SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) COMBINED QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____TO_____
COMMISSION REGISTRANT, STATE OF INCORPORATION, I.R.S. EMPLOYER
FILE NUMBER ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
1-1443 CENTRAL AND SOUTH WEST CORPORATION 51-0007707
(A Delaware Corporation)
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
(214) 777-1000
0-346 CENTRAL POWER AND LIGHT COMPANY 74-0550600
(A Texas Corporation)
539 North Carancahua Street
Corpus Christi, Texas 78401-2802
(512) 881-5300
0-343 PUBLIC SERVICE COMPANY OF OKLAHOMA 73-0410895
(An Oklahoma Corporation)
212 East 6th Street
Tulsa, Oklahoma 74119-1212
(918) 599-2000
1-3146 SOUTHWESTERN ELECTRIC POWER COMPANY 72-0323455
(A Delaware Corporation)
428 Travis Street
Shreveport, Louisiana 71156-0001
(318) 222-2141
0-340 WEST TEXAS UTILITIES COMPANY 75-0646790
(A Texas Corporation)
301 Cypress Street
Abilene, Texas 79601-5820
(915) 674-7000
INDICATE BY CHECK MARK WHETHER THE REGISTRANTS (1) HAVE FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANTS WERE REQUIRED TO FILE SUCH REPORTS), AND (2) HAVE BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
Common Stock Outstanding at July 31, 1996 Shares
Central and South West Corporation 210,116,819
Central Power and Light Company 6,755,535
Public Service Company of Oklahoma 9,013,000
Southwestern Electric Power Company 7,536,640
West Texas Utilities Company 5,488,560
This combined Form 10-Q is separately filed by Central and South
West Corporation, Central Power and Light Company, Public Service Company of
Oklahoma, Southwestern Electric Power Company and West Texas Utilities Company.
Information contained herein relating to any individual Registrant is filed by
such Registrant on its own behalf. Each other Registrant makes no representation
as to information relating to the other Registrants.
<PAGE> 2
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1996
Page
NUMBER
GLOSSARY OF TERMS.........................................................3
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Central and South West Corporation and Subsidiary Companies......5
Central Power and Light Company..................................15
Public Service Company of Oklahoma...............................24
Southwestern Electric Power Company..............................32
West Texas Utilities Company.....................................40
Notes to Financial Statements....................................46
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................58
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings..........................................63
ITEM 2. Changes in Securities................................Inapplicable
ITEM 3. Defaults Upon Senior Securities......................Inapplicable
ITEM 4. Submission of Matters to a Vote of Security
Holders..............................................Inapplicable
ITEM 5. Other Information..........................................65
ITEM 6. Exhibits and Reports on Form 8-K...........................67
SIGNATURES................................................................68
<PAGE> 3
GLOSSARY OF TERMS
The following abbreviations or acronyms used in this text are defined below:
ABBREVIATION OR ACRONYM DEFINITION
ALJ..............................Administrative Law Judge
Alpek............................Alpek S.A. de C.V.
ANI..............................American Nuclear Insurance
Burlington Northern..............Burlington Northern Railroad Company
Cajun............................Cajun Electric Power Cooperative, Inc.
Cajun Trustee....................Cajun's court appointed trustee in bankruptcy
Court of Appeals.................Court of Appeals, Third District of Texas,
Austin, Texas
CPL..............................Central Power and Light Company, Corpus
Christi, Texas
CPL 1995 Agreement...............Settlement Agreement filed by CPL with the
Texas Commission to settle certain CPL
regulatory matters
CPL 1996 Fuel Agreement..........Fuel settlement agreement entered into by CPL
and other parties to CPL's current rate
review
CSW..............................Central and South West Corporation, Dallas,
Texas
CSW Common................... ...CSW common stock, $3.50 par value per share
CSW Credit Agreement.............$850 million senior credit agreement entered
into by CSW with a consortium of banks to
partially fund the SEEBOARD acquisition
CSW Energy.......................CSW Energy, Inc., Dallas, Texas
CSW Investments..................CSW Investments, an unlimited company organized
in the United Kingdom which is wholly owned,
indirectly though subsidiaries, by CSW
International
CSW Investments Credit Facility..(pound)1.0 billion pound senior credit facility
arranged by CSW Investments with a consortium
of banks to partially fund the SEEBOARD
acquisition
CSW System.......................CSW and its subsidiaries
CSW (UK).........................CSW (UK) plc, a public limited company
organized in the United Kingdom which is
wholly owned by CSW Investments
CSW U.K. Group...................Consolidated SEEBOARD, CSW (UK) and CSW
Investments converted to U.S. Generally
Accepted Accounting Principles
CWIP.............................Construction work in progress
El Paso..........................El Paso Electric Company
Entergy Gulf States..............Gulf States Utilities Company
EPS..............................Earnings per share
ERCOT............................Electric Reliability Council of Texas
FERC.............................Federal Energy Regulatory Commission
HVdc.............................High-voltage direct-current
IPP..............................Independent Power Producer
ITC..............................Investment Tax Credit
KWH..............................Kilowatt-hour
MD&A.............................Management's Discussion and Analysis of
Financial Condition and Results of Operations
Members Committee................The members committee of Cajun, which
represents 10 of the 12 Louisiana
distribution cooperatives that are served by
Cajun
Merger...........................The proposed merger whereby El Paso would have
become a wholly owned subsidiary of CSW
Merger Agreement.................Agreement and Plan of Merger between El Paso
and CSW, dated as of May 3, 1993, as amended
Mirror CWIP......................Mirror construction work in progress
Mississippi Power................Mississippi Power Company
MMbtu............................Million British thermal units
MTN..............................Medium-term note
MW...............................Megawatt
National Grid....................National Grid Group plc
NEIL.............................Nuclear Electric Insurance Limited
NRC..............................Nuclear Regulatory Commission
NRG..............................NRG Energy, Inc.
Oklahoma Commission..............Oklahoma Corporation Commission
Oklaunion........................Oklaunion Power Station Unit No. 1
<PAGE> 4
GLOSSARY OF TERMS (CONTINUED)
The following abbreviations or acronyms used in this text are defined below:
ABBREVIATION OR ACRONYM DEFINITION
PCB..............................Polychlorinated biphenyl
PCRB.............................Pollution Control Revenue Bond
PSO..............................Public Service Company of Oklahoma, Tulsa,
Oklahoma
Red River........................Red River Authority of Texas
Registrant(s)....................CSW, CPL, PSO, SWEPCO and WTU
Sabine...........................Sabine River Authority of Texas
SEEBOARD.........................SEEBOARD plc, Crawley, West Sussex, United
Kingdom
SEC..............................Securities and Exchange Commission
SFAS.............................Statement of Financial Accounting Standard
SFAS No. 52......................Foreign Currency Translation
STP..............................South Texas Project nuclear electric generating
station
SWEPCO...........................Southwestern Electric Power Company,
Shreveport, Louisiana
SWEPCO Plan......................The plan of reorganization for Cajun filed by
the Members Committee, SWEPCO and Entergy
Gulf States on April 19, 1996 with the U.S.
Bankruptcy Court for the Middle District of
Louisiana
Tejas............................Tejas Gas Corporation
Texas Commission.................Public Utility Commission of Texas
Transok..........................Transok, Inc. and subsidiaries, Tulsa, Oklahoma
Trustee Plan.....................The plan of reorganization for Cajun filed by
the Cajun Trustee on April 22, 1996 with
the U.S. Bankruptcy Court for the Middle
District of Louisiana
U.S. Electric or U.S. Electric
Operating Companies...........CPL, PSO, SWEPCO and WTU
WTU..............................West Texas Utilities Company, Abilene, Texas
WTU Stipulation and Agreement....Stipulation and Agreement to settle certain WTU
regulatory matters
<PAGE> 5
CSW
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
PART I. FINANCIAL INFORMATION.
ITEM 1. Financial Statements.
<PAGE> 6
CENTRAL AND SOUTH WEST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
(millions, except per share amounts)
Operating Revenues
U.S. Electric $861 $774 $1,527 $1,288
United Kingdom 394 -- 931 --
Other diversified 12 12 24 21
------- ------- ------- -------
1,267 786 2,482 1,309
------- ------- ------- -------
Operating Expenses and Taxes
U.S. Electric fuel and
purchased power 314 257 578 493
United Kingdom cost of sales 287 -- 687 --
Other operating 173 176 362 272
Maintenance 44 39 76 75
Depreciation and amortization 119 85 234 169
Taxes, other than income 46 44 89 77
Income taxes 70 21 98 (23)
------- ------- ------- -------
1,053 622 2,124 1,063
------- ------- ------- -------
Operating Income 214 164 358 246
------- ------- ------- -------
Other Income and Deductions
Mirror CWIP liability amortization -- 10 -- 20
U.S. Electric utility plant
development costs, net of tax (84) -- (84) --
Other (5) 11 5 34
------- ------- ------- -------
(89) 21 (79) 54
------- ------- ------- -------
Income Before Interest Charges 125 185 279 300
------- ------- ------- -------
Interest Charges
Interest on long-term debt 82 54 160 106
Interest on short-term debt
and other 28 27 55 52
------- ------- ------- -------
110 81 215 158
------- ------- ------- -------
Income from Continuing Operations 15 104 64 142
------- ------- ------- -------
Discontinued Operations
Income from discontinued operations,
net of tax of $2 and $6 for 1996
and $2 and $4 for 1995 4 4 12 9
Gain on sale of discontinued
operations, net of tax of $71 113 -- 113 --
------- ------- ------- -------
117 4 125 9
------- ------- ------- -------
Net Income 132 108 189 151
Preferred stock dividends 4 5 9 10
======= ======= ======= =======
Net Income for Common Stock $128 $103 $180 $141
======= ======= ======= =======
Average Common Shares Outstanding 209.5 191.4 204.2 191.1
EPS of Common Stock from
Continuing Operations $0.05 $0.52 $0.27 $0.69
EPS of Common Stock from
Discontinued Operations 0.56 0.02 0.61 0.05
------- ------- ------- -------
EPS of Common Stock $0.61 $0.54 $0.88 $0.74
======= ======= ======= =======
Dividends Paid per Share of
Common Stock $0.435 $0.430 $0.870 $0.860
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE> 7
CENTRAL AND SOUTH WEST CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
(unaudited) (audited)
----------- -----------
(millions)
ASSETS
Fixed Assets
Electric
Production $5,814 $5,888
Transmission 1,513 1,484
Distribution 3,968 3,799
General 1,314 1,209
Construction work in progress 192 346
Nuclear fuel 173 165
------- -------
Total Electric 12,974 12,891
Gas -- 869
Other diversified 30 18
------- -------
13,004 13,778
Less - Accumulated depreciation
and amortization 4,731 4,761
------- -------
8,273 9,017
------- -------
Current Assets
Cash and temporary cash investments 353 401
National Grid assets held for sale -- 100
Accounts receivable 1,173 1,093
Materials and supplies, at average cost 174 188
Electric utility fuel inventory,
substantially at average cost 129 129
Gas inventory/products for resale -- 13
Prepayments and other 115 115
------- -------
1,944 2,039
------- -------
Deferred Charges and Other Assets
Deferred plant costs 509 514
Mirror CWIP asset 306 312
Other non-utility investments 316 296
Income tax related regulatory
assets, net 241 253
Goodwill 1,373 1,074
Other 369 364
------- -------
3,114 2,813
------- -------
$13,331 $13,869
======= =======
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE> 8
CENTRAL AND SOUTH WEST CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
(unaudited) (audited)
----------- -----------
(millions)
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock Equity
Common stock: $3.50 par value
Authorized: 350.0 million shares
Issued and outstanding: 209.9 million shares
in 1996 and 192.9 million shares in 1995 $735 $675
Paid-in capital 985 610
Retained earnings 1,897 1,893
Foreign currency translation adjustment (9) --
-------- --------
3,608 3,178
Preferred Stock
Not subject to mandatory redemption 292 292
Subject to mandatory redemption 33 34
Long-term debt 4,293 3,914
-------- --------
8,226 7,418
-------- --------
Minority Interest -- 202
-------- --------
Current Liabilities
Long-term debt and preferred stock
due within twelve months 5 30
Short-term debt 503 692
Short-term debt - CSW Credit, Inc. 764 646
Loan notes 96 --
Accounts payable 453 595
Accrued taxes 323 228
Accrued interest 66 77
Provision for SEEBOARD acceptances -- 1,001
Other 176 156
-------- --------
2,386 3,425
-------- --------
Deferred Credits
Accumulated deferred income taxes 2,222 2,306
Investment tax credits 298 306
Other 199 212
-------- --------
2,719 2,824
-------- --------
$13,331 $13,869
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE> 9
CENTRAL AND SOUTH WEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
---------------------
1996 1995
------- -------
OPERATING ACTIVITIES (millions)
Net Income $189 $151
Non-cash Items Included in Net Income
Depreciation and amortization 269 208
Deferred income taxes and
investment tax credits 5 (50)
Mirror CWIP liability amortization -- (21)
Charges for terminated Merger -- 42
Establishment of regulatory asset 7 (21)
Utility plant and other project
development costs 141 --
Inventory reserve 7 --
Gain on sale of subsidiary (184) --
Changes in Assets and Liabilities
Accounts receivable (148) (164)
Unrecovered fuel costs (64) 94
Accounts payable (92) (19)
Accrued taxes (20) (14)
Refund due customers (27) 52
Other (32) (55)
------- -------
51 203
------- -------
INVESTING ACTIVITIES
Capital expenditures (224) (212)
Acquisition expenditures (1,346) --
CSW Energy projects (15) 32
Sale of National Grid assets 99 --
Cash proceeds from sale of subsidiary 690 --
Other -- (15)
------- -------
(796) (195)
------- -------
FINANCING ACTIVITIES
Common stock sold 434 29
Proceeds from issuance of long-term debt 39 40
SEEBOARD acquisition financing 501 --
Retirement of long-term debt (28) (7)
Change in short-term debt (71) 31
Payment of dividends (183) (175)
------- -------
692 (82)
------- -------
Effect of exchange rate changes on
cash and cash equivalents 5 --
Net Change in Cash and Cash Equivalents (48) 74
Cash and Cash Equivalents at
Beginning of Period 401 108
======= =======
Cash and Cash Equivalents at End of Period $353 $34
======= =======
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $179 $166
======= =======
Income taxes paid $98 $17
======= =======
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE> 10
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
Set forth below is information concerning the consolidated
results of operations for CSW for the three month and six month
periods ending June 30, 1996. For information concerning the results
of operations for each of the U.S. Electric Operating Companies, see
the discussions under the heading RESULTS OF OPERATIONS following the
financial statements of each of the U.S. Electric Operating Companies.
For supplementary information concerning SEEBOARD's results of
operations for these periods, see NOTE 10. SUPPLEMENTAL INFORMATION -
SEEBOARD'S RECENT OPERATING RESULTS.
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED JUNE 30, 1996 AND 1995
Overview. Net income for common stock increased to $128 million
or $0.61 per share for the second quarter of 1996 compared to $103
million or $0.54 per share for the second quarter of 1995. Second
quarter 1996 earnings increased when compared to the same period a
year ago due to an after-tax gain of approximately $113 million from
the sale of Transok, the addition of earnings from SEEBOARD and higher
U.S. Electric KWH sales resulting from increased customer usage and
weather-related demand. Factors that reduced the amount of increase
in the second quarter of 1996 were one-time charges of approximately
$102 million recorded for certain investments and contingencies,
including after tax reserves of $84 million for the U.S. Electric
Operating Companies and $14 million for CSW Energy, increased
depreciation and amortization and the loss of Mirror CWIP earnings.
Second quarter 1995 earnings were decreased by charges related to the
termination of the proposed El Paso merger in June of 1995.
In the second quarter of 1996, the U.S. Electric Operating
Companies, the CSW U.K. Group and Transok contributed the following
percentages to CSW's results of operations.
Corporate
U.S. CSW U.K. Total Items and
Electric Group Electric Transok(1) Other Total
Operating Revenues 68% 31% 99% --(2) 1% 100%
Operating Income 76% 20% 96% --(2) 4% 100%
After-tax one-time changes 86% -- 86% -- 14% 100%
Net Income for CSW Common 13% 16% 29% 3%(3) 68%(4) 100%
(1) On June 6, 1996, CSW sold Transok to Tejas. See NOTE 8.
