Credit and the
Seller.
OTHER TRANSACTIONS
Determination of Carrying Cost Variance Payment
On the fifth business day of each month, the charges assessed the Seller are
adjusted through the Carrying Cost Variance Payment. At month-end Credit
calculates the carrying cost revenue that is recognized for the current month
and compares it to the incurred service fee. The service fee is calculated by
multiplying the daily outstanding receivables balances by the daily financing
rate incurred by Credit.
If the carrying cost revenue recognized is greater than the service fee, Credit
owes the Seller the excess carrying cost revenue collected. If the carrying cost
revenue recognized is less than the service fee, the Seller owes Credit
additional carrying cost revenue. This transaction takes place on the fifth
business day of each month along with the change to the average days outstanding
factor and the collection experience component.
MONTHLY ACCOUNTING
Monthly accounting for Credit is done by CSWS Accounting. Accounting is based on
information received primarily from CSWS Cash Management.
Information From CSWS Cash Management
Monthly Summary of Daily Factoring Transactions
These summaries include daily gross receivables purchased, the purchase price,
discounts, collections and the daily receivables balance for each Seller by
state jurisdiction and further broken down by retail and wholesale designation.
Also included are cash transactions.
Allocation Factors
CSWS Cash Management also calculates allocation factors based on average
receivables balances for each Seller during the month by state jurisdiction and
further broken down by retail and wholesale designation as a percentage of the
total of all balances held by Credit. Allocation factors are used to allocate
interest expense, interest income, legal fees and other transactions not
allocable to a specific Seller.
Unearned Revenues
The discount factor applied to receivables includes a carrying cost for an
assumed number of days until collection (average days outstanding). A part of
the carrying cost associated with receivables factored toward month-end will not
be actually incurred by Credit until the following month. This creates a
mismatch between current month carrying cost revenues and carrying cost
expenses. Therefore, Credit defers a portion of the carrying cost discount as
unearned discount revenues.
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EXHIBIT 11
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The calculation of unearned discount revenues is done at the end of the month by
CSWS Cash Management for each Seller and provided to CSWS Accounting. This
information is also provided to the Seller, which recognizes the amount as
prepaid factoring costs.
Bad Debt Write-offs and Collections
Pursuant to the Agency Agreement, the Seller uses its best efforts in processing
and collecting factored receivables as an agent for Credit. The Seller is
empowered, as necessary, to employ collection agencies or other third parties to
collect delinquent receivables.
Each month, the Seller recommends to Credit the amount of retail and wholesale
receivables by state jurisdiction to be written-off as uncollectible. Also, each
month any amounts collected on accounts previously written-off are reported by
the Seller. The amount recovered is netted against the gross write-offs for the
month when determining the collection experience component and when booking bad
debts.
Explanation of any Manual Adjustments
At the end of the month, CSWS Cash Management provides CSWS Accounting with
copies of all pertinent information explaining any unusual manual adjustments
made during the month.
Summary of Cash Transactions
These summaries include all daily cash receipts and disbursements along with
daily balances that have been verified to the bank balances. These summaries
provide additional information on actual cash receipts and disbursements for the
preparation of any necessary journals.
Interest and Other Accruals
CSWS Cash Management calculates and provides to CSWS Accounting the amount of
interest expense, credit line fees, prepaid interest, interest income and any
other costs associated with short-term borrowings and investments to be recorded
during the month.
Capitalization Balances
Daily balances of short-term borrowings and CSW equity are maintained by CSWS
Cash Management. This information is used to ensure that stipulated equity
requirements are being met and all related equity transactions are properly
recorded on the accounting records.
Miscellaneous Cash Items
CSWS Cash Management provides details on any change in cash procedures that
affect transactions that should be reflected in the monthly financial
statements.
Information From Other Sources
Although most of the information needed monthly by CSWS Accounting is provided
by CSWS Cash Management, some information is obtained from other sources as
necessary. Two primary examples are the service billings from CSWS provided by
CSWS Accounting, and the franchise tax and income tax information, including
accruals, estimates and payments provided by the CSWS Tax Department.
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EXHIBIT 11
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Preparation of Monthly Summary and Journal Entries
Each month CSWS Accounting prepares all journal entries from the information
received and enters all journal entries into the general ledger system.
Recurring journal entries are listed below.
Journal Journal Entry
Entry Description
00001 CPL Monthly Activity
00002 PSO Monthly Activity
00003 SWEPCO Monthly Activity
00004 WTU Monthly Activity
00006 TNP Monthly Activity
00007 HLP Sale/Repurchase
00008 HLP Monthly Activity
00009 Bad Debt Write-Offs
00010 Record Net Equity
00011 Short-Term Debt and Commercial Paper
00012 Short-Term Interest Expense
00013 Temporary Investment Income
00014 CSWS Billing
00015 Accrue Unearned Revenue
00016 Investments/Acquisitions
00017 Allocate Credit Line Fees to Expense
00018 Record Tax Accrual
00019 Record Tax Payment
00020 Record Dividend Payment to CSW
00021 Record Dividend Accrual
00022 Allocate Income Tax Expense
00023 CSWS Invoice Payment
00024 Record Rating Agency Fees
00025 Allocate Franchise Tax Expense
00026 Record Billing for Franchise Tax
00027 Record Payment of Credit Line Fees
00028 Accrual of SWEPCO Late Billing
00029 Accrual of Carrying Costs Variance Payment
00030 2% Bad Debt Write-offs Prior Month
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EXHIBIT 11
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Other non-recurring journal entries are prepared as necessary.
After journal entries have been entered into the general ledger system, a trial
balance is generated and reviewed by CSWS Accounting and CSWS Cash Management.
Discrepancies, if any, are generally resolved during the review and adjusting or
correcting journal entries are prepared and entered by CSWS Accounting.
QUARTERLY REPORTING
CSWS Regulatory Reporting prepares all internal and external financial reports
for Credit based on final trial balance information received from CSWS
Accounting. Pursuant to the 1935 Act, Rule 24, a filing is made with the SEC on
behalf of Credit within 45 days after the close of the calendar quarter.
ANNUAL REPORTING
Each year the financial records of Credit are reviewed by an independent
accounting firm. An annual report for Credit is then issued and distributed to
all Sellers, the SEC and certain financial institutions.
