SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 18, 1995
----------------------
THE SOUTHERN COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 1-3526 58-0690070
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
64 Perimeter Center East, Atlanta, Georgia 30346
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 393-0650
-------------------
N/A
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(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
------------------------------------
On September 18, 1995, Southern Electric International, Inc. ("Southern
Electric"), a wholly-owned subsidiary of The Southern Company ("Southern"),
announced that a recommended revised cash offer (the "Revised Offer") for the
acquisition of the whole of the ordinary share capital of South Western
Electricity plc, a public limited company organized under the laws of England
and Wales ("SWEB"), not already owned by Southern and its subsidiaries and
subsidiary undertakings (the "Southern Group") had been declared wholly
unconditional in all respects and that, as a result of an unconditional bid,
Southern Electric had acquired control of SWEB.
The terms of the Revised Offer are described in the Current Report on
Form 8-K of Southern dated August 25, 1995, to which reference is hereby made.
As of October 2, 1995, the Southern Group owned 33,294,904 SWEB Shares,
constituting approximately 29.9% of SWEB's issued share capital, and had
received pursuant to the Revised Offer acceptances in respect of an additional
70,960,871 SWEB Shares (approximately 63.8% of SWEB's issued share capital).
The consideration paid or to be paid in respect of the acquisition of
SWEB Shares is currently estimated to consist of approximately (Pound
Sterling)1.1 billion (U.S. $1.8 billion) in cash and (Pound Sterling)14.8
million nominal value of Loan Notes* of Southern Investments UK Public Limited
Company, a public limited company organized under the laws of England and Wales
and a wholly-owned subsidiary of Southern ("Southern UK"). It is currently
expected that no GRID Bonds* will be issued. The sources of such cash
consideration include the proceeds from the proposed issuance and sale by
Southern UK of up to (Pound Sterling)627,070,000 nominal value of its Secured
Floating Rate Bonds Due 2000 (the "Bonds"). The balance of the cash has been or
will be provided by Southern from borrowings under uncommitted arrangements with
Banca di Roma, Bank of America National Trust and Savings Association, Bank
South, Bank of Tokyo, Dai-Ichi Kanyo Bank, Limited, Fuji Bank, Limited,
Industrial Bank of Japan, Limited, Mellon Bank, N.A., Morgan Guaranty Trust
Company of New York, Sanwa Bank, Tokai Bank and The Toronto-Dominion Bank, and
from the proposed issuance and sale by Southern of its commercial paper notes.
- --------------------
* Loan Notes and GRID Bonds are defined and described in the Current Report on
Form 8-K of Southern dated August 25, 1995.
2
<PAGE>
SWEB is one of the twelve regional electricity companies in the United
Kingdom that came into existence in 1990 as a result of the restructuring and
subsequent privatization of the U.K. Central Electricity Generating Board.
SWEB's main business is the distribution of electricity to customers in the
Southwest of England. SWEB is also a supplier of electricity to franchise
customers in its authorized area and to customers in the competitive second-tier
market. Through its 7.7% equity investment in Teesside Power Limited, a combined
cycle gas turbine plant with a capacity of 1,875 megawatts, SWEB is involved in
power generation. In addition, SWEB is involved in certain non-regulated
activities which include gas supply and telecommunications. In the year ended
March 31, 1995, SWEB reported turnover of (Pound Sterling)874.9 million and
consolidated profit before tax of (Pound Sterling)111.5 million after an
exceptional charge of (Pound Sterling)20.0 million. Basic earnings per share
were 72.4p, and net dividends per share amounted to 29.0p.
SWEB owns approximately 6.3% of the issued share capital of The
National Grid Holdings plc ("NGH"), which, through its subsidiary The National
Grid Company plc, operates the electrical transmission system in England and
Wales and the interconnection assets that link such national grid with the
transmission systems in Scotland and France. In the year ended March 31, 1995,
NGH reported a consolidated profit before tax of (Pound Sterling)610.6 million
on turnover of (Pound Sterling)1,428.2 million. Net dividends for the year
amounted to (Pound Sterling)162.0 million.
References herein to "(Pound Sterling)" and "p" are to British pounds
sterling and British pence, respectively.
THE REVISED OFFER IS NOT BEING MADE, DIRECTLY OR INDIRECTLY, IN OR
INTO, OR BY USE OF THE MAILS OF, OR BY ANY MEANS OR INSTRUMENTALITY (INCLUDING,
WITHOUT LIMITATION, FACSIMILE TRANSMISSION, TELEX OR TELEPHONE) OF INTERSTATE OR
FOREIGN COMMERCE OF, OR OF ANY FACILITY OF A NATIONAL SECURITIES EXCHANGE OF,
THE UNITED STATES AND THE REVISED OFFER CANNOT BE ACCEPTED BY ANY SUCH USE,
MEANS, INSTRUMENTALITY OR FACILITY OR FROM WITHIN THE UNITED STATES, CANADA OR
AUSTRALIA.
THE BONDS, THE LOAN NOTES, THE GRID BONDS AND THE SHARES INTO WHICH THE
GRID BONDS MAY BE EXCHANGEABLE HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). ACCORDINGLY, THE
BONDS, THE LOAN NOTES, THE GRID BONDS AND THE SHARES INTO WHICH THE GRID BONDS
MAY BE EXCHANGEABLE MAY NOT BE OFFERED, SOLD OR EXCHANGED IN THE UNITED STATES
OR TO U.S. PERSONS EXCEPT PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. TERMS USED IN THIS PARAGRAPH
HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
3
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements of businesses acquired.
The financial statements of SWEB and the auditors' report
thereon required by Item 7(a) are filed as a part of this
report.
(b) Pro forma financial information.
It is impracticable to provide the pro forma financial
information required by Item 7(b) relative to the acquired
business described in Item 2 hereof at the time this report is
filed. The required pro forma financial information will be
filed as soon as practicable, but not later than the date by
which such information is required to be filed.
(c) Exhibits.
Exhibit No. Description
23 Consent of Ernst & Young
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SOUTHERN COMPANY
By:/s/ Tommy Chisholm
Name: Tommy Chisholm
Title: Secretary
Date: October 3, 1995
4
Item 7(a)
To the Board of Directors
South Western Electricity plc
We have audited the accompanying consolidated balance sheet of South Western
Electricity plc as of 31 March 1995 and the related consolidated profit and
loss account and statement of cash flows for the year ended 31 March 1995.
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 audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurances 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 the management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
South Western Electricity plc at 31 March 1995, and the consolidated results of
its operations and its cash flows for the year ended 31 March 1995 in
conformity with accounting principles generally accepted in the United Kingdom.
/s/ ERNST & YOUNG
ERNST & YOUNG
Chartered Accountants
Registered Auditor
Bristol
19 June 1995
1
<PAGE>
<TABLE>
<CAPTION>
Group profit and loss account
For the year ended 31 March 1995
<S> <C> <C> <C>
There are no recognised gains or losses other than the profit for the year, and accordingly a statement of recognised
gains and losses is not presented.