DISCONTINUED OPERATIONS and MD&A - CAPITAL REQUIREMENTS, LIQUIDITY
AND FINANCING.
(2) Transok's Operating Revenues and Operating Income are shown as
Income from Discontinued Operations in CSW's Consolidated
Statements of Income.
(3) Net Income for CSW Common for the second quarter of 1996 includes
earnings from Transok for April and May 1996 only.
(4) Includes CSW's gain on the sale of Transok.
Operating Revenues. Operating revenues increased 61% to $1,267
million in the second quarter of 1996 from $786 million in the second
quarter of 1995. This increase reflects the addition of $394 million of
SEEBOARD revenues and an $87 million increase in revenues for the U.S.
Electric Operating
<PAGE> 11
CSW RESULTS OF OPERATIONS (continued)
COMPARISON OF THE QUARTERS ENDED JUNE 30, 1996 AND 1995 (continued)
Companies over the second quarter of 1995. Total retail KWH sales for
the U.S. Electric Operating Companies increased 8% in the second
quarter of 1996 compared to the second quarter of 1995. Residential,
commercial and industrial KWH sales increased 12%, 6% and 7%,
respectively. Increased usage, primarily by residential customers, as
well as more favorable weather contributed to KWH sales growth.
U.S. Electric Fuel and Purchased Power. Fuel and purchased power
expense increased 22% to $314 million in the second quarter of 1996
from $257 million in the second quarter of 1995. Fuel expense was
higher at the U.S. Electric Operating Companies due primarily to an
increase in the average unit cost of fuel to $1.86 per MMbtu in the
second quarter of 1996 from $1.65 per MMbtu in the second quarter of
1995, reflecting higher natural gas prices.
SEEBOARD Cost of Sales. SEEBOARD cost of sales was $287 million
for the second quarter of 1996. CSW did not control SEEBOARD until
December 1995. As a result, there is no amount shown for cost of sales
in the second quarter of 1995.
Other Operating. Other operating expense decreased 2% to $173
million during the second quarter of 1996 from $176 million during the
second quarter of 1995. The second quarter 1996 amount reflected the
addition of SEEBOARD's operating expenses and increased operating
expenses at the U.S. Electric Operating Companies as well as
CSW's non-regulated companies. However, the second quarter 1995
amount was unusually high because of a $42 million reserve for
deferred merger and acquisition costs recorded in 1995 associated
with the termination of the proposed El Paso merger.
Maintenance. Maintenance increased $5 million or 13% to $44
million in the second quarter of 1996 from $39 million in the second
quarter of 1995 due primarily to the U.S. Electric Operating Companies
establishing reserves for the potential write-down of production
inventories.
Depreciation and Amortization. Depreciation and amortization
increased 40% to $119 million in the second quarter of 1996 from $85
million in the second quarter of 1995 due primarily to the addition of
SEEBOARD's depreciable fixed assets and the goodwill amortization
related to the purchase of SEEBOARD, as well as increases in
depreciable fixed assets at the U.S. Electric Operating Companies.
Income Taxes. Income taxes increased $49 million to $70 million
during the second quarter of 1996 when compared to the second quarter
of 1995. For the second quarter 1995, income taxes were reduced by
$23 million due to prior period adjustments. For the second quarter
of 1996, SEEBOARD had $25 million in income taxes.
Other Income and Deductions. Other income and deductions
decreased $110 million when compared to the second quarter of 1995 due
primarily to one-time charges associated with certain investments for
plant sites, engineering studies and lignite reserves for the U.S.
Electric Operating Companies and project development costs for CSW
Energy. For additional information concerning the one-time charges
for the U.S. Electric Operating Companies, see NOTE 9. UTILITY PLANT
<PAGE> 12
CSW RESULTS OF OPERATIONS (continued)
COMPARISON OF THE QUARTERS ENDED JUNE 30, 1996 AND 1995 (continued)
DEVELOPMENT COSTS, and for CSW Energy, see NOTE 3. COMMITMENTS AND
CONTINGENT LIABILITIES. Also, the Mirror CWIP liability, which has
been fully amortized, contributed $10 million in the second quarter
of 1995.
Interest on Long-Term Debt. Interest on long-term debt increased
$28 million or 52% during the second quarter of 1996 as compared to
the second quarter of 1995 due to higher levels of long-term debt
outstanding related to the SEEBOARD acquisition.
Discontinued Operations. Transok's results are shown separately
in Discontinued Operations. Transok's earnings for the second quarter
of 1996 were $4 million and were unchanged from the second quarter of
1995. Since Transok was sold on June 6, 1996, CSW's results for the
second quarter of 1996 do not reflect a full quarter of earnings from
Transok. See NOTE 8. DISCONTINUED OPERATIONS and MD&A - CAPITAL
REQUIREMENTS, LIQUIDITY AND FINANCING for information, including
comparative statements of income, related to the sale of Transok.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Overview. Net income for common stock for the six months ended
June 30, 1996 increased to $180 million from $141 million in the first
half of 1995 due primarily to the gain from the sale of Transok, the
additional earnings from SEEBOARD, the absence of charges in 1996
related to the termination of the proposed El Paso merger in June 1995
and the CPL 1995 Agreement and stronger KWH sales from increased usage
and weather related-demand. Factors that reduced the amount of
increase in earnings for the six months ended June 30, 1996 were the
recording of one-time charges associated with certain investments and
contingencies, the absence of tax adjustments made in 1995 and the CPL
1996 Fuel Agreement. Increased depreciation and amortization and the
loss of Mirror CWIP earnings also resulted in lower earnings for the
six months ended June 30, 1996.
In the first half of 1996, the U.S. Electric Operating Companies,
the CSW U.K. Group and Transok contributed the following percentages
to CSW's results of operations.
Corporate
U.S. CSW U.K. Total Items and
Electric Group Electric Transok(1) Other Total
Operating Revenues 61% 38% 99% --(2) 1% 100%
Operating Income 73% 24% 97% --(2) 3% 100%
After-tax one-time changes 86% -- 86% -- 14% 100%
Net Income for CSW Common 28% 23% 51% 7%(3) 42%(4) 100%
(1) On June 6, 1996, CSW sold Transok to Tejas. See NOTE 8.
DISCONTINUED OPERATIONS and MD&A - CAPITAL REQUIREMENTS, LIQUIDITY
AND FINANCING.
(2) Transok's Operating Revenues and Operating Income are shown as
Income from Discontinued Operations in CSW's Consolidated Statement
of Income.
(3) Net Income for CSW Common for the six months ended June 30, 1996
includes earnings from Transok for January through May 1996 only.
(4) Includes CSW's gain on the sale of Transok.
<PAGE> 13
CSW RESULTS OF OPERATIONS (continued)
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (continued)
Operating Revenues. Operating revenues increased 90% to $2.5
billion in the first six months of 1996 from $1.3 billion in the first
six months of 1995. This increase reflects $931 million of SEEBOARD
revenues and increased revenues for the U.S. Electric Operating
Companies for the first half of 1996. Total retail KWH sales for the
U.S. Electric Operating Companies increased 7% in the first half of
1996 compared to the first half of 1995. Residential, commercial and
industrial KWH sales increased 12%, 6% and 5%, respectively.
Increased usage, primarily by residential customers, as well as more
favorable weather contributed to KWH sales growth.
Fuel and Purchased Power. Fuel and purchased power expense
increased 17% to $578 million in the first six months of 1996 from
$493 million in the first six months of 1995. Fuel expense was higher
at the U.S. Electric Operating Companies due primarily to an increase
in the average unit cost of fuel to $1.82 per MMbtu in the first six
months of 1996 from $1.63 per MMbtu in the first six months of 1995,
reflecting higher natural gas prices.
SEEBOARD Cost of Sales. SEEBOARD cost of sales was $687 million
for the first six months of 1996. CSW did not control SEEBOARD until
December 1995. As a result, there is no amount shown for cost of
sales for the first six months of 1995.
Other Operating. Other operating expense increased 33% to $362
million during the first six months of 1996 from $272 million during
the first six months of 1995. This increase was due primarily to the
addition in 1996 of SEEBOARD's operating expenses as well as the
recognition in the first quarter of 1995 of a $23 million regulatory
asset established in accordance with the CPL 1995 Agreement and the
reversal of $4 million in rate case costs pursuant to the CPL 1995
Agreement. In addition, other operating expenses increased in the
first six months of 1996 at the U.S. Electric Operating Companies and
at CSW's non-regulated companies. Operating expenses for the first
six months of 1995 were unusually high because of a $42 million
reserve for deferred merger and acquisition costs recorded in 1995
from the termination of the proposed El Paso merger.
Depreciation and Amortization. Depreciation and amortization
increased 38% to $234 million in the first six months of 1996 from
$169 million in the first six months of 1995 due primarily to the
addition of SEEBOARD's depreciable fixed assets and the goodwill
amortization related to the purchase of SEEBOARD, as well as increases
in depreciable fixed assets at the U.S. Electric Operating Companies.
Taxes, Other Than Income. Taxes, other than income increased 16%
to $89 million in the first half of 1996 from $77 million in the first
half of 1995. The increase was due primarily to lower 1995 ad valorem
taxes and revisions of prior year estimates recorded in 1995.
Income Taxes. Income taxes increased $121 million to $98 million
during the first six months of 1996 when compared to the first six
months of 1995. For the first six months of 1995, income taxes were
reduced by $58 million due to prior period adjustments. A major
portion of the 1995 adjustments was due to a $34 million reduction in
deferred taxes as a result of the CPL 1995 Agreement. For the first
six months of 1996, SEEBOARD had $32 million in income taxes.
<PAGE> 14
CSW RESULTS OF OPERATIONS (continued)
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (continued)
Other Income and Deductions. Other income and deductions
decreased $133 million in the first six months of 1996 when compared
to the first six months of 1995 due primarily to one-time charges
associated with certain investments for plant sites, engineering studies
and lignite reserves for the U.S. Electric Companies and project
development costs for CSW Energy. For additional information concerning
the one-time charges for the U.S. Electric Operating Companies, see NOTE
9. UTILITY PLANT DEVELOPMENT COSTS, and for CSW Energy, NOTE 3.
COMMITMENTS AND CONTINGENT LIABILITIES. Also, the Mirror CWIP
liability, which has been fully amortized, contributed $20 million in
the first six months of 1995.
Interest on Long-Term Debt. Interest on long-term debt increased
$54 million or 51% during the first half of 1996 as compared to the
first half of 1995 due to higher levels of long-term debt outstanding
related to the SEEBOARD acquisition.
Discontinued Operations. The results of Transok are shown
separately in discontinued operations. Transok's earnings for the
first five months of 1996 were $12 million compared to $9 million for
the six months ended June 30, 1995. Since Transok was sold on June 6,
1996, CSW's results for the six months ended June 30, 1996 do not
reflect a full six months of earnings from Transok. See NOTE 8.
DISCONTINUED OPERATIONS and MD&A - CAPITAL REQUIREMENTS, LIQUIDITY AND
FINANCING for information, including comparative statements of income,
related to the sale of Transok.
<PAGE> 15
CPL
CENTRAL POWER AND LIGHT COMPANY
PART I. FINANCIAL INFORMATION.
ITEM 1. Financial Statements.
<PAGE> 16
CENTRAL POWER AND LIGHT COMPANY
STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(thousands) (thousands)
Electric Operating Revenues $ 362,065 $ 324,525 $ 615,453 $ 451,807
-------- -------- -------- --------
Operating Expenses and Taxes
Fuel 90,478 76,000 154,495 136,064
Purchased power 16,865 3,956 29,300 7,027
Other operating 59,242 57,455 109,762 80,989
Maintenance 18,766 14,697 29,110 31,902
Depreciation and amortization 42,542 37,372 82,137 74,372
Taxes, other than income 20,987 20,522 39,341 29,997
Income taxes 33,033 18,005 43,031 (35,618)
-------- -------- -------- --------
281,913 228,007 487,176 324,733
-------- -------- -------- --------
Operating Income 80,152 96,518 128,277 127,074
-------- -------- -------- --------
Other Income and Deductions
Mirror CWIP liability amortization -- 10,250 -- 20,500
Utility plant development costs,
net of tax (15,481) -- (15,481) --
Other 1,462 2,363 3,210 10,459
-------- -------- -------- --------
(14,019) 12,613 (12,271) 30,959
-------- -------- -------- --------
Income Before Interest Charges 66,133 109,131 116,006 158,033
-------- -------- -------- --------
Interest Charges
Interest on long-term debt 27,396 28,534 54,665 57,094
Interest on short-term debt and
other 4,467 6,050 11,130 11,349
Allowance for borrowed funds
used during construction (537) (1,097) (1,216) (2,416)
-------- -------- -------- --------
31,326 33,487 64,579 66,027
-------- -------- -------- --------
Net Income 34,807 75,644 51,427 92,006
Preferred stock dividends 3,360 3,468 6,797 7,364
-------- -------- -------- --------
Net Income for Common Stock $31,447 $72,176 $44,630 $84,642
======== ======== ======== ========
The accompanying notes to financial statements as they relate to CPL
are an integral part of these statements.
<PAGE> 17
CENTRAL POWER AND LIGHT COMPANY
BALANCE SHEETS
June 30, December 31,
1996 1995
(unaudited) (audited)
---------- ----------
ASSETS (thousands)
Electric Utility Plant
Production $3,103,218 $3,110,744
Transmission 496,504 486,090
Distribution 920,494 879,618
General 261,419 248,629
Construction work in progress 78,160 127,307
Nuclear fuel 173,153 165,087
---------- ----------
5,032,948 5,017,475
Less - Accumulated depreciation and amortization 1,629,841 1,547,530
---------- ----------
3,403,107 3,469,945
---------- ----------
Current Assets
Cash 2,609 2,883
Accounts receivable 53,222 45,186
Under-recovered fuel costs 4,423 --
Materials and supplies, at average cost 74,721 71,112
Fuel inventory, at average cost 19,456 26,472
Accumulated deferred income taxes 18,604 22,171
Prepayments and other 7,093 2,536
---------- ----------
180,128 170,360
---------- ----------
Deferred Charges and Other Assets
Deferred STP costs 485,132 488,047
Mirror CWIP asset 305,469 311,804
Income tax related regulatory assets, net 342,014 346,993
Other 120,371 93,987
---------- ----------
1,252,986 1,240,831
---------- ----------
$4,836,221 $4,881,136
========== ==========
The accompanying notes to financial statements as they relate to CPL
are an integral part of these statements.
<PAGE> 18
CENTRAL POWER AND LIGHT COMPANY
BALANCE SHEETS
June 30, December 31,
1996 1995
(unaudited) (audited)
---------- ----------
CAPITALIZATION AND LIABILITIES (thousands)
Capitalization
Common stock: $25 par value
Authorized shares: 12,000,000
Issued and outstanding shares: 6,755,535 $168,888 $168,888
Paid-in capital 405,000 405,000
Retained earnings 858,074 863,444
---------- ----------
1,431,962 1,437,332
Preferred stock 250,351 250,351
Long-term debt 1,521,481 1,517,347
---------- ----------
3,203,794 3,205,030
---------- ----------
Current Liabilities
Long-term debt due within twelve months -- 231
Advances from affiliates 90,007 176,334
Accounts payable 75,449 49,507
Accrued taxes 69,634 61,614
Accrued interest 32,377 32,742
Over-recovered fuel costs -- 12,586
Refund due customers 22,977 --
Other 26,720 24,758
---------- ----------
317,164 357,772
---------- ----------
Deferred Credits
Accumulated deferred income taxes 1,150,153 1,151,823
Investment tax credits 149,849 152,744
Mirror CWIP liability and other 15,261 13,767
---------- ----------
1,315,263 1,318,334
---------- ----------
$4,836,221 $4,881,136
========== ==========
The accompanying notes to financial statements as they relate to CPL
are an integral part of these statements.
