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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 1-3280
Public Service Company of Colorado
(Exact name of registrant as specified in its charter)
Colorado 84-0296600
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1225 17th Street, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (303) 571-7511
--------------------------------------------
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
At August 1, 1997, 65,597,445 shares of the registrant's Common Stock,
$5.00 par value (the only class of common stock), were outstanding. In
connection with the Merger, effective August 1, 1997, each share of outstanding
common stock of the registrant stock was exchanged for one share of New Century
Energies, Inc., common stock, $1.00 par value.
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Table of Contents
PART I - FINANCIAL INFORMATION
Item l. Financial Statements ............................................. 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 25
Item 6. Exhibits and Reports on Form 8-K.................................. 25
SIGNATURES................................................................. 27
EXHIBIT INDEX.............................................................. 28
EXHIBIT 12(a).............................................................. 29
EXHIBIT 12(b).............................................................. 30
EXHIBIT 15 ................................................................ 31
In addition to the historical information contained herein, this report
contains a number of "forward-looking statements", within the meaning of the
Securities Exchange Act of 1934. Such statements address future events and
conditions concerning capital expenditures, earnings, resolution and impact of
litigation, regulatory matters, liquidity and capital resources, and accounting
matters. Actual results in each case could differ materially from those
projected in such statements due to a variety of factors including, without
limitation, restructuring of the utility industry; future economic conditions;
earnings retention and dividend payout policies; developments in the
legislative, regulatory and competitive environments in which the Company
operates; and other circumstances that could affect anticipated revenues and
costs, such as compliance with laws and regulations. These and other factors are
discussed in the Company's filings with the Securities and Exchange Commission
including this report.
i
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
June 30, December 31,
1997 1996
---- ----
(Unaudited)
Property, plant and equipment, at cost:
Electric .......................................... $ 4,052,776 $ 3,931,413
Gas................................................ 1,089,274 1,035,394
Steam and other.................................... 78,784 78,225
Common to all departments.......................... 424,079 418,262
Construction in progress........................... 118,351 181,597
------- -------
5,763,264 5,644,891
Less: accumulated depreciation .................... 2,108,226 2,045,996
--------- ---------
Total property, plant and equipment.............. 3,655,038 3,598,895
--------- ---------
Investments, at cost, and receivables:
Investment in Yorkshire Power Group, Ltd. (Note 4). 366,493 -
Other........................................... 49,628 46,550
------- -------
Total investments................................. 416,121 46,550
------- -------
Current assets:
Cash and temporary cash investments................ 19,011 9,406
Accounts receivable, less reserve for uncollectible
accounts ($2,970 at June 30, 1997; $4,049 at
December 31, 1996) .......... .................... 197,147 218,132
Accrued unbilled revenues ......................... 66,879 85,894
Recoverable purchased gas and electric energy costs
- net (Note 1) .................................. 57,663 31,288
Materials and supplies, at average cost............ 46,987 48,972
Fuel inventory, at average cost.................... 28,641 24,739
Gas in underground storage, at cost (LIFO)......... 26,574 42,826
Regulatory assets recoverable within one year (Note 1) 44,787 44,110
Prepaid expenses and other......................... 37,015 41,790
------- -------
Total current assets.............................. 524,704 547,157
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 283,277 304,456
Unamortized debt expense .......................... 11,784 10,975
Other.............................................. 68,195 64,615
------- -------
Total deferred charges............................ 363,256 380,046
------- -------
$4,959,119 $4,572,648
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
1
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Thousands of Dollars)
CAPITAL AND LIABILITIES
June 30, December 31,
1997 1996
---- ----
(Unaudited)
Common stock (Note 1)................................. $1,072,992 $1,048,447
Retained earnings..................................... 408,811 389,841
-------- -------
Total common equity............................... 1,481,803 1,438,288
Preferred stock:
Not subject to mandatory redemption................ 140,008 140,008
Subject to mandatory redemption at par............. 39,913 39,913
Long-term debt........................................ 1,464,620 1,259,528
--------- ---------
3,126,344 2,877,737
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions ........................................ 58,569 55,677
Employees' postemployment benefits................. 25,181 25,182
------ -------
Total noncurrent liabilities...................... 83,750 80,859
------ -------
Current liabilities:
Notes payable and commercial paper ................ 382,600 244,725
Long-term debt due within one year................. 262,094 155,030
Preferred stock subject to mandatory redemption
within one year ................................. 2,576 2,576
Accounts payable................................... 170,876 254,256
Dividends payable.................................. 37,307 36,973
Customers' deposits................................ 22,087 21,441
Accrued taxes...................................... 31,263 58,990
Accrued interest................................... 43,299 33,797
Defueling and decommissioning liability............ 5,076 8,665
Current portion of accumulated deferred income taxes 24,095 4,560
Other.............................................. 43,271 69,203
------ ------
Total current liabilities......................... 1,024,544 890,216
--------- -------
Deferred credits:
Customers' advances for construction............... 47,147 50,269
Unamortized investment tax credits ................ 103,424 105,928
Accumulated deferred income taxes ................ 543,316 539,082
Other.............................................. 30,594 28,557
-------- -------
Total deferred credits............................ 724,481 723,836
-------- -------
Commitments and contingencies (Notes 3 and 4).........
$4,959,119 $4,572,648
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
2
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars Except per Share Data)
Three Months Ended
June 30,
1997 1996
---- ----
Operating revenues:
Electric.......................................... $360,144 $357,764
Gas............................................... 170,273 117,395
Other............................................. 12,260 9,628
-------- --------
542,677 484,787
Operating expenses:
Fuel used in generation........................... 47,482 44,676
Purchased power................................... 121,019 119,056
Gas purchased for resale.......................... 115,143 72,383
Other operating expenses.......................... 82,904 84,034
Maintenance....................................... 18,055 15,705
Depreciation and amortization..................... 42,182 38,046
Taxes (other than income taxes)................... 21,243 21,288
Income taxes...................................... 11,627 16,313
------ -------
459,655 411,501
Operating income..................................... 83,022 73,286
Other income and deductions:
Allowance for equity funds used during
construction ................................... (1) 192
Miscellaneous income and deductions - net......... (6,204) (1,444)
--------- ------
(6,205) (1,252)
Interest charges:
Interest on long-term debt........................ 30,047 21,714
Amortization of debt discount and expense less
premium ........................................ 1,017 865
Other interest.................................... 16,517 15,562
Allowance for borrowed funds used during
construction ................................... (1,371) (644)
46,210 37,497
Net income........................................... 30,607 34,537
Dividend requirements on preferred stock............. 2,942 2,971
----- -----
Earnings available for common stock.................. $27,665 $31,566
======= =======
Weighted average common shares outstanding (thousands) 65,395 63,998
====== ======
Earnings per weighted average
share of common stock outstanding................. $ 0.42 $ 0.49
========= =========
Dividends per share declared on common stock......... $ 0.525 $ 0.525
========= ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
3
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars Except per Share Data)
Six Months Ended
June 30,
1997 1996
---- ----
Operating revenues:
Electric.......................................... $734,097 $727,881
Gas............................................... 462,098 359,623
Other............................................. 24,142 20,200
-------- --------
1,220,337 1,107,704
Operating expenses:
Fuel used in generation........................... 91,743 91,013
Purchased power................................... 243,645 241,491
Gas purchased for resale.......................... 322,495 233,107
Other operating expenses.......................... 165,732 157,924
Maintenance....................................... 33,168 30,077
Depreciation and amortization..................... 85,039 74,908
Taxes (other than income taxes)................... 43,731 43,593
Income taxes...................................... 46,944 57,459
-------- -------
1,032,497 929,572
Operating income..................................... 187,840 178,132
Other income and deductions:
Allowance for equity funds used during construction (1) 703
Miscellaneous income and deductions - net......... (7,093) (6,728)
--------- --------
(7,094) (6,025)
Interest charges:
Interest on long-term debt........................ 56,953 43,782
Amortization of debt discount and expense less
premium ........................................ 1,945 1,842
Other interest.................................... 31,192 29,233
Allowance for borrowed funds used during construction (2,832) (1,716)
------ ------
87,258 73,141
------ ------
Net income........................................... 93,488 98,966
Dividend requirements on preferred stock............. 5,885 5,943
----- -----
Earnings available for common stock.................. $ 87,603 $93,023