- ---------------------------------------------------------------------------------------------------------------------
1995 1994
Note (pound)m (pound)m
Turnover 3
Continuing operations 797.8 827.0
Discontinued operations 77.1 72.6
- ---------------------------------------------------------------------------------------------------------------
874.9 899.6
Operating costs 4 (755.4) (791.0)
- ----------------------------------------------------------------------------------------------------------------
Operating profit 3
Continuing operations 118.2 106.5
Discontinued operations 1.3 2.1
----- -----
119.5 108.6
Exceptional Item - discontinued operations 3 (20.0) -
Income from interests in associated undertakings 1.2 0.9
Income from fixed asset investments 3 15.3 14.4
- ---------------------------------------------------------------------------------------------------------------
Profit on ordinary activities before
Interest and tax 116.0 123.9
Interest 5 (4.5) (7.1)
- ----------------------------------------------------------------------------------------------------------------
Profit on ordinary activities before tax 111.5 116.8
Tax on profit on ordinary activities 6 (25.6) (23.9)
- ----------------------------------------------------------------------------------------------------------------
Profit for the financial year 85.9 92.9
Dividend 7 (32.2) (28.9)
- ----------------------------------------------------------------------------------------------------------------
Retained profit for the year 21 53.7 64.0
- ---------------------------------------------------------------------------------------------------------------
Earnings per ordinary share: 8
Before non-operating exceptional item 83.7p 75.4p
Basic 72.4p 75.4p
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Balance sheets
At 31 March 1995
<S> <C> <C> <C> <C> <C>
Group Company
1995 1994 1995 1994
Note (pound)m (pound)m (pound)m (pound)m
Fixed assets
Tangible assets 12 540.7 509.6 501.7 463.7
Investments 13 74.3 68.9 76.1 76.0
- -------------------------------------------------------------------------------------------------------------
615.0 578.5 577.8 539.7
Current assets
Stocks 14 18.5 17.3 2.1 2.5
Debtors 15 187.2 153.9 226.3 190.0
Investments 16 43.8 126.9 21.2 107.2
Cash at bank and in hand 4.1 2.9 1.5 2.5
- -------------------------------------------------------------------------------------------------------------
253.6 301.0 251.1 302.2
Creditors
Amounts falling due within one year 17 (242.7) (204.5) (203.3) (173.7)
- --------------------------------------------------------------------------------------------------------------
Net current assets 10.9 96.5 47.8 128.5
- -------------------------------------------------------------------------------------------------------------
Total assets less current liabilities 625.9 675.0 625.6 668.2
Creditors
Amounts falling due after more than one year 17 (94.9) (92.3) (94.9) (92.3)
Provisions for liabilities and charges 18 (37.1) (39.7) (31.4) (31.5)
- -------------------------------------------------------------------------------------------------------------
493.9 543.0 499.3 544.4
Minority Interest (all equity) (0.1) (0.1) - -
- -------------------------------------------------------------------------------------------------------------
Net assets 493.8 542.9 499.3 544.4
- -------------------------------------------------------------------------------------------------------------
Capital and reserves
Called up share capital 20 55.5 61.6 55.5 61.6
Share premium account 21 0.5 0.3 0.5 0.3
Revaluation reserve 21 49.1 49.1 49.1 49.1
Capital redemption reserve 21 6.2 - 6.2 -
Profit and loss account 21 382.5 431.9 388.0 433.4
- -------------------------------------------------------------------------------------------------------------
Shareholders' funds (all equity) 493.8 542.9 499.3 544.4
- -------------------------------------------------------------------------------------------------------------
Reconciliation of movements in shareholders' funds
For the year ended 31 March 1995
1995 1994
Group (pound)m (pound)m
Profit for the financial year 85.9 92.9
Dividends (32.2) (28.9)
- -------------------------------------------------------------------------------------------------------------
53.7 64.0
Shares issued in the year - share capital 0.1 -
- share premium 0.2 0.1
Purchase of own shares (note 20(a)) (103.1) -
- -------------------------------------------------------------------------------------------------------------
Net addition to shareholders' funds (49.1) 64.1
Opening shareholders' funds 542.9 478.8
- -------------------------------------------------------------------------------------------------------------
Closing shareholders' funds 493.8 542.9
The accounts on pages 2 to 28 were approved by the Board of Directors on 19 June 1995 and were signed on its
behalf by:
J J Seed Chief Executive
J E Sellers Finance Director
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Group statement of cash flows
For the year ended 31 March 1995
<S> <C> <C> <C> <C> <C>
Cash flow 1995 1994
note (pound)m (pound)m (pound)m (pound)m
- ---------------------------------------------------------------------------------------------------------------------------
Cash inflow from operating activities A 124.2 245.0
Returns on investments
and servicing of finance
Interest received 6.4 2.7
Interest paid (10.5) (10.4)
Dividends received 12.3 8.5
Dividends paid (30.0) (26.0)
----- -----
Net cash outflow from returns
on investments and servicing
of finance (21.8) (25.2)
Tax
Corporation tax paid (32.7) (10.5)
Investing activities - long term
Payments to acquire tangible fixed assets (78.5) (71.2)
Receipts from sales of tangible fixed assets 0.7 0.8
Consumers' contributions received 10.8 10.3
Payments to acquire fixed asset investments (4.6) (0.1)
------ -----
Net cash outflow from long term
investing activities (71.6) (60.2)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (outflow)/inflow before
short term investment and financing (1.9) 149.1
Investing activities - short term
Purchase of current investments -
other than cash equivalents (61.8) (52.4)
Sale of current investments - other
than cash equivalents 66.5 37.7
------ --------
Net cash inflow/(outflow) from short term
Investing activities 4.7 (14.7)
Net cash outflow from investing
activities (66.9) (74.9)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash inflow before financing 2.8 134.4
Financing
Issue of ordinary share capital 0.3 0.1
Purchase of own shares (103.1) -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (outflow)/inflow from financing (102.8) 0.1
- ---------------------------------------------------------------------------------------------------------------------------
(Decrease)/Increase in cash and cash
equivalents B (100.0) 134.5
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Notes to the statement of cash flows
For the year ended 31 March 1995
A Reconciliation of operating profit to cash flows
- -------------------------------------------------------------------------------
Reconciliation of operating profit to net cash inflow from operating activities:
<S> <C> <C>
1995 1994
(pound)m (pound)m
Operating profit 119.5 108.6
Depreciation 31.9 29.6
Loss on sale of tangible fixed assets 1.1 0.2
Increase in operating stocks (3.3) (1.9)
(Increase)/decrease in operating debtors (7.9) 27.7
Increase/(decrease) in operating creditors (excluding customer prepayments below) 14.2 (1.4)
Increase in operating provisions 0.7 25.2
- -----------------------------------------------------------------------------------------------------------------
Net cash inflow from ordinary activities 156.2 188.0
Customer receipts ahead of VAT on fuel - (utilised)/received (32.0) 57.0
- -----------------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities 124.2 245.0
The above movements relate solely to operating activities. The balance sheet headings include other items shown
separately in the statement of cash flows. The 1995 exceptional item appears after operating profit and so has been
excluded from the above operating analysis.
</TABLE>
<TABLE>
<CAPTION>
B Cash and cash equivalents
Analysis of balances shown in the Group balance sheet and changes during the current and previous year:
<S> <C> <C> <C> <C> <C>
Change Change
1995 in year 1994 in year 1993
(pound)m (pound)m (pound)m (pound)m (pound)m
Cash at bank and in hand 4.1 1.2 2.9 (2.4) 5.3
Short term deposits 23.2 (77.0) 100.2 100.2 -
Short term borrowings (24.6) (24.2) (0.4) 36.7 (37.1)
- ------------------------------------------------------------------------------------------------------------------
2.7 (100.0) 102.7 134.5 (31.8)
</TABLE>
5
<PAGE>
Notes to the accounts
For the year ended 31 March 1995
1. Accounting policies
- -------------------------------------------------------------------------------
Basis of preparation
The accounts have been prepared using historical cost accounting principles,
modified to include the revaluation of certain fixed asset investments, and
comply with the Companies Act 1985 and with all applicable accounting standards.
