-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, FiQOk+bq83Aq8GVXcHB6GM8Y6wVN2dGLgMWTIft5DTpWBDafyAj62ZG/2EbmMq8c Jnso+WB5HXUx130+JTeCOA== 0000092487-94-000018.txt : 19940816 0000092487-94-000018.hdr.sgml : 19940816 ACCESSION NUMBER: 0000092487-94-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWESTERN ELECTRIC POWER CO CENTRAL INDEX KEY: 0000092487 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 720323455 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03146 FILM NUMBER: 94543889 BUSINESS ADDRESS: STREET 1: 428 TRAVIS ST CITY: SHREVEPORT STATE: LA ZIP: 71156 BUSINESS PHONE: 3182222141 10-Q 1 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1994 .............................................. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to ......................... ..................... Commission file number 1-3146 .................................................... Southwestern Electric Power Company ................................................................ (Exact name of registrant as specified in its charter) Delaware 72-0323455 ................................. .............................. (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 428 Travis Street, Shreveport, Louisiana 71156-0001 ................................................................ (Address of principal executive offices) (Zip Code) (318) 222-2141 ................................................................ (Registrant's telephone number, including area code) ................................................................ (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ...... ...... Number of shares of Common Stock outstanding at July 31, 1994: 7,536,640 ............... 2 SOUTHWESTERN ELECTRIC POWER COMPANY INDEX PART I - FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements. (Unaudited) Statements of Income for the Three and Six Months Ended June 30, 1994 and 1993 3 Balance Sheets as of June 30, 1994 and December 31, 1993 4 - 5 Statements of Cash Flows for the Six Months Ended June 30, 1994 and 1993 6 Notes to Financial Statements 7 - 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 - 11 PART II - OTHER INFORMATION Item 1. Legal Proceedings. 12 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. Inapplicable Item 6. Exhibits and Reports on Form 8-K. 12 Signature. 13 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. SOUTHWESTERN ELECTRIC POWER COMPANY STATEMENTS OF INCOME (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1994 1993 1994 1993 (Restated) (Restated) (Thousands) ELECTRIC OPERATING REVENUES $211,989 $193,225 $402,055 $368,826 OPERATING EXPENSES AND TAXES Fuel 87,692 80,947 173,673 158,016 Purchased power 4,050 2,565 8,609 5,090 Other operating 29,595 29,227 58,806 57,844 Maintenance 10,955 11,303 19,931 21,787 Depreciation and amortization 19,878 18,516 39,640 36,998 Taxes, other than Federal income 12,751 11,187 25,651 22,885 Federal income taxes 10,369 7,526 14,226 10,299 175,290 161,271 340,536 312,919 OPERATING INCOME 36,699 31,954 61,519 55,907 OTHER INCOME AND DEDUCTIONS Allowance for equity funds used during construction 736 327 1,403 627 Other 438 70 1,488 300 1,174 397 2,891 927 INCOME BEFORE INTEREST CHARGES 37,873 32,351 64,410 56,834 INTEREST CHARGES Interest on long-term debt 10,900 9,732 21,713 20,417 Interest on short-term debt and other 1,553 1,553 3,133 2,756 Allowance for borrowed funds used during construction (431) (297) (824) (566) 12,022 10,988 24,022 22,607 INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 25,851 21,363 40,388 34,227 CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES - - - 3,405 NET INCOME 25,851 21,363 40,388 37,632 Preferred stock dividends 841 841 1,681 1,681 NET INCOME FOR COMMON STOCK $ 25,010 $ 20,522 $ 38,707 $ 35,951 The accompanying notes to financial statements are an integral part of these statements. 4 SOUTHWESTERN ELECTRIC POWER COMPANY BALANCE SHEETS (Unaudited) JUNE 30, DECEMBER 31, 1994 1993 (Thousands) ASSETS ELECTRIC UTILITY PLANT Production $1,397,827 $1,392,058 Transmission 353,730 350,625 Distribution 697,620 678,788 General 196,915 188,193 Construction work in progress 155,257 126,258 2,801,349 2,735,922 Less - Accumulated depreciation 986,371 947,792 1,814,978 1,788,130 CURRENT ASSETS Cash and temporary cash investments 4,293 6,723 Accounts receivable 34,161 24,363 Materials and supplies, at average cost 27,400 25,218 Fuel inventory, at average cost 33,691 49,487 Accumulated deferred income taxes 4,479 3,912 Prepayments and other 14,195 14,965 118,219 124,668 DEFERRED CHARGES AND OTHER ASSETS 62,931 55,487 $1,996,128 $1,968,285 The accompanying notes to financial statements are an integral part of these statements. 