======== =======
Weighted average common shares outstanding (thousands) 65,258 63,839
====== ======
Earnings per weighted average
share of common stock outstanding................. $ 1.34 $ 1.46
======== ========
Dividends per share declared on common stock......... $ 1.05 $ 1.05
======== ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
4
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Six Months Ended
June 30,
1997 1996
---- ----
Operating activities:
Net income........................................ $93,488 $98,966
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 87,211 77,292
Amortization of investment tax credits........... (2,504) (2,481)
Deferred income taxes............................ 30,978 20,292
Equity in earnings of investments, net........... (3,565) (490)
Allowance for equity funds used during construction 1 (703)
Change in accounts receivable.................... 20,985 (8,456)
Change in inventories............................ 14,335 27,918
Change in other current assets................... (3,256) 27,722
Change in accounts payable....................... (83,380) (25,817)
Change in other current liabilities.............. (37,334) (7,233)
Change in deferred amounts....................... 573 (1,627)
Change in noncurrent liabilities................. 2,892 (17,073)
Other............................................ - 1,882
------- -----
Net cash provided by operating activities..... 120,424 190,192
------- -------
Investing activities:
Construction expenditures......................... (135,650) (135,615)
Allowance for equity funds used during construction (1) 703
Proceeds from disposition of property, plant and
equipment ...................................... 1,956 1,574
Acquisition of Yorkshire Electricity (Note 4)..... (362,387) -
Purchase of other investments..................... (5,996) (2,333)
Sale of other investments......................... 2,376 416
----- ---
Net cash used in investing activities......... (499,702) (135,255)
-------- --------
Financing activities:
Proceeds from sale of common stock (Note 1)....... 14,777 15,041
Proceeds from sale of long-term debt (Note 4)..... 333,435 143,221
Redemption of long-term debt...................... (23,021) (80,933)
Short-term borrowings - net (Note 4).............. 137,875 (62,175)
Dividends on common stock......................... (68,298) (65,833)
Dividends on preferred stock...................... (5,885) (5,943)
-------- -------
Net cash provided by (used in) financing activities 388,883 (56,622)
------- -------
Net increase (decrease) in cash and temporary cash
investments ................................... 9,605 (1,685)
Cash and temporary cash investments at beginning
of period ..................................... 9,406 14,693
Cash and temporary cash investments at end of period $ 19,011 $ 13,008
========= ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
5
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policies
Business, Utility Operations and Regulation
The Company is an operating public utility engaged, together with its
utility subsidiaries, principally in the generation, purchase, transmission,
distribution and sale of electricity and in the purchase, transmission,
distribution, sale and transportation of natural gas. The Company is subject to
the jurisdiction of The Public Utilities Commission of the State of Colorado
("CPUC") with respect to its retail electric and gas operations and the Federal
Energy Regulatory Commission ("FERC") with respect to its wholesale electric
operations and accounting policies and practices. Approximately 90% of the
Company's electric and gas revenues are subject to CPUC jurisdiction. Cheyenne
Light, Fuel and Power Company ("Cheyenne") is subject to the jurisdiction of the
Public Service Commission of Wyoming ("WPSC"). WestGas InterState, Inc. ("WGI")
and Texas-Ohio Pipeline, Inc. are subject to the jurisdiction of the FERC. The
gas marketing, power brokering and other operations of e prime, inc. and
Texas-Ohio Gas, Inc. (acquired September 1, 1996) are not rate regulated. The
Company also invests in electricity systems outside the United States as
discussed in Note 4. The Company's international investments are subject to
regulation in the countries in which such investments are made.
Effective August 1, 1997, the Company and Southwestern Public Service
Company ("SPS") merged and became wholly-owned subsidiaries of New Century
Energies, Inc. ("NCE"), which will be a registered holding company under the
Public Utility Holding Company Act of 1935. This transaction has been accounted
for as a pooling of interests for accounting purposes. After effecting the
Merger, NCE will own the following direct subsidiaries: PSCo, SPS, Cheyenne,
WGI, New Century Services, Inc., and NC Enterprises, Inc. PSCo owns the
following subsidiaries: PS Colorado Credit Corporation, PSR Investments, Inc.,
1480 Welton, Inc., Fuel Resources Development Co., a dissolved corporation, and
New Century International, Inc., which was established in 1997 in connection
with the acquisition of Yorkshire Electricity Group plc ("Yorkshire
Electricity"). NC Enterprises, Inc., an intermediate holding company of NCE,
owns the following subsidiaries: Quixx Corporation and its subsidiaries, e
prime, inc. and its subsidiaries, Utility Engineering Corporation and its
subsidiaries and Natural Fuels Corporation. The transfer of subsidiaries is not
expected to have a material impact on the Company's financial position, results
of operations or cash flows (see Note 2).
Regulatory Assets and Liabilities
The Company and its regulated subsidiaries prepare their financial
statements in accordance with the provisions of Statement of Financial
Accounting Standards No. 71 - "Accounting for the Effects of Certain Types of
Regulation" ("SFAS 71"). SFAS 71 recognizes that accounting for rate regulated
enterprises should reflect the relationship of costs and revenues introduced by
rate regulation. A regulated utility may defer recognition of a cost (a
regulatory asset) or recognize an obligation (a regulatory liability) if it is
probable that, through the ratemaking process, there will be a corresponding
increase or decrease in revenues. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" which
imposes stricter criteria for the continued recognition of regulatory assets on
the balance sheet by requiring that such assets be probable of future recovery
at each balance sheet date. The adoption of this statement in 1996 and the
application during 1997 did not have a material impact on the Company's results
of operations, financial position or cash flows. The following regulatory assets
are reflected in the Company's consolidated condensed balance sheets:
6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
June 30, December 31, Recovery
1997 1996 Through
---- ---- -------
(Thousands of Dollars)
Nuclear decommissioning costs,
net (Note 3) ............................ $ 80,102 $ 89,731 2005
Income taxes ............................. 91,146 98,355 2006
Employees' postretirement benefits
other than pensions..................... 57,222 54,449 2013
Early retirement costs.................... 11,075 15,505 1998
Employees' postemployment benefits........ 24,604 24,797 Undetermined
Demand-side management costs.............. 41,546 41,462 2002
Unamortized debt reacquisition costs...... 18,901 19,914 2024
Other..................................... 3,468 4,353 1999
------- ------
Total................................... 328,064 348,566
Classified as current..................... 44,787 44,110
------- -------
Classified as noncurrent.................. $283,277 $304,456
======== ========
The regulatory assets of the Company and its regulated subsidiaries as of
June 30, 1997 are reflected in rates charged to customers over the recovery
periods noted above. The Company believes it will continue to be subject to rate
regulation to the extent necessary to recover these assets. In the event that a
portion of the Company's operations is no longer subject to the provisions of
SFAS 71 as a result of a change in regulation or the effects of competition, the
Company could be required to write-off related regulatory assets, determine any
impairment to other assets resulting from deregulation and write-down any
impaired assets to their estimated fair value, which could have a material
adverse effect on the Company's results of operations, financial position or
cash flow.
On January 27, 1997, the CPUC issued its order on the Company's 1996 gas
rate case. The CPUC allowed recovery of postemployment benefit costs associated
with its gas operations on an accrual basis under Statement of Financial
Accounting Standards No. 112 - "Employers' Accounting for Postemployment
Benefits" ("SFAS 112") and denied amortization of the approximately $8.7 million
regulatory asset recognized upon the adoption of SFAS 112. On June 9, 1997, the
Company filed its appeal in Denver District Court. The Company is assessing the
impact of this decision on the future recovery of the electric jurisdictional
portion of postemployment benefit costs totaling approximately $13.8 million. If
the appeal to the Denver District Court is unsuccessful, the Company will appeal
this issue to the Colorado Supreme Court. The Company believes it will
ultimately be successful in its appeals. If appeals are unsuccessful, including
pursuing the establishment of an alternative form of regulatory recovery, these
amounts will be written off.
Recovered/Recoverable Purchased Gas and Electric Energy Costs - Net
The Company's and Cheyenne's tariffs contain clauses which allow recovery
of certain purchased gas and electric energy costs in excess of the level of
such costs included in base rates. Currently, these cost adjustment tariffs are
revised periodically, as prescribed by the appropriate regulatory agencies, for
any difference between the total amount collected under the clauses and the
recoverable costs incurred. The cumulative effects are recognized as a current
asset or liability until adjusted by refunds or collections through future
billings to customers. The CPUC order related to the Company's merger rate
filing modified and replaced the Company's Energy Cost Adjustment ("ECA") with
an Incentive Cost Adjustment ("ICA"), which allows for a 50%/50% sharing of
certain fuel and energy cost increases or decreases among customers and
shareholders. As of June 30, 1997, the cost sharing allowed under the ICA
reduced cost recoveries by approximately $2 million.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Other Property
Property, plant and equipment includes approximately $18.4 million and
$25.4 million, respectively, for costs associated with the engineering design of
a planned future Pawnee 2 generating station and certain water rights located in
southeastern Colorado, also obtained for a future generating station. The
Company is earning a return on these investments based on the Company's weighted
average cost of debt and preferred stock in accordance with a CPUC rate order.