Historical cost accounting (HCA) is used by most companies. However, assets in
the electricity industry have long lives (typically 40 years) so that HCA
understates the current value of assets employed and therefore the depreciation
charge to the profit and loss account. To ensure that the operating capability
of the business is maintained, due regard must be paid to the current cost
accounting (CCA) results; these have been prepared and are summarised in note
23.
These accounts are the result of the consolidation of the accounts of the
Company and its subsidiary undertakings drawn up to 31 March in each year.
Turnover
Turnover is stated net of value added tax. The value of electricity and gas sold
during the year includes an estimate of the sales value of units supplied to
customers between the date of the last meter reading and the year end. Remaining
sales relate to the invoice value of other goods and services provided. Charges
in respect of retail sales made on credit are apportioned in the trading
accounts over the period of the sales agreements.
Price regulation
Where there is an overrecovery of supply or distribution business revenues
against the regulated maximum allowable amount, revenues are deferred equivalent
to the overrecovered amount. The deferred amount is deducted from turnover and
included within creditors. Where there is an underrecovery, no income is taken
into account in respect of any potential future recovery until such income is
received.
Tangible fixed assets
Tangible fixed assets are stated at cost less amounts provided to write off the
cost less anticipated residual value of the assets over their useful economic
lives, which are as follows:
Years
- ------------------------------------------------------------------------------
Distribution network assets 40
Generation assets 15-40
Buildings - freehold Up to 60
- leasehold Lower of lease
period or 60 years
Fixtures and equipment Up to 20
Vehicles and mobile plant Up to 10
6
<PAGE>
Notes to the accounts
For the year ended 31 March 1995
Depreciation on distribution network assets is charged at 3% for 20 years
followed by 2% for the remaining 20 years. Other assets are depreciated on a
straight line basis. Consumers' contributions and capital grants towards
distribution network assets are credited to the profit and loss account over the
life of the distribution network assets to which they relate. The unamortised
amount of such contributions and grants is shown as a deduction from fixed
assets.
Leases
Rents for operating leases are charged to the profit and loss account in equal
annual amounts over the period of the lease.
Pension costs
The Group operates two pension schemes. Contributions to the defined
contribution pension scheme are charged to the profit and loss account as they
become payable in accordance with the rules of the scheme. Contributions to the
defined benefit pension scheme are charged to the profit and loss account so as
to spread the cost of pensions over employees' working lives with the Group. The
capital cost of ex gratia and supplementary pensions is charged to the profit
and loss account in the accounting period in which they are granted.
Research and development
Expenditure on research and development is written off to the profit and loss
account in the year in which it is incurred.
IT consultancy and development costs
IT consultancy and development costs are charged to the profit and loss account
in the year in which they are incurred.
Tax
Corporation tax payable is provided on taxable profits at the current rate of
corporation tax.
The taxable profits of some Group companies are reduced because they are able to
utilise tax losses from consortia in which the Group has invested. The extent to
which the benefit of losses surrendered from consortia is required to be paid
for is shown in the `consortium tax creditor' (note 17).
Deferred tax has been calculated using the liability method. Deferred tax is
provided on timing differences which are expected to reverse without being
replaced at the rates of tax likely to be in force at the time of reversal.
Deferred tax is not provided on timing differences which, in the opinion of the
Directors, are not expected to reverse without being replaced. The amount of all
deferred tax, including that which has not been provided, is shown in note 19 to
the accounts.
7
<PAGE>
Notes to the accounts
For the year ended 31 March 1995
Property
Properties surplus to operational requirements are stated at the lower of cost
and net realisable value. Profits are taken when properties are sold. Sales are
accounted for when there is an unconditional exchange of contracts.
There is an arrangement in place whereby HM Government is entitled to a share in
the profits realised by the Company on certain property disposals made up to
March 2000. Full provision for such clawback liabilities is made as soon as the
sale is recognised.
Investments
Investment income is included in the accounts of the year in respect of which it
is receivable. Fixed asset investments are stated at cost less provisions for
permanent diminution in value with the exception of The National Grid Holding
plc which is stated at the Group's share of the net asset value at 31 March
1990. Current asset investments are valued at the lower of cost and net
realisable value.
Stocks and work in progress
Stocks are valued at the lower of cost and net realisable value. The valuation
of work in progress is based on the cost of labour plus appropriate overheads
and the cost of materials, less foreseeable losses; progress invoices are
deducted in arriving at the amounts stated. A prudent estimate of profits
attributable to work completed on continuing contracts is recognised once the
outcome can be assessed with reasonable certainty.
2 Price regulation
- -------------------------------------------------------------------------------
At 31 March 1995, the electricity supply business had a cumulative overrecovery
(i.e. higher than the regulated maximum allowable) of (pound)6.0m (excluding
(pound)0.4m notional interest) and a provision has been made in the accounts for
this amount as a reduction of reported income. At 31 March 1994, the
overrecovery had been (pound)5.4m (excluding notional interest of (pound)0.4m).
At 31 March 1995, the electricity distribution business had a cumulative
underrecovery (i.e. lower than the regulated maximum allowable) of (pound)6.1m
(excluding (pound)0.4m notional interest); at 31 March 1994, income had exactly
matched entitlement.
8
<PAGE>
<TABLE>
<CAPTION>
Notes to the accounts
For the year ended 31 March 1995
<S> <C> <C> <C> <C>
3 Segmental analysis
- -------------------------------------------------------------------------------------------------------------------
Distribution involves the delivery of electricity across the Group's network. Supply sells electricity to customers
and negotiates terms for the bulk purchase of electricity. Retailing relates to the sale and servicing of electrical
appliances. Other activities broadly fall within the two categories of energy related businesses (such as Western
Gas and generation) and utility related (such as telecommunications).
Profit before
Turnover interest and tax Net assets
1995 1994 1995 1994 1995 1994
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------------------------------------------
Electricity distribution 274.0 249.8 95.7 76.6 457.0 434.3
Electricity supply 724.8 757.1 15.3 10.9 (8.9) (37.7)
Electricity supply - prior year income - 14.5 - 14.5
Less intra business sales -
electricity use of system (227.9) (229.7)
- ----------------------------------------------------------------------------------------------------------------
Electricity total 770.9 791.7 111.0 102.0 448.1 396.6
Retailing - discontinued 77.1 72.6 1.3 2.1 34.8 34.5
- continuing 5.3 6.4 - (1.6) 0.2 0.2
Other activities 83.6 77.8 8.5 10.1 73.3 65.9
Less intra Group sales (62.0) (48.9) (1.3) -
Restructuring costs - (4.0)
- ----------------------------------------------------------------------------------------------------------------
Operating profit 119.5 108.6
Exceptional item - discontinued operations (20.0) -
Associated undertakings 1.2 0.9 3.3 2.5
Fixed asset investments:
The National Grid Holding plc 12.7 11.9 49.1 49.1
Teesside Power Limited 2.6 2.5 16.7 16.4
Eurobell (South West) Limited - - 4.3 -
Unallocated items (136.0) (22.3)
- ----------------------------------------------------------------------------------------------------------------
874.9 899.6 116.0 123.9 493.8 542.9
Turnover is all in respect of sales to customers in the United Kingdom. Prior year income in respect of supply
relates to recovery of regulatory entitlement in respect of previous periods.
Turnover and costs are allocated directly to the activity to which they relate wherever possible; however because
of the integrated nature of the Company's activities it is necessary to apportion or recharge certain costs between
activities.
The non-operating exceptional item in 1995 relates to the costs (including provisions) associated with the
withdrawal from the electrical retailing business, and includes severance costs and the write down of asset values.
The restructuring costs in 1994 relate mainly to severance costs associated with the appliance servicing activity.