<PAGE> 19
CENTRAL POWER AND LIGHT COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
------------------------
1996 1995
---------- ----------
OPERATING ACTIVITIES (thousands)
Net Income $51,427 $92,006
Non-cash Items Included in Net Income
Depreciation and amortization 93,333 86,648
Deferred income taxes and investment
tax credits 3,981 (48,553)
Mirror CWIP liability amortization -- (20,500)
Establishment of regulatory assets 6,682 (20,652)
Utility plant development costs 21,374 --
Inventory reserve 487 --
Changes in Assets and Liabilities
Accounts receivable (8,036) (18,737)
Fuel inventory 7,016 (673)
Accounts payable 25,852 (26,091)
Accrued taxes 8,020 (9,021)
Over- and under-recovered fuel costs (17,009) 87,571
Refund due customers 22,977 52,237
Other (26,597) (21,268)
---------- ----------
189,507 152,967
---------- ----------
INVESTING ACTIVITIES
Construction expenditures (45,845) (65,087)
Allowance for borrowed funds used
during construction (1,216) (2,416)
Other 872 --
---------- ----------
(46,189) (67,503)
---------- ----------
FINANCING ACTIVITIES
Reacquisition of long-term debt (231) (745)
Change in advances from affiliates (86,327) (16,191)
Payment of dividends (56,925) (67,147)
Other (109) --
---------- ----------
(143,592) (84,083)
---------- ----------
Net Change in Cash and Cash Equivalents (274) 1,381
Cash and Cash Equivalents at Beginning of Period 2,883 642
========== ==========
Cash and Cash Equivalents at End of Period $2,609 $2,023
========== ==========
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $60,137 $64,250
========== ==========
Income taxes paid $12,753 $1,502
========== ==========
The accompanying notes to financial statements as they relate to CPL
are an integral part of these statements.
<PAGE> 20
CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED JUNE 30, 1996 AND 1995
Net Income for Common Stock. Net income for common stock
decreased 56% to $31.4 million during the second quarter of 1996 from
$72.2 million in the second quarter of 1995. The decrease resulted
primarily from the expiration of Mirror CWIP liability amortization
and a one-time charge associated with certain investments for plant
sites, engineering studies and lignite reserves. Also, increases in
maintenance, depreciation and amortization and income taxes partially
offset by an increase in non-fuel revenues contributed to the lower net
income for common stock.
Electric Operating Revenues. Total revenues increased 12% to
$362.1 million during the second quarter of 1996 from $324.5 million
during the second quarter of 1995 due primarily to an increase in fuel
revenues of $25.9 million resulting from higher average unit fuel
costs and purchased power as discussed below. Also contributing to
the higher revenues was an $11.7 million increase in non-fuel revenues
due primarily to the implementation of bonded rates and a 7% increase
in KWH sales resulting primarily from residential and commercial
customer growth, as well as increased customer demand.
Fuel. Fuel expense increased 19% to $90.5 million during the
second quarter of 1996 from $76.0 million during the second quarter of
1995 due primarily to an increase in the average unit cost of fuel
from $1.38 per MMbtu in the second quarter of 1995 to $1.83 per MMbtu
in 1996. The cost of fuel reflects an increase in the spot market
price of natural gas partially offset by a decrease in the cost of
coal. Fuel expense was also affected by a 3% decrease in generation.
Purchased Power. Purchased power increased $12.9 million in the
second quarter of 1996 when compared to the second quarter of 1995 due
primarily to increased economy energy purchases.
Other Operating. Other operating expenses increased $1.8 million
or 3% during the second quarter of 1996 when compared to the second
quarter of 1995. This increase was due primarily to additional
regulatory-related and insurance expenses.
Maintenance. Maintenance expense increased $4.1 million or 28%
during the second quarter of 1996 when compared to the second quarter
of 1995 due primarily to increases in nuclear maintenance partially
offset by lower distribution maintenance expenses. Nuclear maintenance
was higher in 1996 primarily due to a refueling outage at STP Unit 1.
Depreciation and Amortization. Depreciation and amortization
expense increased $5.2 million or 14% during the second quarter of
1996 when compared to the second quarter of 1995 as a result of an
increase in depreciable property and the accelerated amortization of
STP deferred costs.
Income Taxes. Income taxes increased $15.0 million in the second
quarter of 1996 when compared to the second quarter of 1995 due
primarily to prior year tax adjustments recorded in 1995 offset by
lower 1996 pre-tax income, excluding the effects of a one-time
charge, as discussed below.
<PAGE> 21
CPL RESULTS OF OPERATIONS (continued)
COMPARISON OF THE QUARTERS ENDED JUNE 30, 1996 AND 1995 (continued)
Other Income and Deductions. Other income and deductions
decreased $26.6 million in the second quarter of 1996 when compared to
the second quarter of 1995 due primarily to a one-time charge associated
with certain investments for plant sites, engineering studies and
lignite reserves of approximately $15.5 million, net of tax. Also, Mirror
CWIP liability amortization which expired in 1995, contributed $10.3
million to other income and deductions in the second quarter of 1995.
See NOTE 9. UTILITY PLANT DEVELOPMENT COSTS for additional information.
Interest Charges. Interest charges decreased $2.2 million during
the second quarter of 1996 when compared to 1995. Interest on long-
term debt decreased as a result of refinancing activities in the
second half of 1995. Interest on short-term debt declined primarily
due to a lower level of debt outstanding at lower interest rates.
Also contributing to this decline was lower interest expense
associated with over-recovered fuel revenue, partially offset by a
decrease in allowance for borrowed funds used during construction.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net Income for Common Stock. Net income for common stock
decreased 47% to $44.6 million during the first six months of 1996
from $84.6 million in the first six months of 1995. Major factors
that affected net income for common stock were the effects of the
settlement of certain regulatory issues, as shown in the table below.
Also, contributing to the decrease was the expiration of Mirror CWIP
liability amortization and a one-time charge associated with certain
investments for plant sites, engineering studies and lignite reserves.
Pre-tax After-tax
--------- -----------
(millions)
CPL 1996 FUEL AGREEMENT
Provision for refund $(14.4) $(9.4)
Reduction of fuel expense 9.6 6.2
Increased interest expense (1.1) (0.7)
Litigation and settlement expense (0.8) (0.5)
CPL 1995 AGREEMENT
Provision for refund $(112.3) $(73.0)
Current flowback of excess deferred
federal income tax 34.3 34.3
Capitalization of previously expensed
restructuring and rate case costs 26.1 17.0
Recognition of factoring income 12.4 8.1
Electric Operating Revenues. Total revenues increased $163.6
million or 36% during the first six months of 1996 when compared to
the first six months of 1995 due primarily to the net effect of the
provisions for rate refunds, as reflected in the above tables. Also,
fuel revenue increased $47.9 million
<PAGE> 22
CPL RESULTS OF OPERATIONS (continued)
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (continued)
as a result of higher average unit fuel costs and purchased power as
discussed below. Non-fuel revenues increased $17.8 million due
primarily to the implementation of bonded rates, increased customer
demand and a 9% increase in KWH sales resulting primarily from
increased weather-related demand and residential and commercial
customer growth.
Fuel. Fuel expense increased $18.4 million or 14% during the
first six months of 1996 when compared to the first six months of 1995
due primarily to an increase in the average unit cost of fuel from
$1.38 per MMbtu in the first half of 1995 to $1.62 per MMbtu for the
same period in 1996. The cost of fuel reflects an increase in the
spot market price of natural gas partially offset by a decrease in the
cost of coal and a one-time $9.6 million reduction in fuel expense
as a result of the CPL 1996 Fuel Agreement.
Purchased Power. Purchased power increased $22.3 million during
the first six months 1996 when compared to the first six months of
1995 primarily as a result of increased economy energy and
cogeneration purchases.
Other Operating. Other operating expenses increased $28.8
million or 36% during the first six months of 1996 when compared to
the first six months of 1995. This increase was due primarily to the
1995 recognition of a $20.7 million regulatory asset for previously
recorded restructuring charges and the reversal of $6.5 million in
rate case costs pursuant to the CPL 1995 Agreement.
Maintenance. Maintenance expense decreased $2.8 million or 9%
during the first six months of 1996 when compared to the first six
months of 1995 due primarily to lower production and distribution
expenses. Production maintenance declined primarily as a result of
lower steam maintenance due primarily to fewer scheduled repair
projects in the first half of 1996 when compared to 1995.
Depreciation and Amortization. Depreciation and amortization
expense increased $7.8 million or 10% in the first six months of 1996
primarily as a result of an increase in depreciable property and
Mirror CWIP asset amortization as well as the accelerated amortization
of deferred STP costs.
Taxes, Other Than Income. The $9.3 million increase in other
taxes during the first six months of 1996 when compared to the first
six months of 1995 was due primarily to lower 1995 ad valorem taxes
resulting from revisions of prior year estimates.
Income Taxes. Income taxes increased $78.6 million in the first
six months of 1996 when compared to the first six months of 1995 due
primarily to the accelerated flowback of $34.3 million of unprotected
excess deferred income taxes in 1995 in accordance with the CPL 1995
Agreement, prior year tax adjustments, as well as higher 1996 pre-tax
income, excluding the effects of a one-time charge, as discussed below.
Other Income and Deductions. Other income and deductions
decreased $43.2 million in the first six months of 1996 when compared
to 1995. Mirror CWIP liability amortization, which expired in 1995,
contributed $20.5 million to other income and deductions in the first
six months of 1995. Also, a one-time
<PAGE> 23
CPL RESULTS OF OPERATIONS (continued)
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (continued)
charge associated with certain investments for plant sites,
engineering studies and lignite reserves of approximately $15.5
million, net of tax, contributed to this decline. See NOTE 9.
UTILITY PLANT DEVELOPMENT COSTS for additional information. Other
income decreased in the first half of 1996 due primarily to the
recognition of $12.4 million of factoring income pursuant to
the CPL 1995 Agreement.
<PAGE> 24
PSO
PUBLIC SERVICE COMPANY OF OKLAHOMA
PART I. FINANCIAL INFORMATION.
ITEM 1. Financial Statements.
<PAGE> 25
PUBLIC SERVICE COMPANY OF OKLAHOMA
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(thousands) (thousands)
Electric Operating Revenues $ 181,586 $ 161,644 $ 329,006 $ 310,060
-------- -------- -------- --------
Operating Expenses and Taxes
Fuel 68,695 62,989 131,244 133,462
Purchased power 9,776 5,651 18,439 10,394
Other operating 29,442 28,115 57,522 58,006
Maintenance 11,512 8,749 17,710 15,062
Depreciation and amortization 19,400 16,580 38,431 33,065
Taxes, other than income 6,633 6,035 13,409 12,252
Income taxes 9,778 5,155 11,896 6,601
-------- -------- -------- --------
155,236 133,274 288,651 268,842
-------- -------- -------- --------
Operating Income 26,350 28,370 40,355 41,218
-------- -------- -------- --------
Other Income and Deductions
Utility plant development costs,
net of tax (35,552) -- (35,552) --
Other (43) 587 199 3,755
-------- -------- -------- --------
(35,595) 587 (35,353) 3,755
-------- -------- -------- --------
Income Before Interest Charges (9,245) 28,957 5,002 44,973
-------- -------- -------- --------
Interest Charges
Interest on long-term debt 7,677 7,398 15,116 14,797
Interest on short-term debt and
other 1,633 1,770 3,322 3,537
Allowance for borrowed funds
used during construction (340) (723) (699) (1,322)
-------- -------- -------- --------
8,970 8,445 17,739 17,012
-------- -------- -------- --------
Net Income (Loss) (18,215) 20,512 (12,737) 27,961
Preferred stock dividends 204 204 408 408
-------- -------- -------- --------
Net Income (Loss) for Common Stock $(18,419) $20,308 $(13,145) $27,553
======== ======== ======== ========
The accompanying notes to consolidated financial statements as they
relate to PSO are an integral part of these statements.
<PAGE> 26
PUBLIC SERVICE COMPANY OF OKLAHOMA
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
(unaudited) (audited)
---------- ----------
ASSETS (thousands)
Electric Utility Plant
Production $901,447 $939,106
Transmission 369,793 363,692
Distribution 750,367 712,483
General 187,746 182,705
Construction work in progress 44,869 56,576
---------- ----------
2,254,222 2,254,562
Less - Accumulated depreciation and amortization 960,900 924,186
---------- ----------
1,293,322 1,330,376
---------- ----------
Current Assets
Cash 1,003 744
Accounts receivable 27,200 17,957
Materials and supplies, at average cost 35,547 41,179
Fuel inventory, at LIFO cost 16,363 15,765
Accumulated deferred income taxes 2,116 10,389
Prepayments and other 3,152 2,450
---------- ----------
85,381 88,484
---------- ----------
Deferred Charges and Other Assets 53,903 61,956
---------- ----------
$1,432,606 $1,480,816
========== ==========
The accompanying notes to consolidated financial statements as they
relate to PSO are an integral part of these statements.
<PAGE> 27
PUBLIC SERVICE COMPANY OF OKLAHOMA
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
(unaudited) (audited)
---------- -----------
CAPITALIZATION AND LIABILITIES (thousands)
Capitalization
Common stock: $15 par value
Authorized shares 11,000,000; issued
10,482,000 shares and outstanding
9,013,000 shares $157,230 $157,230
Paid-in capital 180,000 180,000
Retained earnings 130,136 150,281
---------- ----------
467,366 487,511
Preferred stock 19,826 19,826
Long-term debt 419,998 379,250
---------- ----------
907,190 886,587
---------- ----------
Current Liabilities
Long-term debt due within twelve months -- 25,000
Advances from affiliates 67,383 70,510
Payables to affiliates 30,198 40,463
Accounts payable 39,703 23,094
Payables to customers 14,296 32,517
Accrued taxes 13,680 27,014
Accrued interest 9,041 9,025
Other 8,097 8,589
---------- ----------
182,398 236,212
---------- ----------
Deferred Credits
Accumulated deferred income taxes 243,987 264,353
Investment tax credits 44,830 46,222
Income tax related regulatory
liabilities, net 46,871 41,820
Other 7,330 5,622
---------- ----------
343,018 358,017
---------- ----------
$1,432,606 $1,480,816
========== ==========
The accompanying notes to consolidated financial statements as they
relate to PSO are an integral part of these statements.
<PAGE> 28
PUBLIC SERVICE COMPANY OF OKLAHOMA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
------------------------
1996 1995
---------- ----------
OPERATING ACTIVITIES (thousands)
Net Income $(12,737) $27,961
Non-cash Items Included in Net Income
Depreciation and amortization 41,419 35,903
Deferred income taxes and investment
tax credits (8,434) (5,972)
Allowance for equity funds used
during construction 23 (539)
Utility plant development costs 50,854 --
Inventory reserve 3,945 --
Changes in Assets and Liabilities
Accounts receivable (9,243) (1,149)
Accounts payable (10,498) 1,282
Accrued taxes (13,334) 1,104
Other (3,299) 4,294
---------- ----------
38,696 62,884
---------- ----------
INVESTING ACTIVITIES
Construction expenditures (39,166) (48,672)
Allowance for borrowed funds used
during construction (699) (1,322)
Other (2,429) (3,281)
---------- ----------
(42,294) (53,275)
---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 39,415 --
Retirement of long-term debt (25,000) --
Change in advances from affiliates (3,127) (2,725)
Payment of dividends (7,431) (10,407)
---------- ----------
3,857 (13,132)
---------- ----------
Net Change in Cash and Cash Equivalents 259 (3,523)
Cash and Cash Equivalents at Beginning of Period 744 5,453
========== ==========
Cash and Cash Equivalents at End of Period $1,003 $1,930
========== ==========
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $16,493 $19,509
========== ==========
Income taxes paid $16,867 $5,908
========== ==========
The accompanying notes to consolidated financial statements as they
relate to PSO are an integral part of these statements.
<PAGE> 29
PUBLIC SERVICE COMPANY OF OKLAHOMA
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED JUNE 30, 1996 AND 1995
Net Income for Common Stock. During the second quarter of 1996,
net income for common stock decreased from $20.3 million during the
second quarter of 1995 to a net loss of $18.4 million. The decrease
resulted primarily from a one-time charge associated with certain
investments for plant sites, engineering studies and lignite reserves
of approximately $35.6 million, net of tax, and increased depreciation
and amortization expenses and increased maintenance expenses, offset in
part by increased non-fuel revenue resulting from increased weather-
related KWH sales and prior year tax adjustments recorded in 1995.