Miscellaneous Income and Deductions - net
Miscellaneous income and deductions - net includes items which are
non-operating in nature or, in general, are not considered in the ratemaking
process. Such items include, among other things, merger and business integration
costs (see Note 2), contributions, gains and losses on the sale of property and
certain litigation, executive severance and other accruals. Individually, these
amounts did not have a material impact on the Company's consolidated results of
operations.
Statements of Cash Flows - Non-cash Transactions
Shares of common stock (250,058 in 1997 and 274,934 in 1996), valued at
the market price on the date of issuance (approximately $10 million in 1997 and
1996), were issued to the Employees' Savings and Stock Ownership Plan of Public
Service Company of Colorado and Participating Subsidiary Companies. The
estimated issuance values were recognized in other operating expenses during the
respective preceding years. Shares of common stock (6,470 in 1996), valued at
the market price on the date of issuance ($0.2 million in 1996), were issued to
certain executives pursuant to the applicable provisions of the executive
compensation plans.
The stock issuances referenced above were non-cash financing activities
and are not reflected in the consolidated condensed statements of cash flows.
General
See Note 1. of the Notes to Consolidated Financial Statements in the
Company's 1996 Annual Report on Form 10-K for a summary of the Company's
significant accounting policies. Certain prior year amounts have been
reclassified to conform to the current year's presentation.
2. Merger
In August 1995, the Company, SPS, a New Mexico corporation, and NCE, a
Delaware corporation, entered into an Agreement and Plan of Reorganization
("Merger Agreement") providing for a business combination as peer firms
involving the Company and SPS in a tax-free "merger of equals" transaction (the
"Merger"). Effective August 1, 1997, following receipt of all required state and
Federal regulatory approvals, the Company and SPS merged and became wholly-owned
subsidiaries of NCE. Each outstanding share of Company common stock was canceled
and converted into the right to receive one share of NCE common stock and each
outstanding share of SPS common stock was canceled and converted into the right
to receive 0.95 of one share of NCE common stock. Based on the outstanding
common stock of the Company and SPS at August 1, 1997, the Merger resulted in
the common shareholders of the Company owning 63% of the common equity of NCE
and the common shareholders of SPS owning 37% of the common equity of NCE.
Effective with the Merger, the utility and certain non-utility subsidiaries of
the Company were transferred by a declaration of a dividend of the subsidiaries'
stock, at net book value, to NCE. NCE then made a capital contribution of those
non-utilities' stock, at net book value, to NC Enterprises, Inc.
8
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Operating revenues and net income for the three months and six months
ended June 30, 1997 and 1996, for the Company, SPS and NCE on a pro-forma basis
are as follows (in millions):
Company SPS NCE*
------- --- ----
Three months ended June 30, 1997:
Operating revenues $ 543 $ 243 $ 786
Net income 31 6 34
Three months ended June 30, 1996:
Operating revenues $ 485 $ 248 $ 733
Net income 35 28 59
Six months ended June 30, 1997:
Operating revenues $ 1,220 $ 465 $ 1,685
Net income 93 25 112
Six months ended June 30, 1996:
Operating revenues $ 1,108 $ 464 $ 1,572
Net income 99 43 136
* NCE's net income is net of dividend requirements on preferred stock of
subsidiaries
It is management's intention that NCE begin realizing certain savings upon
the consummation of the Merger and, accordingly, costs associated with the
Merger and the transition planning and implementation have negatively impacted
earnings during 1997. The Company recognized approximately $5.2 and $1.4 million
of costs during the second quarter of 1997 and 1996, respectively, and
approximately $6.4 and $4.2 million of costs associated with the Merger during
the first six months of 1997 and 1996, respectively.
3. Commitments and Contingencies
Regulatory Matters
1995 Merger Rate Filings
In connection with the Merger with SPS, in November 1995, the Company
filed comprehensive proposals with the CPUC, the WPSC and the FERC to obtain
approval of the Merger and the associated comprehensive proposals from such
regulatory agencies.
On November 29, 1996, and as modified on January 15, 1997, the CPUC issued
a written decision approving the Merger as well as the major provisions of a
stipulation and agreement entered into among the Company, the CPUC Staff, the
Colorado Office of Consumer Counsel ("OCC"), and substantially all other
parties. The decision establishes a five year performance based regulatory plan
and acknowledges that the Merger is in the public interest. The major provisions
of the decision include:
- a $6 million electric rate reduction, which was instituted October 1,
1996, followed by an additional $12 million electric rate reduction
effective with the implementation of new gas rates on February 1, 1997;
- an annual electric department earnings test with the sharing of earnings
in excess of an 11% return on equity for the calendar years 1997-2001
as follows:
9
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Electric Department Sharing of Excess Earnings
Return on Equity Customers Shareholders
---------------- --------- ------------
11-12% 65% 35%
12-14% 50% 50%
14-15% 35% 65%
over 15% 100% 0%;
- the termination of the Qualifying Facilities Capacity Cost Adjustment
("QFCCA") earnings test which was to become effective on October 1, 1996;
- a freeze in base electric rates for the period through December 31, 2001
with the flexibility to make certain other rate changes, including those
necessary to allow for the recovery of DSM, Qualifying Facility ("QF") and
decommissioning costs;
- a replacement of the Company's ECA with an ICA to allow for a 50%/50%
sharing of certain fuel and energy cost increases or decreases among
customers and shareholders; and
- the implementation of a Quality of Service Plan ("QSP") which provides
for penalties totaling up to $5 million in year one and increasing to $11
million in year five, if the Company does not achieve certain performance
measures relating to electric reliability, customer complaints and
telephone response to inquiries. The CPUC opened a new docket on March 31,
1997 to address the implementation of a reward structure for performance
above certain standards.
The freeze in base electric rates does not prohibit the Company from
filing a general rate case or deny any party the opportunity to initiate a
complaint or rate proceeding.
Rate Cases
On June 5, 1996, the Company filed a retail rate case with the CPUC
requesting an annual increase in its jurisdictional gas department revenues of
approximately $34 million. In early 1997, the CPUC approved an overall increase
of approximately $18 million with an 11.25% return on equity, effective February
1, 1997 and as modified on May 15, 1997. On June 9, 1997, the Company filed its
appeal in Denver District Court concerning the CPUC's decision which disallowed
the recovery of certain postemployment benefit costs under SFAS 112 (see Note
1), imputed anticipated merger related cost savings related to the gas business
and weather normalization methodology.
The Company filed a rate case with the FERC on December 29, 1995,
requesting a slight overall rate increase (less than 1%) from its wholesale
electric customers. This filing, among other things, requested approval for
recovery of Other Postretirement Employee Benefits ("OPEB") costs under
Statement of Financial Accounting Standards No. 106 - "Employers' Accounting for
Postretirement Benefits Other Than Pensions", postemployment benefit costs under
SFAS 112 and new depreciation rates based on the Company's most recent
depreciation study. Settlement agreements were reached with all parties and
filed with the FERC, which, overall, resulted in a slight decrease in rates. The
FERC approved the settlement agreements on June 13, 1997, subject to the Company
making certain compliance filings.
Electric and Gas Cost Adjustment Mechanisms
During 1994 and 1995, the CPUC conducted several proceedings to review
issues related to the ECA. The CPUC opened a docket to review whether the ECA
should be maintained in its present form, altered or eliminated, and on January
8, 1996, combined this docket with the merger docket discussed above. The CPUC
decision on the Merger modified and replaced the ECA with an ICA. The ICA, which
became effective October 1, 1996, allows for a 50%/50% sharing of certain fuel
and energy cost increases and decreases among customers and shareholders.
Management does not believe that the sharing requirements under the ICA
mechanism will have a significant impact on the Company's results of operations,
financial position or cash flows.
10
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
The CPUC has had an on-going docket to review and prescribe a standardized
GCA process to determine the prudence of gas commodity and pipeline delivery
service costs incurred by gas utilities. Other issues addressed in this docket
included whether the GCA should be maintained in its present form, altered or
eliminated. On May 7, 1997, the CPUC issued a final order, which provides for
the current GCA to be maintained and the adoption of certain standardized filing
and gas purchase reporting requirements.
