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sec_filings_1993

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[ "Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders\nPART II\nItem 5. Market for Registrant's Common Stock and Related Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure\nPART III\nItem 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions\nPART IV\nItem 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K\nPART I\nItem 1. Business\nTHE COMPANY\nColonial Gas Company (\"Colonial\" or the \"Company\"), a Massachusetts corporation formed in 1849, is primarily a regulated natural gas distribution utility. The Company serves 132,000 utility customers in 24 municipalities located northwest of Boston and on Cape Cod. Through its wholly-owned energy trucking subsidiary, Transgas Inc. (\"Transgas\"), the Company also provides over-the-road transportation of liquefied natural gas (\"LNG\"), propane and other commodities.\nThe Company's corporate office is located at 40 Market Street, Lowell, Massachusetts 01852. The telephone number is (508) 458-3171.\nThe Company's combined natural gas distribution service areas in the Merrimack Valley region northwest of Boston and on Cape Cod cover approximately 622 square miles with a year-round population of approximately 500,000, which increases by approximately 350,000 during the summer tourist season on Cape Cod. The Company is serving approximately 48% of potential customers in its service areas. Of its 132,000 customers, approximately 90% are residential accounts. The Company added 4,223 firm customers in 1993. The Company's growth during the 1980's had been based primarily on new residential and commercial construction in its service areas. More recently, as new construction in the region has slowed from previous levels, the Company has actively sought new customers to convert to gas from other energy sources for their existing homes and businesses. Of the total number of new customers in 1993, 57% converted from other fuels.\nThe Company's 1993 consolidated operating revenues from gas sales were derived 64% from residential customers, 32% from commercial and firm industrial customers, 2% from interruptible industrial customers and 1% from transportation customers. For the year 1993, the Company sold 19,965 MMcf of gas, of which 12,889 MMcf was sold in the Merrimack Valley area and 7,076 MMcf in the Cape Cod area. At December 31, 1993, 90% of the Company's residential customers used gas as their source of heating fuel. The demand for the products and services furnished by the Company is to a great extent seasonal, being heaviest in the colder months.\nAt December 31, 1993, the Company had 464 full-time and 51 part-time gas employees. Of those employees, 97 are covered by a collective bargaining agreement with the United Steelworkers of America which expires in April 1996 and 82 are covered by a separate collective bargaining agreement with the United Steelworkers of America which expires in February 1995. In addition, the Company has 11 full-time and 3 part-time appliance sales employees and Transgas employs 86 full-time employees. Of those Transgas employees, 59 are covered by a collective bargaining agreement with the International Brotherhood of Teamsters, which expires in June 1996.\nGAS SUPPLY\nAs of November 1, 1993, all interstate pipelines were required to implement restructuring programs pursuant to Order 636 of the Federal Energy Regulatory Commission (\"FERC\"). See \"Regulatory Matters - Federal Regulation\" below. Intended to create a more competitive environment in the natural gas industry, Order 636 required the pipelines to unbundle/separate the three components of their former city gate sales services: supply, transportation and storage. Under this restructuring program local distribution companies (\"LDCs\") such as the Company have been assigned their pro-rata share of the transportation and storage entitlements which were inherent in the discontinued sales service. Further, LDCs now negotiate directly with suppliers for their supply requirements and must effectively manage their transportation and storage in conjunction with those supplies. In general, the Company pays negotiated rates for gas supplies and tariffed rates (approved by FERC) for transportation and storage services.\nThe Company has determined that its supply requirements should be met through a combination of firm purchases, spot purchases, supply from underground storage, liquefied natural gas (\"LNG\") and propane.\nThe following table shows the Company's sources of firm supply to meet its gas requirements and the actual components of gas sendout for each of the last three years:\n1993 1992 1991 MMcf(a) % MMcf(a) % MMcf(a) % Firm Gas Sources (b) Supply purchase contracts (c) 19,731 74 - - - - Pipeline contracts - - 24,933 81 24,933 81 LNG contracts 3,450 13 3,125 10 3,125 10 Storage inventory at January 1(d) 3,417 13 2,786 9 2,625 9 Total sources 26,598 100 30,844 100 30,683 100\nGas Sendout Pipeline: Firm gas supply 2,620 13 - - - - Pipeline contracts (e) 7,184 35 8,292 40 5,053 27 Spot purchases 5,178 26 8,341 40 9,604 51 Supplemental: Underground storage 3,501 17 2,666 13 3,018 16 LNG-as liquid 907 4 564 2 524 3 LNG-as vapor 915 5 1,095 5 462 3 Propane-air 8 - 9 - 13 -\nTotal sendout 20,313 100 20,967 100 18,674 100\nRatio of firm sources to sendout 1.63 (f) 1.47 1.64\n(a) The term \"MMcf\" means one million cubic feet of vapor or vapor equivalent.\n(b) 1993 reflects the Company's portfolio of firm sources subsequent to the pipeline unbundling mandated by FERC Order 636, calculated on an annualized basis.\n(c) The Company's total firm pipeline transportation capacity for 1993 following the unbundling mandated by FERC Order 636 was 26,239 MMcf. The Company's firm supply purchase contracts are structured to enable the Company to purchase volumes equivalent to its total firm pipeline capacity during the winter or peak season, but less than total firm pipeline capacity during the off-peak season when customer demand is less. Accordingly, on an annualized basis, the total supply purchase contract volume shown is less than total firm transportation capacity.\n(d) The Company's storage inventory is drawn down and refilled throughout the year depending upon the availability and price of gas sources and upon the requirements of the Company's customers. The Company's current level of underground storage inventory capacity is 4,309 MMcf.\n(e) 1993 reflects pipeline contracts prior to implementation of FERC Order 636.\n(f) The Company's ratio of firm sources to sendout for 1993 was determined by adding available transportation capacity (26,239 MMcf) to LNG contracts (3,450 MMcf) and storage inventory (3,417 MMcf), and then dividing by total sendout.\nBased upon presently available information concerning its firm contracts for transportation, storage and supply, and other supplemental sources, the Company expects to be able to meet the gas requirements of its firm customers for the foreseeable future. Additional information concerning the Company's firm sources of gas transportation, storage and supply for its two service territories is set forth below.\nMerrimack Valley Service Area Sources\nThe Merrimack Valley service area is directly served by the Tennessee Gas Pipeline Company (\"Tennessee\"). The Company has three separate firm transportation contracts with Tennessee, and two storage contracts with accompanying transportation contracts.\nOne of the firm transportation service contracts with Tennessee is for approximately 25,196 Mcf per day and will be in effect until November 1, 2000 and year to year thereafter unless terminated upon twelve months prior written notice. The three firm supply contracts which utilize this transportation service provide various levels of supply service up to a total of 25,196 Mcf per day during the peak period, and have been filed with the Massachusetts Department of Public Utilities (\"DPU\") for its approval. A ruling is expected shortly. See \"Regulatory Matters - Federal Regulation\" below.\nThe second firm transportation service contract with Tennessee is for approximately 17,300 Mcf per day and will be in effect until April 1, 2013 and year to year thereafter unless terminated upon twelve months prior written notice. To meet its own peak season supply requirements, the Company has a firm supply contract for the months of November through March which provides the entire volume associated with this transportation contract. The firm supply contract will be in effect until October 31, 2000 and year to year thereafter unless terminated with twelve months prior written notice. During the off-peak season the Company expects to utilize its capacity entitlements under this transportation contract to transport gas on behalf of an 84 MW cogeneration facility which is independently owned.\nThe third firm transportation service contract with Tennessee is utilized in conjunction with the Iroquois Pipeline System (\"Iroquois\"). The Company has contracted for approximately 2,000 Mcf per day of capacity on Iroquois and Tennessee for delivery of the Company's Canadian supplies to the Merrimack Valley service area. These transportation contracts are in effect until November 1, 2011 and continue year to year thereafter unless terminated by twelve months prior written notice.\nIn addition, contingent upon all necessary regulatory approvals, the Company has contracted for approximately 4,000 Mcf of additional Canadian supply, along with associated capacity on Iroquois and Tennessee. These volumes would be deliverable to either the Merrimack Valley or Cape Cod service areas on a firm basis.\nThe Company has underground storage capacity of approximately 2,000,000 Mcf of natural gas pursuant to a contract with Penn-York Energy Corporation. This storage contract is for service to the Merrimack Valley service area and continues until March 31, 1995 and from year to year thereafter unless terminated upon twelve months prior written notice. The gas is transported from storage to the Merrimack Valley service area by Tennessee pursuant to a firm transportation contract for up to approximately 15,691 Mcf per day which continues until March 31, 1995 and from year to year thereafter unless terminated upon twelve months prior written notice.\nThe Company has another underground gas storage service pursuant to separate storage and transportation contracts with Tennessee. The storage contract provides capacity of approximately 1,053,898 Mcf of natural gas, and the related transportation contract is for up to approximately 7,504 Mcf per day. These contracts continue until November 1, 2000 and from year to year thereafter unless terminated upon twelve months prior written notice.\nTo serve the Merrimack Valley service area, the Company owns an LNG facility, located in Tewksbury, Massachusetts, which has liquefaction capacity of approximately 5,000 Mcf of natural gas per day. LNG can also be delivered by truck for injection into this facility which has a total storage capacity of approximately 1,000,000 Mcf. In addition, the facility has the capability of vaporizing and injecting back into the distribution system approximately 60,000 Mcf per day.\nThe Company has also contracted for the purchase of LNG that can be available to both the Merrimack Valley and Cape Cod service areas. This contract provides for approximately 150,000 Mcf in the 1993-94 winter season with an expiration date of October 31, 1994. The Company has an option to increase the quantity of natural gas available under this contract by as much as one-third during the winter season. In addition, the Company has a separate contract for the liquefaction of approximately 300,000 Mcf of LNG each year through October 31, 1996.\nThe Company also owns facilities for the storage of approximately 158,000 Mcf natural gas equivalent of propane which can be vaporized, mixed with air and injected into the Merrimack Valley service area distribution system at a rate of up to approximately 26,000 Mcf per day. The Company does not normally enter into long-term contracts for the purchase of propane to supply either its Merrimack Valley or Cape Cod service areas, and there are no such contracts currently in effect.\nCape Cod Service Area Sources\nThe Cape Cod service area is directly served by the Algonquin Gas Transmission Company (\"Algonquin\") through various transportation services. The Company has ten firm transportation agreements with Algonquin which total approximately 37,207 Mcf of capacity per day. Each of these ten Algonquin transportation arrangements will be in effect until either October 31, 2012 or October 31, 2013 and will continue year to year thereafter unless terminated upon twelve months prior written notice. Because there are no production supply sources directly connected to Algonquin, these services are supported by multiple transportation and storage services on seven upstream pipelines of several different pipeline companies. The Company has contracted with four suppliers for various levels of firm supply service up to a total of 20,918 Mcf per day during the peak season, and those contracts have been filed with the DPU for its approval. A ruling is expected shortly. See \"Regulatory Matters - Federal Regulation\" below.\nThe Company has six unbundled storage contracts to service the Cape Cod area, three of which are on the Texas Eastern Transmission Company (\"Texas Eastern\") system and three on the CNG Transmission Corporation (\"CNG\") system. Colonial has contracted for underground natural gas storage capacity of approximately 461,396 Mcf with Texas Eastern (related firm transportation out of storage of up to approximately 6,451 Mcf per day) through the 2012-2013 heating season and with CNG for underground natural gas storage capacity of approximately 1,056,129 Mcf (related firm transportation out of storage of up to approximately 6,442 Mcf per day). Texas Eastern and Algonquin transport the natural gas from these storage fields to the Cape Cod service area under a variety of transportation contracts.\nAlso, the Company leases facilities in the Cape Cod service area for the storage (but not the liquefaction) of approximately 180,000 Mcf of LNG and, through May 1994, the Company has contracted with a subsidiary of Algonquin for the annual storage capacity of approximately 42,000 Mcf of LNG in a Providence, Rhode Island facility. In addition, the Company has storage for 27,000 Mcf natural gas equivalent of propane which the Company normally purchases on a short-term basis.\nLastly, the Company has one bundled supply and transportation arrangement for the purchase and firm delivery of gas. The arrangement provides for the delivery to the Company of up to approximately 10,000 Mcf per day and approximately 3,000,000 Mcf annually of LNG as either liquid or vapor for a one year period ending October 31, 1994. Under this arrangement the primary delivery point is the Cape Cod service area, but the Company can designate the Merrimack Valley service area on a day to day basis as an alternate delivery point.\nREGULATORY MATTERS Federal Regulation\nBy the fall of 1993, several interstate pipelines serving Colonial had implemented FERC Order 636. Order 636, issued in 1992, required interstate pipeline companies to \"unbundle\" gas supply, transportation and storage services previously provided under a unified tariffed service. Now, the Company is responsible for procuring gas supplies and storage services to meet its load requirements, with the pipelines providing transportation only service. In general, Colonial pays negotiated rates for gas supplies and FERC-approved tariffed rates for transportation and storage services. On November 9, 1993, the Company filed each of its gas supply purchase contracts to be reviewed by the DPU, which has not previously exercised jurisdiction with respect to the Company's base load supplies. These FERC ordered changes may increase the contracting, supply and regulatory risk for the Company. At the same time, they could also create a more competitive market for gas supply which would permit the Company to achieve savings in its cost of gas. Because the new rules have recently been implemented, the Company cannot now predict their impact, but it does not expect them to have a material direct effect on its results of operations.\nState Regulation\nThe Company is a public utility subject to the jurisdiction and regulatory authority of the Massachusetts DPU with respect to its rates as well as to the issuance of securities, franchise territory and other related matters. The DPU permits Massachusetts gas companies to utilize a cost of gas adjustment clause which enables them to pass on to their customers, via their monthly gas bill, changes in the cost of gas. Other changes in rates charged to customers are subject to approval by the DPU after formal proceedings.\nThe Company periodically receives refunds and charges from its gas transporters related to rate adjustments ordered by the FERC. All of the refunds and charges are returned to or collected from utility customers under methods approved by the DPU.\nDuring 1990, the DPU ruled that the Company and eight other Massachusetts gas distribution companies can recover environmental response costs related to former gas manufacturing operations through the CGAC as described under \"Environmental Matters\".\nIn August 1992, the DPU approved the second phase of the Company's demand side management program. When completed this program is expected to save over $15 million in gas costs that would have been incurred over the lives of the installed conservation measures. In order to achieve these savings, Colonial is investing $8 million over a two-year period in customer conservation measures such as insulation, heating systems controls and water heating conservation devices. As a result, Colonial expects to reduce customer bills by a net $7 million from the levels they would have been at if no conservation occurred. Colonial has been authorized by the DPU to fully recover all costs associated with the program through the CGAC. In addition, the Company is also authorized to recover the margins lost as a result of this program and, if certain milestones are met, to receive an additional financial incentive of up to $400,000. In January 1994, the Company filed a request with the DPU to extend the operation of this program from September 1994 until September 1995. A ruling is expected shortly.\nIn October 1992, the Company received authorization from the DPU to extend natural gas service into the Town of Eastham, Massachusetts. Eastham, located at the eastern end of Cape Cod, provides Colonial with new growth opportunities. Colonial believes that there are 5,000 homes and businesses in Eastham that currently utilize other fuels such as oil, electricity and propane which present opportunities for natural gas conversions. The Company has added 104 customers in the town since facilities were constructed in the fourth quarter of 1992.\nIn November 1992, the DPU approved Colonial's request for two new rate schedules which are designed to overcome equipment cost disadvantages that existed in the natural gas air conditioning and small scale cogeneration markets. By reducing , if not eliminating, these cost disadvantages, the Company expects to increase sales into these markets and increase the usage of its distribution system during off-peak periods. The Company has used these new rate schedules to make proposals to potentially large customers and expects to continue to pursue this new market opportunity in 1994.\nIn April 1993, the Company applied for a $10.75 million or 7.87% increase of its base rates. This was only the second base rate increase requested by Colonial since 1984. Effective November 1, 1993, the Company received DPU approval of a settlement agreement that called for a base rate increase designed to produce additional revenues of $6.7 million or 4.9% annually. In addition to this rate increase, the DPU approved a proposal to expand the eligibility criteria for Colonial's discount rate to be applied to low-income residential heating customers. The table below summarizes the Company's recent rate activity:\nResults of the Company's Requests to Increase Base Revenue\nRequested Approved Date Effective Amount Percentage Amount Percentage November 1, 1984 $ 4.30 million 3.73% $2.8 million 2.4% November 1, 1990 $ 12.80 million 9.86% $7.9 million 5.6% November 1, 1993 $ 10.75 million 7.87% $6.7 million 4.9%\nIn response to new marketing opportunities which may result from the FERC Order 636 and the unbundling of interstate pipeline services, Colonial requested in its 1993 rate filing and gained DPU approval to offer a firm transportation service on the Company's distribution system in order to provide customers with an alternative to traditional firm sales service. The DPU order also permits the Company to retain 10% of the revenues generated from releasing the Company's interstate pipeline transportation capacity to third parties above a threshold of $2,500,000 for 1994. In 1993, the Company earned $2,200,000 in capacity release revenue that was credited back to firm customers and had no impact on earnings.