5 SOUTHWESTERN ELECTRIC POWER COMPANY BALANCE SHEETS (Unaudited) JUNE 30, DECEMBER 31, 1994 1993 (Thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock, $18 par value; authorized 7,600,000 shares; issued and outstanding 7,536,640 shares $ 135,660 $ 135,660 Paid-in capital 245,000 245,000 Retained earnings 286,779 265,071 Total Common Stock Equity 667,439 645,731 Preferred stock Not subject to mandatory redemption 16,032 16,032 Subject to mandatory redemption 36,028 36,028 Long-term debt 600,610 602,065 Total Capitalization 1,320,109 1,299,856 CURRENT LIABILITIES Long-term debt/preferred stock due within twelve months 4,661 5,028 Advances from affiliates - 27,864 Accounts payable 47,080 41,598 Fuel refund due customers 4,055 2,358 Customer deposits 14,517 14,244 Accrued taxes 44,544 27,340 Accrued interest 16,898 17,354 Accrued restructuring charges 21,540 25,203 Other 23,317 30,499 176,612 191,488 DEFERRED CREDITS Income taxes 338,512 332,522 Investment tax credits 83,201 85,301 Income tax related regulatory liabilities - net 50,730 52,828 Other 26,964 6,290 499,407 476,941 $1,996,128 $1,968,285 The accompanying notes to financial statements are an integral part of these statements. 6 SOUTHWESTERN ELECTRIC POWER COMPANY STATEMENTS OF CASH FLOWS (Unaudited) SIX MONTHS ENDED JUNE 30, 1994 1993 (Restated) (Thousands) OPERATING ACTIVITIES Net income $40,388 $37,632 Non-cash items included in net income Depreciation and amortization 44,316 41,104 Deferred income taxes and investment tax credits 1,226 2,727 Cumulative effect of changes in accounting principles - (3,405) Allowance for equity funds used during construction (1,403) (627) Changes in assets and liabilities Accounts receivable (9,798) 5,530 Fuel inventory 15,796 6,069 Accounts payable 5,482 4,936 Accrued taxes 17,204 12,078 Unrecovered fuel/Fuel refund due customers 1,697 (492) Restructuring charges (3,663) - Other 5,702 3,357 116,947 108,909 INVESTING ACTIVITIES Construction expenditures (66,728) (51,997) Allowance for borrowed funds used during construction (824) (566) Other (2,007) (1,620) (69,559) (54,183) FINANCING ACTIVITIES Proceeds from the issuance of long-term debt - 54,069 Change in short-term debt (27,864) 6,404 Retirement of long-term debt (1,559) (38,194) Reacquisition of long-term debt (1,713) (107,563) Special deposits for reacquisition of long-term debt - 53,500 Payment of dividends (18,682) (21,705) (49,818) (53,489) NET CHANGE IN CASH AND CASH EQUIVALENTS (2,430) 1,237 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,723 1,058 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,293 $ 2,295 SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $23,374 $21,494 Income taxes paid $ 1,932 $ 1,360 The accompanying notes to financial statements are an integral part of these statements. 7 SOUTHWESTERN ELECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTS JUNE 30, 1994 (Unaudited) (1) PRINCIPLES OF PREPARATION The condensed financial statements included herein have been prepared by Southwestern Electric Power Company (Company) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote 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 the Company 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 Company's Annual Report on Form 10-K for the year ended December 31, 1993 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. The unaudited financial information furnished herewith reflects all adjustments (consisting only of normal recurring adjustments, except for the 1993 cumulative effect of changes in accounting principles discussed below) which are, in the opinion of management, necessary for a fair statement of the results 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. Certain financial statement items for prior years have been restated or reclassified to conform to the 1994 presentation. Pursuant to changes in accounting principles made in December 1993, but effective January 1, 1993, the Company has restated 1993 second quarter information to reflect a change in the method of accounting for unbilled revenues and restated 1993 year to date information to reflect a change in the method of accounting for unbilled revenues and the adoption of Statement of Financial Accounting Standards (SFAS) No. 112, Employers' Accounting for Postemployment Benefits. The effects of the restatement for the quarter and six months ended June 30, 1993 are as follows: Electric Operating Operating Net Revenues Income Income (Thousands) Quarter Ended Reported $190,202 $29,989 $19,398 Adjustment 3,023 1,965 1,965 Restated $193,225 $31,954 $21,363 Six Months Ended Reported $366,688 $54,517 $32,837 Adjustment 2,138 1,390 4,795 Restated $368,826 $55,907 $37,632 (2) REGULATORY MATTERS On March 17, 1994, the Company filed a petition, designated as Docket No. 12855, with the Public Utility Commission of Texas (Texas Commission) to reconcile fuel costs for the period November 1989 through December 1993. Total Texas jurisdictional fuel expense subject to reconciliation for this period is approximately $559 million. The Company's net under- recovery for the reconciliation period is approximately $0.9 million. 