Environmental Issues
Environmental Site Cleanup
As described below, the Company has been or is currently involved with the
clean-up of contamination from certain hazardous substances. In all situations,
the Company is pursuing or intends to pursue insurance claims and believes it
will recover some portion of these costs through such claims. Additionally,
where applicable, the Company intends to pursue recovery from other Potentially
Responsible Parties ("PRPs"). To the extent such costs are not recovered, the
Company currently believes it is probable that such costs will be recovered
through the rate regulatory process. To the extent any costs are not recovered
through the options listed above, the Company would be required to recognize an
expense for such unrecoverable amounts.
Under the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), the U.S. Environmental Protection Agency ("EPA") identified, and
a Phase II environmental assessment has revealed, low level, widespread
contamination from hazardous substances at the Barter Metals Company ("Barter")
properties located in central Denver. For an estimated 30 years, the Company
sold scrap metal and electrical equipment to Barter for reprocessing. The
Company has completed the cleanup of this site at a cost of approximately $9
million and has received responses from the Colorado Department of Public Health
and Environment ("CDPHE") indicating that no further action is required related
to these properties. On January 3, 1996, in a lawsuit by the Company against its
insurance providers, the Denver District Court entered final judgment in favor
of the Company in the amount of $5.6 million for certain cleanup costs at
Barter. Several appeals and cross appeals have been filed by one of the
insurance providers and the Company in the Colorado Court of Appeals. The
insurance provider has posted supersedeas bonds in the amount of $9.7 million
($7.7 million attributable to the Barter judgment). On July 10, 1997, the
Colorado Court of Appeals overturned the previously awarded $7.7 million
judgment on the basis that the jury had not been properly instructed by the
Judge regarding a narrow issue associated with some of the policies. A retrial
is expected. Previously, the Company had received certain insurance settlement
proceeds from other insurance providers for Barter and other contaminated sites
and a portion of those funds remains to be allocated to this site by the trial
court. In addition, the Company expects to recoup additional expenditures beyond
insurance proceeds through the sale of the Barter property and from other PRPs.
In August 1996, the Company filed a lawsuit against four PRPs seeking recovery
of certain Barter related costs.
Polychlorinated biphenyl ("PCB") presence was identified in the basement
of an historic office building located in downtown Denver. The Company was
negotiating the future cleanup with the current owners; however, on October 5,
1993, the owners filed a civil action against the Company in the Denver District
Court. The action alleged that the Company was responsible for the PCB releases
and additionally claimed other damages in unspecified amounts. On August 8,
1994, the Denver District Court entered a judgment approving a $5.3 million
offer of settlement between the Company and the building owners resolving all
claims. In December 1995, complaints were filed by the Company against all
applicable insurance carriers in the Denver District Court. On June 30, 1997,
the Denver District Court ruled in favor of the insurance carriers on summary
judgment motions addressing late notice and other issues. The Company intends to
pursue recovery from one carrier. Additionally, the Company intends to appeal
the decision to the Colorado Court of Appeals.
The Ramp Industries disposal facility, located in Denver, Colorado has
been designated by the EPA as a Superfund hazardous substance site pursuant to
CERCLA. On November 29, 1995, the Company received from the EPA a Notice of
Potential Liability and Request for Information related to such site and the
Company has responded to
11
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
this request. The EPA is conducting an investigation of the contamination at
this site and is in the process of identifying the nature and quantities of
hazardous wastes delivered to, processed and currently stored at the site by
PRPs. In April, 1997, the EPA informed the Company and more than 700 other PRPs
(as well as the public) that it plans to thermally treat and dispose of some
Ramp hazardous substances off-site. The EPA estimates the total cost of this
site remedy to be approximately $10 million. The Company's insurance carriers
have been notified of the EPA investigation.
In addition to these sites, the Company has identified several sites where
cleanup of hazardous substances may be required. While potential liability and
settlement costs are still under investigation and negotiation, the Company
believes that the resolution of these matters will not have a material adverse
effect on its financial position, results of operations or cash flows. The
Company fully intends to pursue the recovery of all significant costs incurred
for such projects through insurance claims and/or the rate regulatory process.
Environmental Matters Related to Air Quality and Pollution Control
Under the Clean Air Act Amendments of 1990, coal burning power plants are
required to reduce sulfur dioxide ("SO2") and nitrogen oxide ("NOx") emissions
to specified levels through a phased approach. The Company`s facilities must
comply with the Phase II requirements which will be effective in the year 2000.
Currently, these regulations permit compliance with sulfur dioxide emission
limitations by using S02 allowances allocated to plants by the EPA, using
allowances generated by reducing emissions at existing plants and by using
allowances purchased from other companies. The Company expects to meet the Phase
II emission standards placed on SO2 through the combination of: a) use of low
sulfur coal, b) the operation of air quality control equipment on certain
generation facilities, and c) allowances issued by the EPA. The Company will be
required to modify certain boilers by the year 2000 to reduce NOx emissions in
order to comply with Phase II requirements. The estimated Phase II costs for
future plant modifications to meet NOx requirements is approximately $13
million. The Company is studying its options to reduce NOx and SO2 emissions,
and does not anticipate that these regulations will significantly impact its
consolidated financial position, results of operations or cash flow.
Craig Steam Electric Generating Station
On October 9, 1996, a conservation organization filed a complaint in the
U.S. District Court pursuant to provisions of the Federal Clean Air Act (the
"Act") against the joint owners of the Craig Steam Electric Generating Station.
Tri-State Generation and Transmission Association, Inc. is the operator of the
Craig station and the Company owns an undivided interest (acquired in April
1992) in each of two units at the station totaling approximately 9.7%. The
plaintiff alleged that: 1) the station exceeded the 20% opacity limitations in
excess of 14,000 six minute intervals during the period extending from the first
quarter of 1991 through the second quarter of 1996, and 2) the owners failed to
operate the station in a manner consistent with good air pollution control
practices. The complaint seeks, among other things, civil monetary penalties and
injunctive relief. The Act provides for penalties of up to $25,000 per day per
violation, but the level of penalties imposed in any particular instance is
discretionary. A pre-trial conference has been scheduled for late August 1997.
The Company does not believe that its potential liability or the future impact
of this litigation on plant operations will have a material adverse impact on
the Company's consolidated results of operations, financial position or cash
flows. This litigation is similar to the Hayden Station complaint which was
settled in 1996 as disclosed in the Company's 1996 Annual Report on Form 10-K.
Fort St. Vrain
In 1989, the Company announced its decision to end nuclear operations at
the Fort St. Vrain Nuclear Generating Station ("Fort St. Vrain") and to proceed
with the defueling and decommissioning of the reactor. While the defueling of
the reactor to the Independent Spent Fuel Storage Facility ("ISFSI") was
completed in June 1992, several issues related to the ultimate storage/disposal
of Fort St. Vrain's spent nuclear fuel remained unresolved.
12
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
On February 9, 1996, the Company and the Department of Energy ("DOE")
entered into an agreement resolving all the defueling issues. As part of this
agreement, the Company has agreed to the following: 1) the DOE assumed title to
the fuel currently stored in the ISFSI, 2) the DOE will assume title to the
ISFSI and will be responsible for the future defueling and decommissioning of
the facility, 3) the DOE agreed to pay the Company $16 million for the
settlement of claims associated with the ISFSI, 4) ISFSI operating and
maintenance costs, including licensing fees and other regulatory costs, will be
the responsibility of the DOE, and 5) the Company provided to the DOE a full and
complete release of claims against the DOE resolving all contractual disputes
related to storage/disposal of Fort St. Vrain spent nuclear fuel. On December
17, 1996, the DOE submitted a request to the Nuclear Regulatory Commission
("NRC") to transfer the title of the ISFSI. This request is being reviewed by
the NRC and the Company anticipates approval in the second half of 1997.
On March 22, 1996, the Company and the decommissioning contractors
announced that the physical decommissioning activities at the facility were
completed. On August 5, 1997, the NRC approved the Company's request to
terminate the Part 50 operating license. This concludes the decommissioning
activities and the facilities and site are suitable to be released for
unrestricted use. Under the Price-Anderson Act, the Company remains subject to
potential assessments levied in response to any nuclear incidents prior to early
1994, as disclosed in the Company's 1996 Annual Report on Form 10-K. At June 30,
1997, a remaining $5 million defueling and decommissioning liability was
reflected on the consolidated condensed balance sheet. The Company believes this
remaining decommissioning liability is adequate to finalize the payment of all
related obligations.