Electric Operating Revenues. Electric operating revenues
increased 12% to $181.6 million during the second quarter of 1996 from
$161.6 million during the second quarter of 1995. The increase was
due primarily to increased fuel revenues as discussed below and a 13%
increase in retail KWH sales resulting from additional weather-related
demand from customers, as well as customer growth.
Fuel. Fuel expense was $68.7 million during the second quarter
of 1996, a 9% increase from $63.0 million in the second quarter of
1995. The increase was due primarily to an increase in the average
unit fuel cost from $1.86 per MMbtu in the second quarter of 1995 to
$2.03 per MMbtu in the second quarter of 1996 resulting from an
increase in the spot market price of natural gas. Offsetting this
increase was an increase in the under-recovery of fuel costs in the
second quarter of 1996 when compared to the same period of 1995 as
well as decreased KWH generation.
Purchased Power. Purchased power expenses increased
approximately 73% to $9.8 million for the second quarter of 1996 from
$5.7 million in the same period of 1995. The increase was due
primarily to increases in purchases of economy energy.
Maintenance. Maintenance expenses increased 32% to $11.5 million
during the second quarter of 1996 from $8.7 million in the second
quarter of 1995. The increase was due primarily to a $3.9 million
reserve in 1996 for the potential write down of production inventory
offset in part by decreased overhead lines maintenance activities and
decreased tree trimming maintenance activities.
Depreciation and Amortization. Depreciation and amortization
expense increased 17% to $19.4 million in the second quarter of 1996
from $16.6 million in the second quarter of 1995. The increase was
due to increases in depreciable property and completion in 1995 of the
amortization of previously expensed inventory and supply items that
were credited through amortization to cost of service.
Income Taxes. Income tax expense for the second quarter of 1996
increased $4.6 million from $5.2 million in 1995 to $9.8 million in
1996 primarily due to higher pre-tax income, excluding the effects of a
one-time charge, as discussed below, offset in part by prior year tax
adjustments recorded in 1995.
<PAGE> 30
PSO RESULTS OF OPERATIONS (continued)
COMPARISON OF THE QUARTERS ENDED JUNE 30, 1996 AND 1995 (continued)
Other Income and Deductions. Other income and deductions for the
second quarter of 1996 decreased approximately $36.2 million when
compared to the second quarter of 1995 as a result of a one-time
charge associated with certain investments for plant sites, engineering
studies and lignite reserves of approximately $35.6 million, net of tax.
See NOTE 9. UTILITY PLANT DEVELOPMENT COSTS for additional information.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net Income for Common Stock. For the six months ended June 30,
1996, net income for common stock decreased to a net loss of $13.2
million from net income of $27.6 million for the six months ended June
30, 1995. The decrease resulted primarily from a one-time charge
associated with certain investments for plant sites, engineering
studies and lignite reserves of approximately $35.6 million, net of tax,
offset in part by increased non-fuel revenue resulting from increased
weather-related demand and prior year tax adjustments recorded in 1995.
Electric Operating Revenues. Electric operating revenues
increased 6% to $329.0 million for the six months ended June 30, 1996
from $310.1 million for the first six months of 1995. The increase was
due primarily to increased fuel revenues, as discussed below, and a
9% increase in retail KWH sales resulting from additional weather-related
demand from customers, as well as customer growth.
Fuel. Fuel expense was $131.2 million for the first six months
of 1996, a 2% decrease from $133.5 million for the same period of
1995. The decrease was due primarily to an under-recovery of fuel
costs in the first six months of 1996 compared to an over-recovery of
fuel costs in the first six months of 1995, as well as decreased KWH
generation. Offsetting these factors in part was an increase in
average unit fuel costs from $1.79 per MMbtu in the first six months
of 1995 to $2.04 per MMbtu in the first six months of 1996 due to an
increase in the spot market price of natural gas.
Purchased Power. Purchased power increased approximately 77% to
$18.4 million for the first six months of 1996 from $10.4 million
during the first six months of 1995. The increase was due primarily to
increases in purchases of economy energy.
Maintenance. Maintenance expenses increased 18% to $17.7 million
for the six months ended June 30, 1996 from $15.1 million for the same
period of 1995. The increase was due primarily to a $3.9 million
reserve for the potential write-down of production inventory in 1996
offset in part by decreased power plant maintenance activities and
decreased distribution maintenance activities.
Depreciation and Amortization. Depreciation and amortization
expense increased 16% to $38.4 million for the six month period ended
June 30, 1996 from $33.1 million in the same period of 1995. The
increase was due to increases in depreciable property and completion
in 1995 of the amortization of previously expensed inventory and
supply items that were credited through amortization to cost of
service.
<PAGE> 31
PSO RESULTS OF OPERATIONS (continued)
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (continued)
Income Taxes. Income tax expense for the first six months of
1996, which increased $5.3 million from $6.6 million in 1995 to $11.9
million in 1996, was affected by higher pre-tax income, excluding the
effects of a one-time charge, as discussed below, offset in part by
prior year tax adjustments recorded in 1995.
Other Income and Deductions. Other income and deductions for the
six months ended June 30, 1996 decreased approximately $39 million
when compared to the same period of 1995 as a result of a one-time
charge associated with certain investments for plant sites, engineering
studies and lignite reserves of approximately $35.6 million, net of tax.
See NOTE 9. UTILITY PLANT DEVELOPMENT COSTS for additional information.
Other income and deductions were also affected by the $2.7 million gain
on the sale of non-utility fiber optic telecommunication property in
the first quarter of 1995.
<PAGE> 32
SWEPCO
SOUTHWESTERN ELECTRIC POWER COMPANY
PART I. FINANCIAL INFORMATION.
ITEM 1. Financial Statements.
<PAGE> 33
SOUTHWESTERN ELECTRIC POWER COMPANY
STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(thousands) (thousands)
Electric Operating Revenues $236,563 $212,960 $437,444 $382,200
-------- -------- -------- --------
Operating Expenses and Taxes
Fuel 95,606 78,652 184,918 141,844
Purchased power 10,764 4,269 16,098 9,732
Other operating 31,579 29,357 63,473 57,949
Maintenance 11,932 11,471 21,038 20,816
Depreciation and amortization 22,698 20,359 44,939 40,643
Taxes, other than income 11,501 11,410 23,412 21,976
Income taxes 12,462 8,564 17,196 13,775
-------- -------- -------- --------
196,542 164,082 371,074 306,735
-------- -------- -------- --------
Operating Income 40,021 48,878 66,370 75,465
-------- -------- -------- --------
Other Income and Deductions
Utility plant development costs,
net of tax (21,743) -- (21,743) --
Allowance for equity funds used
during construction 2 656 326 2,105
Other 163 1,042 925 1,452
-------- -------- -------- --------
(21,578) 1,698 (20,492) 3,557
-------- -------- -------- --------
Income Before Interest Charges 18,443 50,576 45,878 79,022
-------- -------- -------- --------
Interest Charges
Interest on long-term debt 10,995 11,117 21,995 22,437
Interest on short-term debt
and other 2,534 2,835 4,957 5,684
Allowance for borrowed funds
used during construction (471) (1,446) (1,226) (2,694)
-------- -------- -------- --------
13,058 12,506 25,726 25,427
-------- -------- -------- --------
Net Income 5,385 38,070 20,152 53,595
Preferred stock dividends 758 840 1,537 1,618
-------- -------- -------- --------
Net Income for Common Stock $4,627 $37,230 $18,615 $51,977
======== ======== ======== ========
The accompanying notes to financial statements as they relate to
SWEPCO are an integral part of these statements.
<PAGE> 34
SOUTHWESTERN ELECTRIC POWER COMPANY
BALANCE SHEETS
June 30, December 31,
1996 1995
(unaudited) (audited)
----------- ------------
ASSETS (thousands)
Electric Utility Plant
Production $1,391,878 $1,410,546
Transmission 445,873 435,362
Distribution 825,916 789,884
General 285,282 231,276
Construction work in progress 51,179 128,963
---------- ----------
3,000,128 2,996,031
Less - Accumulated depreciation and amortization 1,161,346 1,116,375
---------- ----------
1,838,782 1,879,656
---------- ----------
Current Assets
Cash 1,666 1,702
Accounts receivable 74,245 54,628
Materials and supplies, at average cost 27,333 30,097
Fuel inventory, substantially at average cost 78,657 73,276
Accumulated deferred income taxes -- 4,636
Under-recovered fuel costs 9,473 --
Prepayments and other 15,286 14,109
---------- ----------
206,660 178,448
---------- ----------
Deferred Charges and Other Assets 69,387 58,615
---------- ----------
$2,114,829 $2,116,719
========== ==========
The accompanying notes to financial statements as they relate to
SWEPCO are an integral part of these statements.
<PAGE> 35
SOUTHWESTERN ELECTRIC POWER COMPANY
BALANCE SHEETS
June 30, December 31,
1996 1995
(unaudited) (audited)
----------- ------------
CAPITALIZATION AND LIABILITIES (thousands)
Capitalization
Common stock: $18 par value
Authorized shares: 7,600,000
Issued and outstanding shares: 7,536,640 $135,660 $135,660
Paid-in capital 245,000 245,000
Retained earnings 310,948 302,334
---------- ----------
691,608 682,994
Preferred stock
Not subject to mandatory redemption 16,032 16,032
Subject to mandatory redemption 32,428 33,628
Long-term debt 599,164 598,951
---------- ----------
1,339,232 1,331,605
---------- ----------
Current Liabilities
Long-term debt and preferred stock due within
twelve months 4,639 5,099
Advances from affiliates 86,656 101,228
Accounts payable 49,944 34,717
Payables to affiliates 67,246 52,474
Over-recovered fuel costs -- 8,923
Customer deposits 10,889 11,027
Accrued taxes 27,350 25,268
Accumulated deferred income taxes 1,808 --
Accrued interest 16,842 17,894
Other 19,098 30,525
---------- ----------
284,472 287,155
---------- ----------
Deferred Credits
Accumulated deferred income taxes 369,111 377,245
Investment tax credits 73,872 76,237
Income tax related regulatory liabilities, net 38,892 37,363
Other 9,250 7,114
---------- ----------
491,125 497,959
---------- ----------
$2,114,829 $2,116,719
========== ==========
The accompanying notes to financial statements as they relate to
SWEPCO are an integral part of these statements.
<PAGE> 36
SOUTHWESTERN ELECTRIC POWER COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
------------------------
1996 1995
---------- ----------
OPERATING ACTIVITIES (thousands)
Net Income $20,152 $53,595
Non-cash Items Included in Net Income
Depreciation and amortization 50,074 45,676
Deferred income taxes and investment
tax credits (2,526) (4,354)
Allowance for equity funds used during
construction (326) (2,105)
Utility plant development costs 29,590 --
Inventory reserve 1,130 --
Changes in Assets and Liabilities
Accounts receivable (19,617) 6,889
Payables to affiliates 14,772 11,775
Fuel inventory (5,381) (11,488)
Accounts payable 15,407 4,761
Accrued taxes 2,082 17,955
Accrued interest (1,052) (7,205)
Unrecovered fuel/Fuel refund due customers (18,396) (2,449)
Other (8,778) (10,830)
---------- ----------
77,131 102,220
---------- ----------
INVESTING ACTIVITIES
Construction expenditures (44,663) (52,465)
Allowance for borrowed funds used during
construction (1,226) (2,694)
Other (2,833) (3,370)
---------- ----------
(48,722) (58,529)
---------- ----------
FINANCING ACTIVITIES
Retirement of long-term debt (1,839) (1,692)
Redemption of preferred stock (1,200) (50)
Change in advances from affiliates (14,572) (16,454)
Payment of dividends (10,834) (24,412)
---------- ----------
(28,445) (42,608)
---------- ----------
Net Change in Cash and Cash Equivalents (36) 1,083
Cash and Cash Equivalents at Beginning of Period 1,702 1,296
========== ==========
Cash and Cash Equivalents at End of Period $1,666 $2,379
========== ==========
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $25,610 $30,964
========== ==========
Income taxes paid $13,950 $2,581
========== ==========
The accompanying notes to financial statements as they relate to
SWEPCO are an integral part of these statements.
<PAGE> 37
SOUTHWESTERN ELECTRIC POWER COMPANY
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED JUNE 30, 1996 AND 1995
Net Income for Common Stock. Net income for common stock
decreased 88% to $4.6 million during the second quarter of 1996 from
$37.2 million during the second quarter of 1995. The decrease
resulted primarily from a one-time charge associated with certain
investments for plant sites, engineering studies and lignite reserves
of approximately $21.7 million, net of tax. Increased other operating
expenses, increased depreciation and amortization and prior year tax
adjustments recorded in 1995 also contributed to the decrease in net
income for common stock.
Electric Operating Revenues. Electric operating revenues
increased $23.6 million to $236.6 million during the second quarter of
1996 from $213 million during the second quarter of 1995 due primarily
to a $16.7 million increase in fuel revenue and a $6.9 million
increase in non-fuel revenue. The increase in fuel revenue was due to
higher average unit fuel cost as discussed below. The increase in non-
fuel revenue is attributable to a 7% increase in retail KWH sales
resulting from weather-related demand and higher customer demand.
Fuel. Fuel expense increased 22% to $95.6 million during the
second quarter of 1996 when compared to the second quarter of 1995 due
primarily to a 10% increase in generation and an increase in the
average unit fuel cost from $1.71 per MMbtu in 1995 to $1.86 per MMbtu
in 1996. The increase in average unit fuel cost was due primarily to
an increase in the spot market price of natural gas.
Purchased Power. Purchased power expense increased $6.5 million
during the second quarter of 1996 when compared to the second quarter
of 1995 due primarily to an increase in economy energy purchases.
Other Operating. Other operating expenses increased $2.2
million, or 8%, during the second quarter of 1996 when compared to the
second quarter of 1995 due primarily to increases in employee-related
expenses and insurance expense partially offset by a decrease in
miscellaneous administrative and general expenses.
Depreciation and Amortization. Depreciation and amortization
increased approximately $2.3 million, or 11%, during the second
quarter of 1996 as compared to the second quarter of 1995 due
primarily to an increase in depreciable plant and the completion in
1995 of the amortization of previously expensed inventory and supply
items that were credited through amortization to cost of service.
Income Taxes. Income taxes increased $3.9 million, or 46%, to
$12.5 million during the second quarter of 1996 as compared to the
second quarter of 1995 due primarily to higher pre-tax income,
excluding the effects of a one-time charge, as discussed below, and
prior year tax adjustments recorded in 1995.
<PAGE> 38
SWEPCO RESULTS OF OPERATIONS (continued)
COMPARISON OF THE QUARTERS ENDED JUNE 30, 1996 AND 1995
Other Income and Deductions. Other income and deductions
decreased $23.3 million in the second quarter of 1996 as compared with
the second quarter of 1995 due primarily to a one-time charge associated
with certain investments for plant sites, engineering studies and
lignite reserves of approximately $21.7 million, net of tax. See NOTE 9.
UTILITY PLANT DEVELOPMENT COSTS for additional information.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net Income for Common Stock. Net income for common stock
decreased 64% to $18.6 million during the six months ended June 30,
1996 from $52.0 million during the six months ended June 30, 1995. The
decrease resulted primarily from a one-time charge associated with
certain investments for plant sites, engineering studies and lignite
reserves of approximately $21.7 million, net of tax. Increased other
operating expenses, increased depreciation and amortization, and prior
year tax adjustments recorded in 1995 also contributed to the decrease
in net income for common stock.
Electric Operating Revenues. Electric operating revenues
increased $55.2 million to $437.4 million during the first six months
of 1996 from $382.2 million during the first six months of 1995 due
primarily to a $39.1 million increase in fuel revenue and a $16.1
million increase in non-fuel revenue. The increase in fuel revenue
was due to higher average unit fuel cost as discussed below. The
increase in non-fuel revenue is attributable to a 7% increase in
retail KWH sales resulting from weather-related demand and increased
customer demand.
