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EXHIBIT 1
Page 1 of 5
CSW CREDIT, INC.
BALANCE SHEET
AS OF JUNE 30, 2000
(Thousands, Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 105
Accounts receivable, net of allowance for doubtful
accounts of $ 17,895 1,362,094
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Total current assets 1,362,199
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OTHER ASSETS:
Deferred income taxes 7,481
Other 8,814
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Total other assets 16,295
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Total assets $ 1,378,494
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LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term debt $ 1,247,783
Deferred credits 27,584
Accounts payable -affiliated
2,302
Unearned revenue 4,650
Other liabilities
2,980
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Total current liabilities 1,285,299
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STOCKHOLDER'S EQUITY:
Common stock, no par; authorized 1,000 shares;
Issued and outstanding 268 shares 1
Paid-in capital 93,194
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Total stockholder's equity 93,195
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Total liabilities and stockholder's equity $ 1,378,494
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The accompanying notes to the financial statements are
an integral part of these statements.
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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
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
REVENUES $ 27,637 $ 19,759 $ 97,816 $ 87,358
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OPERATING EXPENSES:
Interest 11,657 8,602 45,369 41,903
Provision for bad debts 11,272 6,613 31,248 23,724
Credit line fees 447 200 1,709 919
General and administrative 475 466 1,963 1,742
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23,851 15,881 80,289 68,288
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OPERATING INCOME 3,786 3,878 17,527 19,070
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OTHER INCOME AND (DEDUCTIONS):
Interest income - - 3
293
Tax benefit of parent company loss 178 81 357 338
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178 81 650 341
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INCOME BEFORE FEDERAL INCOME TAXES 3,964 3,959 18,177 19,411
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FEDERAL INCOME TAXES:
Current 4161 1,089 10,757 6,607
Deferred (2,836) 268 (4,520) 69
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1,325 1,357 6,237 6,676
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NET INCOME $ 2,639 $ 2,602 $ 11,940 $ 12,735
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The accompanying notes to the financial statements are an
integral part of these statements.
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EXHIBIT 1
Page 3 of 5
CSW CREDIT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
CSW Credit, Inc. (Company) is a wholly owned subsidiary of Central and South
West Corporation (CSW, which became a subsidiary of American Electric Power
Company, Inc. (AEP), effective June 15, 2000), whose primary business is to
purchase, without recourse, the accounts receivable of certain AEP subsidiary
companies and non-affiliated companies. Revenue from affiliated companies for
the quarters ended June 30, 2000 and 1999 were $14.2 million and $7.4 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 AEP System. Federal income tax expense resulted in an effective
rate of 32% and 33% for the quarters ended June 30, 2000 and 1999, respectively.
Deferred income taxes resulted primarily from the differences between book and
tax deductions for bad debt expense. The Company also recognizes the tax benefit
of operating losses allocated by the Parent Company to CSW Credit. The Internal
Revenue Code provides for tax deductions for bad debts when they are charged
off.
Cash and Cash Equivalents
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.
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EXHIBIT 1
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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. These services were provided at a cost of $187,000 and
$258,000 for the quarters ended June 30, 2000 and 1999.
Use of estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, revenue, and expenses
reported in the accompanying financial statements. The estimates and assumptions
used in the accompanying financial statements are based upon management's
evaluation of the relevant facts and circumstances as of the date of the
financial statements. Actual results could differ from those estimates.
Reclassification
Certain financial statement items have been reclassified to conform to the 2000
presentation.
Basis of Accounting
These financial statements were prepared using the accrual method of accounting.
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 AEP subsidiary companies' accounts receivable.
3. SHORT-TERM DEBT:
The Company issues commercial paper that is secured by the assignment of its
receivables. The weighted average interest rate for the quarters ended June 30,
2000 and 1999 was 6.37% and 4.90%, respectively. At June 30, 2000, the Company
had a revolving credit agreement aggregating $2.0 billion to back up its
commercial paper program. At June 30, 2000, there were no borrowings under the
revolving credit agreement. At June 30, 2000 and 1999, the amounts of commercial
paper outstanding were approximately $1.3 billion and $818 million,
respectively.
4. ReLIANT ENERGY HL&P:
The Company entered into an agreement with Reliant Energy HL&P (formerly Houston
Lighting & Power Company) to purchase substantially all of its utility
receivables. During the quarters ended June 30, 2000 and 1999, the Company had
average Reliant Energy HL&P receivable balances of $375,025,000 and
$407,464,000, respectively.
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EXHIBIT 1
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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 Reliant Energy HL&P receivables to third
parties in order to maintain the Company's compliance with the 50% Restriction.
On March 11, 1997, the SEC issued an order granting the Company temporary relief
from the 50% Restriction. Under the order, the Company may purchase up to $450
million in receivables from Reliant Energy HL&P and up to $100 million from
other non-affiliated utility companies, based on a twelve-month rolling average.
This relief has been granted through December 31, 2000. At June 30, 2000, the
Company was in compliance with the provisions set forth by the SEC under the
terms of the temporary relief.
5. UNEARNED INCOME AND DEFERRED CREDITS:
When receivables are factored, a discount rate is applied. A portion of the
discount rate is related to the carrying cost of the receivables, which
approximates the related cost of administration and handling. This rate is
applied when the receivables are initially factored. To appropriately match the
revenue received for the carrying of the receivables to their associated costs,
a part of this income is deferred until the costs are recognized. In addition to
the carrying cost component, an agency fee is applied to receivables. The agency
revenue is also deferred, and is shown as deferred credits on the balance sheet.
6. 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.