\nIn October 1993, the DPU approved Colonial's proposal for a rate targeted at the natural gas vehicle market. The approved rates remain in effect over the course of a \"market-development\" period that extends until January 1, 1997. To assist Colonial in selling additional quantities of natural gas to the natural gas powered vehicle market, the authorized rate is to be indexed $.50 below the retail price of gasoline, provided that it cannot fall below a floor rate equal to Colonial's marginal cost of gas plus 5%. As of December 31, 1993, these rates are approximately equal to $0.70 per gallon equivalent for retail customers.\nCOMPETITION\nMassachusetts law protects gas companies from competition with respect to pipeline distribution of natural gas within its franchise areas by providing that, where a gas company exists in active operation, no other person may lay pipe in the public ways without the approval, after notice and hearing, of the municipal authorities and the DPU. If a municipality desires to enter the gas business, it must take certain procedural steps, including a favorable vote by a majority of the voters in a city election or two-thirds vote at each of two town meetings, and must purchase the property of any gas company operating in the municipality, if the company elects to sell, to the extent, and at such prices, as may be agreed upon or, if no agreement is reached, as the DPU determines.\nAlthough, under a series of FERC orders issued in the late 1980's, certain larger industrial users may attempt to obtain gas from other sources and by-pass a utility's distribution system, the Company does not believe that these FERC orders will have a material adverse effect on its business, in part because large industrial users are not a significant part of its customer base.\nThe Company provides a transportation-only service of gas through its distribution system for commercial and industrial customers either on a firm basis or an interruptible basis. While such transportation may displace direct gas sales by the Company, this service assists qualifying customers in obtaining the lowest possible gas costs while still contributing to the profit margin of the Company. Profit margins from interruptible sales and interruptible transportation result in lower gas costs which are passed through to firm customers by the cost of gas adjustment clause and, therefore, do not directly affect operating margin or net income.\nFuel oil suppliers, electric utilities and propane suppliers provide competition generally for residential, commercial and industrial customers. Interruptible sales are generally in competition with No. 6 fuel oil which most of the interruptible customers are equipped to use. Lower worldwide oil prices may adversely affect the Company's ability to retain or attract customers. The Company's rates have remained generally competitive with the price of alternative fuels, but the long- term impact of fuel price changes on the Company and its rates cannot be predicted.\nThe Company is aware that a steam generating enterprise plans to begin operations in the City of Lowell in the fall of 1994. The enterprise would operate a \"trigeneration\" facility which would produce (i) electric power for its own operation and for sale to the New England power pool, (ii) gases such as CO2 and argon for sale in industrial applications, and (iii) steam for sale through a pipeline system to government offices, schools and businesses within the City of Lowell. The enterprise is in the process of obtaining the easements and other permits and regulatory approvals necessary for its steam pipeline system and its fuel storage and generating facilities.\nIn the event this Lowell steam generating enterprise is successfully able to produce and distribute steam to government and private businesses in Lowell, many of whom are currently customers of the Company, the Company would be faced with an additional energy source competitor for those customers. It cannot currently be determined what impact, if any, such competition would have on the Company's sales to commercial and industrial customers in Lowell.\nENVIRONMENTAL AND PIPELINE SAFETY MATTERS\nThe Company is subject to Federal and state laws and regulations dealing with environmental protection. Compliance with such environmental laws and regulations has resulted in increased costs with respect to the Company's existing operations.\nWorking with the Massachusetts Department of Environmental Protection, the Company is engaged in site assessments and evaluation of remedial options for contamination that has been attributed to the Company's former gas manufacturing site and at various related disposal sites. During 1990, the DPU ruled that Colonial and eight other Massachusetts gas distribution companies can recover environmental response costs related to former gas manufacturing operations over a seven-year period, without carrying costs, through the CGAC. Through December 31, 1993, the Company had incurred $7,750,000 of environmental response costs related to these sites, $1,521,000 for the former gas manufacturing site and $6,229,000 for the related disposal sites. The Company expects to continue incurring costs arising from these environmental matters.\nAs of December 31, 1993 the Company has recorded on the balance sheet a long-term liability of $5,300,000 representing estimated future response costs relating to these sites based on the Company's preferred methods of remediation; of this amount $2,200,000 relates to the gas manufacturing site. Based upon the DPU order approving rate recovery of environmental response costs, a regulatory asset of $5,300,000 has been recorded on the balance sheet (\"Unrecovered Environmental Costs Accrued\"). This amount has decreased from the prior year estimate based upon the completion of certain remedial actions and a lower expectation of future costs due to changes in environmental regulations and a better understanding of on-site exposures. Actual environmental response costs to be incurred depends on various factors, and therefore future costs may differ from the amount currently recorded as a liability.\nAs of December 31, 1993, the Company has settled claims relating to this matter with all liability insurers and other known potentially responsible parties (\"PRP\"), except for one. The Company expects to receive $250,000 in 1994 from that PRP. In accordance with the DPU order referred to above, half the costs incurred in pursuing insurers and other PRP are recovered from the ratepayers through the CGAC and half are initially borne by the Company. Also, per this order, any insurance and other proceeds are applied first to the Company's costs of pursuing recovery from insurers and other PRP, with the remainder divided equally between the ratepayers and shareholders.\nThe table below summarizes the environmental response costs incurred and insurance and other proceeds received relating to these environmental response costs:\n(In Thousands) Response Costs Insurance and Other Proceeds Recovered Returned Recorded as Non- from Period of to Operating Income Year Incurred Customers Rate Recovery Customers Net of Taxes\n1988 $ 853 $ 488 1990-1997 - - 1989 4,031 2,303 1990-1997 - - 1990 639 274 1991-1998 - - 1991 374 107 1992-1999 $ 851 $ 525 1992 617 88 1993-2000 1,121 673 1993 1,236 - 1994-2001 469 290 Total $7,750 $3,260 $2,441 $1,488\nTRANSGAS INC.\nTransgas primarily provides over-the-road transportation of LNG, propane and other commodities. Transgas acts as a common carrier for approximately 60 commercial and gas utility customers located in the eastern half of the United States. Canadian over- the-road transportation services are also available through CGI Transport Limited, which is a wholly-owned subsidiary of Transgas. Transgas also provides a unique LNG portable pipeline service, which permits gas utilities to provide continuous supply of natural gas to communities while the pipeline supply is temporarily interrupted during scheduled maintenance, upgrading, and recertification, or during emergency interruption.\nRates charged for Transgas' common carrier transportation service are filed as tariffs under operating authorities issued to Transgas by the Interstate Commerce Commission and regulatory agencies in various states, and to CGI Transport Limited by Canadian provincial authorities. As common carriers, they are also subject to various regulations applicable to motor common carriers, including accounting matters, safety matters, rates charged and various fiscal matters.\nTransgas had revenues of $8.1 million in 1993. Approximately 50% of Transgas' revenue in 1993 was derived from transporting Algerian LNG from the Distrigas import terminal which is located in Everett, Massachusetts.\nTransgas provides over-the-road transportation services by utilizing a permanent fleet of 37 tractors. Transgas operates 56 trailers which are specifically designed for the transportation of cryogenic liquids. Of those cryogenic transport trailers, 21 are leased on a long-term basis. In addition, Transgas has 25 trailers which are designed for the transportation of propane. Of those propane transport trailers, 4 are leased on a long-term basis. There were also 12 owner-operated tractors utilized for propane hauling during the year. In addition to the equipment described above, Transgas also has 11 trailers which are designed for carrying vaporizers and 2 flat bed trailers.\nTransgas competes with many other motor carriers engaged in the transportation of various gases and other products. Transgas believes, however, that it is the leading over-the-road transporter of LNG due to the size of its fleet of specialized cryogenic transport trailers.\nTransgas closed its unprofitable bulk cement trucking operation during the first half of 1993. The closing of this operation permitted Transgas to reduce overhead expenses. In addition, trucking equipment associated with this operation were sold at prices exceeding net book value.", "Item 1A. Executive Officers of the Registrant.\nThe following table indicates the present executive officers of the Company, their ages, the dates when their service with the Company began and their respective positions with the Company.\nAffiliated with Name and Age Position with Company Company Since\nFrederic L. Putnam, Chairman and Chief Executive Officer 1953 Jr. (69)\nCharles O. Swanson (62) President 1971\nFrederic L. Putnam, Executive Vice President and III (48) General Manager 1975\nJohn P. Harrington (51) Vice President - Gas Supply 1966\nNickolas Stavropoulos Vice President - Finance and (36) Chief Financial Officer 1979\nVictor W. Baur (50) President - Transgas Inc. 1972\nDennis W. Carroll (47) Vice President and Treasurer 1990\nCharles A. Cook (41) Vice President and General Counsel 1978\nMr. Putnam, Jr. has been Chairman of the Board of Directors since 1981 and the Chief Executive Officer since 1977. He has also been a Director since 1973.\nMr. Swanson has been President since July 1990. He is scheduled to retire on May 1, 1994. He had been Executive Vice President since November 1986. He has also been a Director since 1986.\nMr. Putnam, III, the son of F.L. Putnam, Jr., has been Executive Vice President and General Manager since April 1993. He has been elected President effective May 1, 1994. He had been Vice President and General Manager since August 1989. He has also been a Director since November 1991.\nMr. Harrington has been Vice President - Gas Supply since August 1989. He had been Vice President - General Manager - Lowell Division since November 1986. He has also been a Director since February 1993.\nMr. Stavropoulos has been Vice President - Finance and Chief Financial Officer since August 1989. He had been Vice President - Rates and Planning since November 1985. He has also been a Director since February 1993.\nMr. Baur has been President of Transgas Inc. since July 1990. He had been Executive Vice President - General Manager of Transgas Inc. since 1984. He also became a Director in August 1993.\nMr. Carroll has been Vice President and Treasurer since August 1990. Prior to then he was a partner with Grant Thornton, the Company's independent certified public accountants.\nMr. Cook has been Vice President and General Counsel since July 1990. He had been Vice President and Counsel since August 1989.\nThese officers hold office until the next annual meeting of the Board of Directors or until their successors are duly elected and qualified.", "Item 2. Properties.\nThe Company has two principal operations centers and a natural gas liquefaction and storage facility with approximately 1,000,000 Mcf of LNG storage capacity located in Tewksbury, Massachusetts. The Company's gas production and storage facilities, metering and regulation stations and operations centers are generally located on land it owns.\nA 175,000 Mcf LNG storage tank located on land owned by the Company in South Yarmouth, Massachusetts is leased from an unaffiliated company through 1998. The Company also has a lease which expires in 2002 for office facilities in Lowell, Massachusetts.\nThe Company's distribution mains of approximately 2,690 miles are located within public highways under franchises or permits from state or municipal authorities, or on land owned by others under easements or licenses from the owners. The Company's first mortgage bonds are collateralized by utility property.\nManagement considers that the Company's properties are adequate for the conduct of its business for the reasonably foreseeable future.", "Item 3. Legal Proceedings.\nSee Item 1, \"Business--Environmental and Pipeline Safety Matters\" above, which is incorporated herein.", "Item 4. Submission of Matters to a Vote of Security Holders.\nNo matter was submitted to a vote of the Company's security holders during the quarter ended December 31, 1993.\nPART II", "Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.\nThe information required to be reported hereunder is incorporated by reference to the information reported in the Company's 1993 annual report to stockholders under the caption \"Shareholder Information\" and under Note D of the \"Notes to Consolidated Financial Statements\".", "Item 6. Selected Financial Data.\nThe information required to be reported hereunder is incorporated by reference to the information reported in the Company's 1993 annual report to stockholders under the caption \"Selected Financial Data\".", "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.\nThe information required to be reported hereunder is incorporated by reference to the information reported in the Company's 1993 annual report to stockholders under the caption \"Management's Discussion and Analysis of Financial Condition and Results of Operations\".", "Item 8. Financial Statements and Supplementary Data.\nThe information required to be reported hereunder is incorporated by reference to the information reported in the Company's 1993 annual report to stockholders under the following captions: \"Consolidated Statements of Income\", \"Consolidated Balance Sheets\", \"Consolidated Statements of Cash Flows\", \"Consolidated Statements of Common Equity\", \"Notes to Consolidated Financial Statements\", \"Report of Independent Certified Public Accountants\" and \"Shareholder Information\".", "Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.\nNone.\nPART III", "Item 10. Directors and Executive Officers of the Registrant.\nThe information required to be reported hereunder for the Company's Directors is incorporated by reference to the information reported in the Company's Proxy Statement for its 1994 annual meeting of stockholders under the caption \"Election of Directors\".\nThe information required to be reported hereunder for the Executive Officers of the Registrant is incorporated by reference to the information in Item 1A of this Form 10-K under the caption \"Executive Officers of the Registrant\".", "Item 11. Executive Compensation.\nThe information required to be reported hereunder is incorporated by reference to the information reported in the Company's Proxy Statement for its 1994 annual meeting of stockholders under the captions \"Executive Compensation\" and under the subheading \"Directors' Compensation\" of the caption \"Election of Directors\".", "Item 12. Security Ownership of Certain Beneficial Owners and Management.\nThe information required to be reported hereunder is incorporated by reference to the information reported in the Company's Proxy Statement for its 1994 annual meeting of stockholders under the caption \"Security Ownership of Certain Beneficial Owners and Management\".", "Item 13. Certain Relationships and Related Transactions.\nThe information required to be reported hereunder is incorporated by reference to the information reported in the Company's Proxy Statement for its 1994 annual meeting of stockholders under the caption \"Election of Directors\".\nPART IV", "Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.\n(a) 1. Financial Statements The Consolidated Financial Statements of the Company (including the Report of Independent Certified Public Accountants) required to be reported herein are incorporated by reference to the information reported in the Company's 1993 annual report to stockholders under the following captions: \"Consolidated Statements of Income\", \"Consolidated Balance Sheets\", \"Consolidated Statements of Cash Flows\", \"Consolidated Statements of Common Equity\", \"Notes to Consolidated Financial Statements\" and \"Report of Independent Certified Public Accountants\".\n2. Financial Statement Schedules The following Financial Statement Schedules and report thereon are filed as part of this Form 10-K on the pages indicated below:\nSchedule Number Description\nReport of Independent Certified Public Accountants on Schedules\nV Property, Plant and Equipment for the three years ended December 31, 1993\nVI Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment for the three years ended December 31, 1993\nVIII Valuation and Qualifying Accounts for the three years ended December 31, 1993\nIX Short-term Debt for the three years ended December 31, 1993\nX Supplementary Income Statement Information for the three years ended December 31, 1993\nSchedules other than those listed above are either not required or not applicable, or the required information is shown in the financial statements or notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable.\n3. List of Exhibits\nExhibit Number Exhibit Reference\n3a Restated Articles of Organization of Filed herewith as Colonial Gas Company, dated April Exhibit 3a. 19, 1989, as amended on July 16, 1992, and supplemented by a Certificate of Vote of Directors establishing a series of a class of stock filed on November 30, 1993.\n3b By-Laws of Colonial Gas Company, as Filed herewith as amended to date. Exhibit 3b.\n4a Second Amended and Restated First Incorporated herein Mortgage Indenture, dated as of June by reference. 1, 1992, filed as Exhibit 4(b) to Form 10-Q of the Registrant for the quarter ended June 30, 1992.\n4b First Supplemental Indenture, dated Incorporated herein as of June 15, 1992, filed as by reference. Exhibit 4(c) to Form 10-Q of the Registrant for the quarter ended June 30, 1992.\n4c Credit Agreement for Colonial Gas Incorporated herein Company, dated as of June 27, 1990, by reference. filed as Exhibit 10(a) to Form 8-K of the Registrant for the quarter ended June 30, 1990, as amended on December 24, 1991, filed as Exhibit 4(j) to Form 10-K of the Registrant for the year ended December 31, 1991, as amended on July 27, 1993, filed as Exhibit 4(a) to Form 10-Q of the Registrant for the quarter ended June 30, 1993.\n4d Credit Agreement for Massachusetts Incorporated herein Fuel Inventory Trust, dated as of by reference. June 27, 1990, filed as Exhibit 10(b) to Form 8-K of the Registrant for the quarter ended June 30, 1990, as amended on July 27, 1993, filed as Exhibit 4(b) to Form 10-Q of the Registrant for the quarter ended June 30, 1993.\n4e Purchase Contract, dated as of June Incorporated herein 27, 1990 between Massachusetts Fuel by reference. Inventory Trust acting by and through its Trustee, Shawmut Bank, N.A. and Colonial Gas Company, filed as Exhibit 10(e) to Form 8-K of the Registrant for quarter ended June 30, 1990.\n4f Security Agreement and Assignment of Incorporated herein Contracts, dated as of June 27, 1990 by reference. made by Massachusetts Fuel Inventory Trust in favor of The First National Bank of Boston as Agent, for the Ratable Benefit of the Secured Parties Named Herein, filed as Exhibit 10(c) to Form 8-K of the Registrant for the quarter ended June 30, 1990.\n4g Trust Agreement, dated as of June Incorporated herein 22, 1990 between Colonial Gas by reference. Company (as Trustor) and Shawmut Bank, N.A. (as Trustee), filed as Exhibit 10(d) to Form 8-K of the Registrant for quarter ended June 30, 1990.\n10a Storage Service Transportation Incorporated herein Contract with Tennessee Gas Pipeline by reference. Company, a Division of Tenneco Inc., dated January 1, 1983, filed as Exhibit 10(b) to the Registrant's Registration Statement on Form S-2. Commission File No. 2-93118.