Fuel. Fuel expense increased 30% to $184.9 million during the
first six months of 1996 when compared to the first six months of 1995
due primarily to a 17% increase in generation and an increase in the
average unit fuel cost from $1.65 per MMbtu in 1995 to $1.85 per MMbtu
in 1996. The increase in average unit fuel cost was due primarily to
an increase in the spot market price of natural gas.
Purchased Power. Purchased power expense increased $6.4 million,
or 65%, during the first six months of 1996 when compared to the first
six months of 1995 due primarily to an increase in economy energy
purchases.
Other Operating. Other operating expenses increased $5.5
million, or 10%, during the first six months of 1996 when compared to
the first six months of 1995 due primarily to increases in employee-
related expenses, outside services and insurance expense partially
offset by a decrease in miscellaneous administrative and general
expenses.
Depreciation and Amortization. Depreciation and amortization
increased approximately $4.3 million, or 11%, during the first six
months of 1996 as compared to the first six months of 1995 due
primarily to an increase in depreciable plant and the completion in
1995 of the amortization of previously expensed inventory and supply
items that were credited through amortization to cost of service.
<PAGE> 39
SWEPCO RESULTS OF OPERATIONS (continued)
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (continued)
Taxes, Other Than Income. Taxes, other than income increased
approximately $1.4 million, or 7%, during the first six months of 1996
as compared to the first six months of 1995 due primarily to an
increase in ad valorem taxes and state franchise taxes.
Income Taxes. Income taxes increased $3.4 million, or 25%, to
$17.2 million during the first six months of 1996 as compared to the
first six months of 1995 due primarily to higher pre-tax income
excluding the effects of a one-time charge, as discussed below, and
prior year tax adjustments recorded in 1995.
Other Income and Deductions. Other income and deductions
decreased $24 million in the first six months of 1996 when compared
with the first six months of 1995 due primarily to a one-time
charge associated with certain investments for plant sites, engineering
studies and lignite reserves of approximately $21.7 million, net of tax.
See NOTE 9. UTILITY PLANT DEVELOPMENT COSTS for additional information.
<PAGE> 40
WTU
WEST TEXAS UTILITIES COMPANY
PART I. FINANCIAL INFORMATION.
ITEM 1. Financial Statements.
<PAGE> 41
WEST TEXAS UTILITIES COMPANY
STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(thousands) (thousands)
Electric Operating Revenues $ 101,587 $ 83,049 $ 182,376 $ 157,970
--------- --------- --------- ---------
Operating Expenses and Taxes
Fuel 35,822 29,763 67,805 60,928
Purchased power 6,608 2,482 12,524 3,825
Other operating 18,227 17,497 34,702 31,561
Maintenance 4,472 4,048 7,691 6,997
Depreciation and amortization 9,832 8,053 19,510 16,117
Taxes, other than income 5,583 5,514 11,181 11,340
Income taxes 4,870 2,506 5,035 4,120
--------- --------- --------- ---------
85,414 69,863 158,448 134,888
--------- --------- --------- ---------
Operating Income 16,173 13,186 23,928 23,082
--------- --------- --------- ---------
Other Income and Deductions
Utility plant development
costs, net of tax (10,917) -- (10,917) --
Other 270 836 657 1,044
--------- --------- --------- ---------
(10,647) 836 (10,260) 1,044
--------- --------- --------- ---------
Income Before Interest Charges 5,526 14,022 13,668 24,126
--------- --------- --------- ---------
Interest Charges
Interest on long-term debt 5,296 5,298 10,592 10,138
Interest on short-term debt
and other 1,367 956 2,745 2,154
Allowance for borrowed funds
used during construction (218) (158) (504) (325)
--------- --------- --------- ---------
6,445 6,096 12,833 11,967
--------- --------- --------- ---------
Net Income (Loss) (919) 7,926 835 12,159
Preferred Stock Dividends 66 66 132 132
--------- --------- --------- ---------
Net Income (Loss) for Common
Stock $(985) $7,860 $703 $12,027
========= ========= ========= =========
The accompanying notes to financial statements as they relate
to WTU are an integral part of these statements.
<PAGE> 42
WEST TEXAS UTILITIES COMPANY
BALANCE SHEETS
June 30, December 31,
1996 1995
(unaudited) (audited)
------------- -------------
ASSETS (thousands)
Electric Utility Plant
Production $417,395 $427,547
Transmission 200,924 199,055
Distribution 339,536 326,337
General 93,041 84,326
Construction work in progress 17,790 32,686
---------- ----------
1,068,686 1,069,951
Less - Accumulated depreciation and
amortization 404,774 389,379
---------- ----------
663,912 680,572
---------- ----------
Current Assets
Cash 809 717
Accounts receivable 21,415 28,923
Materials and supplies, at average
cost 15,385 16,660
Fuel inventory, at average cost 8,184 8,281
Coal inventory, at LIFO cost 6,377 5,545
Accumulated deferred income taxes 2,620 5,328
Under-recovered fuel costs 3,529 --
Prepayments and other 2,170 1,042
---------- ----------
60,489 66,496
---------- ----------
Deferred Charges and Other Assets
Deferred Oklaunion costs 24,229 26,092
Restructuring costs 11,798 12,741
Other 32,712 29,713
---------- ----------
68,739 68,546
---------- ----------
$793,140 $815,614
========== ==========
The accompanying notes to financial statements as they relate
to WTU are an integral part of these statements.
<PAGE> 43
WEST TEXAS UTILITIES COMPANY
BALANCE SHEETS
June 30, December 31,
1996 1995
(unaudited) (audited)
------------- -------------
CAPITALIZATION AND LIABILITIES (thousands)
Capitalization
Common stock: $25 par value
Authorized shares: 7,800,000
Issued and outstanding shares: 5,488,560 $137,214 $137,214
Paid-in capital 2,236 2,236
Retained earnings 116,473 125,770
---------- ----------
255,923 265,220
Preferred stock 6,291 6,291
Long-term debt 274,996 273,245
---------- ----------
537,210 544,756
---------- ----------
Current Liabilities
Advances from affiliates 12,417 19,820
Payables to affiliates 8,953 8,244
Accounts payable 23,680 20,611
Accrued taxes 10,753 13,182
Accrued interest 6,535 6,081
Over-recovered fuel costs -- 4,060
Refund due customers 481 1,812
Other 2,782 3,121
---------- ----------
65,601 76,931
---------- ----------
Deferred Credits
Accumulated deferred income taxes 140,965 145,130
Investment tax credits 29,900 30,561
Income tax related regulatory liabilities, net 15,101 14,464
Other 4,363 3,772
---------- ----------
190,329 193,927
---------- ----------
$793,140 $815,614
========== ==========
The accompanying notes to financial statements as they relate
to WTU are an integral part of these statements.
<PAGE> 44
WEST TEXAS UTILITIES COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
------------------------
1996 1995
---------- ----------
OPERATING ACTIVITIES (thousands)
Net Income $835 $12,159
Non-cash Items Included in Net Income
Depreciation and amortization 19,414 16,809
Deferred income taxes and investment
tax credits (1,481) 1,389
Regulatory assets established for
restructuring charges 944 --
Allowance for equity funds used during
construction (128) (110)
Utility plant development costs 14,905 --
Inventory reserve 1,103 --
Changes in Assets and Liabilities
Accounts receivable 7,508 (6,573)
Accounts payable 6,179 8,442
Accrued taxes (2,429) (764)
Over- and under-recovered fuel costs (7,589) 2,036
Other (4,083) (7,340)
---------- ----------
35,178 26,048
---------- ----------
INVESTING ACTIVITIES
Construction expenditures (16,722) (20,421)
Allowance for borrowed funds used during
construction (504) (325)
Other (364) (735)
---------- ----------
(17,590) (21,481)
---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 39,491
Change in advances from affiliates (7,403) (31,192)
Payment of dividends (10,066) (11,198)
Other (27) --
---------- ----------
(17,496) (2,899)
---------- ----------
Net Change in Cash and Cash Equivalents 92 1,668
Cash and Cash Equivalents at Beginning of Period 717 2,501
========== ==========
Cash and Cash Equivalents at End of Period $809 $4,169
========== ==========
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $10,470 $9,588
========== ==========
Income taxes paid $1,220 $8,009
========== ==========
The accompanying notes to financial statements as they relate
to WTU are an integral part of these statements.
<PAGE> 45
WEST TEXAS UTILITIES COMPANY
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED JUNE 30, 1996 AND 1995
Net Income for Common Stock. During the second quarter of 1996,
net income for common stock decreased from $7.9 million in the second
quarter of 1995 to a net loss of $1.0 million. The decrease resulted
primarily from a one-time charge associated with certain investments
for plant sites, engineering studies and lignite reserves of
approximately $10.9 million, net of tax. Also contributing to the
decrease were increased maintenance expenses and increased depreciation
and amortization. The decrease was partially offset by increased non-fuel
electric operating revenues.
Electric Operating Revenues. Electric operating revenues
increased $18.5 million, or 22%, in the second quarter of 1996 as
compared to the second quarter of 1995. This increase was due
primarily to increased fuel revenues, as discussed below, and a 12%
increase in KWH sales resulting from additional weather-related demand
from customers.
Fuel. Fuel expense increased $6.1 million, or 20%, for the
second quarter of 1996 as compared to the second quarter of 1995 due
primarily to an increase in average unit fuel costs from $1.78 per
MMbtu in 1995 to $2.04 per MMbtu in 1996, which resulted from higher
spot market natural gas prices.
Purchased Power. Purchased power increased $4.1 million during
the second quarter of 1996 as compared to the second quarter of 1995,
primarily as a result of increased economy energy purchases.
Maintenance. Maintenance expenses increased $0.4 million, or
approximately 10%, in the second quarter of 1996 as compared to the
second quarter of 1995 due primarily to a $1.1 million reserve for the
potential write down of production inventory, partially offset by
decreases in transmission maintenance expenditures.
Depreciation and Amortization. Depreciation and amortization
expenses increased approximately $1.8 million during the second
quarter of 1996 as compared to the second quarter of 1995 due
primarily to increases in depreciable property and the accelerated
amortization of deferred Oklaunion plant costs and other amortization
of regulatory assets established in 1995 in accordance with the WTU
Stipulation and Agreement.
Income Taxes. Income taxes increased $2.4 million in the second
quarter of 1996 as compared to the second quarter of 1995 due
primarily to higher pre-tax income in 1996, excluding the effects of a
one-time charge, as discussed below, and prior year tax adjustments
recorded in 1995.
Other Income and Deductions. Other income and deductions
decreased $11.5 million during the second quarter of 1996 as compared
with the second quarter of 1995 as a result of a one-time charge
associated with certain investments for plant sites, engineering studies
and lignite reserves of approximately $10.9 million, net of tax.
See NOTE 9. UTILITY PLANT DEVELOPMENT COSTS for additional information.
<PAGE> 46
WTU RESULTS OF OPERATIONS (continued)
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net Income for Common Stock. For the first six months of 1996,
net income for common stock decreased to $0.7 million from $12.0
million in the first six months of 1995. The decrease resulted
primarily from a one-time charge associated with certain investments
for plant sites, engineering studies and lignite reserves of
approximately $10.9 million, net of tax. Also contributing to the
decrease were increased operating and maintenance expenses and increased
depreciation and amortization. The decrease was partially offset by
increased non-fuel electric operating revenues.
Electric Operating Revenues. Electric operating revenues
increased $24.4 million, or 15%, in the first six months of 1996 as
compared to the first six months of 1995. This increase was due
primarily to increased fuel revenues, as discussed below, and an 11%
increase in KWH sales resulting from additional weather-related demand
from customers.
Fuel. Fuel expense increased $6.9 million, or 11%, for the first
six months of 1996 as compared to the first six months of 1995 due
primarily to an increase in average unit fuel costs from $1.90 per
MMbtu in 1995 to $2.05 per MMbtu in 1996, which resulted from higher
spot market natural gas prices.
Purchased Power. Purchased power increased $8.7 million during
the first six months of 1996 as compared to the first six months of
1995, primarily as a result of increased economy energy purchases.
Other Operating. Other operating expenses increased $3.1
million, or approximately 10%, in the first six months of 1996 as
compared to the first six months of 1995 due primarily to increased
transmission expenses associated with the completion and placement in
service of a new HVdc tie in the third quarter of 1995, increased
expenses associated with regulatory activity and increased
employee related expenses. Also contributing to the increase was the
amortization of a regulatory asset established in the fourth quarter
of 1995 in accordance with the WTU Stipulation and Agreement.
Maintenance. Maintenance expenses increased $0.7 million, or
approximately 10%, in the first six months of 1996 as compared to the
first six months of 1995 due primarily to a $1.1 million reserve for
the potential write down of production inventory.
<PAGE> 47
WTU RESULTS OF OPERATIONS (continued)
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (continued)
Depreciation and Amortization. Depreciation and amortization
expense increased approximately $3.4 million during the first six
months of 1996 as compared to the first six months of 1995 due
primarily to increases in depreciable property and the accelerated
amortization of deferred Oklaunion plant costs and other amortization
of regulatory assets established in 1995 in accordance with the WTU
Stipulation and Agreement.
Income Taxes. Income taxes increased $0.9 million in the first
six months of 1996 as compared to the first six months of 1995 due
primarily to higher pre-tax income in 1996, excluding the effects of a
one-time charge, as discussed below, and prior year tax adjustments
recorded in 1995.
Other Income and Deductions. Other income and deductions
decreased $11.3 million during the first six months of 1996 as
compared with the first six months of 1995 as a result of a one-time
charge associated with certain investments for plant sites,
engineering studies and lignite reserves of approximately $10.9 million,
net of tax. See NOTE 9. UTILITY PLANT DEVELOPMENT COSTS for additional
information.
<PAGE> 48
INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS BY REGISTRANT
NOTE 1. PRINCIPLES OF PREPARATION CSW, CPL, PSO, SWEPCO, WTU
NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS CSW, CPL, PSO, SWEPCO, WTU
NOTE 3. COMMITMENTS AND CONTINGENT
LIABILITIES CSW, CPL, PSO, SWEPCO, WTU
NOTE 4. DIVIDENDS CSW, CPL, PSO, SWEPCO, WTU
NOTE 5. CSW EARNINGS AND DIVIDENDS PER SHARE
SHARE OF CSW COMMON STOCK CSW
NOTE 6. LONG TERM FINANCING CSW, PSO, SWEPCO
NOTE 7. INCOME TAXES CSW, CPL, PSO, SWEPCO, WTU
NOTE 8. DISCONTINUED OPERATIONS CSW
NOTE 9. UTILITY VALUATION RESERVES CSW, CPL, PSO, SWEPCO, WTU
NOTE 10. SUPPLEMENTAL INFORMATION - SEEBOARD'S
RECENT OPERATING RESULTS CSW
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. PRINCIPLES OF PREPARATION
The condensed financial statements of the Registrants included
herein have been prepared by each Registrant pursuant to the rules and
regulations of the SEC. Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although each
Registrant believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the
Registrant's Combined Annual Report on Form 10-K for the year ended
December 31, 1995 and the Registrant's Combined Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.
The unaudited financial information furnished herewith reflects
all adjustments which are, in the opinion of management of such
Registrant, necessary for a fair statement of the results of
operations for the interim periods. Information for quarterly periods
is affected by seasonal variations in sales, rate changes, timing of
fuel expense recovery and other factors.
The financial statements of the CSW U.K. Group, which are
included in CSW's consolidated financial statements, have been
translated from British pounds to U.S. dollars in accordance with SFAS
No. 52. All balance sheet accounts are translated at the exchange
rate at June 30, 1996 and all income statement items are translated at
the average exchange rate for the applicable period. At June 30,
1996, the current exchange rate was approximately 1.00 pound=$1.55 and the
average exchange rate for the six month period ended June 30, 1996 was
approximately 1.00 pound=$1.53. At March 31, 1996, the current exchange
rate was approximately 1 pound=$1.52 and the average exchange rate for the
three month period ended March 31, 1996 was $1.53. All resulting
translation adjustments are recorded directly to Foreign Currency
Translation Adjustment on the consolidated balance sheets. Cash flow
statement items are translated at a combination of average, historical
and current exchange rates. The effect of the changes in exchange
rates on cash and cash equivalents, resulting from the translation of
items at the different exchange rates, is shown on CSW's Consolidated
Statements of Cash Flows in Effect of Exchange Rate Changes on Cash
and Cash Equivalents.