Unallocated items include dividends, tax, and financing which are not apportioned to separate activities.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Notes to the accounts
For the year ended 31 March 1995
<S> <C> <C> <C> <C> <C>
4 Operating costs
- ----------------------------------------------------------------------------------------------------------------------
The Directors consider that the nature of the business is such that the analysis of expenses shown below is more
informative than that set out in the formats in the Companies Act 1985.
Discontinued Continuing
operations operations 1995 1994
(pound)m (pound)m (pound)m (pound)m
Cost of sales 53.4 497.2 550.6 570.0
Other operating costs:
Employee costs (note 9) 10.0 61.2 71.2 77.7
Severance costs (note 9) - 7.6 7.6 18.1
Materials and purchase of services 9.2 57.1 66.3 68.9
External IT consultancy and development - 11.8 11.8 12.2
Rates 1.2 13.7 14.9 14.3
Depreciation (net of profit or loss on disposal) 1.9 31.1 33.0 29.8
- ----------------------------------------------------------------------------------------------------------------------
Operating costs 75.7 679.7 755.4 791.0
Materials and purchase of services include the following: Operating lease
rentals:
Plant, machinery and equipment 0.6 0.5
Other assets 5.5 5.2
Research and development 0.8 1.0
Auditors' remuneration:
Audit fees and expenses 0.2 0.2
Other fees and expenses 0.2 0.1
- ---------------------------------------------------------------------------------------------------------------------
5 Interest
- ---------------------------------------------------------------------------------------------------------------------
1995 1994
(pound)m (pound)m
- ---------------------------------------------------------------------------------------------------------------------
Interest payable and similar charges:
On borrowings totally repayable within five years 1.1 0.9
On HM Treasury bonds 9.9 9.9
Interest payable/(receivable) on pension liabilities 0.3 (0.6)
Interest receivable (6.8) (3.1)
- ----------------------------------------------------------------------------------------------------------------------
4.5 7.1
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Notes to the accounts
For the year ended 31 March 1995
<S> <C> <C>
6 Tax on profit on ordinary activities
- ------------------------------------------------------------------------------------------------------------------
1995 1994
(pound)m (pound)m
- ------------------------------------------------------------------------------------------------------------------
Payable in the United Kingdom:
Corporation tax at 33% (1994: 33%) 32.8 24.7
Tax on investment income 2.5 2.5
Deferred tax (note 19) (7.7) 13.3
Adjustment to current tax in respect of prior years (2.4) (17.0)
Share of tax of associated undertakings 0.4 0.4
- -----------------------------------------------------------------------------------------------------------------
25.6 23.9
The effective tax rate on the profit for the year was 23% (1994: 20%).
The deferred tax credit in the year relates principally to the closure of SWEB Retail and to redundancy provisions.
7 Dividend
- ------------------------------------------------------------------------------------------------------------------
1995 1994
(pound)m (pound)m
- ------------------------------------------------------------------------------------------------------------------
Interim declared 8.7p (1994: 7.0p) 10.2 8.6
Adjustment in respect of interim dividend on repurchased shares (0.5) -
Final dividend proposed 20.3p (1994: 16.5p) 22.5 20.3
- ------------------------------------------------------------------------------------------------------------------
32.2 28.9
8 Earnings per ordinary share
- ------------------------------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------------
Before non-operating exceptional item 83.7p 75.4p
Effect of non-operating exceptional item (11.3)p -
Basic 72.4p 75.4p
Basic earnings per share have been calculated on the basis of Financial Reporting Standard 3 "Reporting Financial
Performance".
Basic earnings per share have been calculated by dividing profit after tax of (pound)85.9m (1994: (pound)92.9m) by 118.7m
being the weighted average number of ordinary shares in issue during the year (1994: 123.2m).
Earnings per share before the non-operating exceptional item have been calculated as above, but adjusted to
eliminate the (pound)20.0m costs and associated tax credit of (pound)6.6m relating to the withdrawal from appliance retailing
since, in the opinion of the Directors, this gives a better understanding of the result.
If all outstanding options under the Company's employee share schemes had been exercised, the dilution in
earnings per share would not have been material.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Notes to the accounts
For the year ended 31 March 1995
<S> <C> <C> <C>
9 Employee costs and numbers (including directors)
- -------------------------------------------------------------------------------------------------------------------
1995 1994
(a) Employee costs (pound)m (pound)m
- -------------------------------------------------------------------------------------------------------------------
Total employee costs during the year amounted to:
Wages and salaries 87.7 93.1
Social security costs 7.3 8.0
Pension costs (including severance arrangements) 14.8 8.6
Other severance costs 10.4 15.8
- ------------------------------------------------------------------------------------------------------------------
120.2 125.5
Employee costs were allocated to: Operating costs (note 4):
Cost of sales 12.3 8.1
Other operating costs 71.2 77.7
Severance costs 7.6 18.1
Non-operating exceptional item 8.5 -
Capital expenditure 20.6 21.6
- ------------------------------------------------------------------------------------------------------------------
120.2 125.5
Head count Full time equivalent
(b) The average number of employees during the year was: 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------
Electricity supply and distribution 2,983 3,253 2,874 3,125
Retailing 924 1,012 719 806
Other activities:
Contracting 560 548 555 543
Other 298 324 279 303
Central services 154 171 144 161
Corporate 86 92 85 91
- ------------------------------------------------------------------------------------------------------------------
5,005 5,400 4,656 5,029
The 1994 numbers have been restated to reflect the reclassification of the Central Accounting Office Customer
Accounting function. This has transferred 117 employees (average full time equivalent) from central services to
electricity supply and distribution.
</TABLE>
12
<PAGE>
Notes to the accounts
For the year ended 31 March 1995
10 Pension commitments
- -------------------------------------------------------------------------------
The Group operates two schemes, one based on defined contributions and a second
based on defined benefits.
(a) The defined contribution scheme was established during 1993/94. The cost,
which represents contributions payable by the Group, amounted to
(pound)89,000 (1994: (pound)22,000). The assets of the scheme are held
separately from those of the Group in an independently administered fund.
(b) The Electricity Supply Pension Scheme provides pension and other related
defined benefits based on final pensionable pay to employees throughout the
Electricity Supply Industry. The assets of the Scheme are held in a separate
trustee administered fund.
The latest full actuarial valuation of the Group's share of the Scheme was
carried out by Bacon & Woodrow, consulting actuaries, as at 31 March 1992
and the results of this valuation have been used as the basis for assessing
pension cost. The attained age method was used for the valuation and the
principal actuarial assumptions adopted were that the investment return
would average 9.5% per annum, equity dividend growth would average 5% per
annum, salary increases (exclusive of merit awards) would average 7.5% per
annum, pension increases would average 5.5% per annum, and that inflation
would average 5.5% per annum.
The valuation showed that the actuarial value of the assets of the Group's
share of the Scheme as at 31 March 1992 represented 105.2% of the actuarial
value of the accrued benefits. After allowing for benefit improvements
granted as a result of the valuation and the provision made from the surplus
to cover contingencies and anticipated short term early retirement costs,
the actuarial value of the assets is at the same level as the actuarial
value of the accrued benefits. The accrued benefits include all benefits for
pensioners and other former members as well as benefits based on service
completed to date for active members, allowing for future salary rises.
The total market value of the assets of the Scheme at 31 March 1992 was
(pound)9,491.9m of which (pound)480.2m represented the share of the Scheme
which relates to the members and beneficiaries of the Group.
Contributions payable by the Group to the Scheme during the year were
(pound)9.8m (1994: (pound)9.6m).