\n10b Service Agreement with Algonquin Gas Incorporated herein Transmission Company, dated December by reference. 11, 1972, filed as Exhibit 13(n) to Colonial Gas Energy System's Registration Statement on Form S-1. Commission File No. 2-54673.\n10c Storage Service Agreement with Penn- Incorporated herein York Energy Corporation, dated as of by reference. December 21, 1984, filed as Exhibit 10(r) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1984.\n10d Agreement for Sale of Gas between Incorporated herein Bay State Gas Company and Colonial by reference. Gas Company, dated December 11, 1987, filed as Exhibit 10(m) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.\n10e Agreement for Liquefaction of Gas Incorporated herein with Bay State Gas Company, dated by reference. March 14, 1988, filed as Exhibit 10(p) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.\n10f Service Agreement with Distrigas of Incorporated herein Massachusetts Corporation, as by reference. related to firm vapor service, dated September 30, 1989, filed as Exhibit 10(q) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.\n10g Letter Agreement with Distrigas of Incorporated herein Massachusetts Corporation, related by reference. to firm vapor service agreement, dated December 8, 1989, filed as Exhibit 10(r) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.\n10h Service Agreement with Distrigas of Incorporated herein Massachusetts Corporation, related by reference. to firm vapor service, dated October 31, 1990, filed as Exhibit 10(s) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.\n10i Gas Transportation Contract for Firm Incorporated herein Reserved Service with Iroquois, by reference. dated February 7, 1991, filed as Exhibit 10(v) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.\n10j Gas Sales Agreement No. 1 with ANE, Incorporated herein dated February 7, 1991, filed as by reference. Exhibit 10(y) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.\n10k Gas Sales Agreement between Sonat Incorporated herein Exploration Company and Sonat by reference. Marketing Company and Colonial Gas Company, dated October 1, 1990, filed as Exhibit 10(cc) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.\n10l Firm Natural Gas Transportation Incorporated herein Agreement between Tennessee Gas by reference. Pipeline Company and Colonial Gas Company (under Rate Schedule NET- NE), dated February 7, 1991, filed as Exhibit 10(ff) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.\n10m Amended and Restated Gas Sales Incorporated herein Agreement between Sonat Marketing by reference. Company and Colonial Gas Company, dated July 16, 1991, filed as Exhibit 10(jj) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.\n10n Letter Agreement with Distrigas of Incorporated herein Massachusetts Corporation, related by reference. to firm vapor service agreement, dated November 16, 1992, filed as Exhibit 10(dd) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.\n10o Gas Transportation Contract for Firm Incorporated herein Reserved Service between Iroquois by reference. Gas Transmission System, L.P. and Colonial Gas Company, dated November 25, 1991, filed as Exhibit 10(gg) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.\n10p Service Agreement between Algonquin Filed herewith as Gas Transmission Company and Exhibit 10p. Colonial Gas Company (under Rate Schedule AFT-E), dated June 1, 1993.\n10q Service Agreement between Algonquin Filed herewith as Gas Transmission Company and Exhibit 10q. Colonial Gas Company (under Rate Schedule AFT-1), dated June 1, 1993.\n10r Service Agreement between Algonquin Filed herewith as Gas Transmission Company and Exhibit 10r. Colonial Gas Company (under Rate Schedule AFT-1), dated June 1, 1993.\n10s Service Agreement between Algonquin Filed herewith as Gas Transmission Company and Exhibit 10s. Colonial Gas Company (under Rate Schedule AFT-1), dated June 1, 1993.\n10t Service Agreement between Algonquin Filed herewith as Gas Transmission Company and Exhibit 10t. Colonial Gas Company (under Rate Schedule AFT-E), dated June 1, 1993.\n10u Service Agreement between Algonquin Filed herewith as Gas Transmission Company and Exhibit 10u. Colonial Gas Company (under Rate Schedule AFT-1), dated June 1, 1993.\n10v Service Agreement between Algonquin Filed herewith as Gas Transmission Company and Exhibit 10v. Colonial Gas Company (under Rate Schedule AFT-1), dated June 1, 1993.\n10w Service Agreement between Texas Filed herewith as Eastern Transmission Corporation and Exhibit 10w. Colonial Gas Company (under Rate Schedule CDS), dated June 1, 1993.\n10x Service Agreement between Texas Filed herewith as Eastern Transmission Corporation and Exhibit 10x. Colonial Gas Company (under Rate Schedule FT-1), dated June 1, 1993.\n10y Service Agreement between Texas Filed herewith as Eastern Transmission Corporation and Exhibit 10y. Colonial Gas Company (under Rate Schedule FTS-8), dated June 1, 1993.\n10z Service Agreement between Texas Filed herewith as Eastern Transmission Corporation and Exhibit 10z. Colonial Gas Company (under Rate Schedule FTS-7), dated June 1, 1993.\n10aa Service Agreement between Texas Filed herewith as Eastern Transmission Corporation and Exhibit 10aa. Colonial Gas Company (under Rate Schedule FT-1), dated June 1, 1993.\n10bb Service Agreement between Texas Filed herewith as Eastern Transmission Corporation and Exhibit 10bb. Colonial Gas Company (under Rate Schedule SS-1), dated June 1, 1993.\n10cc Service Agreement between Texas Filed herewith as Eastern Transmission Corporation and Exhibit 10cc. Colonial Gas Company (under Rate Schedule SS-1), dated June 1, 1993.\n10dd Service Agreement between Texas Filed herewith as Eastern Transmission Corporation and Exhibit 10dd. Colonial Gas Company (under Rate Schedule SS-1), dated June 1, 1993.\n10ee Service Agreement between Filed herewith as Transcontinental Gas Pipe Line Exhibit 10ee. Corporation and Colonial Gas Company (under Rate Schedule FT), dated June 1, 1993.\n10ff Service Agreement between Texas Filed herewith as Eastern Transmission Corporation and Exhibit 10ff. Colonial Gas Company (under Rate Schedule FT-1), dated June 1, 1993.\n10gg Firm Gas Transportation Agreement Filed herewith as between Koch Gateway Pipeline Company Exhibit 10gg. and Colonial Gas Company, dated December 1, 1993.\n10hh Service Agreement between Texas Filed herewith as Eastern Transmission Corporation and Exhibit 10hh. Colonial Gas Company (under Rate Schedule FT-1), dated June 1, 1993.\n10ii Service Agreement between Texas Filed herewith as Eastern Transmission Corporation and Exhibit 10ii. Colonial Gas Company (under Rate Schedule FT-1), dated June 1, 1993.\n10jj Service Agreement between Algonquin Filed herewith as Gas Transmission Company and Exhibit 10jj. Colonial Gas Company (under Rate Schedule PSS-T), dated August 1, 1993.\n10kk Service Agreement between Algonquin Filed herewith as Gas Transmission Company and Exhibit 10kk. Colonial Gas Company (under Rate Schedule AFT-2), dated August 1, 1993.\n10ll Service Agreement between Algonquin Filed herewith as Gas Transmission Company and Exhibit 10ll. Colonial Gas Company (under Rate Schedule AFT-1), dated August 1, 1993.\n10mm Gas Storage Contract between Filed herewith as Tennessee Gas Pipeline Company and Exhibit 10mm. Colonial Gas Company (under Rate Schedule FS), dated September 1, 1993.\n10nn Gas Transportation Agreement between Filed herewith as Tennessee Gas Pipeline Company and Exhibit 10nn. Colonial Gas Company (under Rate Schedule FT-A), dated September 1, 1993.\n10oo Gas Transportation Agreement between Filed herewith as Tennessee Gas Pipeline Company and Exhibit 10oo. Colonial Gas Company (under Rate Schedule FT-A), dated September 1, 1993.\n10pp Gas Transportation Agreement between Filed herewith as Tennessee Gas Pipeline Company and Exhibit 10pp. Colonial Gas Company (under Rate Schedule FT-A), dated September 1, 1993.\n10qq Service Agreement between Algonquin Filed herewith as Gas Transmission Company and Exhibit 10qq. Colonial Gas Company (under Rate Schedule FST-LG), dated October 1, 1993.\n10rr Service Agreement between CNG Filed herewith as Transmission Corporation and Exhibit 10rr. Colonial Gas Company (under Rate Schedule FTNN), dated October 1, 1993.\n10ss Service Agreement between CNG Filed herewith as Transmission Corporation and Exhibit 10ss. Colonial Gas Company (under Rate Schedule GSS), dated October 1, 1993.\n10tt Service Agreements between CNG Filed herewith as Transmission Corporation and Exhibit 10tt. Colonial Gas Company (under Rate Schedule GSS-II), dated September 30, 1993.\n10uu Service Agreement between Texas Filed herewith as Eastern Transmission Corporation and Exhibit 10uu. Colonial Gas Company (under Rate Schedule FT-1), dated October 1, 1993.\n10vv Gas Transportation Agreement between Filed herewith as Tennessee Gas Pipeline Company and Exhibit 10vv. Colonial Gas Company (under Rate Schedule FT-A), dated September 1, 1993.\n10ww Service Agreement between National Filed herewith as Fuel Gas Supply Corporation and Exhibit 10ww. Colonial Gas Company (under Rate Schedule EFT), dated October 28, 1993.\n10xx Gas Transportation Agreement between Filed herewith as Tennessee Gas Pipeline Company and Exhibit 10xx. Colonial Gas Company (under Rate Schedule FT-A), dated September 1, 1993.\n10yy Service Agreement between Algonquin Filed herewith as Gas Transmission Company and Exhibit 10yy. Colonial Gas Company (under Rate Schedule AIT-1), dated September 15, 1993.\n10zz Gas Transportation Agreement between Filed herewith as Tennessee Gas Pipeline Company and Exhibit 10zz. Colonial Gas Company (under Rate Schedule FT-A), dated October 1, 1993.\n10aaa Lease Agreement, dated as of May 1, Incorporated herein 1982, with Olde Market House by reference. Associates of Lowell, filed as Exhibit 10(y) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1982.\n10bbb Lease of Equipment from The National Incorporated herein Shawmut Bank of Boston (now Shawmut, by reference. Bank N.A.) as Trustee, as Lessor dated as of May 1, 1973, filed as Exhibit 13(c) to Colonial Gas Energy System's Registration Statement on Form S-1. Commission File No. 2- 54673.\n10ccc Form Employment Agreement for Incorporated herein corporate officers, filed as Exhibit by reference. 10(kk) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.\n10ddd Supplemental Retirement Plan Incorporated herein Agreement between Colonial Gas by reference. Company and F. L. Putnam, Jr., dated December 29, 1981, filed as Exhibit 10(ll) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.\n10eee Supplemental Retirement Plan Incorporated herein Agreement between Colonial Gas by reference. Company and C. O. Swanson, dated December 29, 1981, filed as Exhibit 10(mm) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.\n13a Those portions of the 1993 Annual Filed herewith as Report to Stockholders which have Exhibit 13a. been incorporated by reference in Part II Items 5 - 8 and Part IV Item 14 part a 1.\n22a Subsidiaries of the Registrant. Filed herewith as Exhibit 22a.\n24a Consent of Independent Certified Filed herewith as Public Accountants. Exhibit 24a. ____________________\nEXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS\nExhibits 10bbb, 10ccc and 10ddd above are management contracts or compensatory plans or arrangements in which the executive officers of the Company participate.\nb)Reports on Form 8-K.\nThere were no reports on Form 8-K for the quarter ended December 31, 1993.\nREPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES\nTo the Shareholders of Colonial Gas Company\nIn connection with our audit of the consolidated financial statements of Colonial Gas Company and subsidiaries referred to in our report dated January 18, 1994, which is included in the 1993 Annual Report to Stockholders and incorporated by reference in Part II of this Form 10-K, we have also audited the schedules listed at Part IV, Item 14(a)2. In our opinion, these schedules present fairly, in all material respects, the information required to be set forth therein.\nGRANT THORNTON\nBoston, Massachusetts January 18, 1994\n[END OF REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES] SCHEDULE V\nCOLONIAL GAS COMPANY AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT Year ended December 31, 1993 (In Thousands)\nCOLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F\nOTHER CHANGES- BALANCE BALANCE AT ADD AT CLASSIFI- BEGINNING ADDITIONS RETIRE- (DEDUCT)- END OF CATION OF PERIOD AT COST MENTS DESCRIBE PERIOD\nUtility Property $ 71 (b) Land, rights of way and structures $ 12,269 $ - $ 131 345 (a) $ 12,554 \t\t\t\t\t\t 1,233 (a) Gas production equipment 10,403 - 151\t 287 (b) 11,772 19,464 (a) Transmission and distribution 196,256 - 747 (358)(b) 214,615 Utilization equipment 5,674 - 284 954 (a) 6,344 General equipment 6,188 - 462 2,226 (a) 7,952 Intangible plant 372 418 - - 790 Construction work in progress 5,353 25,412 - (24,222)(a) 6,543 Total Utility Property $236,515 $25,830 $ 1,775 $ - $260,570\nNon-Utility Property Land and buildings $ 1,348 $ 12 $ 25 $ - $ 1,335 Services 640 - - - 640 General equipment 8,742 359 2,156 - 6,945 Total Non- Utility Property $ 10,730 $ 371 $ 2,181 $ - $ 8,920\nAssets Under Capital Leases $ 8,329 $ 494 $ 1,348 $ - $ 7,475\n_____________________________ See Note A of Notes to Consolidated Financial Statements. (a) Transfers to plant in service from construction work in progress. (b) Intercompany transfer or reclassification of fixed assets.\n[END OF COLONIAL GAS COMPANY AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1993]\nSCHEDULE V\nCOLONIAL GAS COMPANY AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT Year ended December 31, 1992 (In Thousands)\nCOLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F\nOTHER CHANGES- BALANCE BALANCE AT ADD AT CLASSIFI- BEGINNING ADDITIONS RETIRE- (DEDUCT)- END OF CATION OF PERIOD AT COST MENTS DESCRIBE PERIOD\nUtility Property\nLand, rights of way and structures $ 11,977 $ - $ 8 $ 300 (a) $ 12,269 Gas production equipment 10,549 - 180\t 34 (a) 10,403 Transmission and distribution 177,916 - 528 18,868 (a) 196,256 Utilization equipment 4,376 - 221 1,519 (a) 5,674 General equipment 3,065 - 83 3,206 (a) 6,188 Intangible plant 433 372 - (433)(a) 372 Construction work in progress (5)(b) 2,547 26,300 - (23,489)(a) 5,353 Total Utility Property $210,863 $26,672 $ 1,020 $ - $236,515\nNon-Utility Property Land and buildings $ 1,343 $ - $ - $ 5 (b) $ 1,348 Services 640 - - - 640 General equipment 8,626 154 38 - 8,742 Total Non- Utility Property $ 10,609 $ 154 $ 38 $ 5 $ 10,730\nAssets Under Capital Leases $ 7,963 $ 628 $ 262 $ - $ 8,329\n_____________________________ See Note A of Notes to Consolidated Financial Statements. (a) Transfers to plant in service from construction work in progress. (b) Intercompany transfer or reclassification of fixed assets.\n[END OF COLONIAL GAS COMPANY AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1992]\nSCHEDULE V\nCOLONIAL GAS COMPANY AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT Year ended December 31, 1991 (In Thousands)\nCOLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F\nOTHER CHANGES- BALANCE BALANCE AT ADD AT CLASSIFI- BEGINNING ADDITIONS RETIRE- (DEDUCT)- END OF CATION OF PERIOD AT COST MENTS DESCRIBE PERIOD\nUtility Property\nLand, rights of way and $ (47)(b) structures $ 11,976 $ - $ 46 94 (a) $ 11,977 Gas production equipment 10,642 - 173\t 80 (a) 10,549 Transmission and distribution 164,013 - 534 14,437 (a) 177,916 Utilization equipment 2,799 - 163 1,740 (a) 4,376 General equipment 2,765 - 24 324 (a) 3,065 Intangible plant - 433 - - 433 Construction work in progress 3,108 16,114 - (16,675)(a) 2,547 Total Utility Property $195,303 $16,547 $ 940 $ (47) $210,863\nNon-Utility Property Land and buildings $ 1,346 $ 14 $ 64 $ 47 (b) $ 1,343 Services 640 - - - 640 General equipment 8,318 563 255 - 8,626 Total Non- Utility Property $ 10,304 $ 577 $ 319 $ 47 $ 10,609\nAssets Under Capital Leases $ 8,646 $ 273 $ 956 $ - $ 7,963\n_____________________________ See Note A of Notes to Consolidated Financial Statements. (a) Transfers to plant in service from construction work in progress. (b) Intercompany transfer or reclassification of fixed assets.\n[END OF COLONIAL GAS COMPANY AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1991]\nSCHEDULE VI\nCOLONIAL GAS COMPANY AND SUBSIDIARIES ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT For the Three Years Ended December 31, 1993 (In Thousands)\nCOLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F\nADDITIONS OTHER BALANCE CHARGED CHANGES - AT TO COSTS ADD BALANCE \t\t BEGINNING AND\t RETIRE- (DEDUCT)- AT END DESCRIPTION OF PERIOD EXPENSES MENTS DESCRIBE OF PERIOD\nYear Ended December 31, 1993 Accumulated depreciation of utility property (separate reserves not maintained) $52,700 $6,939 $1,882 $ 100 (1) $57,857\nAccumulated depreciation of non- utility property $ 6,691 $ 670 $1,615 $ (61)(3) $ 5,685\nAmortization on $ 61 (3) capital leases $ 3,963 $ - $ - $ (463) $ 3,561\nYear Ended December 31, 1992 Accumulated depreciation of utility property (separate reserves not maintained) $48,127 $6,023 $1,464 $ 14 (1) $52,700\nAccumulated depreciation of non- utility property $ 5,842 $ 941 $ 8 $ (84)(3) $ 6,691\nAmortization on $ 84 (3) capital leases $ 3,406 $ - $ - $ 473 $ 3,963\nYear Ended December 31, 1991 Accumulated depreciation of utility property (separate reserves not maintained) $43,823 $5,488 $1,276 $ 92 (1) $48,127 \t\t\t\t\t\t Accumulated depreciation of non- $ (265)(2) utility property $ 5,228 $ 957 $ - $ (78)(3) $ 5,842\nAmortization on $ 78 (3) capital leases $ 3,684 $ - $ - $ (356) $ 3,406\n_______________________________________________ (1) Depreciation charged on clearing accounts. (2) Sold to third party. (3) Capitalized tractor lease.\n[END OF COLONIAL GAS COMPANY AND SUBSIDIARIES ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE THREE YEARS ENDED DECEMBER 31, 1993]\nSCHEDULE VIII\nCOLONIAL GAS COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS For the Three Years Ended December 31, 1993 (In Thousands)\nCOLUMN A COLUMN B COLUMN C COLUMN D COLUMN E\nADDITIONS BALANCE CHARGED BALANCE AT TO COSTS AT BEGINNING AND DEDUC- END OF DESCRIPTION OF PERIOD EXPENSES TIONS PERIOD\nFor the Year Ended December 31, 1993\nReserve for uncollectible accounts \t $1,187 $2,101 $1,606 (1) $1,682\nReserve for insurance claims $ 548 $ 616 $ 566 $ 598\nFor the Year Ended December 31, 1992\nReserve for uncollectible accounts \t $ 778 $1,696 $1,287 (1) $1,187\nReserve for insurance claims $ - $ 622 $ 74 $ 548\nFor the Year Ended December 31, 1991\nReserve for uncollectible accounts \t $ 856 $1,516 $1,594 (1) $ 778\nReserve for insurance claims $ 50 $ - $ 50 $ - _____________________________ (1) Accounts charged off, net of collections.\n[END OF COLONIAL GAS COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1993]\nSCHEDULE IX\nCOLONIAL GAS COMPANY AND SUBSIDIARIES SHORT-TERM DEBT For the Three Years Ended December 31, 1993 (In Thousands Except Percentages)\nCOLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F WEIGHTED WEIGHTED AVERAGE MAXIMUM AVERAGE AVERAGE CATEGORY OF INTEREST AMOUNT AMOUNT INTEREST AGGREGATE BALANCE RATE OUTSTANDING OUTSTANDING RATE SHORT-TERM AT END AT END DURING THE DURING THE DURING THE DEBT OF PERIOD OF PERIOD PERIOD PERIOD (1) PERIOD (2)\nYear Ended December 31, 1993\nBank Loans $32,600 3.64% $32,600 $14,546 3.71% Gas Inventory Purchase $15,233 3.47% $15,233 $10,982 3.55% Obligations\nYear Ended December 31, 1992\nBank Loans $24,500 3.76% $42,600 $20,314 4.62% Gas Inventory Purchase $14,741 3.81% $11,768 $10,676 4.05% Obligations\nYear Ended December 31, 1991\nBank Loans $28,000 5.06% $28,000 $ 9,251 6.42% Gas Inventory Purchase $11,726 5.12% $11,864 $ 9,601 6.54% Obligations\n_____________________________ See Note F of Notes to Consolidated Financial Statements. (1) Amounts calculated by weighting the average of amount of short-term debt outstanding each day during the year. (2) Rates calculated by dividing actual interest expense by average outstanding balance of short-term debt.\n[END OF COLONIAL GAS COMPANY AND SUBSIDIARIES SHORT-TERM DEBT FOR THE THREE YEARS ENDED DECEMBER 31, 1993]\nSCHEDULE X\nCOLONIAL GAS COMPANY AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION\nCHARGED TO COSTS AND EXPENSES YEAR ENDED DECEMBER 31, 1993 1992 1991 Maintenance and repairs included in: Operating Expenses - Maintenance $5,631 $5,477 $5,124 Other Income 444 593 550\nTotal $6,075 $6,070 $5,674\nDepreciation, depletion and amortization of property, plant equipment included in: Operating Expenses - Depreciation $6,831 $5,895 $5,488 Operating Expenses - Operations 240 175 126 Other Income 632 906 910\nTotal $7,703 $6,976 $6,524\nTaxes, other than payroll and income Local property taxes included in: Operating Expenses - Local property taxes $2,496 $2,059 $1,683 Other Income 42 36 31 2,538 2,095 1,714 Other taxes included in: Operating Expenses - Other Taxes 130 131 103 Other Income 186 299 347 316 430 450\nTotal $2,854 $2,525 $2,164\nDepreciation and amortization of intangible assets, pre-operating costs and similar deferrals, royalties and advertising costs are not shown since the amounts are either less than 1% of operating revenues or none.\n[END OF COLONIAL GAS COMPANY AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION]\nSIGNATURES\nPursuant to the requirements of Section 13 or 15 (d) 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. COLONIAL GAS COMPANY Date By March 18 , 1994 F.L. Putnam, Jr., Chairman of the Board of Directors\nPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.\nSignature Title Date\nF.L. Putnam, Jr. Chief Executive Officer, March 18 , 1994 Director\nNickolas Stavropoulos Vice President - Finance and March 18 , 1994 Chief Financial Officer, Director (Principal Financial Officer)\nD.W. Carroll Vice President and Treasurer March 18 , 1994 (Principal Accounting Officer)\nV.W. Baur Director March 18 , 1994\nA.C. Dudley Director March 18 , 1994\nJ.P. Harrington Director March 18 , 1994\nH.C. Homeyer Director March 18 , 1994\nR.L. Hull Director March 18 , 1994\nK.R. Lydecker Director March 18 , 1994\nF.L. Putnam, III Director March 18 , 1994\nJ.F. Reilly, Jr. Director March 18 , 1994\nA.B. Sides, Jr. Director March 18 , 1994\nM.M. Stapleton Director March 18 , 1994\nC.O. Swanson Director March 18 , 1994\nG.E. Wik Director March 18 , 1994" ]