Certain financial statement items for prior years have been
reclassified to conform to the 1996 presentation.
2. LITIGATION AND REGULATORY PROCEEDINGS
See the Registrants' Combined Annual Report on Form 10-K for the
year ended December 31, 1995 and the Combined Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 for additional discussion of
litigation and regulatory proceedings. Reference is also made to PART
II - ITEM 1. and MD&A - COMPETITION AND INDUSTRY CHALLENGES AND
CAPITAL REQUIREMENTS, LIQUIDITY AND FINANCING for additional
discussion of litigation and regulatory matters.
<PAGE> 50
CPL Rate Review Docket No. 14965
As previously reported, on November 6, 1995, CPL filed with the
Texas Commission a request to increase its retail base rates by $71
million and reduce its annual retail fuel factors by $17 million. The
net effect of these proposals would result in an increase of $54
million, or 4.6%, in total annual retail revenues based on a test year
ended June 30, 1995. CPL's filing also sought to reconcile $229
million of fuel costs incurred during the period July 1, 1994 through
June 30, 1995. CPL's previous request to reconcile fuel costs from
March 1, 1990 to June 30, 1994 in Docket No. 13650 was consolidated
with the current rate review. If the requested increase and other
adjustments in rate structure are approved, CPL will commit not to
increase its base rates prior to January 1, 2001, subject to certain
force majeure events.
On April 30, 1996, CPL implemented new fuel factors that will
lower fuel costs to its retail customers by $25 million annually. The
lower fuel factors result primarily from the projected decline in
CPL's fuel costs during the twelve-month period following the
implementation of the new factors. On May 9, 1996, CPL placed a $70
million base rate increase into effect under bond. The bonded rates
are subject to refund based on the final order of the Texas
Commission. When combined with the fuel factor reduction, the net
result is an increase in annual retail revenues of $45 million, or
3.8%.
On May 10, 1996, CPL and other parties to the fuel reconciliation
phase of the current rate review filed the CPL 1996 Fuel Agreement
with the Texas Commission that reconciles CPL's fuel costs through
June 1995. A final order implementing the settlement was issued on
June 28, 1996, approving a one-time fuel refund of $23 million that
was refunded to customers in July 1996. As a condition of the
settlement, CPL agreed not to seek recovery of $6 million of fuel and
fuel-related costs incurred during the reconciliation period. The
additional amount of the refund results from an over-recovery of fuel
costs during the reconciliation period and did not have a material
impact on CPL's results of operations or financial condition.
In a preliminary order issued December 21, 1995, the Texas
Commission expanded the scope of the rate review to address certain
competitive issues facing the electric utility industry. CPL made a
supplemental filing on April 1, 1996, addressing a recommended model
for restructuring the electric industry within ERCOT. In addition,
the supplemental filing included: (i) estimates of CPL's potential
stranded costs based upon various possible structures of the electric
industry and under several energy price scenarios; and (ii) a
recommendation that the potential stranded costs not be quantified in
rates until any changes in the electricity market and structure of
utilities in Texas are known. In this supplemental filing, CPL
estimated its potential stranded costs could range from approximately
zero to approximately $3.7 billion in a worst-case scenario. The
range is dependent upon a number of presently unknown factors,
including the extent to which CPL is compensated for its reasonable
costs and the extent and timing of any implementation of retail
competition. Hearings in this phase of the rate review began July 31,
1996.
CPL has filed rebuttal testimony that challenges positions taken
by the Texas Commission Staff and other parties intervening in this
case. CPL's testimony challenges the Texas Commission Staff's
proposals as unreasonable and contrary to current law and regulatory
policy. While the Texas Commission Staff reported the use of a "point
estimate" of $850 million for potentially stranded costs, their
testimony actually describes their range of potential stranded costs
as very uncertain and having a range from $200 million to $2 billion.
In addition, the Texas Commission Staff recommended (i) a nuclear
performance standard that would penalize CPL unless it operates its
nuclear units better than 75 percent of the U.S. nuclear industry; and
<PAGE> 51
(ii) a fuel-recovery mechanism that is based on prices in an
undeveloped energy market; and (iii) a one-sided cap on CPL's earnings
that effectively prevents CPL from realizing its authorized level of
earnings.
For further information related to the preliminary order issued
December 21, 1995, by the Texas Commission expanding the scope of the
CPL rate review to address certain competitive issues facing the
electric utility industry, see the Registrants' Combined Annual Report
on Form 10-K for the year ended December 31, 1995 and the Registrants'
Combined Quarterly Report on Form 10-Q for the quarter ended March 31,
1996.
CPL's management cannot predict the ultimate outcome of CPL's
rate case, although management believes that the ultimate resolution
will not have a material adverse effect on CPL's results of operations
or financial condition. However, if CPL ultimately is unsuccessful in
obtaining adequate rate relief, CPL could experience a material
adverse effect on its results of operations and financial condition.
WTU Stipulation and Agreement
As previously reported, in the third quarter of 1995 WTU entered
into the WTU Stipulation and Agreement to settle several pending
regulatory matters that included: (i) a retail rate proceeding and
fuel reconciliation before the Texas Commission in Docket No. 13369;
(ii) Writ of Error to the Supreme Court of Texas - review of WTU's
1987 Texas rate case in Docket 7510; and (iii) the Texas Commission's
proceeding on remand in Docket No. 13949 regarding deferred
accounting treatment for Oklaunion. In the fourth quarter of 1995,
the Texas Commission rendered a final order that implemented the
agreement.
Part of the final order also set into motion the actions required
to seek a remand of the appeal of Docket No. 7510 to the Texas
Commission to implement a final order consistent with the WTU
Stipulation and Agreement. The Court of Appeals issued a mandate on
April 15, 1996, directed to the Travis County District Court, that
permitted the case to be remanded back to the Texas Commission. On
May 23, 1996, the Texas Commission assigned it a new proceeding for
docketing purposes, Docket No. 15988. A prehearing on Docket No.
15988 was held on June 24, 1996 where parties to Docket No.
15988 discussed with the ALJ a joint motion filed with the ALJ by the
parties on June 21, 1996 that proposed to adopt a finding
to implement the last outstanding element related to the WTU
Stipulation and Agreement in Docket No. 13369, WTU's settled rate
case. It is expected that the ALJ will utilize the WTU Stipulation
and Agreement to prepare an order recognizing the necessity of deferrals
in Docket No. 7510 for financial integrity purposes. The Texas
Commission is expected to render a final order in Docket No. 15988
during the last quarter of 1996.
3. COMMITMENTS AND CONTINGENT LIABILITIES
Termination of El Paso Merger
As previously reported, in May 1993, CSW entered into a Merger
Agreement pursuant to which El Paso would have emerged from
bankruptcy as a wholly owned subsidiary of CSW. On June 9, 1995,
following CSW's notification that it was terminating the Merger
Agreement, El Paso filed a suit against CSW seeking a $25 million
termination fee from CSW, additional unspecified damages, punitive
damages, interest as permitted by law and certain other costs. On
June 15, 1995, CSW filed suit against El Paso seeking a $25 million
termination fee from El Paso due to El Paso's breach of the Merger
Agreement, at least $3.6 million in rate case expenses incurred by
CSW on behalf of El Paso related to state regulatory merger
proceedings and a declaratory judgment that CSW
<PAGE> 52
properly terminated the Merger Agreement. On June 14, 1996, CSW
filed an amended complaint seeking a first priority administrative
expense claim of $50 million from El Paso based upon El Paso's breach
of the Merger Agreement.
The United States Bankruptcy Court for the Western District of
Texas, Austin Division, consolidated the El Paso suit and the CSW
suit into one adversary proceeding. CSW is the named plaintiff in
the consolidated adversary proceeding. A trial date of November 19,
1996 has been set for the lawsuit.
Although CSW believes that it has substantial defenses to El
Paso's claims and intends to defend El Paso's claims and pursue CSW's
claims vigorously, CSW cannot presently predict the outcome of the
lawsuit. However, if the lawsuit is decided adversely to CSW, it
could have a material adverse effect on CSW's consolidated results of
operations and financial condition.
CSW Energy Projects and Commitments
CSW Energy is authorized to develop various independent power and
cogeneration facilities and to own and operate such non-utility
projects, subject to regulatory approval. The table below summarizes
CSW Energy's participation in projects as of June 30, 1996.
<TABLE>
<CAPTION>
Capacity Commercial
(in MW) Operation Ownership Thermal
Project Location Total Committed Date Interest Host Host Utility
<S> <C> <C> <C> <C> <C> <C> <C>
Brush II Brush, CO 68 68 January 1994 47% Greenhouse Public Service Company
of Colorado
Ft. Lupton Ft. Lupton, CO 272 272 June 1994 50% Greenhouse Public Service Company
of Colorado
Mulberry Polk County, FL 120 110 August 1994 50% Distilled Florida Power Corporation
Water/Ethanol Plant
Orange Cogen Polk County, FL 103 97 June 1995 50% Orange Juice Florida Power Corporation
Processor Tampa Electric Company
Phillips Sweeny Sweeny, TX 300 90* Mid 1998 100% Refinery Undetermined*
Newgulf Wharton, TX 85 -- Mid 1996 100% IPP IPP
* The Phillips Sweeny project has the unexercised option to sell 90 MW
of capacity to Phillips Petroleum Company.
</TABLE>
CSW Energy provided construction services to the Mulberry
cogeneration facility through a wholly owned subsidiary, CSW
Development-I, Inc. The project achieved commercial operation in
August 1994 and added 120 MW of on-line capacity of which CSW Energy
owns 50%. CSW Energy's maximum potential liability under the fixed
price contract is $29 million which will decrease to zero in August
1996. As of June 30, 1996, CSW has provided additional support to the
project totaling approximately $3 million.
CSW Energy has entered into a purchase agreement for the Ft.
Lupton project to provide $80 million upon the occurrence of certain
events. As of June 30, 1996, $43 million has been paid, and CSW has
provided a guarantee for the remainder. Additionally, CSW has
provided four letters of credit to the project totaling $19 million.
The following table summarizes equity investments and loans made by
CSW Energy and commitments provided by CSW in the projects at June 30,
1996.
<PAGE> 53
Letters of Credit
Project Equity and Guarantees Loans
(millions)
Brush II $15.3 $ -- $ --
Ft. Lupton 43.0 59.2 --
Mulberry 24.0 32.3 --
Orange Cogen 53.2 2.3 --
Phillips Sweeny -- 3.0 9.1
Newgulf 10.5 -- --
Various developmental projects 3.8 9.0 5.4
During the second quarter of 1996, CSW Energy recorded a one-time
charge of approximately $14 million after-tax to establish reserves
for equity investments, loans made to development projects and deferred
charges associated with certain operating projects.
CSW International Cogeneration Project
In July, 1996, CSW International announced a joint venture with
Alpek, through a subsidiary, to build, own and operate a 120 MW, gas-fired
cogeneration project at Alpek's Petrocel industrial complex in
Altamira, Tamaulipas, Mexico. CSW International and Alpek each will
have 50% ownership in the project, called Enertek, which will cost
approximately $75 million. CSW International has entered into a limited
guarantee agreement with the project's engineering, procurement and
construction contractor that provides the contractor a guarantee of up
to $5 million. The Enertek project is expected to commence commercial
operations in the first quarter of 1998.
CPL Deferred Accounting
CPL was granted deferred accounting treatment for certain STP
Unit 1 and 2 costs by Texas Commission orders issued in October 1990
and December 1990, respectively. In 1994, the Supreme Court of Texas
sustained deferred accounting as an appropriate mechanism for the
Texas Commission to use in preserving the financial integrity of CPL,
but remanded CPL's case to the Court of Appeals to consider certain
substantial evidence points of error not previously decided by the
Court of Appeals given its prior determinations. On August 16, 1995,
the Court of Appeals rendered its opinion in the remand proceeding
and affirmed the Texas Commission's order in all respects.
CPL believes that the language of the Supreme Court of Texas
opinion suggests that the appropriateness of allowing deferred
accounting may be reviewed under a financial integrity standard in
the first case in which the deferred STP costs are recovered through
rates. If the courts decide that subsequent review under the
financial integrity standard is required, that review would be
conducted in a remand of the STP Unit 1 and Unit 2 orders. Pending
the ultimate resolution of CPL's deferred accounting issues, CPL is
unable to predict how its deferred accounting orders will ultimately
be resolved by the Texas Commission.
If CPL's deferred accounting matters are not favorably resolved,
CPL could experience a material adverse effect on its results of
operations and financial condition. While CPL's management is unable
to predict the ultimate outcome of these matters, management believes
CPL will receive approval of its deferred accounting orders or will
be successful in renegotiation of its rate orders, so that there will
be no material adverse effect on CPL's results of operation or
financial condition.
<PAGE> 54
CPL Nuclear Insurance
In connection with the licensing and operation of STP, the
owners have purchased the maximum limits of nuclear liability
insurance, as required by law, and have executed indemnification
agreements with the NRC in accordance with the financial protection
requirements of the Price-Anderson Act.
The Price-Anderson Act, a comprehensive statutory arrangement
providing limitations on nuclear liability and governmental
indemnities, is in effect until August 1, 2002. The limit of
liability under the Price-Anderson Act for licensees of nuclear power
plants is $8.92 billion per incident, effective as of January 1996.
The owners of STP are insured for their share of this liability
through a combination of private insurance amounting to $200 million
and a mandatory industry-wide program for self-insurance totaling
$8.72 billion. The maximum amount that each licensee may be assessed
under the industry-wide program of self-insurance following a nuclear
incident at an insured facility is $75.5 million per reactor, which
may be adjusted for inflation, plus a five percent charge for legal
expenses, but not more than $10 million per reactor for each nuclear
incident in any one year. CPL and each of the other STP owners are
subject to such assessments, which CPL and other owners have agreed
will be allocated on the basis of their respective ownership
interests in STP. For purposes of these assessments, STP has two
licensed reactors.
The owners of STP currently maintain on-site decontamination
liability and property damage insurance in the amount of $2.75
billion provided by ANI and NEIL. Policies of insurance issued by
ANI and NEIL stipulate that policy proceeds must be used first to pay
decontamination and cleanup costs before being used to cover direct
losses to property. Under project agreements, CPL and the other
owners of STP will share the total cost of decontamination liability
and property insurance for STP, including premiums and assessments,
on a pro rata basis, according to each owner's respective ownership
interest in STP.
CPL purchased, for its own account, a NEIL I Business
Interruption and/or Extra Expense policy to reimburse CPL for extra
expenses incurred for replacement generation or purchased power as
the result of a covered accident that shuts down production at one or
both of the STP Units for more than 21 consecutive weeks. In the
event of an outage of STP Units 1 and 2 and the outage is the result
of the same accident, such insurance will reimburse CPL up to 80% of
the single unit recovery. The maximum amount recoverable for a
single unit outage is $86.02 million for Unit 1 and $85.96 million
for Unit 2. CPL is subject to an additional assessment up to $1.6
million for the current policy year in the event that insured losses
at a nuclear facility covered under the NEIL I policy exceeds the
accumulated funds available under the policy. NEIL canceled CPL's
current NEIL I policy effective July 31, 1996.
For further information relating to litigation associated with
CPL nuclear insurance claims, including the cancellation of CPL's NEIL
I policy, reference is made to PART II - ITEM 1.
PSO PCB Cases
For information regarding the commitments and contingent
liabilities relating to the PSO's PCB cases, reference is made to PART
II - ITEM 1.
