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Previous: CSW CREDIT INC, 35-CERT, EX-99.9, 2000-11-14 |
Next: NORTHLAND CABLE PROPERTIES SIX LTD PARTNERSHIP, 10-Q, 2000-11-14 |
EXHIBIT 10
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 Uncollectable Accounts - Credit 1440.XXXX
Allowance for Bad Debt 1440.0100
Accounts Receivable from Associated Companies 1460.XXXX
A/R - Associated Companies 1460.1000
A/R - Allocated Corp Federal Income Tax 1460.6000
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
EXHIBIT 10
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
Rating Fee Revenue 4510.0100
Unearned Revenue 4510.0200
IPA/Analysis Fee Revenue 4510.0300
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
Uncollectable Accounts 9040.XXXX
Bad Debt Expense 9040.0100
Office Supplies and Expenses 9210.XXXX
IPA/Analysis Fee Expense 9210.2400
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
EXHIBIT 10
Page 3 of 10
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 Reliant Energy HL&P (formerly Houston Lighting and Power Company) 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.
EXHIBIT 10
Page 4 of 10
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.
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.
EXHIBIT 10
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:
Each of these components is described below.
Carrying Cost Component
The carrying cost component compensates Credit for its cost of carrying the receivables it purchases. For purposes of calculating this portion of the discount, Credit assumes certain debt and equity ratios for each Seller, currently as follows:
Seller Debt Equity
Affiliated Companies 95% 5%
TNP 100% 0%
HLP 80% 20%
The calculation of this component consists of three factors:
o Debt factor - Compensates Credit for its interest cost in obtaining funding from external sources. The calculation consists of multiplying the daily interest cost incurred by Credit by the appropriate debt ratios.
EXHIBIT 10
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o 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.
o 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 uncollectable 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 uncollectable 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.
EXHIBIT 10
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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.
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 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.
EXHIBIT 10
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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 uncollectable. 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.
EXHIBIT 10
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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
EXHIBIT 10
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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.
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.
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 certain Sellers, the SEC and certain financial institutions.
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