[ "ITEM 1. BUSINESS.\nThe Company. The Company, a Texas corporation, is a public utility engaged in generating, purchasing, transmitting, distributing and selling electricity in south Texas. It is a wholly owned subsidiary of CSW, a registered holding company under the Holding Company Act.\nAt December 31, 1993, the Company supplied electric service to approximately 589,000 retail customers in a 44,000 square mile area with an estimated population of 1,945,000. It supplied at wholesale all or a portion of the electric energy requirements of two municipalities and five rural electric cooperatives. The three largest metropolitan areas served by the Company are Corpus Christi, Laredo and McAllen, which have estimated populations of 265,000, 133,000 and 88,000, respectively.\nThe economic base of the territory served by the Company includes manufacturing, metal refining, petroleum, petrochemical, agriculture and tourism.\nIn 1993, industrial customers accounted for approximately 23% of the Company's total operating revenues. Contracts with substantially all industrial customers provide for both demand and energy charges. Demand charges continue under such contracts even during periods of reduced industrial activity, thus mitigating the effect of reduced activity on operating income.\nRegulation and Rates\nRegulation. The Company, as a subsidiary of CSW, is subject to the jurisdiction of the SEC under the Holding Company Act with respect to the issuance, acquisition and sale of securities, acquisition and sale of certain assets or any interest in any business, including certain aspects of fuel exploration and development programs, accounting practices and other matters.\nThe FERC has jurisdiction under the Federal Power Act over certain of the Company's electric utility facilities and operations, wholesale rates and certain other matters.\nThe Texas Commission has jurisdiction over accounts, certification of utility service territories, sale or acquisition of certain utility property, mergers and certain other matters. Neither the Texas Commission nor the governing bodies of incorporated municipalities have jurisdiction over the issuance of securities.\nNational Energy Policy Act of 1992. The Energy Policy Act, adopted in October 1992, significantly changed U.S. energy policy, including that governing the electric utility industry. The Energy Policy Act allows the FERC, on a case-by-case basis and with certain restrictions, to order wholesale transmission access and to order electric utilities to enlarge their transmission systems. The Energy Policy Act does, however, prohibit FERC- ordered retail wheeling, including \"sham\" wholesale transactions. Further, under the Energy Policy Act a FERC transmission order requiring a transmitting utility to provide wholesale transmission services must include provisions generally that permit the utility to recover from the FERC applicant all of the costs incurred in connection with the transmission services, any enlargement of the transmission system and associated services.\nIn addition, the Energy Policy Act revised the Holding Company Act to permit utilities, including registered holding companies, and non-utilities to form exempt wholesale generators. An exempt wholesale generator is a new category of non-utility wholesale power producer that is free from most federal and state regulation, including the principal restrictions of the Holding Company Act. These provisions enable broader participation in wholesale power markets by reducing regulatory hurdles to such participation. Management believes that this Act will make wholesale markets more competitive. However, the Company is unable to predict the extent to which the Energy Policy Act will affect its operations.\nSee ITEM 1. BUSINESS -- Environmental Matters, for information relating to Environmental regulation.\nRates. The Texas Commission has original jurisdiction over retail rates in the unincorporated areas of Texas. The governing bodies of incorporated municipalities have such jurisdiction over rates within their incorporated limits. Municipalities may elect, and some have elected, to surrender this jurisdiction to the Texas Commission. The Texas Commission has appellate jurisdiction over rates set by incorporated municipalities.\nSee NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS, Rate Case Filings in ITEM 8, for further information with respect to current rate proceedings.\nElectric utilities in Texas are not allowed to make automatic adjustments to recover changes in fuel costs from retail customers. A utility is allowed to recover its known or reasonably predictable fuel costs through a fixed fuel factor. The Texas Commission established procedures effective May 1, 1993, subject to certain transition rules, whereby each utility under its jurisdiction may petition to revise its fuel factors every six months according to a specified schedule. Fuel factors may also be revised in the case of an emergency or in a general rate proceeding. Under the revised procedures, a utility will remain subject to the prior rules until after its first fuel reconciliation, or in some instances a general rate proceeding including a fuel reconciliation, subject to the new rules. Management does not believe that the new rules substantially change the manner in which the Company will recover retail fuel costs.\nFuel factors are in the nature of temporary rates, and the utility's collection of revenues by such is subject to adjustment at the time of a fuel reconciliation proceeding. At the utility's semi-annual adjustment date, a utility is required to petition the Texas Commission for a surcharge or to make a refund when it has materially under- or over-collected its fuel costs and projects that it will continue to materially under- or over-collect. Material under- or over-collections including interest are defined as four percent of the most recent Texas Commission adopted annual estimated fuel cost for the utility, which is approximately $10.4 million for the Company. A utility does not have to revise its fuel factor when requesting a surcharge or refund. An interim emergency fuel factor order must be issued by the Texas Commission within 30 days after such petition is filed by the utility.\nFinal reconciliation of fuel costs are made through a reconciliation proceeding, which may contain a maximum of three years and a minimum of one year of reconcilable data, and must be filed with the Texas Commission no later than six months after the end of the period to be reconciled. In addition, a utility must include a reconciliation of fuel costs in any general rate proceeding regardless of the time since its last fuel reconciliation proceeding. Any fuel costs which are determined unreasonably incurred in a reconciliation proceeding must be refunded to customers. In the event that the Company does not recover all of its fuel costs under the above procedures, the Company could experience an adverse impact on its results of operations.\nAll of the Company's contracts with its wholesale customers contain FERC approved fuel-adjustment provisions that permit it to automatically pass actual fuel costs through to its customers.\nSee NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS, in ITEM 8, for further information with respect to regulation and rates.\nSTP\nThe ownership of a nuclear generating unit exposes the Company to significant special risks. Under the Atomic Energy Act of 1954 and Energy Reorganization Act of 1974, operation of nuclear plants is intensively regulated by the NRC, which has broad power to impose licensing and safety-related requirements. Along with other federal and state agencies, the NRC also has extensive regulations pertaining to the environmental aspects of nuclear reactors. The NRC has the authority to impose fines and/or shutdown a unit until compliance is achieved, depending upon its assessment of the severity of the situation.\nThe high degree of regulatory monitoring and controls to assure safe operation could cause the STP units to be out of service for long periods of time. Outages are also necessary approximately every 18 months for refueling. Because STP's fuel costs currently are lower than any of the Company's other units, the Company's average fuel costs are expected to be higher whenever an STP unit is down or operates below the prior period's average capacity.\nRisks of substantial liability arise from the operation of nuclear-fueled generating units and from the use, handling, and possible radioactive emissions associated with nuclear fuel. While the Company carries insurance, the availability, amount and coverage thereof is limited and may become more limited in the future. The available insurance will not cover all types or amounts of loss expense which may be experienced in connection with the ownership of STP. See NOTE 10, COMMITMENTS AND CONTINGENCIES - Nuclear Insurance, in ITEM 8 for further information.\nSee NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS, in ITEM 8 for a discussion of the STP outage.\nOperations\nPeak Loads and System Capabilities. The following table sets forth for the years 1991 through 1993 the net system capabilities of the Company (including the net amounts of contracted purchases and contracted sales) at the time of peak demand, the maximum coincident system demand on a one-hour integrated basis (exclusive of sales to other electric utilities) and the respective amounts and percentages of peak demand generated by the Company and net purchases and sales: Percent Increase Maximum (Decrease) Net Purchases Coincident In Peak Generation at (Sales) at Net System System Demand Time of Peak Time of Peak Capabilities(a) Demand(b) Over Prior Year Mw Mw Period Mw % Mw %\n1991 4,005 3,291 5.8 3,424 104.0 (133) (4.0) 1992 4,165 3,347 1.7 3,003 89.7 344 10.3 1993 4,480 3,518 5.1 2,943 83.7 575 16.3 ___________________\n(a) Does not include 452 Mw of system capability in long-term storage in 1991 and 310 Mw in 1992 and 1993 as described under \"", "ITEM 2. PROPERTIES.\nFacilities. At December 31, 1993, the Company owned the following electric generating plants (or portions thereof in the cases of the jointly owned plants).\n(See \"ITEM 1. BUSINESS -- Fuel Supply.\")\nNet Dependable Type of Fuel Capability Plant Name and Location Primary/Secondary Mw\nBarney M. Davis gas/oil(a) 339 Corpus Christi, Texas gas/oil 340\nColeto Creek coal 604 Goliad, Texas\nLon C. Hill gas/oil(a) 549 Corpus Christi, Texas\nNueces Bay gas/oil(a) 512(b) Corpus Christi, Texas\nVictoria gas/oil(a) 258(b) Victoria, Texas\nLa Palma gas/oil 47 San Benito, Texas gas/oil(a) 156(b)\nE. S. Joslin gas/oil(a) 252 Point Comfort, Texas\nJ. L. Bates gas/oil(a) 182 Mission, Texas\nLaredo gas/oil(a) 66 Laredo, Texas gas/oil 106\nEagle Pass Eagle Pass, Texas hydro 6\nOklaunion coal 53(c) Vernon, Texas\nSTP nuclear 630(d) Bay City, Texas\nTotal 4,100\n_______________________\n(a) For extended periods of operation, oil can be used only in combination with gas. Use of oil in facilities primarily designed to burn gas results in increased maintenance expense and a reduction of approximately 15% in capability.\n(b) Excludes units in long-term storage - 34 Mw at Nueces Bay, 228 Mw at Victoria and 48 Mw at La Palma.\n(c) The Company owns 7.81% of the 676 Mw unit operated by WTU.\n(d) The Company owns 25.2% of the two 1,250 Mw units operated by HLP.\nAll of the generating plants described above are located on land owned by the Company or jointly with the other participants in jointly owned plants. The Company's electric transmission and distribution facilities are for the most part located over or under highways, streets and other public places or property owned by others, for which permits, grants, easements or licenses (which the Company believes to be satisfactory, but without examination of underlying land titles) have been obtained. The principal plants and properties of the Company are subject to the lien of the first mortgage indenture under which the Company's first mortgage bonds are issued.", "ITEM 3. LEGAL PROCEEDINGS.\nSee ITEM 1. BUSINESS - Environmental Matters, for information relating to environmental and certain other proceedings.\nSee NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS, in ITEM 8, for information relating to regulatory and legal proceedings.\nThe Company is party to various other legal claims, actions and complaints arising in the normal course of business. Management does not expect disposition of these matters to have a material adverse effect on the Company's results of operations or financial condition.", "ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.\nNone.\nPART II", "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.\nAll of the outstanding shares of Common Stock of the Company are owned by its parent company, CSW.", "ITEM 6. SELECTED FINANCIAL DATA.", "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND\nRESULTS OF OPERATIONS.\nReference is made to the Company's Financial Statements and related Notes and Selected Financial Data in", "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.\nStatements Of Income\nCENTRAL POWER AND LIGHT COMPANY For the Years Ended December 31, 1993 1992 1991 (thousands)\nElectric Operating Revenues Residential $ 474,426 $ 432,295 $ 435,860 Commercial 369,426 342,201 343,437 Industrial 281,247 240,341 221,885 Sales for resale 45,369 50,342 48,834 Other 53,060 48,244 48,714 --------- --------- --------- 1,223,528 1,113,423 1,098,730 --------- --------- --------- Operating Expenses and Taxes Fuel 350,268 306,939 303,428 Purchased power 64,025 17,160 15,041 Other operating 225,034 184,514 196,817 Restructuring charges 29,365 - - Maintenance 81,352 61,399 68,092 Depreciation and amortization 131,825 129,131 127,341 Taxes, other than Federal income 86,394 70,343 62,453 Federal income taxes 65,186 77,272 75,985 --------- --------- --------- 1,033,449 846,758 849,157 --------- --------- --------- Operating Income 190,079 266,665 249,573 --------- --------- --------- Other Income and Deductions Mirror CWIP liability amortization 75,702 82,527 96,671 Other 2,737 1,298 3,590 --------- --------- --------- 78,439 83,825 100,261 --------- --------- --------- Income Before Interest Charges 268,518 350,490 349,834 --------- --------- --------- Interest Charges Interest on long-term debt 112,939 125,476 124,987 Interest on short-term debt and other 10,449 6,503 7,641 --------- --------- --------- 123,388 131,979 132,628 --------- --------- --------- Income Before Cumulative Effect of Changes in Accounting Principles 145,130 218,511 217,206\nCumulative Effect of Changes in Accounting Principles 27,295 - - --------- --------- --------- Net Income 172,425 218,511 217,206 Preferred stock dividends 14,003 16,070 19,844 --------- --------- --------- Net Income for Common Stock $ 158,422 $ 202,441 $ 197,362 ========= ========= =========\nStatements Of Retained Earnings\nFor the Years Ended December 31, 1993 1992 1991 (thousands)\nRetained Earnings at Beginning of Year $863,988 $854,659 $875,521 Net income for common stock 158,422 202,441 197,362 Deduct: Common stock dividends 172,000 193,000 215,000 Preferred stock redemption costs 103 112 3,224\n-------- -------- -------- Retained Earnings at End of Year $850,307 $863,988 $854,659 ======== ======== ========\nThe accompanying notes to financial statements are an integral part of these statements.\nBalance Sheets\nCENTRAL POWER AND LIGHT COMPANY As of December 31,\n1993 1992 (thousands)\nASSETS Electric Utility Plant Production $3,061,911 $3,051,969 Transmission 351,584 329,400 Distribution 765,266 715,633 General 209,170 210,204 Construction work in progress 168,421 94,736 Nuclear fuel 160,326 152,494 ---------- ---------- 4,716,678 4,554,436 Less - Accumulated depreciation 1,263,372 1,148,348 ---------- ---------- 3,453,306 3,406,088 ---------- ---------- Current Assets Cash and temporary cash investments 2,435 3,666 Special deposits 1,967 151,589 Accounts receivable 23,850 20,296 Materials and supplies, at average cost 64,359 58,839 Fuel inventory, at average cost 16,934 29,259 Deferred income taxes 4,831 31,289 Unrecovered fuel costs 52,959 - Prepayments and other 2,255 2,198 ---------- ---------- 169,590 297,136 ---------- ---------- Deferred Charges and Other Assets Deferred STP costs 489,773 490,458 Mirror CWIP asset 331,845 341,865 Income tax related regulatory assets 266,597 - Other 70,634 48,113 ---------- ---------- 1,158,849 880,436 ---------- ---------- $4,781,745 $4,583,660 ========== ==========\nCAPITALIZATION AND LIABILITIES\nCapitalization Common stock, $25 par value, authorized 12,000,000 shares, issued and outstanding 6,755,535 shares $ 168,888 $ 168,888 Paid-in capital 405,000 405,000 Retained earnings 850,307 863,988 ---------- ---------- Total Common Stock Equity 1,424,195 1,437,876 ---------- ---------- Preferred stock Not subject to mandatory redemption 250,351 250,351 Subject to mandatory redemption 22,021 28,393 Long-term debt 1,362,799 1,347,887 ---------- ---------- Total Capitalization 3,059,366 3,064,507 ---------- ---------- Current Liabilities Long-term debt and preferred stock due within twelve months 3,928 143,900 Advances from affiliates 171,165 91,766 Accounts payable 79,604 60,392 Accrued taxes 33,769 27,224 Accrued interest 24,683 25,729 Accrued restructuring charges 29,365 - Other 28,020 31,047 ---------- ---------- 370,534 380,058 ---------- ---------- Deferred Credits Income taxes 1,057,453 727,953 Investment tax credits 164,322 170,128 Mirror CWIP liability and other 130,070 241,014 ---------- ---------- 1,351,845 1,139,095 ---------- ---------- $4,781,745 $4,583,660 ========== ========== The accompanying notes to financial statements are an integral part of these statements.\nStatements of Cash Flows\nCENTRAL POWER AND LIGHT COMPANY For the Years Ended December 31, 1993 1992 1991 (thousands)\nOPERATING ACTIVITIES Net Income $172,425 $218,511 $217,206 Non-cash Items Included in Net Income Depreciation and amortization 140,223 154,716 148,012 Deferred income taxes and investment tax credits 84,714 42,773 30,990 Mirror CWIP liability amortization (75,702) (82,527) (96,671) Restructuring charges 29,365 - - Cumulative effect of changes in accounting principles (27,295) - - Changes in Assets and Liabilities Accounts receivable (3,554) (6,415) 12,473 Fuel inventory 12,325 (3,137) 1,175 Accounts payable 19,151 6,209 7,057 Accrued taxes (9,311) (2,165) 17,065 Unrecovered fuel costs (57,386) (1,195) 5,001 Other (6,388) (23,020) (23,199) -------- -------- -------- 278,567 303,750 319,109 -------- -------- -------- INVESTING ACTIVITIES Construction expenditures (177,120) (100,805) (98,199) Other (1,544) (763) (1,056) -------- -------- -------- (178,664) (101,568) (99,255) -------- -------- -------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt 441,131 435,497 - Retirement of long-term debt (431) (405) (168) Reacquisition of long-term debt (573,776) (304,650) (210) Retirement of preferred stock (6,578) (7,050) (7,050) Special deposits for reacquisition of long-term debt 145,482 (145,482) - Change in short-term debt 79,399 29,618 21,523 Payment of dividends (186,361) (209,196) (235,674) -------- -------- -------- (101,134) (201,668) (221,579) -------- -------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS (1,231) 514 (1,725) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,666 3,152 4,877 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,435 $ 3,666 $ 3,152 ======== ======== ========\nSUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $116,664 $130,078 $125,760 Income taxes paid 3,631 45,314 35,715 ======== ======== ========\nThe accompanying notes to financial statements are an integral part of these statements.