(c) The latest actuarial valuation did not allow for the possible additional
liabilities which may arise as a result of the European Court of Justice's
decision on 17 May 1990 in the case of Barber v Guardian Royal Exchange,
which related to the equal treatment of men and women under occupational
pension schemes. The ruling was not specific as to whether equalisation
should be retrospective before May 1990. The legal position has now been
clarified although the precise cost to the Group cannot be ascertained until
the next formal Scheme valuation. The provision at 31 March 1995 amounted to
(pound)5.2m (31 March 1994: (pound)4.4m). Following advice from actuaries
Bacon & Woodrow, a provision at the rate of 0.7% of pensionable salaries was
provided during the year.
13
<PAGE>
Notes to the accounts
For the year ended 31 March 1995
11 Directors' emoluments and interests
- -------------------------------------------------------------------------------
(a) Directors' emoluments
The remuneration of the executive directors comprises four elements:
(i) a basic salary together with benefits-in-kind;
(ii) a performance related bonus which rewards the directors based on
improvements in earnings per share and specific performance within those
functions for which the directors are individually responsible including
the achievement of customer service quality improvements;
(iii) long term incentives, which consist of share option schemes to encourage
directors to enhance share values;
(iv) a contribution to the Electricity Supply Pension Scheme.
The terms and conditions of employment of the executive directors are determined
by the Executive Remuneration Committee which consists solely of non-executive
directors. The Committee takes into account independent expert advice on
equivalent market salaries. During the year, the Committee reviewed the
executive Directors' Service Agreements. As a consequence the four executive
directors have Agreements which, from 1 June 1995, provide for the Company to
terminate the Agreement by giving the director two years' notice in writing
(previously three years). The director may terminate the Agreement by giving the
Company six months' notice in writing.
Fees paid to non-executive directors reflect the knowledge and experience which
they bring to the Group.
<TABLE>
<CAPTION>
The remuneration of the directors was as follows:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic salary or fees Benefits Bonuses Total
1995 1994 1995 1994 1995 1994 1995 1994
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
- -----------------------------------------------------------------------------------------------------------------------
Executive directors:
J A G Bonner 103 100 11 10 24 23 138 133
M J Carson 101 97 5 16 22 21 128 134
A W Nicol - 86 - 6 - - - 92
J J Seed 177 163 11 11 44 39 232 213
J E Sellers 98 95 8 8 21 21 127 124
Non-executive directors:
C M Fisher 22 22 - - - - 22 22
J O Gough 22 22 - - - - 22 22
A P Hichens 22 22 - - - - 22 22
M E Warren 100 80 12 8 - - 112 88
- ------------------------------------------------------------------------------------------------------------------------
645 687 47 59 111 104 803 850
Pension contributions to the Electricity Supply Pension Scheme in respect of the directors amounted to (pound)68,000
(1994: (pound)76,000) of which (pound)25,000 (1994: (pound)23,000) was paid in respect of J J Seed as Chief Executive and highest
paid director. J J Seed's salary increase reflects his first full year as Chief Executive.
</TABLE>
14
<PAGE>
Notes to the accounts
For the year ended 31 March 1995
Two Chairmen served during the year to 31 March 1994, the current non-executive
Chairman, M E Warren, succeeding the previous executive Chairman, A W Nicol, on
9 August 1993. A W Nicol resigned as a director on 31 August 1993; as executive
Chairman, he received (pound)79,000 in remuneration and (pound)10,000 was paid
on his behalf to the Electricity Supply Pension Scheme. During the year to 31
March 1994, M E Warren as non-executive Chairman received remuneration of
(pound)71,000. Being non-executive, M E Warren does not receive a performance
related element of salary nor is he entitled to any pension benefits. In
addition to the amounts disclosed above, charges of (pound)142,559 were incurred
in the year to 31 March 1994 in connection with the retirement of A W Nicol
mainly by way of a contribution to the Electricity Supply Pension Scheme which
was made in accordance with its early retirement rules applicable to all members
of the Scheme.
(b) Directors' interests
The beneficial interests of the directors and their families in the shares of
the Company at 31 March 1995 are detailed below. There were no changes between
31 March 1995 and 19 June 1995 other than for J A G Bonner whose notifiable
interests stand at 21,741 ordinary shares following a matched sale and
repurchase of shares through the SWEB PEP on 4 April 1995.
At 31 March 1995 At 1 April 1994
Ordinary shares Number Number
M E Warren 5,000 5,000
J J Seed 27,404 9,978
J A G Bonner 21,768 16,768
M J Carson 21,589 16,589
C M Fisher 4,695 4,695
J O Gough 250 250
A P Hichens 22,000 22,000
J E Sellers 21,000 15,000
15
<PAGE>
<TABLE>
<CAPTION>
Notes to the accounts
For the year ended 31 March 1995
<S> <C> <C> <C> <C> <C> <C>
Number Number Number Number Exercise Normal
at granted exercised at price period of
Share options 1.4.94 in year in year 31.3.95 (pound) exercise
- -------------------------------------------------------------------------------------------------------------------
J J Seed *2,528 2,528 1.75 1996
17,460 17,460 - 3.15
12,168 12,168 4.52 1996-2003
31,529 31,529 7.485 1997-2004
- -------------------------------------------------------------------------------------------------------------------
32,156 31,529 17,460 46,225
J A G Bonner *2,528 2,528 1.75 1996
13,333 13,333 - 3.15
9,292 9,292 4.52 1996-2003
6,060 6,060 6.93 1997-2004
13,760 13,760 7.485 1997-2004
5,026 5,026 8.355 1998-2005
- -------------------------------------------------------------------------------------------------------------------
31,213 18,786 13,333 36,666
M J Carson 13,333 13,333 - 3.15
9,292 9,292 4.52 1996-2003
6,060 6,060 6.93 1997-2004
13,493 13,493 7.485 1997-2004
5,026 5,026 8.355 1998-2005
- -------------------------------------------------------------------------------------------------------------------
28,685 18,519 13,333 33,871
J E Sellers *2,528 2,528 1.75 1996
13,333 6,000 7,333 3.15 1995-2002
9,292 9,292 4.52 1996-2003
6,060 6,060 6.93 1997-2004
13,092 13,092 7.485 1997-2004
5,026 5,026 8.355 1998-2005
- -------------------------------------------------------------------------------------------------------------------
31,213 18,118 6,000 43,331
The options above are under the terms of the Executive Share Option Schemes, except as marked * which are
under the terms of the Sharesave Scheme. All options exercised during the year were exercised on the same day,
when the market price was (pound)8.11. The market price at 31 March 1995 was (pound)6.27.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Notes to the accounts
For the year ended 31 March 1995
12 Tangible fixed assets
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-
network Vehicles & Deduct:
Distribution land & Fixtures & mobile consumers'
Generation network buildings equipment plant contributions Total
Group (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
- --------------------------------------------------------------------------------------------------------------------------------
Cost
At 1 April 1994 2.0 750.1 45.9 91.0 23.4 (135.7) 776.7
Additions - 58.1 0.2 19.5 2.1 (10.8) 69.1
Disposals - (4.4) - (9.5) (2.0) - (15.9)
- --------------------------------------------------------------------------------------------------------------------------------
At 31 March 1995 2.0 803.8 46.1 101.0 23.5 (146.5) 829.9
Depreciation
At 1 April 1994 1.2 227.3 7.6 54.0 10.4 (33.4) 267.1
Charge for the year 0.1 20.8 0.7 12.1 2.7 (3.9) 32.5
Disposals - (2.4) - (6.3) (1.7) - (10.4)
- --------------------------------------------------------------------------------------------------------------------------------
At 31 March 1995 1.3 245.7 8.3 59.8 11.4 (37.3) 289.2
Net book value
At 31 March 1995 0.7 558.1 37.8 41.2 12.1 (109.2) 540.7
- --------------------------------------------------------------------------------------------------------------------------------
At 31 March 1994 0.8 522.8 38.3 37.0 13.0 (102.3) 509.6
Vehicles & Deduct:
Distribution Fixtures & mobile consumers'
network equipment plant contributions Total
Company (pound)m (pound)m (pound)m (pound)m (pound)m
- --------------------------------------------------------------------------------------------------------------------------------
Cost
At 1 April 1994 750.1 79.8 23.4 (135.7) 717.6
Additions 59.1 17.5 2.3 (10.8) 68.1
Transfers between Group undertakings - 2.0 (0.2) - 1.8
Disposals (4.4) (4.7) (2.0) - (11.1)
- --------------------------------------------------------------------------------------------------------------------------------
At 31 March 1995 804.8 94.6 23.5 (146.5) 776.4
Depreciation
At 1 April 1994 227.3 49.6 10.4 (33.4) 253.9
Charge for the year 20.8 10.0 2.8 (3.9) 29.7
Transfers between Group undertakings - 0.7 (0.1) - 0.6
Disposals (2.4) (5.4) (1.7) - (9.5)
- --------------------------------------------------------------------------------------------------------------------------------
At 31 March 1995 245.7 54.9 11.4 (37.3) 274.7
Net book value
At 31 March 1995 559.1 39.7 12.1 (109.2) 501.7
- --------------------------------------------------------------------------------------------------------------------------------
At 31 March 1994 522.8 30.2 13.0 (102.3) 463.7
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Notes to the accounts
For the year ended 31 March 1995
12 Tangible fixed assets (continued)
- --------------------------------------------------------------------------------------------------------------------------
The net book value of land and buildings
comprises:
<S> <C> <C> <C> <C>
Group Group and
Non- Company
network Network
land and land and
buildings buildings
1995 1994 1995 1994
(pound)m (pound)m (pound)m (pound)m
Freehold 33.5 34.0 32.1 27.8
Long leasehold 0.3 0.3 - -
Short leasehold 4.0 4.0 - 0.1
- ---------------------------------------------------------------------------------------------------------------------------
37.8 38.3 32.1 27.9
Included within the Group's fixed assets are assets in the course of construction amounting at 31 March 1995 to
(pound)3.4m (1994: (pound)16.7m) and land at a cost of (pound)11.2m (1994: (pound)8.4m).