8 SOUTHWESTERN ELECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTS JUNE 30, 1994 (Unaudited) This under-recovered balance includes $0.5 million of reconciled, but unrecovered fuel and interest carried forward from Docket No. 8900, the Company's last fuel reconciliation, $4.1 million of currently over-recovered fuel, $1.2 million of interest due the Company on prior under-recovered fuel balances, and a $3.3 million recovery of litigation and settlement negotiation costs associated with the Company's renegotiation of a coal supply agreement. Intervenor status has been granted to Texas Industrial Energy Consumers (TIEC) and to the Texas Office of Public Utility Counsel (OPUC). TIEC's consultant filed testimony on August 3, 1994 seeking reclassification of $22.2 million of Texas jurisdictional expenses, premised on the argument that these costs are more appropriately recovered as components of base rates, rather than as fuel expense. OPUC did not file testimony. Testimony was filed by the Texas Commission Staff (Staff) on August 10, 1994. The Staff identified four issues in testimony and recommended a Texas jurisdictional disallowance of approximately $1.2 million. Discovery is continuing and a hearing on the case is scheduled to begin August 22, 1994. The Company believes that the positions taken by TIEC and the Staff are without merit. While management cannot predict the outcome of these proceedings, management believes that the resolution of these proceedings will not have a material adverse effect on the Company's financial position or results of operations. (3) DIVIDENDS At June 30, 1994, the Company's retained earnings of approximately $287 million were available for the payment of cash dividends to its parent company, Central and South West Corporation (CSW). (4) COMMITMENTS AND CONTINGENT LIABILITIES In connection with the lignite mining contract for its Henry W. Pirkey Power Plant, the Company has agreed, under certain conditions, to assume the obligations of the mining contractor. As of June 30, 1994, the maximum the Company would have to assume is approximately $76.8 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, 1994 is approximately $65.7 million. The Company has received notification from the Mississippi Department of Environmental Quality (MDEQ) that it may be responsible, along with at least two or three other large companies, for a suspected manufactured gas plant site in Biloxi. The Company has insufficient information at this time to determine the extent, if any, to which contamination is present or has impacted soil, groundwater or other conditions at the site. The Company intends to cooperate with the MDEQ and other identified parties in investigating the Biloxi site. 9 SOUTHWESTERN ELECTRIC POWER COMPANY 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 Company's 1993 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. Reference is also made to the 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. REGULATORY MATTERS Reference is made to Note 2 of the Notes to Financial Statements for a discussion of the Company's regulatory matters. FINANCING AND CAPITAL RESOURCES At June 30, 1994, the Company's capitalization ratios were 50% common stock equity, 4% preferred stock, and 46% long-term debt. The Company anticipates that all funds required for its construction program for the remainder of 1994 will be provided from internal sources. The Company utilizes short-term debt to meet fluctuations in working capital requirements due to the seasonal nature of energy sales. The Company may need additional long-term financing during the period, depending on the timing of construction expenditures, but the nature, amount and timing of any financings have not been determined. The financial condition of the Company should allow the required funds to be obtained from the capital markets at reasonable rates. RESTRUCTURING As previously reported, the Company and CSW have undertaken