\nStatements of Capitalization\nCENTRAL POWER AND LIGHT COMPANY As of December 31, 1993 1992 (thousands) COMMON STOCK EQUITY\n$1,424,195 $1,437,876 ---------- ---------- PREFERRED STOCK Cumulative $100 Par Value, Authorized 3,035,000 Shares Number Current of Shares Redemption Series Outstanding Price Not Subject to Mandatory Redemption 4.00% 100,000 $105.75 10,000 10,000 4.20% 75,000 103.75 7,500 7,500 7.12% 260,000 101.00 26,000 26,000 8.72% 500,000 102.91 50,000 50,000 Auction Money Market 750,000 100.00 75,000 75,000 Auction Series A 425,000 100.00 42,500 42,500 Auction Series B 425,000 100.00 42,500 42,500 Issuance Expense (3,149) (3,149) -------- --------\n250,351 250,351 -------- -------- Subject to Mandatory Redemption 10.05% 223,750 104.76 22,375 28,850 Issuance Expense (354) (457) -------- --------\n22,021 28,393 -------- -------- LONG-TERM DEBT First Mortgage Bonds Series J, 6 5/8%, due January 1, 1998 28,000 28,000 Series L, 7%, due February 1, 2001 36,000 36,000 Series M, 8%, due November 1, 2003 - 46,000 Series O, 8 1/4%, due October 1, 2007 - 75,000 Series T, 7 1/2%, due December 15, 2014 111,700 111,700 Series U, 9 3/4%, due July 1, 2015 31,765 81,700 Series Y, 9 3/4%, due June 1, 1998 - 150,000 Series Z, 9 3/8%, due December 1, 2019 140,000 148,000 Series AA, 7 1/2%, due March 1, 2020 50,000 50,000 Series BB, 6%, October 1, 1997 200,000 200,000 Series CC, 7 1/4%, October 1, 2004 100,000 100,000 Series DD, 7 1/8%, December 1, 1999 25,000 25,000 Series EE, 7 1/2%, December 1, 2002 115,000 115,000 Series FF, 6 7/8%, due February 1, 2003 50,000 -\nSeries GG, 7 1/8%, due February 1, 2008 75,000 -\nSeries HH, 6%, due April 1, 2000 100,000 - Series II, 7 1/2%, due April 1, 2023 100,000 -\nInstallment Sales Agreements - PCRBs Series 1974A, 7 1/8%, due June 1, 2004 8,700 8,955 Series 1977, 6%, due November 1, 2007 34,235 34,235 Series 1984, 7 7/8%, due September 15, 2014 6,330 6,330 Series 1984, 10 1/8%, due October 15, 2014 68,870 139,200 Series 1986, 7 7/8%, due December 1, 2016 60,000 60,000 Series 1993, 6%, due July 1, 2028 120,265 -\nNotes Payable, 6 1/2%, due December 8, 1995 448 651 Unamortized Discount (12,265) (17,923) Unamortized Costs of Reacquired Debt (86,249) (49,961) --------- ---------\n1,362,799 1,347,887\n--------- --------- TOTAL CAPITALIZATION $3,059,366 $3,064,507 ========= =========\nThe accompanying notes to financial statements are an integral part of these statements.\n1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES\nCentral Power and Light Company is subject to regulation by the SEC, under the Holding Company Act, and by the FERC, under the Federal Power Act, and follows the Uniform System of Accounts prescribed by the FERC. The Company is subject to further regulation for rates and other matters by the Texas Commission. The Company, as a member of the CSW System, engages in transactions and coordinates its activities and operations with other members of the CSW System. The most significant accounting policies are summarized below.\nElectric Utility Plant. Electric utility plant is stated at the original cost of construction which includes the cost of contracted services, direct labor, materials, overhead items and allowances for borrowed and equity funds used during construction.\nDepreciation. Provisions for depreciation of utility plant are computed using the straight-line method generally at individual rates applied to the various classes of depreciable property. The annual composite rates averaged 3.0% for each of the years 1993, 1992 and 1991.\nNuclear Decommissioning. The Company's portion of the estimated costs of decommissioning STP is $85 million in 1986 dollars based on a site specific study completed in 1986. The Company will continue to review and update this cost estimate and a new study will be completed in 1994. The Company is recovering decommissioning costs through rates over the 38 year life of STP. The $4.2 million annual cost of decommissioning is reflected on the income statement as other operating expense. The funds received from customers applicable to decommissioning are paid to an irrevocable external trust and as such are not reflected on the Company's balance sheet. At December 31, 1993, the trust balance was $15.2 million.\nAt the end of STP's 38 year life, decommissioning is expected to be accomplished using the decontamination method, which is one of three techniques acceptable by the NRC. Using this method the decontamination activities occur as soon as possible after the end of plant operation. Contaminated equipment is cleaned or removed to a permanent disposal location and the site is generally returned to its pre-plant state.\nElectric Revenues and Fuel. Prior to January 1, 1993, electric revenues generally were recorded at the time billings were made to customers on a cycle- billing basis. Electric service provided subsequent to billing dates through the end of each calendar month became part of electric revenues of the next month. To conform to general industry standards the Company in 1993 began accruing unbilled base revenues for electricity used by customers but not yet billed. This adjustment was recorded in 1993 as a cumulative effect of a change in accounting principle. The effect of this change on the Company's net income for 1993 was an increase of $45.4 million, or $29.5 million net of taxes. If this change in accounting method was applied retroactively, the effect on net income for 1992 and 1991 would have been immaterial.\nThe cost of fuel is charged to expense as consumed. The cost of nuclear fuel is amortized to fuel expense based on a ratio of the estimated Btu's used and available to generate electric energy, and includes a provision for the disposal of spent nuclear fuel.\nThe Company recovers fuel costs applicable to sales to wholesale customers, regulated by the FERC, through an automatic fuel adjustment clause.\nThe Company recovers fuel costs in Texas as a fixed component of base rates. The difference between fuel revenues billed and fuel expense incurred is recorded as an addition to or a reduction of revenues, with a corresponding entry to unrecovered fuel cost or other current liabilities as appropriate. Over-recoveries of fuel are payable to customers, and under-recoveries may be billed to customers after Texas Commission approval.\nAccounts Receivable. The Company sells its accounts receivable, without recourse, to CSW Credit, Inc., a wholly owned subsidiary of CSW.\nDeferred STP Costs. In accordance with Texas Commission orders, the Company deferred plant costs for STP Units 1 and 2 incurred subsequent to their commercial operation dates until retail rates which included the units in rate base became effective. The deferred plant costs are amortized and recovered through rates over the life of the plant in increasing amounts. See NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS for further discussion of the deferred accounting proceedings.\nMirror CWIP. In accordance with Texas Commission orders, the Company previously recorded Mirror CWIP, which is being amortized over the life of STP, as more fully discussed in NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS.\nStatements of Cash Flows. Cash equivalents are considered to be highly liquid debt instruments purchased with a maturity of three months or less. Accordingly, temporary cash investments and advances to affiliates are considered cash equivalents.\nReclassification. Certain financial statement items for prior years have been reclassified to conform to the 1993 presentation.\nAccounting Changes. Effective January 1, 1993, the Company adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, SFAS No. 112, Employers' Accounting for Postemployment Benefits (See NOTE 8, BENEFITS PLANS), and SFAS No. 109, Accounting for Income Taxes (See NOTE 2, FEDERAL INCOME TAXES). The Company also changed its method of accounting for unbilled revenues (See Electric Revenues and Fuel above).\nThe adoption of SFAS No. 109 had no effect on the Company's results of operations. The adoption of SFAS No. 112 and the change in accounting for unbilled revenues are presented as cumulative effect of changes in accounting principles as shown below:\nPre-Tax Tax Net Income Effect Effect Effect (thousands)\nSFAS No. 112 $(3,371) $ 1,180 $(2,191) Unbilled revenues 45,363 (15,877) 29,486 ------ ------- ------ Total $41,992 $(14,697) $27,295 ====== ======= ====== Pro forma amounts, assuming that the change in accounting for unbilled revenues had been adopted retroactively, are not materially different from amounts previously reported for prior years.\n2. FEDERAL INCOME TAXES\nThe Company, together with other members of the CSW System, files a consolidated Federal income tax return and participates in a tax sharing agreement.\nThe Company adopted the provisions of SFAS No. 109, effective January 1, 1993. This standard had no impact on the Company's results of operations.\nSFAS No. 109 requires the recognition of deferred tax liabilities for income customers associated with temporary differences previously passed through to rate payers and the equity component of allowance for funds used during construction. In addition, SFAS No. 109 requires reclassification of certain deferred income tax liabilities to reflect the Company's obligation to reduce revenue requirements for deferred income taxes provided at rates higher than the current 35% Federal income tax rate.\nAs a result, the Company recognized additional accumulated deferred income taxes and corresponding regulatory assets and liabilities to customers in amounts equal to future revenues or the reduction in future revenues that will be required when the income tax temporary differences reverse and are recovered or settled in rates.\nComponents of Federal income taxes are as follows:\n1993 1992 1991 (thousands) Included in Operating Expenses and Taxes Current $(19,690) $ 34,336 $ 44,832 Deferred 90,682 48,773 36,984 Deferred ITC (5,806) (5,837) (5,831) ------- ------- ------- 65,186 77,272 75,985 ------- ------- ------- Included in Other Income and Deductions Current 736 390 (1,963) Deferred (162) (163) (163) ------- ------- ------- 574 227 (2,126) ------- ------- ------- Tax Effects of Cumulative Effects of Changes in Accounting Principles 14,697 - - ------- ------- ------- $ 80,457 $ 77,499 $ 73,859 ======= ======= =======\nTotal income taxes differ from the amounts computed by applying the statutory income tax rates to income before taxes. The reasons for the differences are as follows:\n1993 % 1992 % 1991 %\n(dollars in thousands)\nTax at statutory rates $ 88,509 35.0 $100,643 34.0 $ 98,962 34.0 Differences Amortization of ITC (5,806) (2.3) (5,789) (2.0) (5,789) (2.0) Mirror CWIP (22,989) (9.1) (24,652) (8.3) (29,463) (10.1) Prior period adjustments 19,101 7.6 - - - - Other 1,642 .6 7,297 2.5 10,149 3.5 ------- ---- ------- ---- ------- ---- $ 80,457 31.8 $ 77,499 26.2 $ 73,859 25.4 ======= ==== ======= ==== ======= ====\nITC deferred in prior years are included in income over the lives of the related properties.\nThe significant components of the net deferred income tax liability are as follows:\nDecember 31, January 1, 1993 1993 (thousands) Deferred Tax Liabilities Property related book/tax basis differences $ 745,164 $ 640,275 Income tax related regulatory assets 178,984 172,657 Mirror CWIP asset 116,146 116,234 Deferred STP costs 171,421 166,756 Other 37,989 38,061 --------- --------- Total Deferred Tax Liabilities $1,249,704 $1,133,983 --------- --------- Deferred Tax Assets Income tax related regulatory liabilities (85,675) (105,370) Mirror CWIP liability (38,150) (62,799) Unamortized ITC (57,513) (57,843) Alternative minimum tax (15,744) (13,402) --------- --------- Total Deferred Tax Assets (197,082) (239,414) --------- --------- Net Accumulated Deferred Income Taxes-Total $1,052,622 $ 894,569 ========= ========= Net Accumulated Deferred Income Taxes-Noncurrent $1,057,453 $ 925,858 Net Accumulated Deferred Income Taxes-Current (4,831) (31,289) --------- --------- Net Accumulated Deferred Income Taxes-Total $1,052,622 $ 894,569 ========= ========= 3. LONG-TERM DEBT\nThe mortgage indenture, as amended and supplemented, securing first mortgage bonds issued by the Company, constitutes a direct first mortgage lien on substantially all electric utility plant.\nAnnual Requirements. Certain series of the Company's outstanding first mortgage bonds have annual sinking fund requirements which are generally one percent of the greatest amount outstanding at any time of each series of first mortgage bonds issued. These requirements may be, and have historically been, satisfied by the application of net expenditures for bondable property in an amount equal to 166-2/3% of the annual requirements. Series J, L, and Z first mortgage bonds are subject to this annual sinking fund requirement.\nAt December 31, 1993, the annual sinking fund requirements exclusive of maturities, and the annual aggregate maturities including sinking fund requirements, of long-term debt are as follows:\nAnnual Sinking Annual Aggregate Fund Requirements Maturities (thousands) 1994 2,120 3,299 1995 2,120 3,563 1996 2,120 3,135 1997 2,120 203,155 1998 1,840 30,895\nDividends. The Company's mortgage indenture, as amended and supplemented, contains certain restrictions on the payment of common stock dividends. At December 31, 1993, $630 million of retained earnings were available for the payment of cash dividends to CSW.\nReacquired Long-Term Debt. During 1993, the Company issued first mortgage bonds, the proceeds of such offerings were used to refinance higher cost debt in order to lower the embedded cost of long-term debt.\nThe premiums and reacquisition costs of reacquired long-term debt are included in long-term debt on the balance sheets and are being amortized over 5 to 35 years. Reference is made to ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, for additional information on reacquired long-term debt.\nDue Within Twelve Months. In December 1992, the Company issued Series DD and EE first mortgage bonds in the aggregate amount of $140 million to reacquire Series K, N and P first mortgage bonds in January 1993. Accordingly, at December 31, 1992, the Company reclassified these bonds totaling $140 million from long-term debt on the balance sheet to current liabilities, long-term debt and preferred stock due within twelve months.\n4. PREFERRED STOCK\nThe dividends on the Company's $160 million auction preferred stocks are adjusted every 49 days, based on current market rates. The dividend rate averaged 2.7%, 3.6%, and 5.5% during 1993, 1992 and 1991.\nThe Company's 10.05%, $100 par value preferred stock requires a mandatory sinking fund sufficient to retire 35,250 shares annually until January 31, 2001, and a specified number of shares in each 12-month period thereafter. The sinking fund redemption price is $100 per share. The portion to be retired within twelve months is reflected as such on the balance sheet under current liabilities.\nEach series of preferred stock, with the exception of the 10.05% Series and the auction preferred stock, is redeemable at the option of the Company upon 30 days notice at the current redemption price per share. Redemption prices of the 8.72% and 10.05% Series decline at specified intervals in future years. The 10.05% Series is redeemable as of February 1, 1994. The Company's three issues of auction preferred stock may be redeemed at par on any dividend payment date.\nThe premiums and reacquisition costs of reacquired preferred stock are treated as a reduction to retained earnings.\n5. SHORT-TERM FINANCING\nThe Company, together with other members of the CSW System, has established a money pool to coordinate short-term borrowings through the issuance of CSW's commercial paper. Money pool borrowings are shown as advances from affiliates on the balance sheet. At December 31, 1993, the CSW System had bank lines of credit aggregating $797 million, including the Company's lines of credit, to back up its commercial paper program. Short-term cash surpluses transferred to the money pool receive interest income in accordance with the money pool arrangement.\n6. FINANCIAL INSTRUMENTS\nThe following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value:\nCash, temporary cash investments, special deposits and short-term debt. The carrying amount approximates fair value because of the short maturity of those instruments.\nLong-term debt. The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for the debt of the same or similar remaining maturities.\nPreferred stock subject to mandatory redemption. The fair value of this preferred stock is estimated based on the quoted market prices for the same or\nsimilar issues or on the current rates offered to the Company for preferred stock with the same or similar remaining redemption provisions.\nThe estimated fair values of the Company's financial instruments are as follows:\n1993 1992\nCarrying Fair Carrying Fair Amount Value Amount Value (thousands) Cash and temporary cash investments $ 2,435 $ 2,435 $ 3,666 $ 3,666 Special deposits 1,967 1,967 151,589 151,589 Short-term debt 171,165 171,165 91,766 91,766 Long-term debt 1,362,799 1,456,533 1,347,887 1,424,128 Preferred stock subject to mandatory redemption 22,021 23,086 28,393 29,766 Long-term debt and preferred stock due within twelve months 3,928 4,096 143,900 149,632\n7. BENEFIT PLANS\nDefined Benefit Pension Plan. The Company, together with other members of the CSW System, maintains a tax qualified, non-contributory defined benefit pension plan covering substantially all of its employees. Participants in the plan during 1993 included approximately 2,300 active employees, 1,200 retirees and beneficiaries and 300 terminated employees with vested benefits. Benefits are based on employees' years of service, age at retirement and final average annual earnings with an offset for the participant's primary Social Security benefit. The CSW System's funding policy is based on actuarially determined contributions, taking into account amounts deductible for income tax purposes and minimum contributions required by ERISA. Contributions to the plan for the years ended December 31, 1993, 1992 and 1991 were $11.0 million, $11.7 million and $10.1 million, respectively. Pension plan assets consist primarily of common stocks and short- and intermediate-term fixed income investments.\nThe components of net periodic pension cost and the assumptions used in accounting for pensions are as follows:\n1993 1992 1991 (thousands) Net Periodic Pension Cost Service cost $ 5,228 $ 4,834 $ 4,324 Interest cost on projected benefit obligation 14,878 13,686 12,072 Actual return on plan assets (18,079) (11,750) (26,785) Net amortization and deferral 68 (5,330) 12,269 ------ ------ ------ $ 2,095 $ 1,440 $ 1,880 ====== ====== ====== Assumptions: Discount rate 7.75% 8.50% 8.50% Long-term compensation increase 5.46% 5.96% 5.96% Return on plan assets 9.50% 9.50% 9.50%\nAs of December 31, 1993 and 1992, the plan's net assets exceeded the total actuarial present value of accumulated benefit obligations.\nPostretirement Benefits Other Than Pensions. The Company adopted SFAS No. 106, Employer's Accounting for Postretirement Benefits Other Than Pensions, January 1, 1993. The adoption resulted in an increase in operating of $5.9 million for 1993. The Company's accumulated postretirement benefit obligation was $66.5 million. The transition obligation was $58.0 million and is being amortized over twenty years. In prior years the Company accounted for these benefits on a pay-as-you-go basis. Expenses for 1992 and 1991 were $3.8 million and $3.5 million, respectively. The CSW System's funding policy is based on actuarially determined contributions taking into account amounts which are\ndeductible income tax purposes. The Company contributed approximately $8.6 million in 1993.\nThe components of net periodic postretirement benefit cost and the assumptions used in accounting for postretirement benefits are as follows:\n(thousands) Net Periodic Postretirement Benefit Cost Service cost $2,257 Interest cost on accumulated postretirement benefit obligation 5,505 Actual return on plan assets (249) Amortization of transition obligation 2,900 Net amortization and deferral (703) ----- $9,710 ===== Assumptions: Discount rate 7.75% Return on plan assets 9.00%\nHealth Care Cost Trend Rate Assumptions: Pre-65 Participants: 1993 Rate of 12.50% grading down .75% per year to an ultimate rate of 6.5% in 2001.\nPost-65 Participants: 1993 Rate of 12.00% grading down .75% per year to an ultimate rate of 6.0% in 2001.\nIncreasing the assumed health care cost trend rates by one percentage point in each year would increase the APBO as of December 31, 1993 by $8.8 million and increase the aggregate of the service and interest cost components of net postretirement benefits by $1.2 million.