SWEPCO Biloxi, Mississippi Manufactured Gas Plant Site
As previously reported, SWEPCO was notified by Mississippi Power
in 1994 that it may be a potentially responsible party at a
manufactured gas plant site in Biloxi, Mississippi, formerly owned and
operated by a predecessor of SWEPCO. Since then, SWEPCO has worked
with Mississippi Power on both the investigation of the extent of
contamination on the site as well as on the subsequent sampling of the
site. The sampling results indicated contamination at the property as
<PAGE> 55
well as the possibility of contamination of an adjacent property. A
risk assessment was submitted to the Mississippi Department of
Environmental Quality, whose ensuing comments requested that a future
residential exposure scenario be evaluated for comparison with
commercial and industrial exposure scenarios. A final range of
cleanup costs has not been determined, but based on preliminary
estimates, SWEPCO has accrued approximately $2 million for its portion
of the cleanup of this site, of which approximately $200,000 has been
incurred to date.
SWEPCO Henry W. Pirkey Power Plant
In connection with the lignite mining contract for its Henry W.
Pirkey Power Plant, SWEPCO has agreed, under certain conditions, to
assume the obligations of the mining contractor. As of June 30, 1996,
the maximum SWEPCO would have to assume is $66.1 million. The maximum
amount may vary as the mining contractor's need for funds fluctuates.
The contractor's actual obligation outstanding as of June 30, 1996 was
approximately $57.7 million.
4. DIVIDENDS
The U.S. Electric Operating Companies' mortgage indentures, as
amended and supplemented, contain certain restrictions on the use of
their retained earnings for cash dividends on their common stock.
These restrictions do not currently limit the ability of CSW to pay
dividends to its shareholders. At June 30, 1996, approximately $1.8
billion of the subsidiary companies' retained earnings were available
for payment of cash dividends by such subsidiaries to CSW. At June
30, 1996, the amount of retained earnings available for payment of
cash dividends to CSW by the U.S. Electric Operating Companies was as
follows.
CPL - $767 million PSO - $130 million SWEPCO - $311 million
WTU - $116 million
5. CSW EARNINGS AND DIVIDENDS PER SHARE OF COMMON STOCK
Earnings per share of common stock are computed by dividing net
income for common stock by the average number of common shares
outstanding for the respective periods. Dividends per common share
reflect per share amounts paid during the periods.
6. LONG TERM FINANCING
PSO MTNs, Series A
In February 1996, PSO filed a shelf registration statement with
the SEC for the sale of up to $75 million of Senior Notes. During
March and April of 1996, PSO issued $30 million and $10 million of
MTNs, respectively, at varying interest rates and maturity dates. The
interest rates for the separate issues ranged from 5.89 to 6.43% with
maturity dates of 2000-2001. The proceeds of the issues were used to
repay a portion of PSO's short-term borrowings and also to reimburse
PSO's treasury for the scheduled maturity of $25 million aggregate
principal amount of first mortgage bonds.
SWEPCO Sabine Series PCRBs
In July 1996, $81.7 million of Sabine, 6.10%, Series 1996 PCRBs
were issued for the benefit of SWEPCO. The proceeds from this issuance
were used to refund the $81.7 million Sabine, 8.20%, Series 1986 PCRBs.
<PAGE> 56
CPL, PSO, WTU Red River Series PCRBs
In August 1996, $63.3 million of Red River, 6.0%, Series 1996,
PCRBs were issued for the benefit of CPL, PSO, and WTU. The proceeds
from this issuance will be used to refund the $63.3 million of Red
River, 7 7/8%, Series 1984 PCRBs.
7. INCOME TAXES
The following tables provide a reconciliation of the differences
between the federal statutory tax rate and the effective tax rate for
CSW, CPL, PSO, SWEPCO and WTU.
Three Months Ended Six Months Ended
June 30, 1996 % June 30, 1996 %
-------------------- -------------------
CSW ($ in millions)
Tax at statutory rate $86 35 $113 35
Differences:
Amortization of ITC (4) (2) (7) (2)
Non-deductible Goodwill
Amortization 3 1 6 2
State Income Taxes from the
Sale of Transok 7 3 7 2
Permanent differences related
to a one-time charge 9 4 9 3
Prior period adjustments/Other 12 5 8 2
------ --- ------ ---
$113 46 $136 42
------ --- ------ ---
CPL ($ in thousands)
Tax at statutory rate $21,435 35 $30,343 35
Differences:
Amortization of ITC (1,447) (2) (2,895) (3)
Mirror CWIP 882 1 1,754 2
Permanent differences related
to a one-time charge 1,390 2 1,390 1
Prior period adjustments 3,198 5 3,198 4
Other 977 2 1,479 2
------ --- ------ ---
$26,435 43 $35,269 41
------ --- ------ ---
PSO ($ in thousands)
Tax at statutory rate $(8,402) 35 $(5,935) 35
Differences:
Amortization of ITC (696) 3 (1,392) 8
Permanent differences related
to a one-time charge 4,382 (18) 4,382 (26)
Prior period adjustments 549 (2) 549 (3)
Other (1,625) 6 (1,825) 11
------ --- ------ ---
$(5,792) 24 $(4,221) 25
------ --- ------ ---
<PAGE> 57
SWEPCO ($ in thousands)
Tax at statutory rate $3,380 35 $9,902 35
Differences:
Amortization of ITC (1,182) (12) (2,365) (8)
Permanent differences related
to a one-time charge 2,330 24 2,330 8
Prior period adjustments 269 3 269 1
Other (506) (5) (1,962) (7)
------ --- ------ ---
$4,291 45 $8,174 29
------ --- ------ ---
WTU ($ in thousands)
Tax at statutory rate $(39) (35) $566 35
Differences:
Amortization of ITC (330) (297) (661) (41)
Permanent differences related
to a one-time charge 977 879 977 60
Prior period adjustments 143 129 143 9
Other 57 51 (244) (15)
------ --- ------ ---
$808 727 $781 48
------ --- ------ ---
The effective tax rate reconciliations are significantly impacted
by a one-time charge during the second quarter of 1996. For additional
discussion of one-time charges associated with plant sites, engineering
studies and lignite reserves, see NOTE 9. UTILITY PLANT DEVELOPMENT COSTS.
8. DISCONTINUED OPERATIONS
On June 6, 1996 CSW sold Transok to Tejas. Accordingly, the
results of operations for Transok have been reported as discontinued
operations and prior periods have been restated for consistency.
Transok is an intrastate natural gas gathering, transmission,
marketing and processing company that provides natural gas services to
the U.S. Electric Operating Companies, predominantly PSO, and to other
non-affiliated gas customers throughout the United States. Transok's
natural gas facilities are located in Oklahoma, Louisiana and Texas.
After the sale, Transok has continued to supply gas to the U.S.
Electric Operating Companies.
Operating results of Transok for the three and six month periods
ended June 30, 1996 and 1995 are summarized in the following table
(intercompany transactions have not been eliminated).
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(millions) (millions)
Total revenue $107 $166 $362 $325
Operating income before income taxes 8 10 23 20
Earnings before income taxes 6 6 18 13
Income taxes 2 2 6 4
Net income from discontinued operations $4 $4 $12 $9
<PAGE> 58
Since Transok was sold on June 6, 1996, the results of operations
for the three and six month periods ended June 30, 1996 do not reflect
a full three months and six months of earnings from Transok.
CSW's Consolidated Balance Sheet at June 30, 1996 does not
contain any assets or liabilities from Transok. See ITEM 2. MD&A -
CAPITAL REQUIREMENTS, LIQUIDITY AND FINANCING for additional
information related to the sale of Transok.
9. UTILITY PLANT DEVELOPMENT COSTS
During the second quarter of 1996, the U.S. Electric Operating
Companies recorded one-time charges reflected in Other income and
Deductions relating to investments made in prior years for plant
sites, engineering studies and lignite reserves for which future
recovery is not probable. The charges are as follows.
Pre-tax effect Income tax Net Income
on income benefit effect
(thousands)
CPL $(21,374) $5,893 $(15,481)
PSO (50,854) 15,302 (35,552)
SWEPCO (29,590) 7,847 (21,743)
WTU (14,905) 3,988 (10,917)
-------- ------ -------
$(116,723) $33,030 $(83,693)
-------- ------ -------
For a discussion of reserves established by CSW Energy during the
second quarter of 1996, see NOTE 3. COMMITMENTS AND CONTINGENT
LIABILITIES.
10. SUPPLEMENTAL INFORMATION - SEEBOARD'S RECENT OPERATING RESULTS
SEEBOARD's results of operations discussed below are prepared in
accordance with Generally Accepted Accounting Principles in the United
Kingdom and exclude currency conversion and CSW consolidation
adjustments. CSW's offer to purchase SEEBOARD was declared
unconditional on January 10, 1996. Comparative information has been
provided for information only.
Six Months Ended June 30, 1996
Net income for the six months ended June 30, 1996, was 71.8
million pounds compared to 56.5 million pounds for the six months ended
June 30, 1995. Gross profit (revenue less cost of sales) is in line with
the comparable period last year despite the impact of a reduction in
regulatory allowed revenues following the completion of the regulatory
price review of SEEBOARD's distribution business. This primarily
reflects an improvement in volume during the current period. Allowed
revenue in SEEBOARD's distribution business were reduced by 14% with
effect from April 1995 and a further 13% from April 1996.
At the net income before interest level, the improvement reflects
the continued cost reduction programs of SEEBOARD, the first year
contribution from SEEBOARD's 37.5% interest in Medway Power Limited,
a company formed to construct, own and operate a 675 MW power
station, and the benefit of a release of a 17.5 million pound accrual no
longer required in respect of a previous liability for redundancy
costs. In addition, during the six months ended June 30, 1995, SEEBOARD
received dividends as a result of its
<PAGE> 59
shareholding in the National Grid of 9.9 million pounds. SEEBOARD's
interest in the National Grid was demerged to shareholders of SEEBOARD
in December 1995.
Three Months Ended June 30, 1996
Net income for the three months ended June 30, 1996 was 36.8
million pounds compared to 16.6 million pounds for the three months ended
June 30, 1995. The improvement in net income primarily reflects the
continued cost reduction programs of SEEBOARD, the first year contribution
from SEEBOARD's 37.5% interest in Medway Power Limited, and the benefit of
a release of a 17.5 million pound accrual no longer required in respect of
a previous liability for redundancy costs.
<PAGE> 60
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Reference is made to Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the
Registrants' Combined Annual Report on Form 10-K for the year ended
December 31, 1995 and their Combined Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996. Reference is also made to each
Registrant's unaudited Financial Statements and related Notes to
Financial Statements included herein. The information included
therein should be read in conjunction with, and is essential in
understanding, the following discussion and analysis.
RESULTS OF OPERATIONS
Reference is made to ITEM 1. Financial Statements for each of
the Registrants' Results of Operations.
COMPETITION AND INDUSTRY CHALLENGES
Industry Restructuring in Texas
In compliance with the Texas Commission's Project 15001,
"Stranded Costs Report," CPL, SWEPCO and WTU each filed information in
response to the Texas Commission's order initiating investigation
concerning potential stranded costs. The filings consist of various
scenarios used to estimate potential stranded costs. Based on the
requirements of the filing, no significant potential stranded costs
were identified for SWEPCO or WTU. See NOTE 2. LITIGATION AND
REGULATORY PROCEEDINGS for a discussion of the potential impact of
potential stranded costs relating to CPL.
The Texas Commission's Project 15002, "Scope of Competition
Report," is a report that the Texas Commission is required to present
to the Texas Legislature in each odd-numbered year detailing the
impact of competition in the electric utility industry. In addition,
the report will include the Texas Commission's recommendations
concerning the public's interest in a partially competitive electric
market. In June 1996, CPL, SWEPCO and WTU each filed information for
the Texas Commission's report.
Independent System Operator Plan
In June 1996, CSW (including CPL, SWEPCO and WTU) and more than
20 other parties, including other investor-owned utilities, municipal
power companies, electric cooperatives, independent power producers
and power marketers, filed plans to create an independent system
operator to manage the ERCOT power grid. The filing marks a major
step towards implementing the Texas Commission's overall strategy of
creating the competitive wholesale electric market that was mandated
by the Texas Legislature in 1995. Approval of the independent system
operator by the Texas Commission is expected later this year. Such
approval would make Texas the first state in the nation to implement a
regional independent system operator and a regional competitive
wholesale bulk power market.
Industry Restructuring in Oklahoma
In June 1996, the Oklahoma Commission announced that it has begun
soliciting public comment to aid in the potential restructuring of the
Oklahoma electric utility industry. The issues the Oklahoma Commission is
<PAGE> 61
exploring include the extent and speed of a restructuring, the
unbundling of utility services, as well as the legislative and
regulatory needs of such a restructuring. The staff of the Oklahoma
Commission is scheduling informal public technical conferences over
the next several months to discuss these issues. Subsequent to this,
the Commissioners of the Oklahoma Commission are scheduled to conduct
a conference late in 1996 to review such comments and recommendations
in order to prepare themselves for the 1997 session of the Oklahoma
Legislature.
FERC Order 888
As previously reported, on April 24, 1996, the FERC issued Order
888 which is the final comparable open access transmission rule. The
provisions of the final rule are similar to provisions of the FERC's
1995 Notice of Proposed Rule Making in that they provide for
comparable service between utilities and their transmission customers
by requiring utilities to take service under their open access tariffs
for all of their new wholesale sales and purchases and by requiring
utilities to rely on the same transmission information network that
their transmission customers rely on to make wholesale purchases and
sales. In addition, it also reaffirms the FERC's position that
utilities are entitled to recover, through a formula, all legitimate,
prudent and verifiable stranded costs.
The final rule requires holding companies to offer single system
rates. However, the rule grants CSW an exemption whereby CSW will be
given an opportunity to propose a solution that will provide
comparability to all wholesale users whereby the rates, terms and
conditions for the CSW ERCOT companies (CPL and WTU) would be
permitted to differ from those offered by the CSW Southwest Power Pool
companies (PSO and SWEPCO). CSW, along with all FERC jurisdictional
utilities, have filed open access tariffs that conform to the
provisions of the pro forma tariff included as part of the final rule.
CSW has until December 31, 1996, to file a system-wide tariff that
will replace the conforming tariffs upon FERC approval.
Other
In July 1996, two bills were introduced in the U.S. House of
Representatives concerning competition in the electric industry. The
purpose of both bills is to bring about customer choice through direct
retail access, one of which sets a deadline of December 15, 2000 for
implementation of such direct retail access. No action on either bill
is expected during this session of Congress.
There are currently two other bills, one in each house of the
United States Congress, that call for the outright repeal of the
Public Utility Holding Company Act of 1935, as amended. CSW has long
supported legislative actions to reduce the restrictive nature of the
current holding company law. CSW cannot predict if or when these
current legislative actions will actually be enacted into law.
However, if none of these specific bills are enacted, CSW will
continue its efforts to repeal or modify the public utility holding
company law.
CAPITAL REQUIREMENTS, LIQUIDITY AND FINANCING
Construction Expenditures
CSW's construction expenditures totaled $221 million for the six
months ended June 30, 1996. Such expenditures for the U.S. Electric
Operating Companies totaled $46 million, $39 million, $45 million and
$17 million, for CPL, PSO, SWEPCO and WTU, respectively. CSW's
construction expenditures, including those for SEEBOARD, were
primarily for improvements to existing production, transmission and
distribution facilities. The improvements are required to meet the
needs of new customers and to satisfy the changing requirements of
existing customers. CSW anticipates that the majority of all funds
<PAGE> 62
required for construction for the remainder of the year will be
provided from internal sources.
SEEBOARD Acquisition Financing
As previously reported, CSW, indirectly through CSW (UK), has
acquired control of 100% of SEEBOARD for an aggregate adjusted
purchase price of approximately 1.4 billion pounds (approximately $2.1
billion assuming average exchange rates during the purchase period).
As of June 30, 1996, CSW had contributed approximately $829 million of
the purchase price for the acquisition of SEEBOARD shares. Such
funds, which were initially obtained through borrowings under the $850
million CSW Credit Agreement, have been repaid by using the $398
million net proceeds from CSW's February 1996 common stock offering
and $431 million of the proceeds from the sale of Transok.