As a result of the DOE settlement, coupled with a complete review of
expected remaining decommissioning costs and establishment of the anticipated
refund to customers, pre-tax earnings for the first quarter of 1996 were
positively impacted by approximately $16 million. In accordance with the 1991
CPUC approval to recover certain decommissioning costs, 50% of any cash amounts
received from the DOE as part of a settlement, net of costs incurred by the
Company, including legal fees, is to be refunded or credited to customers. The
Company established an $8 million refund liability in the first quarter of 1996.
During the first quarter of 1997, such obligation was reduced by approximately
$1.1 million after amounts to be refunded were finally determined and approved
by the CPUC. Such amounts will be refunded over a three year period.
Employee Litigation
Several employee lawsuits have been filed against the Company involving
alleged discrimination, sexual harassment or worker's compensation issues which
have arisen during the normal course of business. Also, lawsuits have been filed
against the Company alleging breach of certain fiduciary duties to employees.
The plaintiffs lawsuits are in various stages of litigation and/or appeal(s)
including settlement discussions, with the appropriate state judicial courts.
The Company intends to contest, or is actively contesting, all such lawsuits,
and management believes that the ultimate outcome will not have a material
adverse impact on the Company's results of operations, financial position or
cash flow.
During 1996, ninety former Information Technology and Systems ("IT&S")
employees filed a lawsuit against the Company. The complaint alleges that the
Company unfairly amended its severance plan in connection with a restructuring
in late 1994 to exclude the IT&S function/positions that were outsourced to IBM,
effective February 1, 1995. On June 16, 1997, the Denver District Court issued a
decision in favor of the former IT&S employees and awarded approximately $1.6
million in severance costs, as well as interest and attorney fees. Such amounts,
including estimated interest and attorney fees were accrued during the second
quarter of 1997. The Company has appealed this decision and believes that the
amended severance plan is lawful and enforceable.
During 1996, complaints were filed by seventeen plaintiffs, allegedly on
behalf of all non-managerial, non-clerical women in the Company's regional
facilities. The complaints assert that the Company has engaged in a company-wide
pattern and practice of sexual discrimination, including sexual harassment and
retaliation. During July 1997, the Company resolved all issues related to this
matter and accrued all related estimated costs.
13
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Certain employees terminated as part of the Company's 1991/1992
organizational analysis asserted breach of contract and promissory estoppel with
respect to job security and breach of the covenant of good faith and fair
dealing. Of the 21 actions filed, the trial court directed verdicts in favor of
the Company in 19 cases. A jury entered verdicts adverse to the Company in two
cases which were subsequently appealed by the Company. On February 6, 1997, the
Colorado Court of Appeals issued a decision on all issues in favor of the
Company and on April 3, 1997 the employees appealed the decision of the Colorado
Court of Appeals to the Colorado Supreme Court. The Company believes that the
ultimate outcome of the lawsuit will not have a material adverse impact on the
Company's results of operations, financial position or cash flow.
4. Acquisition and Divestiture of Investments
Acquisition of Yorkshire Electricity
On February 24, 1997, Yorkshire Power Group Ltd. ("Yorkshire Power"), a
50/50 joint venture between the Company and American Electric Power ("AEP"),
announced that they had reached agreement with the board of directors of
Yorkshire Electricity, a United Kingdom regional electricity company, on the
terms of a recommended cash tender offer for all of the outstanding and to be
issued ordinary shares of Yorkshire Electricity. On April 1, 1997, the effective
date of this acquisition, Yorkshire Power (through Yorkshire Holdings plc, a
wholly-owned subsidiary equally owned by the Company and AEP) declared the cash
tender offer wholly unconditional in all respects. Substantially all of the
Yorkshire Electricity stock has been acquired.
The total consideration paid by Yorkshire Power was approximately $2.4
billion (1.5 billion pounds sterling). The acquisition was financed by Yorkshire
Power through a combination of approximately 25% equity and 75% debt, including
the assumption of the existing debt of Yorkshire Electricity. The funds for the
acquisition were obtained from the Company's and AEP's investment in Yorkshire
Power of approximately $360 million (220 million pounds sterling) each, with the
remainder obtained by Yorkshire Power through the issuance of non-recourse debt.
The Company funded its entire equity investment in Yorkshire Power through $250
million of publicly issued secured medium-term notes with varying maturities and
drawings of approximately $110 million on its short-term lines of credit
pursuant to its short-term credit agreement with Bank of America, as agent.
The Company accounts for its investment in Yorkshire Power using the
equity method. Yorkshire Power's results of operations includes 100% of
Yorkshire Electricity's results since April 1, 1997. The Company's equity
earnings in Yorkshire Power is 50%, the same as its ownership share. Summarized
income statement information for the period from the date of acquisition, April
1, 1997, to June 30, 1997 for Yorkshire Power is as follows (millions):
Operating revenues $ 438.5
Operating income 52.1
Net income 8.2
Company's equity in the earnings
of Yorkshire Power 4.1
The pro forma financial information presented below assumes that the
acquisition of Yorkshire Power was acquired on the first day of each respective
period. The date of acquisition was April 1, 1997 and accordingly the pro forma
adjustments for the six months ended June 30, 1997 reflect the amounts for the
three months ended March 31, 1997. The pro forma adjustments include recognition
of equity in the estimated earnings of Yorkshire Power, an adjustment for
interest expense on debt associated with the Company's investment in Yorkshire
Power and related income taxes. The estimated earnings of Yorkshire Power was
based on prior historical earnings of the Yorkshire Electricity, prior to its
acquisition by Yorkshire Power, adjusted for the estimated effects of purchase
accounting (including the amortization of goodwill), conversion to United States
14
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
generally accepted accounting principles, interest expense on debt issued by
Yorkshire Power associated with the acquisition and related income taxes. Sales
of electricity are affected by seasonal weather patterns and, therefore, the
results of Yorkshire Power/Yorkshire Electricity will not be distributed evenly
during the year. Equity in earnings of Yorkshire Power has been converted at the
average exchange rates for the six months ending June 30, 1997 and June 30,
1996, $1.6342/ and $1.5276/, respectively.
Six months ended Six months ended
June 30, 1997 June 30, 1996
-------------------------------------------------
Earnings Earnings Earnings Earnings
available per share available per
for common (1) for common share(1)
stock stock
(millions) (millions)
Public Service Company $ 87.6 $1.34 $93.0 $1.46
of Colorado
Pro forma adjustments:
Equity in earnings of (10.1) 13.6
Yorkshire Power,
net of U.S. tax
benefits (2)
Interest expense, net
of tax (3.5) (7.0)
Pro forma result $ 74.0 $1.13 $99.6 $1.56
(1) Based on the average number of common shares outstanding for the
period.
(2) The six months ended June 30, 1997 amounts includes $24.0 million ($17.9
million after-tax or $0.27 per share) of nonrecurring write-offs of certain
computer development costs, acquisition expenses and costs incurred in the
preparation for deregulation.
On July 2, 1997, the United Kingdom's Labour Party proposed a budget that
includes a windfall profits tax on certain privatized business entities. The
windfall profits tax liability for Yorkshire Electricity is estimated to be
approximately $222 million (135 million pounds sterling). The tax was enacted in
late July of 1997 and will be payable in two installments with the first in
December 1997 and the second installment a year later. The Company's share of
the proposed tax is estimated to be approximately $111 million. The net earnings
effect on the Company of the proposed tax is currently being assessed and is
expected to be recorded in the third quarter of 1997.
5. Management's Representations
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements include all adjustments necessary for the fair
presentation of the financial position of the Company and its subsidiaries at
June 30, 1997 and December 31, 1996, and the results of operations for the three
and six months ended June 30, 1997 and 1996 and cash flows for the six months
ended June 30, 1997 and 1996. The consolidated condensed financial information
and notes thereto should be read in conjunction with the
15
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
consolidated financial statements and notes for the years ended December 31,
1996, 1995 and 1994 included in the Company's 1996 Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
Because of seasonal and other factors, including the reorganization
associated with the Merger discussed in Note 2, the results of operations for
the three months and six months ended June 30, 1997 should not be taken as an
indication of earnings for all or any part of the balance of the year.