a restructuring and early retirement program designed to consolidate and restructure their operations in order to meet the challenges of the changing electric utility industry and to compete effectively in the years ahead. The underlying goal of restructuring is to enable the CSW Electric Operating Companies to focus on and be accountable for serving the customer. The Company's portion of the costs for the restructuring is expected to be approximately $25.2 million and was expensed in 1993. The Company does not expect any material additional restructuring costs in 1994. Approximately $17.8 million of the restructuring costs will be paid from general corporate funds. The remaining $7.4 million represents the present value of enhanced benefit amounts to be paid from the benefit plan trusts to participants over future years in accordance with the early retirement program. This amount will funded from general corporate funds to the benefit plan trusts over future years. The restructuring is expected to be substantially completed in 1994. Certain aspects of the restructuring may be subject to SEC approval. The Company expects to realize a number of benefits from the restructuring. Beginning in 1994 and continuing into the future, increased efficiencies and synergies are expected to be realized with the elimination of previously duplicated functions. This leads to enhanced communication and efficiency, which should translate into a reduction in the rate of growth of operating and maintenance costs. All restructuring costs are expected to be recovered within 18-24 months after implementation of the restructuring changes. 10 A number of assumptions and judgments are built into these expected benefits. These assumptions may become inaccurate as a result of other costs and circumstances which are beyond the Company's control. If projections of future operating and maintenance costs are too low, the restructuring should mitigate any future increases in cost of service but may not result in any net operating and maintenance reduction overall. It is also assumed that staffing will be adequate at the new levels. The reductions in staff will increase the need for automation, with resulting increases in capital and maintenance costs. The Company is continuing to re-engineer its business practices. COAL TRANSPORTATION CONTRACT During April 1994, the Company resolved a contractual dispute with Kansas City Southern Railway Company (KCS). As part of the settlement, the Company has entered into a new long-term contract with KCS for transportation of low-sulfur coal from Kansas City to the Company's Flint Creek and Welsh power plants. The settlement should provide the Company with additional operations flexibility and the Company's customers with savings in fuel costs. WHOLESALE POWER CONTRACT The City of Minden, Louisiana has agreed, commencing in 1995 after expiration of a contract with another supplier, to purchase power at wholesale from the Company for a period of 5 years with an option for an additional 5 years. The contract is expected to provide the Company with an additional 31 megawatt of electric load. The City of Minden has a population of approximately 15,000. RESULTS OF OPERATIONS QUARTER ENDED JUNE 30, 1994 COMPARED TO THE QUARTER ENDED JUNE 30, 1993 Net Income for Common Stock. Net income for common stock increased 22% to $25.0 million for the second quarter of 1994 as compared to the same period of 1993. The increase was due primarily to increased kilowatt-hour sales. Electric Operating Revenues. Operating revenues for the second quarter were $212.0 million, a 10% increase from revenues of $193.2 million in 1993. The $18.8 million increase was due primarily to a 16% increase in total kilowatt-hour sales resulting from increased weather related demand, the July 1993 acquisition of the Bossier Rural Electric Membership Corporation (BREMCO) and increased sales for resale to other utilities due to lower unit fuel costs as described below. Fuel. Fuel expense increased approximately $6.7 million or 8% due primarily to a 20% increase in generation partially offset by a decrease in the cost of fuel. The increase in generation was primarily a result of increased kilowatt-hour sales as previously discussed. The average unit fuel cost per million BTU decreased 9% from $1.90 in 1993 to $1.74 in 1994. This decrease was due primarily to the settlement of litigation with fuel suppliers. Purchased Power. Purchased power expense increased by approximately $1.5 million in the second quarter of 1994 as compared to the corresponding period in 1993 due to purchases under a contract negotiated with Cajun Electric Power Cooperative, Inc. in conjunction with the Company's acquisition of BREMCO. 