</TABLE>
<TABLE>
<CAPTION>
13 Fixed asset investments
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Group Company
Shares in
Unlisted Group Unlisted
Associated invest- under- invest-
undertakings ments Total takings ments Total
(pound)m (pound)m pound)m (pound)m (pound)m (pound)m
- ---------------------------------------------------------------------------------------------------------------------------
Balance at 1 April 1994 2.5 66.4 68.9 26.2 49.8 76.0
Additions - 4.6 4.6 0.1 - 0.1
Share of profit retained
by associated undertakings 0.8 - 0.8 - - -
- ---------------------------------------------------------------------------------------------------------------------------
Balance at 31 March 1995 3.3 71.0 74.3 26.3 49.8 76.1
The principal subsidiaries and associated undertakings are listed on page 28.
14 Stocks and work in progress
Group Company
1995 1994 1995 1994
(pound)m (pound)m (pound)m (pound)m
Raw materials and consumables 3.6 3.9 1.7 2.2
Work in progress 0.9 0.9 0.4 0.3
Goods for resale 14.0 12.5 - -
- ---------------------------------------------------------------------------------------------------------------------------
18.5 17.3 2.1 2.5
</TABLE>
18
<PAGE>
15 Debtors
- -------------------------------------------------------------------------------
Group Company
1995 1994 1995 1994
- -------------------------------------------------------------------------------
Amounts falling due within one year:
Trade debtors 41.9 41.9 37.4 35.0
Unbilled consumption 55.9 51.8 51.1 48.9
Credit sales instalments not yet due 14.8 13.6 - 0.1
Pensions prepayment 2.0 2.8 2.0 2.8
Advance corporation tax recoverable 33.0 8.4 33.0 8.4
Amounts owed by Group undertakings - - 88.4 77.6
Amounts recoverable on long term contracts 1.7 2.2 - -
Dividends receivable 6.8 6.5 8.4 7.9
Other debtors 6.6 10.7 4.7 8.8
Prepayments and accrued income 7.2 4.4 1.3 0.5
- -------------------------------------------------------------------------------
169.9 142.3 226.3 190.0
Amounts falling due after more than one year:
Credit sales instalments not yet due 17.2 11.6 - -
Other debtors 0.1 - - -
- -------------------------------------------------------------------------------
Total debtors 187.2 153.9 226.3 190.0
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
16 Current asset investments
- -------------------------------------------------------------------------------------------------------------------
Group Company
1995 1994 1995 1994
(pound)m (pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------------------------------------------
Listed:
UK Government securities 14.6 23.0 - 8.1
Fixed income investments overseas 1.8 1.8 - -
Own shares 3.7 1.4 3.7 1.4
- -------------------------------------------------------------------------------------------------------------------
20.1 26.2 3.7 9.5
Unlisted:
Short term deposits 23.2 100.2 17.0 97.2
Tax certificate of deposit 0.5 0.5 0.5 0.5
- -------------------------------------------------------------------------------------------------------------------
43.8 126.9 21.2 107.2
Own shares are held by South Western Electricity Share Scheme Trustees (Guernsey) Limited (note 20(e)) and
have a market value of (pound)3.9m (1994: (pound)2.5m). In accordance with the requirements of Financial Reporting
Standard 5 "Reporting the Substance of Transactions", the Company has recognised the assets and liabilities of the
Trust as assets and liabilities of the Company and revalued the shares to the lower of cost or net realisable value.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
17 Creditors
- -------------------------------------------------------------------------------------------------------------------
Group Company
1995 1994 1995 1994
(pound)m (pound)m (pound)m (pound)m
- --------------------------------------------------------------------------------------------------------------------
Amounts falling due within one year:
Bank loans and overdrafts 24.6 0.4 24.6 0.4
Amounts owing for purchase of electricity 35.9 38.3 35.9 38.3
Overrecovery on regulated income 6.4 5.8 6.4 5.8
Other trade creditors 26.8 24.1 17.8 15.3
Corporation tax 25.0 18.4 27.1 17.5
Advance corporation tax payable 17.8 4.9 17.8 4.9
Amounts owed to Group undertakings - - 1.9 -
Taxation and social security 8.5 7.2 2.7 2.8
Payments received on account 8.9 6.8 1.1 0.1
Dividends proposed 22.5 20.3 22.5 20.3
Other creditors 23.2 13.1 7.4 9.6
Accruals and deferred income 18.1 8.2 14.4 3.7
Customer receipts ahead of VAT on fuel 25.0 57.0 23.7 55.0
- -------------------------------------------------------------------------------------------------------------------
242.7 204.5 203.3 173.7
Amounts falling due after more than one year: Repayable between one and two
years:
Long term loan 4.0 - 4.0 -
Repayable between two and five years:
Long term liability - 4.0 - 4.0
Long term loan 0.5 0.5 0.5 0.5
Repayable in five years or more:
HM Treasury bonds 80.0 80.0 80.0 80.0
Consortium tax creditor 10.3 7.5 10.3 7.5
Other creditors 0.1 0.3 0.1 0.3
- -------------------------------------------------------------------------------------------------------------------
94.9 92.3 94.9 92.3
On 22 October 1990, the Company issued (pound)80.0m 12.365% bonds to HM Treasury which are due for repayment at
par in 2008; no interest is payable on other items.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
18 Provisions for liabilities and charges
- ---------------------------------------------------------------------------------------------------------------------
Group Company
Pensions Other Total Pensions Other Total
(pound)m (pound)m pound)m (pound)m (pound)m (pound)m
- ---------------------------------------------------------------------------------------------------------------------
Balance at 1 April 1994 4.4 35.3 39.7 4.4 27.1 31.5
Arising during the year 1.3 2.6 3.9 1.3 2.8 4.1
Utilised during the year - (6.5) (6.5) - (4.2) (4.2)
- ---------------------------------------------------------------------------------------------------------------------
Balance at 31 March 1995 5.7 31.4 37.1 5.7 25.7 31.4
Other provisions relate principally to deferred tax (note 19), reorganisation costs including severance, insurance
claims, and accrued holiday entitlement.