16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO PUBLIC SERVICE COMPANY OF COLORADO
We have reviewed the accompanying consolidated condensed balance sheet of Public
Service Company of Colorado (a Colorado corporation) and subsidiaries as of June
30, 1997, and the related consolidated condensed statements of income for the
three and six month periods ended June 30, 1997 and 1996 and consolidated
condensed statements of cash flows for the six month periods ended June 30, 1997
and 1996. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Public Service Company of Colorado
and subsidiaries as of December 31, 1996 (not presented herein), and, in our
report dated February 24, 1997, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
consolidated condensed balance sheet as of December 31, 1996, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 8, 1997
17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended June 30, 1997 Compared to the Three Months Ended June 30,
1996
Earnings
Earnings per share were $0.42 for the second quarter of 1997 as compared
to $0.49 for the second quarter of 1996. The lower earnings were primarily
attributable to relatively flat retail electric sales and an increase in
expenses, including those associated with the Merger, which became effective
August 1, 1997. The recent acquisition of a 50% interest in Yorkshire
Electricity positively impacted the Company's earnings by approximately two
cents per share after borrowing costs. In the third quarter of 1997, the Company
expects to record the effects of the Yorkshire Electricity's windfall profits
tax (see discussion in Note 4. Acquisition and Divestiture of Investments -
Acquisition of Yorkshire Electricity in Item 1.
FINANCIAL STATEMENTS).
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the second quarter of 1997 as compared to the same period in
1996.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Electric operating revenues:
Retail............................................... $(10,933)
Wholesale............................................ 5,982
Non-regulated power marketing........................ 3,085
Other (including unbilled revenues).................. 4,246
-------
Total revenues...................................... 2,380
Fuel used in generation............................... (2,806)
Purchased power....................................... (1,963)
--------
Net decrease in electric margin..................... $(2,389)
=======
The following table compares electric Kwh sales by major customer classes
for the second quarter of 1997 and 1996.
Millions of Kwh Sales
1997 1996 %Change *
---- ---- ---------
Residential ............................... 1,509 1,504 0.3%
Commercial and Industrial ................ 3,844 3,837 0.2
Public Authority .......................... 41 43 (4.5)
----- -----
Total Retail............................. 5,394 5,384 0.2
Wholesale.................................. 1,028 637 61.3
Non-regulated power marketing.............. 212 - -
----- -----
Total.................................... 6,634 6,021 10.2
===== =====
* Percentages are calculated using unrounded amounts
Electric margin decreased in the second quarter of 1997, when compared to
the first quarter of 1996, primarily due to the retail rate reductions
(approximately $4.3 million) implemented in October 1996 and February 1997 and
the effect of the ICA which resulted from the settlement of the Merger
proceedings in Colorado (see Note 3. Commitments and Contingencies Regulatory
Matters in Item 1. FINANCIAL STATEMENTS). Power marketing activities by
non-regulated subsidiaries initiated in the third quarter of 1996 and higher
wholesale electric sales have contributed to increased operating revenues,
however, the margin on such sales is minimal.
18
The Company and Cheyenne have cost adjustment mechanisms which recognize
the majority of the effects of changes in fuel used in generation and purchased
power costs and allow recovery of such costs on a timely basis. In its decision
on the Merger, the CPUC replaced the Company's ECA with an ICA, effective
October 1, 1996, which allows for a 50%/50% sharing of certain fuel and energy
cost increases and decreases among customers and shareholders. As of June 30,
1997, this sharing has reduced cost recoveries allowed under the ICA by
approximately $2 million.
Fuel used in generation expense increased approximately 6.3% during the
second quarter of 1997 as compared to the same quarter in 1996, due to increased
generation levels at the Company's power plants offset, in part, by lower coal
supply costs.
Purchased power expense increased slightly during the second quarter of
1997 as compared to the same quarter in 1996. Costs incurred in connection with
the increased non-regulated power marketing sales were partially offset by the
lower costs of economy purchases from other utilities to meet customer demand.
Gas Operations
The following table details the change in revenues from gas sales and gas
purchased for resale for the second quarter of 1997 as compared to the same
period in 1996.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Revenues from gas sales (including unbilled revenues). $52,335
Gas purchased for resale.............................. (42,760)
--------
Net increase in gas sales margin..................... $ 9,575
=======
The following table compares gas dekatherm (Dth) deliveries by major
customer classes for the second quarter of 1997 and 1996.
Millions of Dth Deliveries
1997 1996 % Change *
---- ---- ----------
Residential................................ 18.5 18.6 (0.2)%
Commercial................................. 9.8 10.8 (8.7)
Non-regulated gas marketing................ 15.1 1.3 **
----- -----
Total Sales.............................. 43.4 30.7 41.1
Gathering and Processing................... - 0.4 **
Transportation............................. 22.3 24.7 (9.6)
----- -----
Total.................................... 65.7 55.8 17.7
===== =====
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin increased in the second quarter of 1997, when compared to
the second quarter of 1996, primarily due to higher rates effective February 1,
1997, resulting from the Company's 1996 rate case. In addition, gas marketing
activities by non-regulated subsidiaries favorably contributed to the increase
in gas sales margin.
Gas transportation, gathering, processing and other revenues increased
$0.5 million during the second quarter of 1997, when compared to the second
quarter of 1996, primarily due to an increase in transportation rates effective
February 1, 1997, resulting from the Company's 1996 rate case.
The Company and Cheyenne have in place GCA mechanisms for natural gas
sales, which recognize the majority of the effects of changes in the cost of gas
purchased for resale and adjust revenues to reflect such changes in cost on a
timely basis. As a result, the changes in revenues associated with these
mechanisms during
19
the second quarters of 1997 and 1996 had little impact on net income. However,
the fluctuations in gas sales impact the amount of gas the Company must purchase
and, therefore, along with the increases and decreases in the per-unit cost of
gas, affect total gas purchased for resale.
Non-Fuel Operating Expenses
Other operating and maintenance expenses increased $1.2 million during the
second quarter of 1997, as compared to the same period in 1996, primarily due to
increased expenses at e prime and subsidiaries and advertising expenses
associated with the new logo, offset, in part, by lower labor costs and other
general reductions resulting from the Company's cost containment efforts.
Depreciation and amortization expense increased $4.1 million in the second
quarter of 1997, as compared to the same period in 1996, primarily due to the
depreciation of property additions and the higher amortization of software
costs.
The decrease in income taxes for the second quarter of 1997, as compared
to the same period in 1996, is primarily due to lower pretax income, the effects
of recognizing certain foreign tax credits associated with the Yorkshire
Electricity investment and the tax effects of lower 1997 non-deductible
environmental and Merger costs.
Miscellaneous income and deductions - net decreased $4.8 million primarily
due to additional 1997 accruals for estimated legal and other costs associated
with various employee lawsuits and higher 1997 Merger and business integration
costs. These additional costs were offset, in part, by the recognition of equity
earnings associated with the Company's investment in Yorkshire Electricity ($4.1
million) and interest income on temporary cash investments of the proceeds from
the borrowings subsequently used for the investment made in acquiring Yorkshire
Electricity (see Note 4. Acquisition and Divestiture of Investments -
Acquisition of Yorkshire Electricity in Item 1. FINANCIAL STATEMENTS).
Interest expense increased $8.7 million during the second quarter of 1997,
when compared to the same quarter in 1996, primarily due to interest on
borrowings utilized to finance capital expenditures and the April 1997
acquisition of Yorkshire Electricity. These borrowings included the issuance of
$75 million and $250 million of medium-term notes in January and March 1997,
respectively.
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996
Earnings
Earnings per share were $1.34 for the first six months of 1997 as compared
to $1.46 for the first six months of 1996. While earnings were positively
impacted by continued customer growth contributing to increased electric sales
and gas deliveries as well as the Company's cost containment efforts, there was
a decline in the 1997 year-to-date earnings as compared to the same period in
1996. This decline was attributable to the favorable impact in 1996 of the
February 9, 1996 settlement agreement with the DOE resolving all spent nuclear
fuel storage and disposal issues at Fort St. Vrain (see Note 3. Commitments and
Contingencies - Fort St. Vrain in Item 1. FINANCIAL STATEMENTS) offset, in part,
by the recognition of various non-recurring expense items during that period. In
the third quarter of 1997, the Company expects to record the effects of the
Yorkshire Electricity's windfall profits tax (see discussion in Note 4.
Acquisition and Divestiture of Investments - Acquisition of Yorkshire
Electricity in Item 1. FINANCIAL STATEMENTS).
20
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the first six months of 1997 as compared to the same period in
1996.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Electric operating revenues:
Retail............................................... $(16,732)
Wholesale............................................ 7,431
Non-regulated power marketing........................ 8,733
Other (including unbilled revenues).................. 6,784
-----
Total revenues...................................... 6,216
Fuel used in generation............................... (730)
Purchased power....................................... (2,154)
------
Net increase in electric margin..................... $ 3,332
=======
The following table compares electric Kwh sales by major customer classes
for the first six months of 1997 and 1996.