11 Expenses and Taxes. Depreciation expense increased 7% or approximately $1.4 million due to increases in depreciable property. The $1.6 million increase in Taxes, Other than Federal Income was due primarily to increased ad valorem taxes. Federal income taxes increased approximately $2.8 million or 38% as a result of higher pre-tax income. Interest Charges. Interest expense on long-term debt increased $1.2 million, or 12% due to an increase in long-term debt outstanding. SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1993 Net Income for Common Stock. Net income for common stock increased 8% for the six months ended June 30, 1994 as compared to the same period of 1993. The increase was due primarily to increased kilowatt-hour sales. This increase was partially offset by the restatement of 1993 financial information to reflect the change in the Company's method of recording unbilled revenues and the adoption of SFAS No. 112, Employers' Accounting for Postemployment Benefits. Electric Operating Revenues. Operating revenues rose 9% to approximately $402.0 million for the six months ended June 30, 1994. The increase was primarily the result of a 16% increase in total kilowatt-hour sales resulting from increased weather related demand, the acquisition of BREMCO and increased sales for resale to other utilities due to lower unit fuel costs as described below. Fuel. Fuel expense increased approximately $15.7 million or 10% due primarily to an 18% increase in generation partially offset by a decrease in the cost of fuel. The increase in generation was primarily a result of increased kwh sales as previously discussed. The average unit fuel cost per million BTU decreased 5% from $1.92 in 1993 to $1.81 in 1994. This decrease was due primarily to the settlement of litigation with fuel suppliers. Purchased Power. Purchased power expense increased approximately $3.5 million as compared to the first six months of 1993 due to purchases under a contract negotiated with Cajun Electric Power Cooperative, Inc. in conjunction with the Company's acquisition of BREMCO. Expenses and Taxes. Depreciation expense rose 7%, or approximately $2.6 million due primarily to increased depreciable plant. Taxes, Other than Federal Income increased approximately $2.8 million in 1994 compared to the same period in 1993 due primarily to an increase in ad valorem taxes. Federal income taxes increased approximately $3.9 million or 38% due to higher pre-tax income. Interest Charges. Interest expense on long-term debt increased 6% or $1.3 million due primarily to an increase in long- term debt outstanding. Cumulative Effect of Changes in Accounting Principles. Accounting changes in 1993 includes the adoption of SFAS 112, Employers' Accounting for Postemployment Benefits. The Company also changed its method of accounting for unbilled revenues. These accounting changes had a cumulative effect of increasing six months ended June 30, 1993 net income by $3.4 million. 12 SOUTHWESTERN ELECTRIC POWER COMPANY PART II - OTHER INFORMATION For background and earlier developments relating to Part II information, reference is made to the Company's 1993 Annual Report on Form 10-K and the Company's quarterly report on Form 10- Q for the quarter ended March 31, 1994. Item 1. Legal Proceedings. See Note 2 of the Notes to Financial Statements for information relating to regulatory proceedings. Item 6. Exhibits and Reports on Form 8-K. a) Exhibits Computation of Ratio of Earnings to Fixed Charges (Exhibit 1). b) Reports on Form 8-K None. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTHWESTERN ELECTRIC POWER COMPANY Date August 12, 1994 R. RUSSELL DAVIS R. Russell Davis Controller and Chief Accounting Officer EX-1 2 RATIO OF EARNINGS EXHIBIT 1 SOUTHWESTERN ELECTRIC POWER COMPANY RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED JUNE 30, 1994 (Thousands except Ratio) (Unaudited) Operating Income $123,669 Adjustments Federal and state income taxes 42,895 Provision for deferred Federal and state income taxes (2,348) Deferred investment tax credits (4,993) Other income and deductions 4,846 Allowance for borrowed and equity funds used during construction 3,614 Interest portion of financing leases 2,415 Earnings $170,098 Fixed Charges: Interest on long-term debt $ 42,254 Amortization of debt issuance cost 3,476 Other interest 1,767 Interest portion of financing leases 2,415 Fixed Charges $ 49,912 Ratio of Earnings to Fixed Charges 3.41 -----END PRIVACY-ENHANCED MESSAGE-----