The additional funds necessary for the transaction were made with
capital contributions and loans made to CSW (UK) by its sole
shareholder, CSW Investments, which arranged the CSW Investments
Credit Facility for that purpose. As of June 30, 1996, approximately
814 million pounds (approximately $1.25 billion assuming the prevailing
exchange rate on that date) was outstanding under the CSW Investments
Credit Facility. CSW Investments anticipates that amounts borrowed
under the CSW Investments Credit Facility will be repaid through
dividends from SEEBOARD and other proceeds received from refinancing
activities. In July 1996, SEEBOARD entered into a receivables
securitization program in the amount of 155 million pounds. The proceeds of
this securitization program will be used to reduce the CSW Investments
Credit Facility.
Proceeds from Sale of Transok
On June 6, 1996, CSW sold Transok to Tejas for approximately $890
million, consisting of $690 million in cash and $200 million in
existing long-term debt that remained with Transok after the
sale. A portion of the cash proceeds was used to repay the CSW
Credit Agreement and the remaining proceeds were used to repay
commercial paper borrowings.
CSW recorded an after tax gain on the sale of Transok of
approximately $113 million in the second quarter of 1996. As a result
of the gain, CSW incurred a current tax liability of approximately
$195 million. Approximately two-thirds of the current tax liability
results from taxes previously deferred by Transok. The deferred taxes
were generated primarily by the excess of Transok's tax depreciation
over its book depreciation. For additional information concerning the
disposal of Transok, see ITEM 1. NOTE 8. DISCONTINUED OPERATIONS.
Short-Term Financing
The CSW System uses short-term debt to meet fluctuations in
working capital requirements and other interim capital needs. The
Registrants, together with other subsidiaries of CSW have: (i)
established a money pool to coordinate short-term borrowings and (ii)
made borrowings outside the money pool through CSW's issuance of
commercial paper. As of June 30, 1996, CSW had two revolving credit
facilities totaling $1.2 billion to back up its commercial paper
program.
Long-Term Financing
The CSW System is committed to maintaining financial flexibility
by having a strong capital structure and favorable securities ratings
which help to assure future access to capital markets when required.
At June 30, 1996, the capitalization ratios of each of the Registrants
is presented in the following table. The capitalization ratio of CSW
has been impacted by the amount of indebtedness utilized to finance
the SEEBOARD acquisition. However, as described above in SEEBOARD
<PAGE> 63
Acquisition Financing and in Proceeds from Sale of Transok, $829
million of debt outstanding under the CSW Credit Agreement was repaid
in the first six months of 1996.
Common
Stock Preferred Long
Equity Stock Term Debt
CSW 44% 4% 52%
CPL 45% 8% 47%
PSO 52% 2% 46%
SWEPCO 51% 4% 45%
WTU 48% 1% 51%
PSO MTNs, Series A
In February 1996, PSO filed a shelf registration statement with
the SEC for the sale of up to $75 million of Senior Notes. During
March and April of 1996, PSO issued $30 million and $10 million of
MTNs, respectively, at varying interest rates and maturity dates. The
interest rates for the separate issues ranged from 5.89 to 6.43% with
maturity dates of 2000-2001. The proceeds of the issues were used to
repay a portion of PSO's short-term borrowings and also to reimburse
PSO's treasury for the scheduled maturity of $25 million aggregate
principal amount of first mortgage bonds. PSO may offer the remaining
$35 million available under its shelf registration statement from time
to time subject to market conditions and other factors. The proceeds of
any such additional offering may be used to redeem first mortgage bonds,
repay short-term debt or provide working capital.
SWEPCO Sabine Series PCRBs
In July 1996, $81.7 million of Sabine, 6.10%, Series 1996 PCRBs
were issued for the benefit of SWEPCO. The proceeds from this
issuance were used to refund the $81.7 million Sabine, 8.20%, Series
1986 PCRBs.
CPL, PSO, WTU Red River Series PCRBs
In August 1996, $63.3 million of Red River, 6.0%, Series 1996,
PCRBs were issued for the benefit of CPL, PSO and WTU. The proceeds from
this issuance will be used to refund the $63.3 million of Red River,
7 7/8%, Series 1984 PCRBs.
SWEPCO Cajun Asset Purchase Proposal
As previously reported, in April 1996, SWEPCO and the Members
Committee and Entergy Gulf States filed the SWEPCO Plan in the United
States Bankruptcy Court for the Middle District of Louisiana pursuant
to which, among other things, SWEPCO would directly or indirectly
acquire all of the non-nuclear assets of Cajun for approximately $405
million in cash. In addition, under the SWEPCO Plan, the Cajun member
cooperatives would make future payments with a net present value
ranging from $497 million to $567 million to the Rural Utility Service
of the federal government, Cajun's largest creditor, by using a
portion of the cooperatives' future income from their retail
customers. Subsequent to the filing of the SWEPCO Plan, three other
parties filed competing plans of reorganization with higher bid prices
for the Cajun assets. The bankruptcy court has scheduled confirmation
hearings for December 1996.
In light of the other bids, CSW is reevaluating the SWEPCO Plan
to determine whether to increase its bid and file an amended plan with
the bankruptcy court. No determination has been made to file an
amended plan, but if one is filed, it may provide for the proposed
purchase of Cajun assets to be made by SWEPCO, a SWEPCO subsidiary, or
another subsidiary of CSW.
<PAGE> 64
Consummation of the SWEPCO Plan, or, if filed, an amended plan
would be conditioned upon confirmation of the reorganization plan by
the bankruptcy court, as well as the receipt of all requisite state
and federal regulatory approvals. See the Registrants' Combined
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 for
additional information related to the SWEPCO Cajun asset proposal.
Regulatory Matters
On July 19, 1996, the Oklahoma Commission staff filed an
application seeking a review of PSO's earnings and rate structure.
The application does not specify a time frame for the review and does
not include language indicating that the Oklahoma Commission staff
believes a rate reduction is needed. Instead, the review is being
initiated to investigate the potential impact on PSO's rates from both
the sale of Transok and PSO's restructuring efforts as well as PSO's
improved financial results. PSO cannot predict the outcome of this
review.
Reference is made to ITEM 1. NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS for a discussion of CPL's and WTU's regulatory
proceedings.
Litigation Relating to Termination of El Paso Merger
For information regarding the commitments and contingent
liabilities relating to the termination of the Merger, reference is
made to ITEM 1. NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES.
<PAGE> 65
PART II - OTHER INFORMATION
For background and earlier developments relating to PART II
information reference is made to the Registrants' Combined Annual
Report on Form 10-K for the year ended December 31, 1995 and Combined
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
ITEM 1. LEGAL PROCEEDINGS.
CPL Nuclear Insurance Claims
As previously reported, in 1994, CPL filed a claim under the
NEIL I business interruption and/or extra expense policy relating to
the 1993-1994 outage at STP Units 1 and 2. NEIL formally denied
CPL's claim on November 21, 1995. On April 9, 1996, CPL filed an
action in state district court in Corpus Christi, Texas, against NEIL
and Johnson & Higgins of Texas, Inc., the former insurance broker for
STP, seeking recovery under the policy and other relief. NEIL
responded by filing a suit against CPL on April 16, 1996, in the
United States District Court for the Southern District of New York
seeking a declaratory judgment to enforce an arbitration provision
contained in the policy. On May 24, 1996, the New York court ordered
the dispute, including the issue of whether the arbitration provision
is enforceable, to arbitration and stayed the Texas proceeding. NEIL
canceled CPL's current NEIL I policy effective July 31, 1996. NEIL
also filed a claim in arbitration seeking a determination that NEIL
properly terminated CPL's coverage and that CPL has caused NEIL damages
by opposing NEIL's attempt to compel arbitration and seeking recovery
of NEIL's attorneys' fees. On June 21, 1996, CPL filed a notice of appeal
of the New York court's order in the United States Court of Appeals for
the Second Circuit. CPL intends to assert its rights to recovery under
the NEIL I policy and defend against NEIL's claims vigorously, but cannot
predict the ultimate outcome of these matters. CPL's management
believes that the resolution of these actions will not have a
material adverse effect on its results of operations or financial
condition.
PSO PCB Cases
As previously reported, PSO has been named a defendant in
complaints filed in federal and state courts in Oklahoma in 1984,
1985, 1986, 1993 and 1996. The complaints allege, among other things,
that some of the plaintiffs and the property of other plaintiffs were
contaminated with PCBs and other toxic by-products following certain
incidents, including transformer malfunctions, in April 1982, December
1983 and May 1984. To date, all complaints, except for claims filed
in February 1996 for additional unspecified actual and punitive
damages, have been dismissed, certain of which resulted in settlements
among the parties. Management believes that PSO has defenses to the
remaining complaints and intends to defend the suits vigorously.
Moreover, management believes that the remaining complaints are
covered under insurance. Management also believes that the ultimate
resolution of the remaining complaints will not have a material
adverse effect on PSO's consolidated results of operations or
financial condition.
SWEPCO Burlington Northern Transportation Contract
As previously reported, a state district court in Bowie County,
Texas awarded SWEPCO a judgment of approximately $72 million against
Burlington Northern for damages regarding rates charged under two rail
transportation contracts for delivery of coal to two of SWEPCO's power
plants, post-judgment interest and attorneys' fees and also granted
certain declaratory relief requested by SWEPCO. Burlington Northern
appealed the state district court's judgment to the Texarkana, Texas
Court of Appeals and, on April 30, 1996, the Texarkana, Texas Court of
<PAGE> 66
Appeals reversed the judgment of the state district court.
Subsequently, SWEPCO filed two motions for rehearing, but both were
overruled. SWEPCO now plans to request the Supreme Court of Texas to
grant a writ of error to review the judgment of the court of
appeals.
Other Legal Claims and Proceedings
The CSW System is party to various other legal claims and
proceedings arising in the normal course of business. Management does
not expect disposition of these matters to have a material adverse
effect on the Registrants' results of operations or financial
condition. See PART I - NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS for a discussion CPL's and WTU's regulatory proceedings.
<PAGE> 67
ITEM 5. OTHER INFORMATION.
Strategic Executive and Organizational Restructuring
As previously reported, in April 1996, CSW announced
organizational and executive changes as CSW prepares for increased
competition and for an unbundling of the electric utility industry
into generation, transmission, distribution and services segments. As
a result of the organizational and executive changes, each of the U.S.
Electric Operating Companies made changes to their respective Board of
Directors as well. The Board of Directors for each of the U.S.
Electric Operating Companies is presented below.
CPL
Appointed to the Board of Directors
M. Bruce Evans
Continuing Directors
John F. Brimberry E. R. Brooks
Glenn Files Ruben M. Garcia
Robert A. McAllen Pete J. Morales, Jr.
S. Loyd Neal, Jr. H. Lee Richards
Gonzalo Sandoval Gerald E. Vaughn
PSO
Appointed to the Board of Directors
T. D. Churchwell
Continuing Directors
E. R. Brooks Harry A. Clarke
Glenn Files Paul K. Lackey, Jr.
Paula Marshall-Chapman Robert B. Taylor, Jr.
Wlliam R. McKamey .
SWEPCO
Appointed to the Board of Directors
Michael D. Smith Karen Martin
Continuing Directors
E. R. Brooks James E. Davison
Glenn Files Dr. Frederick E. Joyce
William C. Peatross Maxine Sarpy
WTU
Appointed to the Board of Directors
Floyd W. Nickerson
Continuing Directors
Richard Bacon E. R. Brooks
Paul Brower Glenn Files
Tommy Morris Dian G. Owen
James Parker Ted Steans
F. L. Stephens
<PAGE> 67
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
(12) Computation of Ratio of Earnings to Fixed Charges
CPL - (Exhibit 12.1)
PSO - (Exhibit 12.3)
SWEPCO - (Exhibit 12.4)
WTU - (Exhibit 12.5)
Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
CPL - (Exhibit 12.2)
(27) Financial Data Schedules
CSW - (Exhibit 27.1)
CPL - (Exhibit 27.2)
PSO - (Exhibit 27.3)
SWEPCO - (Exhibit 27.4)
WTU - (Exhibit 27.5)
(b) REPORTS FILED ON FORM 8-K:
CSW, CPL, PSO, SWEPCO and WTU
Item 7. Financial Statements and Exhibits, reporting factors
expected to affect second quarter earnings, dated June 24, 1996.
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, each Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized. The signature
for each undersigned Registrant shall be deemed to relate only to
matters having reference to such Registrant or its subsidiaries.
CENTRAL AND SOUTH WEST CORPORATION
Date: August 14, 1996 /s/ Lawrence B. Connors
Lawrence B. Connors
Controller and Chief Accounting Officer
(Principal Accounting Officer)
CENTRAL POWER AND LIGHT COMPANY
PUBLIC SERVICE COMPANY OF OKLAHOMA
SOUTHWESTERN ELECTRIC POWER COMPANY
WEST TEXAS UTILITIES COMPANY
Date: August 14, 1996 /s/ R. Russell Davis
R. Russell Davis
Controller and Chief Accounting Officer
(Principal Accounting Officer)
EXHIBIT 12.1
CENTRAL POWER AND LIGHT COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996
(Thousands Except Ratio)
(Unaudited)
Operating Income $283,388
Adjustments:
Income taxes 68,663
Provision for deferred income taxes 22,509
Deferred investment tax credits (5,789)
Utility plant development costs, net of tax (15,481)
Other income and deductions 7,515
Allowance for borrowed and equity funds
used during construction 3,428
Mirror CWIP amortization 20,500
Earnings $384,733
Fixed Charges:
Interest on long-term debt $113,776
Interest on short-term debt and other 19,707
Fixed Charges $133,483
Ratio of Earnings to Fixed Charges 2.88
EXHIBIT 12.2
CENTRAL POWER AND LIGHT COMPANY
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996
(Thousands Except Ratio)
(Unaudited)
Operating Income $283,388
Adjustments:
Income taxes 68,663
Provision for deferred income taxes 22,509
Deferred investment tax credits (5,789)
Utility plant development costs, net of tax (15,481)
Other income and deductions 7,515
Allowance for borrowed and equity funds
used during construction 3,428
Mirror CWIP amortization 20,500
Earnings $384,733
Fixed Charges:
Interest on long-term debt $113,776
Interest on short-term debt and other 19,707
Preferred stock dividend requirements 21,057
Fixed Charges and Preferred Requirements $154,540
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends 2.49
EXHIBIT 12.3
PUBLIC SERVICE COMPANY OF OKLAHOMA (CONSOLIDATED)
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996
(Thousands Except Ratio)
(Unaudited)
Operating Income $110,906
Adjustments:
Income taxes 29,133
Provision for deferred income taxes 238
Deferred investment tax credits (2,786)
Utility plant development costs, net of tax (35,552)
Other income and deductions (720)
Allowance for borrowed and equity funds
used during construction 2,549
Earnings $103,768
Fixed Charges:
Interest on long-term debt $ 29,913
Amortization of debt issuance cost 1,584
Other interest 4,556
Fixed Charges $ 36,053
Ratio of Earnings to Fixed Charges 2.88
EXHIBIT 12.4
SOUTHWESTERN ELECTRIC POWER COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996
(Thousands except Ratio)
(Unaudited)
Operating Income $153,682
Adjustments:
Income taxes 27,337
Provision for income taxes 16,290
Deferred investment tax credits (5,114)
Utility plant development costs, net of tax (21,743)
Other income and deductions (349)
Allowance for borrowed and equity funds
used during construction 6,086
Interest portion of financing leases 1,688
Earnings $177,877
Fixed Charges:
Interest on long-term debt $ 44,026
Amortization of debt issuance cost 3,370
Other interest 6,610
Interest portion of financing leases 1,688
Fixed Charges $ 55,694
Ratio of Earnings to Fixed Charges 3.19
EXHIBIT 12.5
WEST TEXAS UTILITIES COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996
(Thousands Except Ratio)
(Unaudited)
Operating Income $60,331
Adjustments:
Income taxes 2,362
Provision for deferred income taxes 3,089
Deferred investment tax credits (1,321)
Utility plant development costs, net of tax (10,917)
Other income and deductions (867)
Allowance for borrowed and equity funds
used during construction 1,227
Earnings $53,904
Fixed Charges:
Interest on long-term debt $21,867
Interest on short-term debt and other 4,701
Fixed Charges $26,568
Ratio of Earnings to Fixed Charges 2.03
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<NAME> SOUTHWESTERN ELECTRIC POWER COMPANY
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