Millions of Kwh Sales
1997 1996 %Change *
---- ---- ---------
Residential ............................... 3,376 3,337 1.2
Commercial and Industrial ................ 7,686 7,613 1.0
Public Authority .......................... 89 94 (5.5)
-- --
Total Retail............................. 11,151 11,044 1.0
Wholesale.................................. 1,878 1,428 31.5
Non-regulated power marketing.............. 579 - -
--- ---
Total.................................... 13,608 12,472 9.1
====== ======
* Percentages are calculated using unrounded amounts
Electric margin increased in the first six months of 1997, when compared
to the first six months of 1996, primarily due to higher electric Kwh retail
sales resulting from customer growth offset, in part, by lower fuel costs and
rate reductions effective October 1, 1996 and February 1, 1997 (approximately
$7.3 million), which resulted from the settlement of the Merger proceedings in
Colorado (see Note 3. Commitments and Contingencies Regulatory Matters in Item
1. FINANCIAL STATEMENTS). Power marketing activities by non-regulated
subsidiaries initiated in the third quarter of 1996 and higher wholesale
electric sales have contributed to increased operating revenues, however, the
margin on such sales is minimal.
The Company and Cheyenne have cost adjustment mechanisms which recognize
the majority of the effects of changes in fuel used in generation and purchased
power costs and allow recovery of such costs on a timely basis. As discussed in
Note 1. Accounting Policies - Recovered/Recoverable Purchased Gas and Electric
Energy Costs - Net in Item 1. FINANCIAL Statements, in its decision on the
Merger, the CPUC replaced the Company's ECA with an ICA, effective October 1,
1996, which allows for a 50%/50% sharing of certain fuel and energy cost
increases and decreases among customers and shareholders. This sharing reduced
recoveries of energy costs, allowed under the ICA, by approximately $2 million
during the first six months of 1997, as compared to the same period in 1996.
Fuel used in generation expense increased slightly during the first six
months of 1997, as compared to the same period in 1996, due to increased
generation levels at the Company's power plants offset, in part, by lower coal
supply costs in the first six months of 1997.
21
Purchased power expense increased $2.2 million during the first six months
of 1997 as compared to the same period in 1996. Costs incurred in connection
with the increased non-regulated power marketing sales were partially offset by
the lower costs of economy purchases from other utilities to meet customer
demand.
Gas Operations
The following table details the change in revenues from gas sales and gas
purchased for resale during the first six months of 1997 as compared to the same
period in 1996.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Revenues from gas sales (including unbilled revenues). $100,805
Gas purchased for resale.............................. (89,388)
--------
Net increase in gas sales margin..................... $ 11,417
========
The following table compares gas Dth deliveries by major customer classes
for the first six months of 1997 and 1996.
Millions of Dth Deliveries
1997 1996 % Change *
---- ---- ----------
Residential................................ 58.1 57.6 0.9%
Commercial and resale...................... 31.2 33.8 (7.9)
Non-regulated gas marketing................ 30.6 1.4 **
----- -----
Total sales.............................. 119.9 92.8 29.2
Gathering and processing................... 0.1 0.6 **
Transportation............................. 47.4 46.9 0.9
----- -----
Total.................................... 167.4 140.3 19.3
===== =====
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin increased in the first six months of 1997, when compared
to the first six months of 1996, primarily due to an increase in the Company's
base revenues associated with the higher rates which became effective February
1, 1997, resulting from the Company's 1996 rate case. Gas marketing activities
by non-regulated subsidiaries favorably contributed to the increase in gas sales
margin. Gas costs were higher during the first six months of 1997, as compared
to the same period of 1996, as a result of higher gas prices incurred through
the winter heating season.
Gas transportation, gathering, processing and other revenues increased
$1.7 million during the first six months of 1997, when compared to the first six
months of 1996, primarily due to an increase in transportation rates which
became effective February 1, 1997, resulting from the Company's 1996 rate case
and a slight increase in transportation deliveries. The higher transportation
deliveries are attributable to the shifting of various Company commercial sales
customers to firm transportation customers. Historically, this shifting has not
had an impact on gas margin and is not expected to have an impact in the future.
The Company and Cheyenne have in place GCA mechanisms for natural gas
sales, which recognize the majority of the effects of changes in the cost of gas
purchased for resale and adjust revenues to reflect such changes in cost on a
timely basis. As a result, the changes in revenues associated with these
mechanisms during the first six months of 1997 and 1996 had little impact on net
income. However, the fluctuations in gas sales impact the amount of gas the
Company must purchase and, therefore, along with the increases and decreases in
the per-unit cost of gas, affect total gas purchased for resale.
22
Non-Fuel Operating Expenses
Other operating and maintenance expenses increased $10.9 million during
the six months ended June 30, 1997, when compared to the same period in 1996,
primarily due to the favorable impact on 1996 earnings of the February 9, 1996
settlement agreement with the DOE resolving all spent nuclear fuel storage and
disposal issues at Fort St. Vrain (approximately $16 million). In addition,
higher electric production and distribution maintenance costs and increased
operating costs at e prime and subsidiaries negatively impacted current year
results. However, lower employee benefit costs and other general reductions
resulting from the Company's cost containment efforts favorably impacted current
year results, as did costs incurred during 1996 associated with the settlement
of certain environmental issues related to the operations of the Hayden Steam
Electric Generation Station.
Depreciation and amortization expense increased $10.1 million in the first
six months of 1997, as compared to the same period in 1996, primarily due to the
depreciation of property additions and the higher amortization of software
costs.
The decrease in income taxes for the first six months of 1997, as compared
to the same period in 1996, is primarily due to lower pre-tax income, lower 1997
non-deductible environmental and Merger costs and the prior year accrual for
additional tax liabilities.
Miscellaneous income and deductions - net decreased $1.1 million primarily
due to additional 1997 accruals for estimated legal and other costs associated
with various employee lawsuits and higher 1997 Merger and business integration
costs. These additional costs were offset, in part, by the recognition of equity
earnings associated with the Company's investment in Yorkshire Electricity ($4.1
million) and interest income on temporary cash investments of the proceeds from
the borrowings subsequently used for the investment made in acquiring Yorkshire
Electricity (see Note 4. Acquisition and Divestiture of Investments -
Acquisition of Yorkshire Electricity in Item 1. FINANCIAL STATEMENTS).
Interest expense increased $5.5 million during the first six months of
1997, when compared to the same period in 1996, primarily due to interest on
borrowings utilized to finance capital expenditures and the April 1997
acquisition of Yorkshire Electricity. These borrowings included the issuance of
$75 million and $250 million of medium-term notes in January and March 1997,
respectively.
Financial Position
Accounts payable decreased approximately $83 million at June 30, 1997, as
compared to December 31, 1996, primarily due to the impact of seasonally lower
gas purchases. This also contributed to the reduction in accounts receivable.
Commitments and Contingencies
Issues relating to regulatory, environmental and employee litigation
matters are discussed in Note 3 Commitments and Contingencies and the estimated
windfall tax liability for Yorkshire Electricity is discussed in Note 4.
Acquisition and Divestiture of Investments in Item 1. FINANCIAL STATEMENTS.
These matters and the future resolution thereof may impact the Company's future
results of operations, financial position or cash flows.
Common Stock Dividend
In March 1997, the Board of Directors ("the Board") approved a common
stock dividend at the rate of $0.525 per share. In anticipation of the effective
date of the Merger, in June 1997 the Board approved a partial dividend payable
to shareholders of the Company covering the period July 12, 1997 through July
31, 1997, the day prior to the Merger effective date, based on the quarterly
dividend rate of $0.525, but prorated for the number of days in the interim
period (approximately $0.115 per share). During the second quarter of 1996, the
Company increased the
23
quarterly common stock dividend of $0.51 per share to $0.525 per share. As a
result of the consummation of the Merger, effective August 1, 1997, dividends
will be paid to NCE as the holder of all of the Company's common stock.
Liquidity and Capital Resources
Cash Flows - Six Months Ended June 30
1997 1996 Decrease
---- ---- --------
Net cash provided by operating
activities (in millions) .............. $120.4 $190.2 $(69.8)
Cash provided by operating activities decreased in the first six months of
1997, when compared to the same period in 1996, primarily due to the increase in
payments to gas suppliers resulting from the higher gas costs in late 1996 and
early 1997. A portion of these higher gas costs have been deferred through the
GCA and will be recovered from customers in the future.
1997 1996 Increase
---- ---- --------
Net cash used in investing
activities (in millions) .............. $(499.7) $(135.3) $364.4
Cash used in investing activities increased during the six months ended
June 30, 1997, when compared to the same period in 1996, primarily due to the
Company's acquisition of Yorkshire Electricity in April 1997 for approximately
$360 million.