</TABLE>
21
<PAGE>
Notes to the accounts
For the year ended 31 March 1995
19 Deferred tax
- -------------------------------------------------------------------------------
In calculating the amount of profits subject to tax, UK tax legislation requires
that certain adjustments are made to the profits as shown in these accounts. The
major element of such adjustments arises because the rates at which assets are
depreciated for tax purposes differ from the rates at which they are depreciated
in the accounts. In circumstances where the tax depreciation is greater than the
amount of depreciation in the accounts, part of the Group's tax liability is
deferred.
Deferred tax has been provided at 33% (1994: 33%) to the extent that the
Directors have concluded that it is probable that a liability will crystallise
taking into account a prudent view of future capital expenditure and average
asset lives.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Group Company
1995 1994 1995 1994
(pound)m (pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------------------
Deferred tax provided on capital allowances
in excess of depreciation 13.3 12.5 13.3 12.5
Deferred tax in respect of other timing differences (7.7) 0.8 (4.7) -
- -----------------------------------------------------------------------------------------------------------------------
5.6 13.3 8.6 12.5
The amounts of unprovided deferred tax are as follows:
Capital allowances in excess of depreciation 122.7 117.5 119.9 113.7
Other timing differences (2.1) (5.4) (2.1) (4.4)
- -----------------------------------------------------------------------------------------------------------------------
120.6 112.1 117.8 109.3
20 Called up share capital
- -----------------------------------------------------------------------------------------------------------------------
1995 1994
(pound) (pound)
- -----------------------------------------------------------------------------------------------------------------------
Authorised:
200,000,000 ordinary shares of 50p each 100,000,000 100,000,000
One special rights redeemable preference share of(pound)1 - 1
Allotted and fully paid:
111,108,769 (1994: 123,258,043) ordinary shares
of 50p each 55,554,385 61,629,021
One special rights redeemable preference share of(pound)1 - 1
(a) Under the authority of a special resolution passed at the 1994 Annual General Meeting, the Company
purchased 12.3m of its own shares during the year which were subsequently cancelled. The total consideration
was (pound)103.1m.
</TABLE>
22
<PAGE>
Notes to the accounts
For the year ended 31 March 1995
20 Called up share capital (continued)
- ------------------------------------------------------------------------------
(b) During the year, 176,526 ordinary shares were issued under South Western
Electricity's sharesave scheme to employees who had left the Company. The
shares were fully paid up at an exercise price of (pound)1.75 per ordinary
share. The average market price of the Company's shares during the year was
(pound)7.14.
(c) The special rights redeemable preference share, held by the Secretary of
State, was redeemed at par on 30 March 1995 in accordance with the Company's
Articles of Association.
(d) At 31 March 1995 outstanding options granted under share option schemes were
as follows:
Year Options Price Normal dates
Scheme granted outstanding (pound) of exercise
- -------------------------------------------------------------------------------
Sharesave 1990 3,485,279 1.75 1996
Executive Directors & 1991 6,000 3.16 1994-2001
senior employees 1992 7,333 3.15 1995-2002
1992 11,306 3.98 1995-2002
1992 12,352 4.25 1995-2002
1993 47,344 4.52 1996-2003
1993 8,088 6.80 1996-2003
1994 22,941 6.93 1997-2004
1994 42,173 6.90 1997-2004
1994 388,868 7.485 1997-2004
1994 12,699 8.545 1997-2004
1995 27,728 8.355 1998-2005
(e) An Employee Share Ownership Trust was established in 1991 the object of
which is to purchase shares in the Company on the open market which will be
used to satisfy, in part, share option schemes. At 31 March 1995 this Trust
held 622,282 shares (1994: 378,617).
(f) 1,077,712 ordinary shares of the Company were held in a separate trust at 31
March 1995 on behalf of employees who were beneficially entitled to the
shares under special arrangements made at the time of the offer for sale in
November 1990.
23
<PAGE>
<TABLE>
<CAPTION>
Notes to the accounts
For the year ended 31 March 1995
<S> <C> <C> <C> <C> <C>
21 Reserves
- -------------------------------------------------------------------------------------------------------------------
Group Group and Company Company
Profit Share Capital Profit
& loss premium redemption Revaluation & loss
account account reserve reserve account
(pound)m (pound)m (pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------------------------------------------
Balance at 1 April 1994 431.9 0.3 - 49.1 433.4
Additions - 0.2 - - -
Purchase of own shares (103.1) - 6.2 - (103.1)
Retained profit for the year 53.7 - - - 57.7
- -------------------------------------------------------------------------------------------------------------------
Balance at 31 March 1995 382.5 0.5 6.2 49.1 388.0
</TABLE>
The revaluation reserve is in respect of the Company's investment in The
National Grid Holding plc. The share premium account arises on the issue of
shares under share option schemes. The capital redemption reserve arises on the
purchase of its own shares by the Company (note 20(a)).
As allowed by section 230 of the Companies Act 1985, the Company has not
presented its own profit and loss account. The profit for the financial year
attributable to shareholders, dealt with in the accounts of the parent Company,
was (pound)89.9m (1994: (pound)87.5m).
The Group's share of accumulated reserves of associated undertakings was
(pound)1.5m (1994: (pound)0.6m). Eurobell (South West) Limited, of which the
Group holds 30% of its issued share capital, declared a loss after tax for the
period to 31 December 1994 of (pound)0.9m; its capital and reserves at that date
totalled (pound)3.1m.
24
<PAGE>
Notes to the accounts
For the year ended 31 March 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
22 Capital and other commitments
- -----------------------------------------------------------------------------------------------------------------------
(a) There are annual commitments under operating leases for equipment and vehicles which expire:
Group and Company
1995 1994
(pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------------------
Within one year 1.2 1.4
In the second to fifth year inclusive 0.8 1.0
- -----------------------------------------------------------------------------------------------------------------------
2.0 2.4
(b) There are annual commitments under operating leases for land and buildings
which expire:
Group
1995 1994
(pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------------------
Within one year 0.3 -
In the second to fifth year inclusive - 0.3
In more than five years 3.5 3.3
- -----------------------------------------------------------------------------------------------------------------------
3.8 3.6
(c) In common with normal commercial practice, the Group has commitments to pay rentals for leasehold land and
buildings through to the end of the lease term. This obligation potentially continues to the end of the lease,
whether or not the lease is assigned to a third party. If a lease has been assigned to a third party, then the original
lessee is ultimately responsible for any default in the rent payment. However, no material liability is anticipated.
(d) Fixed asset expenditure authorised by the Directors but not provided for at 31 March 1995 amounted to (pound)19.8m
for the Group (1994: (pound)18.4m) and (pound)19.3m for the Company (1994: (pound)17.4m). The amount contracted for but
not provided in the accounts was (pound)1.2m for the Group (1994: (pound)4.7m) and (pound)0.7m for the Company (1994:
(pound)3.7m).
(e) The Group has entered into a contract relating to 200 megawatts of the Teesside Power Limited capacity for a
period of 15 years from 1 April 1993. It also has contracts with National Power plc and PowerGen plc relating
to the purchase price of electricity, which expire on 31 March 1998.