\nPostemployment Benefits. In November 1992, the Financial Accounting Standards Board issued SFAS No. 112, Employers' Accounting for Postemployment Benefits. This statement requires the accrual method of accounting for certain types of postemployment benefits provided to former or inactive employees after employment, but before retirement. This new standard requires that the expected costs of these benefits be accrued during the period employees render service to qualify for benefits. The most significant costs for the Company are the continued medical and salary benefits during long-term disability. Effective January 1, 1993, the Company adopted SFAS No. 112 and the effect of the change on 1993 income was $2.2 million reflected in cumulative effect of changes in accounting principles.\nRestructuring Charges. The Company recently announced an early retirement program as a part of the Company's restructuring efforts in order to streamline operations and reduce future costs. It is anticipated that this restructuring will affect employee benefit costs incurred by the Company in future periods. Due to the timing of the implementation of the program, many variables regarding specific costs cannot be identified until mid-1994. As a result, no adjustments have been made to the employee benefit cost data presented above.\n8. JOINTLY OWNED ELECTRIC UTILITY PLANT\nThe Company is party to joint ownership agreements with nonaffiliated entities. Such agreements provide for the joint ownership and operation of STP consisting of two nuclear generating units. The Company also has a joint ownership agreement with other members of the CSW System and nonaffiliated entities to provide for the joint ownership and operation of Oklaunion and its related facilities. The statements of income reflect the Company's portion ofoperating costs associated with jointly owned plant in service. At December 31, 1993, the Company had interests in the generating stations and related facilities as shown below:\nSTP Oklaunion (dollars in thousands) Plant in service $2,340,336 $36,045 Accumulated depreciation $318,101 $7,058 Plant capacity - mw 2,500 676 Participation 25.2% 7.8% Share of capacity - mw 630 53\n9. LITIGATION AND REGULATORY PROCEEDINGS\nSTP Introduction. The Company owns 25.2% of STP, a two-unit nuclear power plant which is located near Bay City, Texas. In addition to the Company, HLP, the Project Manager, owns 30.8%, San Antonio owns 28.0%, and Austin owns 16.0%. STP Unit 1 was placed in service in August 1988 and STP Unit 2 was placed in service in June 1989.\nSTP Final Orders. In October 1990, the Texas Commission issued a final order (STP Unit 1 Order) which fully implemented a stipulated agreement filed in February 1990 to resolve dockets then pending before the Texas Commission. In December 1990, the Texas Commission issued a final order (STP Unit 2 Order) which fully implemented a stipulated agreement to resolve all issues regarding the Company's investment in STP Unit 2.\nThe STP Unit 1 Order allowed the Company to increase retail base rates by $144 million. This base rate increase made permanent a $105 million interim base rate increase placed into effect in March 1990 and a $39 million interim base rate increase placed into effect in September 1989. The STP Unit 2 Order provided for a retail base rate increase of $120 million effective January 1, 1991. The STP Unit 1 Order also provided for the deferral of operating expenses and carrying costs on STP Unit 2. A prior Texas Commission order (see \"Deferred Accounting\" below) had authorized deferral of STP Unit 1 costs. Such costs are being recovered through rates over the remaining life of STP. Also, the STP Unit 1 Order authorized use of Mirror CWIP, pursuant to which the Company recognized $360 million of carrying costs as deferred costs, and established a corresponding liability to customers recorded in Mirror CWIP liability and other deferred credits on the balance sheets. In compliance with the order, carrying costs collected through rates during periods when CWIP was included in rate base were recognized as a loan from customers. The loan is being repaid through lower rates from 1991 through 1995, which approximates the length of time during which the carrying costs were collected from customers. The Mirror CWIP liability is being reduced by the recognition of non-cash income during the period 1991 through 1995.\nThe STP Unit 1 and 2 Orders resolved all issues pertaining to the reasonable original costs of STP and the appropriate amount to be included in rate base. Pursuant to the Texas Commission orders, the original cost of the Company's total investment in STP is included in rate base.\nAs part of the stipulated agreement, the Company has agreed to freeze base rates from January 1, 1991 through 1994, subject to certain force majeure events including double-digit inflation, major tax increases, extraordinary increases in operating expenses or serious declines in operating revenues. The Company may file for increases in base rates, which would be effective after 1994 and subject to certain limitations. The fuel portion of customers' bills is subject to adjustment following the normal review and approval by the Texas Commission.\nThe stipulated agreements, as discussed above, were entered into by the Company, the Texas Commission Staff and a majority of intervenors including major cities in the Company's service territory and major industrial customers. These intervenors represent a significant majority of the Company's customers. The Company and the TSA reached agreements, which were subsequently approved by the Texas Commission Staff and other signatories, whereby TSA agreed not to oppose the stipulated agreements in any respect, except with regard to deferred accounting and rate design issues in the STP Unit 1 Order. OPUC and a coalition of low-income customers declined to enter into the stipulated agreements.\nIn January 1991, the TSA, OPUC and the coalition of low-income customers filed appeals of the STP Unit 1 Order in District Court requesting reversal of the deferred accounting for STP Unit 2 and other aspects of that order. In March 1991, the TSA, OPUC and the coalition of low-income customers filed appeals of the STP Unit 2 Order in the District Court requesting reversal of that order. These appeals are pending before the District Court. If these orders are ultimately reversed on appeal, the stipulated agreements would be nullified and the Company could experience a significant adverse effect on its results of operations. However, the parties to the stipulated agreement, should it be nullified, are bound to renegotiate and try to reach a revised agreement that would achieve the same results. Management believes that the STP Unit 1 and 2 Orders will be upheld.\nDeferred Accounting. The Company was granted deferred accounting for STP Unit 1 and 2 costs by Texas Commission orders. These orders allowed the Company to defer post-in-service operating and maintenance costs, including taxes and depreciation, and carrying costs until these costs were reflected in retail rates. Deferred accounting had an immediate positive effect on net income in the years allowed, but cash earnings were not increased until rates went into effect reflecting STP in service (see \"STP Final Orders\" above). The total deferrals for the periods affected were approximately $492 million with an after-tax net income effect of approximately $325 million. This total deferral included approximately $270 million of pre-tax debt carrying costs. Pursuant to the STP Unit 1 and 2 Orders, the Company's retail rates include recovery of all STP Unit 1 and 2 deferrals over the remaining life of the plant.\nIn July 1989, OPUC and the TSA filed appeals of the Texas Commission's final order in District Court requesting reversal of deferred accounting for STP Unit 1. In September 1990, the District Court issued a judgment affirming the Texas Commission's order for STP Unit 1, which was subsequently appealed to the Court of Appeals by OPUC and the TSA. The hearing of the Company's STP Unit 1 deferred accounting order was combined by the Court of Appeals with similar appeals of HLP deferred accounting orders.\nIn September 1992, the Court of Appeals issued a decision that allows the Company to include STP Unit 1 deferred post-in-service operating and maintenance costs in rate base. However, the Court of Appeals held that deferred post-in- service carrying costs could not be included in rate base, thereby prohibiting the Company from earning a return on such costs.\nAfter the Court of Appeal's denial of each party's motion for rehearing of the decision, the Company and the Texas Commission in December 1992 filed Applications for Writ of Error petitioning the Supreme Court of Texas to review the September 1992 decision denying rate base treatment of deferred post-in- service carrying costs by the Court of Appeals. Additionally, the TSA and OPUC filed Applications for Writ of Error petitioning the Supreme Court of Texas to reverse the Court of Appeal's decision, challenging generally the legality of deferred accounting for or rate base treatment of any deferred costs. In May 1993, the Supreme Court of Texas granted the Company's application for writ of error. The Company's case was consolidated with the deferred accounting cases of El Paso Electric Company and HLP. Oral arguments were heard in September 1993 and the Supreme Court's decision is pending.\nIf the Company's orders granting deferred accounting were ultimately reversed and not favorably revised, the Company could experience a material adverse effect on its results of operations. While management cannot predict the ultimate outcome of the deferred accounting appeal, management believes the Company will successfully receive approval of its deferred accounting orders or will be successful in renegotiation of its rate orders, so that there will be no material adverse effect on the Company's results of operations or financial condition.\nSTP Outage. In February 1993, Units 1 and 2 of STP were shut down by HLP, the Project Manager, in an unscheduled outage resulting from mechanical problems relating to two auxiliary feedwater pumps. HLP determined that the units would not be restarted until the equipment failures had been corrected and the NRC briefed on the causes of these failures and the corrective actions that were taken. The NRC formalized that commitment in a confirmatory action letter, and sent an Augmented Inspection Team to STP to review the matter. In March 1993, the NRC began a diagnostic evaluation of STP. Conducted infrequently, diagnostic evaluations are broad-based evaluations of overall plant operations and are intended to review the strengths and weaknesses of the licensee's performance and to identify the root cause of performance problems. During and subsequent to the June 1993 completion of the evaluation, the NRC supplemented its confirmatory action letter to identify additional issues to be resolved and verified by the NRC before restart of STP. Such issues included the need to reduce backlogs of engineering and maintenance work and to simplify work processes which placed excessive burdens on operating and other plant personnel. The report also identified the need to strengthen management communications, oversight and teamwork as well as the capability to identify and correct the root causes of problems.\nThe NRC announced in June 1993 that STP was placed on its \"watch list\" of plants with \"weaknesses that warrant increased NRC attention.\" Plants on the watch list are subject to closer NRC oversight. STP will remain on the NRC's watch list until both units return to service and a period of good performance is demonstrated.\nDuring the outage, the necessary improvements have been made by HLP to address the issues in the confirmatory action letter, as supplemented. On February 15, 1994, the NRC agreed that the confirmatory action letter issues had been resolved with respect to Unit 1, and that it supported HLP's recommendation that Unit 1 was ready to restart. Unit 1 restarted in late February 1994 and operated at low power for three days. The Project Manager then shut down Unit 1 due to a problem with a steam generator feedwater valve and a steam generator tube leak. The Project Manager expects to make the necessary repairs and restart Unit 1 in late March 1994, although additional delays may occur.\nWhile many of the corrective actions taken are common to both units, HLP must demonstrate to the NRC that these issues are also resolved with respect to Unit 2 before it is restarted. HLP estimates that Unit 2 will restart during the second quarter of 1994 after the completion of refueling, which began in March 1993 but was delayed in order to focus on the issues discussed above. The outage has not affected the Company's ability to meet customer demands because of existing capacity and the Company's ability to purchase additional energy from affiliates and nonaffiliates.\nDuring 1993, the NRC imposed a total of $500,000 in fines against HLP in connection with violations of NRC requirements that occurred prior to the February 1993 shut down. No fines have been imposed for activities subsequent to the shut down. The Company has paid its portion (25.2%) of the cost of fines.\nThe Company's share of increased non-fuel operation and maintenance costs in 1993, related to the outage at STP, necessary to effect the needed improvements were approximately $29 million, and were expensed as incurred. Included in these expenses were detailed inspections of both units' steam generators, and the acceleration of certain maintenance activities from 1994 to 1993. This acceleration is expected to eliminate the need for any planned outages for either unit in 1994. The 1994 budgeted STP non-fuel operation and maintenance expenses are expected to be significantly lower than the 1993 actual expenses; but even though lower, they are expected to be sufficient to continue enhancements that will result in improved long-term performance of STP.\nPursuant to the substantive rules of the Texas Commission, the Company generally is allowed to recover its fuel costs through a fixed fuel factor. These fuel factors are in the nature of temporary rates, and the Company's collection of revenues by such fuel factors is subject to adjustment at the time of a fuel reconciliation proceeding before the Texas Commission. The difference between fuel revenues billed and fuel expense incurred is recorded as an addition to or a reduction of revenues, with a corresponding entry to unrecovered fuel cost or other current liabilities, as appropriate. Any fuel costs (not limited to under- or over-recoveries) which the Texas Commission determines as unreasonable in a reconciliation proceeding are not recoverable from customers.\nDuring the outage, the Company's fuel and purchased power costs have been, and are expected to continue to be, increased as the power normally generated by STP must be replaced through sources with higher costs. It is unclear how the Texas Commission will address the reasonableness of higher costs associated with the outage. At January 31, 1993, before the start of the STP outage, the Company had an over-recovered fuel balance of $5.2 million, exclusive of interest. At January 31, 1994, the Company's under-recovered fuel balance was $55.7 million, exclusive of interest. This under-recovery of fuel costs, while due primarily to the STP outage, was also affected by changes in fuel prices and timing differences. The Company cannot accurately estimate the amount of any future under- or over-recoveries due to the unpredictable nature of the above factors. Although there is the potential for disallowance of fuel-related costs, such determination cannot be made until fuel costs are reconciled with the Texas Commission. If a significant portion of fuel costs were disallowed by the Texas Commission, the Company could experience a material adverse effect on its results of operations in the year of any disallowance. The Company is required by Texas Commission's rules to file a reconciliation of its fuel costs by May 1, 1994. However, the Texas Commission Staff is proposing a revised filing deadline that would not require the Company to file before the fourth quarter of 1994.\nIn July 1993, the Company filed a fuel surcharge petition, which is separate from a fuel reconciliation proceeding, with the Texas Commission to comply with the mandatory provisions of the Texas Commission's fuel rules. The petition requested approval of a customer surcharge to recover under-recovered fuel and purchased power costs resulting from the STP outage, increased natural gas costs and other factors. The petition also requested that the Texas Commission postpone consideration of the surcharge until the STP outage concluded or at the time fuel costs are next reconciled as discussed above. In August 1993, a Texas Commission ALJ granted the Company's request to postpone consideration of the surcharge. In January 1994, the Company updated its fuel surcharge petition to reflect amounts of under-recovery through November 1993. Likewise, the Company requested and was granted postponement of the updated petition until the STP outage concluded or at the time fuel costs are next reconciled.\nManagement believes that the operating outage at STP will not have a material effect on its financial condition or on its results of operations.\nRate Case Filings. During December 1993 and January 1994, several cities (Cities) in the Company's service territory exercised their rights to require the Company to file rate cases to determine if its rates are fair, just and reasonable. The Cities, together, account for approximately 40% of the Company's base revenues. The governing bodies of these Cities have original jurisdiction over rates only within their incorporated limits. The Cities have ordered the Company to file rate cases by various dates from February 17 through March 18, 1994, with hearings scheduled in February and March 1994.\nThe Cities have informed the Company that this rate review was precipitated by the outage at STP leading the Cities to question whether STP should continue to be included in the Company's rate base. Further, the Cities question whether the Company is earning an excessive return on equity. In February 1994, a consultant for the Cities filed its report with the Cities. The consultant recommended that STP Unit 2 be removed from the Company's rate base, resulting in a reduction of the Company's total base revenues of $106.5 million. The consultant did not recommend a reduction in revenues relating to STP Unit 1, nor did it suggest a revenue reduction for its contention that the Company's earnings have been excessive, but it suggested that those issues be reserved for future proceedings if circumstances warrant action. Furthermore, the consultant made no recommendations concerning STP operation and maintenance expenses.\nThe Company contends that both units of STP belong in rate base because of the long-term benefits nuclear generation provides to customers. The Company is not aware of any Texas Commission precedent directly supporting the removal of a nuclear plant from rate base because of outages of the duration experienced by Unit 1 and expected for Unit 2. The Company also believes that its return on equity is below the level specified for the rate freeze period in accordance with the stipulated agreement entered into by the Company and parties to its last rate order, including the Cities. This rate order does not restrict the Cities from exercising their original jurisdiction over rates during the rate freeze period. The Texas Commission has appellate jurisdiction over rates set by municipalities.\nIn February and early March 1994, some of the Cities passed resolutions ordering the Company to reduce rates by $73 million, if applied on a total company basis. These Cities' revenues represent approximately 20% of the Company's total base revenues. The orders only affect the rates of customers who take service within these Cities' limits. The orders call for rates to be reduced in April unless, on appeal, the Texas Commission takes action which would stay their effectiveness. The Company has appealed these orders to the Texas Commission seeking the actions necessary to stay their effectiveness. The Company cannot predict if other cities acting in their capacity as regulatory authorities will initiate similar proceedings.\nIn December 1993, a complaint was filed at the Texas Commission by a customer of the Company who takes service outside of municipal limits, where the Texas Commission has original jurisdiction. The complaint seeks a review of the Company's rates due to the outage at STP. The Texas Commission has docketed the proceeding, but has taken no other action in the matter. In March 1994, the OPUC and General Counsel petitioned the Texas Commission to review the Company's rates. Any rate orders which might ultimately be entered as a result of these filings would affect customers served by the Company in all areas where individual city regulatory authorities do not have original jurisdiction.\nManagement cannot predict the ultimate outcome of these rate filings, although management believes that their ultimate resolution will not have a material adverse effect on the Company's results of operations or financial condition.