1997 1996 Increase
---- ---- --------
Net cash provided by (used in) financing
activities (in millions) .............. $388.9 $(56.6) $445.5
Cash provided by financing activities increased (indicating that there
were more borrowings) in the first six months of 1997, when compared to the same
period in 1996, primarily due to the issuance of $75 million and $250 million of
medium term notes in January and March 1997, respectively. The proceeds from the
$75 million financing were used to fund the Company's construction program. The
Company used the proceeds from the $250 million medium term notes, together with
additional borrowings of approximately $110 million on its short-term lines of
credit, to fund its acquisition of Yorkshire Electricity. See Note 4.
Acquisition and Divestiture of Investments - Acquisition of Yorkshire
Electricity in Item 1. FINANCIAL STATEMENTS.
OTHER MATTERS
Electric utilities have historically operated in a highly regulated
environment in which they have an obligation to provide electric service to
their customers in return for an exclusive franchise within their service
territory with an opportunity to earn a regulated rate of return. This
regulatory environment is changing. The generation sector has experienced
competition from nonutility power producers and the FERC is requiring utilities,
including the Company, to provide wholesale transmission service to others and
may order electric utilities to enlarge their transmission systems to facilitate
transmission services without impairing reliability. State regulatory
authorities are in the process of changing utility regulations in response to
federal and state statutory changes and evolving markets, including
consideration of providing open access to retail customers. All of the Company's
jurisdictions continue to evaluate utility regulations with respect to
competition. The Company is unable to predict what financial impact or effect
the adoption of these proposals would have on its operations. The Merger between
the Company and SPS was, in part, in response to these changing conditions.
24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part 1. See Note 3. Commitments and Contingencies in Item 1, Part 1.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges is set forth at page 29 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated
Combined Fixed Charges and Preferred Stock Dividends is set forth
at page 30 herein.
15 Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 31 herein.
27 Financial Data Schedule UT
(b) Reports on Form 8-K
The following reports on Form 8-K were filed since the beginning of the
second quarter of 1997.
- A report on Form 8-K dated April 1, 1997 was filed on April 15, 1997
which included the following two items:
Item 2. Acquisition or Disposition of Assets: On April 1, 1997, the
Company and AEP announced that Yorkshire Holdings, a joint venture among
the Company and AEP, had declared the cash tender offer to purchase all
the outstanding and to be issued shares of Yorkshire Electricity wholly
unconditional in all respects and, thereby, is committed to purchase all
the outstanding shares of Yorkshire Electricity.
Item 7. Financial Statements and Exhibits: (a) Financial Statements of
Business Acquired and (b) Pro Forma Financial Information. For both topics
(a) and (b), it was impracticable to provide the required financial
statements and pro forma financial information for the acquisition of
Yorkshire Electricity at the date the report was filed. The required
financial statements and pro forma financial information were to be filed
as soon as practicable, but no later than 60 days after the date the
report was filed.
- A report on Form 8-K/A dated April 1, 1997, was filed on June 13, 1997
which included the following item:
Item 7. Financial Statements and Exhibits:
(a) Financial Statements of Business Acquired. The required financial
statements of Yorkshire Electricity were presented for the following
periods: audited consolidated balance sheets as of March 31, 1996 and 1995
and the related consolidated profit and loss accounts, statements of total
recognized gains and losses and statements of group cash flows for the
year ended March 31, 1996, 1995, and 1994, as well as the unaudited
Yorkshire Electricity balance sheets as of September 30, 1996 and 1995 and
the related summarized group profit and loss accounts, statements of total
recognized gains and losses and summarized group cash flows statements for
the six months ended September 30, 1996 and 1995.
25
(b) Pro forma financial information. The pro forma information for the
acquisition of Yorkshire Electricity was presented for the following
periods: Unaudited pro forma income statement information for the twelve
months ended December 31, 1996 and for the three months ended March 31,
1997 as if the transaction had been consummated on January 1, 1996 and
January 1, 1997, respectively. The pro forma income statement information
for the three months ended March 31, 1997 includes the Company's income
statement for the three months ended March 31, 1997 and its equity in
earnings of Yorkshire Power for the three months ended December 31, 1996.
- A report on Form 8-K dated July 2, 1997, was filed on July 24, 1997. The
item reported was Item 5. Other Events: On July 2, 1997, the United
Kingdom's Labour Party proposed a budget that includes a windfall profits
tax on certain privatized business entities including Yorkshire
Electricity.
26
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Public Service Company of Colorado has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
PUBLIC SERVICE COMPANY OF COLORADO
By /s/ R. C. Kelly
---------------------------------
R. C. KELLY
Senior Vice President,
Finance, Treasurer and
Chief Financial Officer
Dated: August 14, 1997
27
EXHIBIT INDEX
12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges is set forth at page 29 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated
Combined Fixed Charges and Preferred Stock Dividends is set forth at
page 30 herein.
15 Letter from Arthur Andersen LLP regarding unaudited interim information
is set forth at page 31 herein.
27 Financial Data Schedule UT.
28
EXHIBIT 12(a)
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED FIXED CHARGES
(not covered by Report of Independent Public Accountants)
Six Months Ended
June 30,
1997 1996
---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
Interest on long-term debt................... $56,953 $43,782
Interest on borrowings against corporate-owned
life insurance contracts................... 22,238 19,286
Other interest............................... 8,954 9,947
Amortization of debt discount and expense less
premium ................................... 1,945 1,842
Interest component of rental expense......... 4,938 5,379
------ ------
Total ..................................... $95,028 $80,236
======= =======
Earnings (before fixed charges and taxes on income):
Net income................................... $93,488 $98,966
Fixed charges as above....................... 95,028 80,236
Provisions for Federal and state taxes on
income, net of investment tax credit
amortization.... .......................... 46,944 57,459
-------- ---------
Total...................................... $235,460 $236,661
======== ========
Ratio of earnings to fixed charges.............. 2.48 2.95
====== ======
29
EXHIBIT 12(b)
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(not covered by Report of Independent Public Accountants)
Six Months Ended
June 30,
1997 1996
---- ----
(Thousands of Dollars, except ratios)
Fixed charges and preferred stock dividends:
Interest on long-term debt.................. $56,953 $43,782
Interest on borrowings against corporate-owned
life insurance contracts................... 22,238 19,286
Other interest.............................. 8,954 9,947
Amortization of debt discount and expense less
premium .................................. 1,945 1,842
Interest component of rental expense........ 4,938 5,379
Preferred stock dividend requirement........ 5,885 5,943
Additional preferred stock dividend requirement 2,955 3,450
----- -----
Total .................................... $103,868 $89,629
======== =======
Earnings (before fixed charges and taxes on income):
Net income.................................. $93,488 $98,966
Interest on long-term debt.................. 56,953 43,782
Interest on borrowings against corporate-owned
life insurance contracts.................. 22,238 19,286
Other interest.............................. 8,954 9,947
Amortization of debt discount and expense less
premium .................................. 1,945 1,842
Interest component of rental expense........ 4,938 5,379
Provisions for Federal and state taxes on income,
net of investment tax credit amortization... 46,944 57,459
------ -------
Total..................................... $235,460 $236,661
======== ========
Ratio of earnings to fixed charges
and preferred stock dividends................ 2.27 2.64
==== ====
30
EXHIBIT 15
August 8, 1997
Public Service Company of Colorado:
We are aware that Public Service Company of Colorado has incorporated by
reference in its Registration Statement (Form S-3, File No. 33-62233) pertaining
to the Automatic Dividend Reinvestment and Common Stock Purchase Plan; the
Company's Registration Statement (Form S-3, File No. 33-37431), as amended on
December 4, 1990, pertaining to the shelf registration of the Company's First
Mortgage Bonds; the Company's Registration Statement (Form S-8, File No.
33-55432) pertaining to the Omnibus Incentive Plan; the Company's Registration
Statement (Form S-3, File No. 33-51167) pertaining to the shelf registration of
the Company's First Collateral Trust Bonds; and the Company's Registration
Statement (Form S-3, File No. 33-54877) pertaining to the shelf registration of
the Company First Collateral Trust Bonds and Cumulative Preferred Stock, its
Form 10-Q for the quarter ended June 30, 1997, which includes our report dated
August 8, 1997, covering the unaudited consolidated condensed financial
statements contained therein. Pursuant to Regulation C of the Securities Act of
1933, that report is not considered a part of the registration statement
prepared or certified by our Firm or a report prepared or certified by our Firm
within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
31