(f) The Group is committed to provide a shareholder loan of up to (pound)11.0m to Eurobell (South West) Limited at
rates of interest favourable to the Group. No drawings against this facility had been made at 31 March 1995.
</TABLE>
25
<PAGE>
Notes to the accounts
For the year ended 31 March 1995
23 Abridged current cost accounting (CCA) information
- ------------------------------------------------------------------------------
(a) Summary current cost group profit and loss account
For the year ended 31 March 1995
1995 1994
(pound)m (pound)m
- ------------------------------------------------------------------------------
Historical cost operating profit 119.5 108.6
Current cost adjustments (26.1) (29.7)
- ------------------------------------------------------------------------------
CCA operating profit 93.4 78.9
Exceptional item - discontinued operations (20.0) -
Income from interests in associated undertakings 1.2 0.9
Income from fixed asset investments 15.3 14.4
- ------------------------------------------------------------------------------
CCA profit on ordinary activities before interest and tax 89.9 94.2
Interest (4.5) (7.1)
Gearing adjustment 1.1 2.0
- -------------------------------------------------------------------------------
CCA profit on ordinary activities before tax 86.5 89.1
Tax on profit on ordinary activities (25.6) (23.9)
- ------------------------------------------------------------------------------
CCA profit for the financial year 60.9 65.2
Dividend (32.2) (28.9)
- -------------------------------------------------------------------------------
CCA retained profit for the year 28.7 36.3
(b) Current cost group net assets
At 31 March 1995
1995 1994
(pound)m (pound)m
- ------------------------------------------------------------------------------
Fixed assets
Tangible assets 899.9 854.7
Investments 222.9 217.5
- ------------------------------------------------------------------------------
1,122.8 1,072.2
Net current assets 11.2 96.7
- ------------------------------------------------------------------------------
Total assets less current liabilities 1,134.0 1,168.9
Long term liabilities and provisions (132.1) (132.1)
- -------------------------------------------------------------------------------
Net assets 1,001.9 1,036.8
26
<PAGE>
Notes to the accounts
For the year ended 31 March 1995
(c) Basis of preparation
- -------------------------------------------------------------------------------
Assets in the electricity industry have long lives (typically 40 years) so that,
due to the impact of inflation, historical cost accounting understates the
current value of assets employed and therefore the depreciation charge to the
profit and loss account. To maintain the operating capability of the business,
prices set for electricity and also the dividend policy recognise the current
cost accounting (CCA) results.
CCA is not a system of accounting for general inflation, but allows for price
changes specific to the business when reporting assets employed and profits. The
current cost profit is determined after allowing for the impact of price changes
on the funds needed to maintain net operating assets. The impact of price
changes is reflected as follows:
(i) Depreciation is calculated on the basis of historical cost of tangible
fixed assets adjusted to current values.
(ii) A cost of sales adjustment is charged to allow for the impact of price
changes on stock used in the year.
(iii) A monetary working capital adjustment is charged to represent the amount
of additional finance needed for working capital as a result of changes
in the input prices of goods and services used by the Group.
(iv) A gearing adjustment reduces the effect of the current cost adjustments in
the profit and loss account as set out in (i) to (iii) above. This
adjustment takes account of the benefit to shareholders of financing the
business partly by net borrowings.
The values of tangible fixed assets, the cost of sales adjustment and the
monetary working capital adjustment are calculated principally by applying
appropriate indices to historical cost. Certain land and buildings are
professionally valued on a cyclical basis. Consumers' contributions are indexed
in line with the related assets. The Group's investment in The National Grid
Holding plc has been valued on a dividend yield basis, taking into account its
status as an unlisted investment.
(d) Current cost accounting adjustments
A summary of the current cost accounting adjustments in the profit and loss
account is given below:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
(pound)m (pound)m
- -------------------------------------------------------------------------------------------------------------------
Operating costs:
Depreciation (25.9) (27.8)
Cost of sales (0.2) -
Monetary working capital - (1.9)
- -------------------------------------------------------------------------------------------------------------------
(26.1) (29.7)
Gearing 1.1 2.0
- -------------------------------------------------------------------------------------------------------------------
(25.0) (27.7)
(e) Group current cost statement of total recognised gains and losses
1995 1994
(pound)m (pound)m
- -------------------------------------------------------------------------------------------------------------------
Retained profit for the financial year 28.7 36.3
Unrealised surplus on revaluation of tangible fixed assets 40.0 1.5
Unrealised surplus on revaluation of fixed asset investments - 57.0
Unrealised surplus on revaluation of stocks 0.3 0.2
- -------------------------------------------------------------------------------------------------------------------
69.0 95.0
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Principal subsidiaries and unlisted investments
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Country of Proportion
Name operation Principal activity Holding held %
- -----------------------------------------------------------------------------------------------------------------------------
Subsidiary undertakings
South Western Power Limited England Power generation Ordinary shares 100
South Western Power Investments Investment in
Limited England power generation Ordinary shares * 100
South Western Electricity England
(Connect) Limited and Wales Electrical contracting Ordinary shares 100
SWEB Property Investments Limited England Property management Ordinary shares 100
SWEB Property Developments Limited England Property development Ordinary shares 100
SWEB Retail Limited England Appliance retailing Ordinary shares 100
and Wales & servicing Preference shares 100
Aztec Insurance Limited Guernsey Insurance Ordinary shares 100
SWEB Insurance Limited Guernsey Insurance Ordinary shares 100
SWEB Investments Limited England Investment company Ordinary shares 100
South Western Electricity Share
Scheme Trustees Limited England Trustee Ordinary shares 100
Western Gas Limited England Gas supply Ordinary shares 75
Associated undertakings
Croeso Systems Development England Development of a new
Limited and Wales billing system Ordinary shares * 50
Wind Resources Limited England Investment in
generation projects Ordinary shares * 45
Carland Cross Limited England Power generation Ordinary shares * 45
Coal Clough Limited England Power generation Ordinary shares * 45
Unlisted investments
The National Grid Holding plc England
and Wales Holding company Ordinary shares 6
Teesside Power Limited England Power generation Ordinary shares * 8
Eurobell (South West) Limited** England Telecommunications Ordinary shares * 30
Windelectric Limited England Investment in Ordinary shares * 12
generation projects Redeemable 1998
preference shares * 16
Convertible B non-
redeemable
preference shares * 100
The companies listed are those which were active during the year. A full list including dormant companies will be
annexed to the next annual return to be filed with Registrar of Companies.
All undertakings are registered in England and Wales, with the exception of the two insurance companies which are
incorporated in Guernsey. The proportion of shares held in ordinary shares represents the proportion of voting rights.
*Held by subsidiary undertakings.
**Eurobell (South West) Limited was Incorporated during the year. Although the Group holds more than 20% of the
ordinary shares, it has been included as a trade investment under the Companies Act 1985 as no significant influence
is exerted.
</TABLE>
28
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated 19 June 1995,
with respect to the financial statements of South Western Electricity plc
included in the Current Report on Form 8-K of The Southern Company dated
18 September 1995 in the Registration Statements (Form S-8 Nos 2-78617,
33-23152, 33-30171, 33-54415, 33-58371 and 33-60427) pertaining to The
Southern Company employee benefit plans listed on the facing sheets thereof and
(Form S-3 Nos 33-3546, 33-23153, 33-51433 and 33-57951) of The Southern Company
for the registration of its Common Stock of $5 par value per share.
/s/ ERNST & YOUNG
ERNST & YOUNG
Chartered Accountants
Registered Auditor
Bristol
2 October 1995