\nWestinghouse Litigation. The Company and other owners of STP are plaintiffs in a lawsuit filed October 1990 in the District Court in Matagorda County, Texas against Westinghouse, seeking damages and other relief. The suit alleges that Westinghouse supplied STP with defective steam generator tubes that are susceptible to stress corrosion cracking. Westinghouse filed an answer to the suit in March 1992, denying the plaintiff's allegations. The suit is currently in the discovery phase.\nInspections during the current STP outage have detected early signs of stress corrosion cracking in tubes at STP Unit 1, but the resulting remedial measures to date have not resulted in a material expense to the Company. Management believes that any additional problems would develop gradually and could be monitored by the operators of STP. An accurate estimate of the costs of remedying any further problems currently is unavailable due to many uncertainties, including among other things, the timing of repairs, which may coincide with scheduled outages, and the recoverability of amounts from Westinghouse and any insurers. Management believes that the ultimate resolution of this matter will not have a material adverse effect on the Company's results of operations.\nGeneral. The Company is party to various other legal claims, actions and complaints arising in the normal course of business. Management does not expect disposition of these matters to have a material adverse effect on the Company's results of operations or financial condition.\n10. COMMITMENTS AND CONTINGENT LIABILITIES\nIt is estimated that the Company will spend approximately $187 million for construction purposes in 1994. Substantial commitments have been made in connection with the construction program.\nTo supply a portion of the fuel requirements of its generating plants, the Company has entered into various commitments for the procurement of fuel.\nNuclear Insurance\nIn connection with the licensing and operation of STP, the owners have purchased the maximum limits of nuclear liability insurance, as required by law, and have executed indemnification agreements with the NRC in accordance with the financial protection requirements of the Price-Anderson Act.\nThe Price-Anderson Act, a comprehensive statutory arrangement providing limitations on nuclear liability and governmental indemnities is in effect until August 1, 2002. The limit of liability under the Price-Anderson Act for licensees of nuclear power plants is $9.3 billion per incident effective February 1994. The owners of STP are insured for their share of this liability through a combination of private insurance amounting to $200 million and a mandatory industry-wide program for self-insurance totaling $9.1 billion. The maximum amount that each licensee may be assessed for each licensed reactor under the industry-wide program of self-insurance following a nuclear incident at an insured facility is $75.5 million which may be adjusted for inflation plus a five percent charge for legal expenses, but not more than $10 million per reactor for each nuclear incident in any one year. The Company and each of the other STP owners are subject to such assessments, which the Company and the other owners have agreed will be borne on the basis of their respective ownership interests in STP. For purposes of these assessments, STP has two licensed reactors.\nThe owners of STP currently maintain on-site decontamination liability and property damage insurance in the amount of $2.7 billion provided by American Nuclear Insurers (ANI) and the Nuclear Electric Insurance Limited (NEIL) II program. Policies of insurance issued by ANI and NEIL II stipulate that policy proceeds must be used first to pay decontamination and clean-up costs, before being used to cover direct losses to property. The Company and the other owners of STP have entered into an agreement that provides for the total cost of decontamination liability and property insurance for STP (including premiums and assessments) to be shared pro rata based upon each owner's respective ownership interests in STP.\nThe Company purchases, for its own account, business interruption and extra expense insurance under the NEIL I Business Interruption and/or Extra Expense Program. This insurance will reimburse the Company for extra expenses incurred, up to $1.7 million per week, for replacement generation or purchased power as the result of a covered accident that shuts down production at STP for more than 21 weeks. The maximum amount recoverable for Unit 1 is $103.4 million and for Unit 2 is $105.9 million. The Company is subject to an additional assessment up to approximately $2.2 million for the current policy year in the event that losses as a result of a covered accident at a nuclear facility insured under NEIL I exceeds the accumulated funds available under the NEIL I Business Interruption and/or Extra Expense Program.\n11. QUARTERLY INFORMATION (UNAUDITED)\nThe following unaudited quarterly information includes, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such amounts:\nElectric Operating Operating Net Revenues Income Income Quarter Ended (thousands)\nMarch 31 $240,910 $41,346 $28,598 Adjustment (2,656) (1,753) 25,962 ------- ------ ------ March 31 Restated $238,254 $39,593 $54,560 ======= ====== ======\nJune 30 298,863 55,400 42,334 Adjustment 17,190 11,345 11,345 ------- ------ ------ June 30 Restated $316,053 $66,745 $53,679 ======= ====== ======\nSeptember 30 383,087 85,916 75,510 Adjustment 4,103 2,522 2,102 ------- ------ ------ September 30 Restated $387,190 $88,438 $77,612 ======= ====== ======\nDecember 31 (1) $282,031 $(4,697) $(13,426) ======= ====== ====== March 31 $227,513 $46,838 $34,022 June 30 267,959 60,984 47,527 September 30 338,215 95,474 83,426 December 31 279,736 63,369 53,536\n(1) Operating and net income includes the effect of a pre-tax charge of $29 million related to the Company's restructuring as discussed in ITEM 7. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Restructuring.\nQuarterly information for 1993 has been restated to reflect the change in accounting for unbilled revenues and the adoption of SFAS No. 112, Employers' Accounting for Postemployment Benefits See NOTE 1, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. These changes were made in December 1993, but were effective January 1, 1993.\nInformation for quarterly periods is affected by seasonal variations in sales, rate changes, timing of fuel expense recovery and other factors.\nREPORT OF INDEPENDENT PUBLIC ACCOUNTANTS\nTo the Stockholders and Board of Directors of Central Power and Light Company:\nWe have audited the accompanying balance sheets and statements of capitalization of Central Power and Light Company (a Texas corporation and wholly owned subsidiary of Central and South West Corporation) as of December 31, 1993 and 1992, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Central Power and Light Company as of December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. In 1993, as discussed in the Notes to the financial statements, the Company changed its methods of accounting for unbilled revenues, postretirement benefits other than pensions, income taxes and postemployment benefits. Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental schedules V, VI, IX, X and Exhibit 12 are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules and exhibit have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.\nArthur Andersen & Co.\nDallas, Texas February 25, 1994\nREPORT OF MANAGEMENT\nManagement is responsible for the preparation, integrity and objectivity of the financial statements of Central Power and Light Company as well as all other information contained in this report. The financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and, in some cases, reflect amounts based on the best estimates and judgments of management, giving due consideration to materiality. Financial information contained elsewhere in this report is consistent with that in the financial statements. The Company maintains an adequate system of internal controls to provide reasonable assurance that transactions are executed in accordance with management's authorization, that financial statements are prepared in accordance with generally accepted accounting principles and that the assets of the Company are properly safeguarded. The system of internal controls is documented, evaluated and tested by the Company's internal auditors on a continuing basis. Due to the inherent limitations of the effectiveness of internal controls no internal control system can provide absolute assurance that errors and irregularities will not occur. However, management strives to maintain a balance, recognizing that the cost of such a system should not exceed the benefits derived. No material internal control weaknesses have been reported to management. Arthur Andersen & Co. was engaged to audit the financial statements of the Company and issue a report thereon. Their audit was conducted in accordance with generally accepted auditing standards. Such standards require an examination of selected transactions and other procedures sufficient to provide reasonable assurance that the financial statements are not misleading and do not contain material errors. The Report of Independent Public Accountants does not limit the responsibility of management for information contained in the financial statements and elsewhere in the report.\nRobert R. Carey President and Chief Executive Officer\nMelanie J. Richardson Vice President and Treasurer\nDavid P. Sartin Controller and Secretary\nREPORT OF AUDIT COMMITTEE\nThe Audit Committee of the Board of Directors is composed of six outside directors. The members of the Audit Committee are: Robert A. McAllen, Chairman, Jim L. Peterson, Ruben M. Garcia, H. Lee Richards, Pete Morales, Jr. and S. Loyd Neal, Jr. The Committee held two meetings during 1993. The Committee oversees the Company's financial reporting process on behalf of the Board of Directors. The Committee discusses with the internal auditors and the independent public accountants the overall scope and specific plans for their respective audits. The Committee also discusses the Company's financial statements and the adequacy of internal controls. The Committee meets regularly with the Company's internal auditors and independent public accountants to discuss the results of their audits, their evaluations of internal controls, and the overall quality of the Company's financial reporting. The meetings are designed to facilitate any private communication with the Committee desired by the internal auditors or independent public accountants.\nRobert A. McAllen Chairman, Audit Committee", "ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.\nNone. PART III\nCSW common stock amounts in ITEM 11 and ITEM 12 reflect the two-for-one common stock split, effected by a 100% common stock dividend paid March 6, 1992 to shareholders of record on February 10, 1992.", "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.\n(a) The following is a list of directors of the Company, together with certain information with respect to each of them:\nName, Age, Principal Year Occupation, Business Experience First Became and Other Directorships Director\nE. R. BROOKS. . . . . . . . . . . . . . . . . . . AGE - 56 1991\nChairman, President and CEO of CSW since February 1991. President of CSW from September 1990 to February 1991. President and Chief Operating Officer of CSW from January 1990 to September 1990 and Executive Vice President of CSW from 1987 to 1989. Director of CSW and each of its subsidiaries. Director of Hubbell, Electric, Inc. and of Baylor University Medical Center, Dallas, Texas.\nROBERT R. CAREY. . . . . . . . . . . . . . . . . .AGE - 56 1989\nPresident and CEO of the Company since January 1990. Executive Vice President and Chief Operating Officer of the Company from 1989 to 1990. Vice President, Operations of the Company from 1988 to 1989. Director of Corpus Christi National Bank, Corpus Christi, Texas.\nRUBEN M. GARCIA. . . . . . . . . . . . . . . . . .AGE - 62 1981\nPresident or principal of several firms engaged primarily in construction and land development in the Laredo, Texas area.\nHARRY D. MATTISON (1). . . . . . . . . . . . . . .AGE - 57 1994\nExecutive Vice President of CSW since September 1990 and Chief Executive Officer of CSWS since December 1993. Chief Operating Officer of CSW from September 1990 to December 1993. President and Chief Executive Officer of SWEPCO from September 1988 to September 1990. Director of each of CSW's wholly owned subsidiaries.\nROBERT A. McALLEN. . . . . . . . . . . . . . . . .AGE - 59 1983\nRobert A. McAllen Investments, Inc., Weslaco, Texas. Consultant to First National Bank, Edinburg, Texas.\nPETE MORALES, JR. . . . . . . . . . . . . . . . . AGE - 53 1990\nPresident and General Manager of Morales Feed Lots, Inc., Devine, Texas. Director of Devine State Bank, Devine, Texas.\nS. LOYD NEAL, JR. . . . . . . . . . . . . . . . . AGE - 56 1990\nPresident of Hilb, Rogal and Hamilton Company of Corpus Christi, an insurance agency, Corpus Christi, Texas.\nName, Age, Principal Year Occupation, Business Experience First Became and Other Directorships Director\nJIM L. PETERSON. . . . . . . . . . . . . . . . . .AGE - 58 1989\nPresident and CEO of Whataburger, Inc. from 1974 to 1993. Director of Mercantile Bank of Corpus Christi.\nH. LEE RICHARDS. . . . . . . . . . . . . . . . . .AGE - 60 1987\nChairman of the Board of Hygeia Dairy Company, Harlingen, Texas. Director of Harlingen National Bank, Harlingen, Texas.\nMELANIE J. RICHARDSON. . . . . . . . . . . . . . .AGE - 37 1993\nVice President, Administration and Treasurer of the Company since 1993. Vice President, Corporate Services and Treasurer of the Company from 1992 to 1993. Treasurer of the Company since March 1992. Director of Internal Audits of the Company 1991 to 1992. Manager of Personnel Services of the Company 1990 to 1991. Manager of Financial Audits of the Company 1986 to 1990.\nJ. GONZALO SANDOVAL. . . . . . . . . . . . . . . .AGE - 45 1992\nVice President, Operations/Engineering of the Company since 1993. Vice President, Regional Operations of the Company from 1992 to 1993. Vice President, Corporate Services of the Company from 1991 to 1992. General Manager of the Southern Region from 1988 to 1991.\nB. W. TEAGUE. . . . . . . . . . . . . . . . . . . AGE - 55 1984\nVice President, Marketing and Business Development of the Company since 1991. Vice President, Corporate Services of the Company from 1988 to 1991. Senior Vice President, District Operations of the Company from 1986 to 1988.\nGERALD E. VAUGHN. . . . . . . . . . . . . . . . . AGE - 51 1993\nVice President, Nuclear of CSWS since January 1994. Vice President, Nuclear Affairs of the Company since July 1993. Vice President for Nuclear Services of Carolina Power and Light Company, Raleigh, North Carolina, from 1990 to 1993. Vice President of Nuclear Operations at HLP from 1987 to 1990. __________________________\n(1) Mr. Mattison was elected to the Board effective February 1, 1994, replacing Dale E. Ward. Mr. Ward resigned from the Board in January 1994 upon his transfer to CSWS as Vice President of Production Engineering.\nAll outside directors have engaged in their respective principal occupations listed above for a period of more than five years, unless otherwise indicated.\n(b) The following is a list of the executive officers who are not directors of the Company, together with certain information with respect to each of them:\nYear First Elected to Present Name Age Present Position Position\nDavid P. Sartin 37 Controller and Secretary 1991\n__________________________\nEach of the directors and executive officers of the Company is elected to hold office until the first meeting of the Company's Board of Directors after the 1994 annual meeting of stockholders, presently scheduled to be held on April 14, 1994. Each of the executive officers listed in the table above has been employed by the Company or an affiliate in the CSW System in an executive or managerial capacity for at least the last five years except for Mr. Vaughn.", "ITEM 11. EXECUTIVE COMPENSATION.\nCash and Other Forms of Compensation\nThe following table sets forth the aggregate cash and other compensation for services rendered for the fiscal years of 1993, 1992, and 1991 paid or awarded by the Company to the Named Executive Officers.\nOption/SAR Grants\nNo grants of CSW common stock options or CSW SARs were made in 1993.\nOption/SAR Exercises and Year-End Value Table\nShown below is information regarding CSW common stock option/SAR exercises during 1993 and unexercised CSW common stock options/SARs at year-end for the Named Executives Officers.\nLong-term Incentive Plan Awards Table\nThe following table shows information concerning awards made to the Named Executive Officers during 1993 under CSW's Long-Term Incentive Plan (\"LTIP\"):\nLong-Term Incentive Plan Awards Made in 1993\nPerformance Estimated Future or Payouts under Number of CSW Other Period Non-Stock Price Based Plans\nUntil Shares, Units or Maturation Threshold Target Maximum Name Other Rights (#) or Payout ($) ($) ($)\nRobert R. Carey 1 2 years - 137,238 205,857 Dale E. Ward 1 2 years - 28,105 42,158 B. W. Teague 1 2 years - 28,105 42,158 J. Gonzalo Sandoval 1 2 years - 28,105 42,158 C. Wayne Stice 1 - - - -\nPayouts of the awards are contingent upon CSW's achieving a specified level of total shareholder return, relative to a peer group of utility companies, for the three-year period ended December 1995. Such return must also exceed the average six-month treasury bill rate for the same period in order for any payout to be made. If the Named Executive Officer's employment is terminated during the performance period for any reason other than death, total and permanent disability or retirement, then the award is generally canceled.\nThe LTIP contains a provision accelerating awards upon a change in control of CSW. If a change in control of CSW occurs, (a) all options and SARs become fully exercisable, (b) all restrictions, terms and conditions applicable to all restricted stock are deemed lapsed and satisfied and (c) all performance units are deemed to have been fully earned, as of the date of the change in control. Awards which have been granted and outstanding for less than six months as of the date of change in control are not then exercisable, vested or earned on an accelerated basis. The LTIP also contains provisions designed to prevent circumvention of the above acceleration provisions generally through coerced termination of an employee prior to the change in control of CSW.\nRetirement Plans Pension Plan Table\nAnnual Benefits After Average Compensation Specified Years of Credited Service 20 25 30 or more $100,000 . . . . . . . . . . . . . . . $ 33,333 $ 41,667 $ 50,000 150,000 . . . . . . . . . . . . . . . 50,000 62,500 75,000 200,000 . . . . . . . . . . . . . . . 66,667 83,333 100,000 250,000 . . . . . . . . . . . . . . . 83,333 104,167 125,000 300,000 . . . . . . . . . . . . . . . 100,000 125,000 150,000 350,000 . . . . . . . . . . . . . . . 116,333 145,833 175,000\nExecutive officers are eligible to participate in the tax-qualified, CSW Pension Plan like other employees of the Company. Certain executive officers, including the Named Executive Officers, are also eligible to participate in the CSW Special Executive Retirement Plan (SERP), a non-qualified ERISA excess benefit plan. Such pension benefits depend upon years of credited service, age at retirement and amount of covered compensation earned by a participant. The annual normal retirement benefits payable under the pension and the SERP are based on 1.67% of \"average compensation\" times the number of years of credited service (reduced by (i) no more than 50% of a participant's age 55 Social Security benefit, and (ii) certain other offset benefits).\n\"Average compensation\" means the average covered compensation (salary as reported in the Summary Compensation Table) during the 36 consecutive months of highest pay during the 120 months prior to retirement. The combined benefit levels in the table above, which include both the pension and SERP, are based on assumed retirement at age 65, the years of credited service shown, continued existence of the plans without substantial change, and payment in the form of a single life annuity.\nRespective years of credited service and ages, as of December 31, 1993, for the Named Executive Officers are as follows: Mr. Carey, 26 and 56; Mr. Stice, 30 and 56; Mr. Ward, 21 and 46; Mr. Sandoval, 20 and 45, and Mr. Teague, 30 and 55.\nMeetings and Compensation. The Board of Directors held four meetings during 1993. Directors who are not also executive officers and employees of the Company or its affiliates receive annual directors' fees of $6,000 for serving on the Board and a fee of $300 plus expenses for each meeting of the Board or committee attended.\nThose directors who are not also officers of the Company are eligible to participate in a deferred compensation plan. Under this plan such directors may elect to defer payment of annual directors' and meeting fees until they retire from the Board or as they otherwise direct.\nCompensation Committee Interlocks and Insider Participation. No person serving during 1993 as a member of the Executive Compensation Committee of the Board of Directors of CSW served as an officer or employee of the Company during or prior to 1993. No person serving during 1993 as an executive officer of the Company serves or has served on the compensation committee or as a director of another company, one of whose executive officers serves as a member of the Executive Compensation Committee of CSW or as a director of the Company.", "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.\nAll 6,755,535 shares of the Company's outstanding Common Stock, $25 par value, per share, are owned beneficially and of record by CSW, 1616 Woodall Rodgers Freeway, Dallas, Texas 75202.\nSecurity Ownership of Management\nThe following table shows CSW common stock beneficially owned as of December 31, 1993, by each director, the Named Executive Officers and, as a group, all directors and executive officers of the Company. Share amounts shown in this table include restricted stock, options exercisable within 60 days after year-end shares of CSW common stock credited to Central and South West Corporation Thrift plan accounts, and all other shares of CSW common stock beneficially owned by the listed persons. Each person has a sole voting and investment power with respect to all shares listed in the table below unless otherwise indicated.\nBeneficial Ownership as of December 31, 1993 Name CSW Common Stock (1)(2)\nE. R. Brooks 60,959 Robert R. Carey 10,734 Ruben M. Garcia - Robert A. McAllen 2,000 Pete Morales, Jr. - S. Loyd Neal, Jr. 323 Jim L. Peterson - H. Lee Richards - Melanie J. Richardson 757 J. Gonzalo Sandoval 6,225 C. Wayne Stice 4,087 B. W. Teague 2,701 Gerald E. Vaughn 500 Dale E. Ward 8,659\nAll of the above and other executive officers as a group 99,192 ____________________\n(1) Included in these amounts for Mr. Brooks, Mr. Carey, Mr. Mattison, Mr. Stice, Mr. Ward, Mr. Teague and Mr. Sandoval are restricted stock of 7,172, 3,963, 4,708, 0, 948, 726 and 264, respectively. These individuals have voting power, but not investment power with respect to these shares. The above shares also include 9,531, 5,643, 6,176, 1,015, 1,045, 0, 971, and 938 shares underlying immediately exercisable options held by Mr. Brooks, Mr. Carey, Mr. Mattison, Mr. Stice, Mr. Ward, Mr. Teague, Mr. Sandoval and the directors and executive officers as a group, respectively.\n(2) All directors' and executive officers' shares owned as of January 1, 1994, as indicated are owned directly and aggregate less than one percent of the outstanding shares of such class.", "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.\nNone. PART IV", "ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.\nPage Reference\n(a) Financial Statements (Included under \"ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA\"):\nReport of Independent Public Accountants. 42\nStatements of Income for the years ended 24 December 31, 1993, 1992 and 1991.\nStatements of Retained Earnings for the 24 years ended December 31, 1993, 1992 and 1991.\nBalance Sheets as of December 31, 1993 25 and 1992.\nStatements of Cash Flows for the years 26 ended December 31, 1993, 1992 and 1991.\nStatements of Capitalization as of 27 December 31, 1993 and 1992.\nNotes to Financial Statements. 28-41\n(b) Reports on Form 8-K:\nThe Company filed a report on Form 8-K dated March 10, 1994, reporting ITEM 5. OTHER EVENTS relating to the STP outage and current rate case proceedings.\n(c) Exhibits:\n3. (a) Restated Articles of Incorporation, as - amended, of the Company (incorporated herein by reference to Exhibit 4(a) to the Company's Registration Statement No. 33-4897, Exhibits 5 and 7 to Form U-1 File No. 70-7171, Exhibits 5, 8.1, 8.2 and 19 to Form U-1 File No. 70-7472 and the Company's Form 10-Q for the quarterly period ended September 30, 1992, ITEM 6, Exhibit 1).\n(b) Bylaws, as amended, of the Company. - (Incorporated herein by reference to Exhibit 3(b) to the Company's 1991 Form 10-K, file No. 0-346.)\nPage Reference\n4. Indenture of Mortgage or Deed of - Trust dated November 1, 1943, executed by the Company to The First National Bank of Chicago and Robert L. Grinnell, as Trustees, as amended through October 1, 1977 (incorporated herein by reference to Exhibit 5.01 in File No. 2-60712), and the Supplemental Indentures of the Company dated September 1, 1978 (incorporated herein by reference to Exhibit 2.02 in File No. 2-62271) and December 15, 1984, July 1, 1985, May 1, 1986 and November 1, 1987 (incorporated herein by reference to Exhibit 17 to Form U-1 File No. 70-7003, Exhibit 4(b) in File No. 2-98944, Exhibit 4 to Form U-1 File No. 70-7236 and Exhibit 4 to Form U-1 File No. 70-7249) and June 1, 1988, December 1, 1989, March 1, 1990, October 1, 1992, December 1, 1992, February 1, 1993 and April 1, 1993 (incorporated herein by reference to Exhibit 2 to Form U-1 File No. 70-7520, Exhibit 3 to Form U-1 File No. 70-7721, Exhibit 10 to Form U-1 File No. 70-7735 and Exhibit 10(a), 10(b), 10(c) and 10(d), respectively, to Form U-1 File No. 70-8053).\n12. Statement re computation of Ratio of 61 Earnings to Fixed Charges for the five years ended December 31, 1993.\n18. Letter from Independent Public Accountants 62 for change in accounting principle.\n23. Consent of Independent Public 63 Accountants.\n24. (a) Powers of Attorney. 64\n(b) Powers of Attorney. 65\n(c) Powers of Attorney. 66\nPage Reference\n(d) Schedules:\nReport of Independent Public 42 Accountants on Supplemental Schedules and Exhibit.\nV. Property, Plant and Equipment for the 56 years ended December 31, 1993, 1992 and 1991.\nVI. Accumulated Depreciation, Depletion 57 and Amortization of Property, Plant and Equipment for the years ended December 31, 1993, 1992 and 1991.\nIX. Short-Term Borrowings for the years 58 ended December 31, 1993, 1992 and 1991.\nX. Supplementary Income Statement 59 Information for the years ended December 31, 1993, 1992 and 1991.\nAll other exhibits and schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements and related notes to financial statements.\nSIGNATURES\nPursuant to the requirements of Section 13 or 15(d) 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, on March 15, 1994.\nCENTRAL POWER AND LIGHT COMPANY\nBy: David P. Sartin Controller and Secretary\nPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 15, 1994.\nSignature Title\nRobert R. Carey President and CEO and Director (Principal executive officer)\nMelanie J. Richardson Vice President, Treasurer and Director (Principal financial officer)\nDavid P. Sartin Controller and Secretary (Principal accounting officer)\n*E. R. Brooks Director *Ruben M. Garcia Director *Harry D. Mattison Director *Robert A. McAllen Director *Pete Morales, Jr. Director *S. Loyd Neal, Jr. Director *Jim L. Peterson Director *H. Lee Richards Director *J. Gonzalo Sandoval Director *B. W. Teague Director *Gerald E. Vaughn Director\n*Melanie J. Richardson, by signing her name hereto, does sign this document on behalf of the persons indicated above pursuant to a power of attorney duly executed by each such person.\n*By: Melanie J. Richardson Attorney-in-Fact\nSCHEDULE X\nCENTRAL POWER AND LIGHT COMPANY SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31\n1993 1992 1991 (thousands)\nReal estate and personal property taxes $55,255 $41,003 $38,817 State gross receipts taxes 14,173 13,685 13,099 Payroll taxes 8,300 7,288 7,032 Franchise taxes 6,420 6,284 1,265(a) State utility commission assessments 1,913 1,822 1,784 Other taxes 333 261 456\n$86,394 $70,343 $62,453\n____________________\n(a) A refund of approximately $3.6 million related to prior years was received in 1991.\nThe amounts of taxes, depreciation and maintenance charged to accounts other than income and expense accounts were not significant. Rents, royalties, advertising and research and development costs during these years were not significant.\nINDEX TO EXHIBITS Exhibit Transmission Number Exhibit Method\n3(a) Restated Articles of Incorporation, as Incorporated amended, of the Company (incorporated by Reference herein by reference to Exhibit 4(a) to the Company's Registration Statement No. 33-4897, Exhibits 5 and 7 to Form U-1 File No. 70-7171, Exhibits 5, 8.1, 8.2 and 19 to Form U-1 File No. 70-7472 and the Company's Form 10-Q for the quarterly period ended September 30, 1992, ITEM 6, Exhibit 1).\n3(b) Bylaws, as amended, of the Company. Incorporated (Incorporated herein by reference to by Reference Exhibit 3(b) to the Company's 1990 Form 10-k, File No. 0-346).\n4 Indenture of Mortgage or Deed of Trust Incorporated dated November 1, 1943, executed by the by Reference Company to The First National Bank of Chicago and Robert L. Grinnell, as Trustees, as amended through October 1, 1977 (incorporated herein by reference to Exhibit 5.01 in File No. 2-60712), and the Supplemental Indentures of the Company dated September 1, 1978 (incorporated herein by reference to Exhibit 2.02 in File No. 2-62271) and December 15, 1984, July 1, 1985, May 1, 1986 and November 1, 1987 (incorporated herein by reference to Exhibit 17 to Form U-1 File No. 70-7003, Exhibit 4(b) in File No. 2-98944, Exhibit 4 to Form U-1 File No. 70-7236 and Exhibit 4 to Form U-1 File No. 70-7249) and June 1, 1988, December 1, 1989, March 1, 1990, October 1, 1992, December 1, 1992, February 1, 1993 and April 1, 1993, (incorporated herein by reference to Exhibit 2 to Form U-1 File No. 70-7520 and Exhibit 3 to Form U-1 File No. 70-7721, Exhibit 10 to Form U-1 File No. 70-7725 and Exhibit 10(a), 10(b), 10(c) and 10(d), respectively, to Form U-1 File No. 70-8053).\n12 Statement re computation of Ratio of Electronic Earnings to Fixed Charges for the five years ended December 31, 1992.\n18 Letter from Independent Public Accountants for change in accounting principle. Electronic\n23 Consent of Independent Public Accountants. Electronic\n24(a) Powers of Attorney. Electronic\n24(b) Powers of Attorney. Electronic\n24(c) Powers of Attorney. Electronic\nEXHIBIT 12" ]

[ "Item 1. Business\nINTRODUCTION AND GENERAL DEVELOPMENT OF BUSINESS\nThe registrant, CTS Corporation (CTS or Company), is an Indiana corporation incorporated in 1929 as a successor to a company started in 1896. CTS' principal executive offices are located at 905 West Boulevard North, Elkhart, Indiana 46514, telephone number (219) 293-7511.\nCTS designs, manufactures and sells electronic components. The engineering and manufacturing of CTS products is performed at 15 facilities worldwide. CTS products are sold through sales engineers, sales representatives, agents and distributors.\nIn March 1987, a settlement was announced between CTS and Dynamics Corporation of America (DCA), terminating the sale process of the Company and resolving all disputes between CTS and DCA. Subsequently, the United States Supreme Court held that the Control Share Acquisition Chapter was constitutional. As a result of the Court's decision, the issue of voting rights of 1,020,000 shares of CTS common stock acquired by DCA in 1986 was submitted to a vote of CTS stockholders at the 1987 annual meeting. A majority of all shares eligible to vote was necessary to grant voting rights. DCA was not eligible to vote on the issue. The stockholders voted not to grant voting rights to DCA on these shares. The Court's decision did not have an impact with respect to voting rights on additional shares of CTS common stock previously acquired by DCA. In May 1988, the settlement agreement expired pursuant to its terms. At the end of 1993, DCA owned 1,920,900 shares (37.3%) of CTS common stock, including the 1,020,000 shares without voting rights.\nIn January 1990, the Company formally announced the closing of its Switch Division located in Paso Robles, California. The Paso Robles manufacturing operations were relocated to the Company's facilities in Taiwan and Bentonville, Arkansas. During 1992, the Company completed the sale of the Paso Robles manufacturing plant and most of the associated real estate for $1.9 million. A pre- tax gain of $0.9 was realized from the sale. The manufacturing operations for certain variable resistor and selector switch products, which formerly were performed in Elkhart, Indiana, were also transferred to Bentonville in 1990, to take advantage of any efficiencies to be gained in consolidating such operations in Bentonville. The buildings located in Elkhart which housed the plastics molding, and element production, were vacated, with these manufacturing operations being consolidated into the main Elkhart plant.\nCTS announced in July 1990 that its facility near Glasgow, Scotland, would be expanded in order to manufacture and sell additional electronic products in Europe. The total capital\ninvestment has been approximately $10 million as of December 31, 1993. Automotive throttle position sensors and precision and clock oscillators were added to the product lines already manufactured in Scotland. The decision to expand the Scottish facility was based on several factors, including the excellent business climate and skills base in Scotland and the anticipated full participation of the United Kingdom in the European Economic Community. The expansion of the Scotland facility represents a major effort by CTS to serve the large and rapidly growing European market on a direct basis.\nIn November 1991, construction was completed on a 53,000 square foot manufacturing facility in Bangkok, Thailand. During 1992, the Company idled operations at this facility.\nAlso during 1991, the Company significantly reduced the operating activities at its Brownsville, Texas, facility and plans to sell this property.\nThe manufacturing space owned by CTS in Hong Kong, which consisted of two floors in a multi-story building, was sold in March 1991. One floor was leased back by CTS for the continuation of its manufacturing operations in Hong Kong. During 1992, the Company terminated this lease and discontinued its manufacturing operations in Hong Kong.\nFINANCIAL INFORMATION ON INDUSTRY SEGMENTS\nAll of the Company's products are considered one industry segment. Sales to unaffiliated customers, operating profit and identifiable assets, by geographic area, are contained in \"Note I - Business Segment and Non-U.S. Operations,\" pages 21-22 , of the CTS Corporation 1993 Annual Report, and is incorporated herein by reference.\nPRINCIPAL BUSINESS AND PRODUCTS OF CTS\nCTS is primarily in the business of developing, manufacturing and selling a broad line of electronic components principally serving the electronic needs of original equipment manufacturers (OEM).\nThe Company sells classes of similar products consisting of the following:\nAutomotive control devices Loudspeakers Electronic connectors Programmable switches Frequency control devices Resistor networks Hybrid microcircuits Selector switches Industrial electronics Variable resistors\nMost products within these product classes are manufactured by CTS from purchased raw materials or subassemblies. Some products sold by CTS are purchased and resold under the Company's name.\nDuring the past three years, five classes of similar product lines accounted for 10% or more of consolidated revenue during one or more years, as follows:\nPercent of Consolidated Revenue\nClass of Similar Products 1993 1992 1991\nAutomotive Control Devices 26 20 18\nFrequency Control Devices 15 17 16\nHybrid Microcircuits 14 11 7\nElectronic Connectors 14 17 15\nResistor Networks 14 16 18\nMARKETS\nCTS estimates that its products have been sold in the following segments of the electronics OEM and distribution markets and in the following percentages during the preceding three fiscal years:\nPercent of Consolidated Revenue\nMarkets 1993 1992 1991\nAutomotive 32 25 22\nData Processing 22 20 20\nCommunications Equipment 17 18 19\nDefense and Aerospace 12 17 19\nInstruments and Controls 9 12 11\nDistribution 4 5 5\nConsumer Electronics 4 3 4 Total 100% 100% 100%\nProducts for the automotive market include throttle position sensors, switch assemblies for operator interface, exhaust gas recirculation subsystems, variable resistors and switches for automotive entertainment systems and other applications, and loudspeakers.\nProducts for the data processing market include resistor networks, frequency control devices, programmable switches and hybrid microcircuits. Products for this market are principally used in computers and computer peripheral equipment.\nIn the communications equipment market, CTS products include frequency control devices, switches and resistor networks. Products for this market are principally used in telephone equipment and in telephone switching systems.\nCTS products for the defense and aerospace market, usually procured through government contractors or subcontractors, are electronic connectors, hybrid microcircuits, backpanels, frequency control devices and programmable key storage devices.\nProducts for the instruments and controls market include hybrid microcircuits, variable resistors and switches. Principal end uses are medical electronic devices and electronic testing, measuring and servicing instruments.\nIn the distribution market, CTS' primary products include programmable switches, resistor networks and frequency control devices. In this market, standard CTS products are sold for a wide variety of applications.\nProducts for the consumer electronics market, primarily variable resistors and switches, are principally used in home entertainment equipment and appliances.\nMARKETING AND DISTRIBUTION\nSales of CTS electronic components to original equipment manufacturers are principally by CTS sales engineers and manufacturers representatives. CTS maintains sales offices in Elkhart, Indiana; Detroit, Michigan; and in the United Kingdom, Hong Kong, Taiwan and Japan. Various regions of the United States are serviced by sales engineers working out of their homes. The sale of electronic components is relatively integrated such that most of the product lines of CTS are sold through the same field sales force. Approximately 36% of net sales in 1993 were attributable to coverage by CTS sales engineers.\nGenerally, CTS sales engineers service the Company's largest customers with application specific products. CTS sales engineers work closely with major customers in determining customer requirements and in designing CTS products to be provided to such customers.\nCTS uses the services of independent sales representatives and distributors in the United States and foreign countries for customers not serviced by CTS sales engineers. Sales represen- tatives receive commissions from CTS. During 1993, about 60% of net sales were attributable to coverage by sales representatives. Independent distributors purchase products from CTS for resale to customers. In 1993, independent distributors accounted for about 4% of net sales.\nRAW MATERIALS\nGenerally, CTS' major raw materials are steel, copper, brass, certain precious metals, resistive and conductive inks, passive components and semiconductors, used in several CTS products; ceramic materials used particularly in resistor networks and hybrid microcircuits; synthetic quartz used in frequency control devices; and laminate material used in printed circuit boards. These raw materials are purchased from several vendors, and except for certain semiconductors, CTS does not believe that it is dependent on one or on a very few vendors. In 1993 all of these materials were available in adequate quantities to meet CTS' production demands.\nThe Company does not presently anticipate any raw material short- ages which would significantly affect production. However, the lead times between the placement of orders for certain raw mater- ials and actual delivery to CTS are quite variable, and the Company may from time to time be required to order raw materials in quantities and at prices less than optimal to compensate for the variability of lead times for delivery.\nPrecious metals prices have a significant effect on the manufacturing cost and selling prices of many CTS products, particularly some programmable switches, electronic connectors and resistor networks. CTS has continuing programs to reduce the precious metals content of several products, when consistent with customer specifications.\nWORKING CAPITAL\nCTS does not usually buy inventories or manufacture products without actual or reasonably anticipated customer orders, except for some standard, off-the-shelf distributor products. The Company is not generally required to carry significant amounts of inventories to meet rapid delivery requirements because most customer orders are for custom products. CTS has entered into \"just-in-time\" arrangements with certain major customers in order to meet customers' just-in-time delivery needs.\nCTS carries raw materials, including certain semiconductors, and certain work-in-process and finished goods inventories which are unique to a particular customer or to a small number of customers, and in the event of reductions in or cancellations of orders, some inventories are not useable or cannot be returned to vendors for credit. CTS generally imposes charges for the reduction or cancellation of orders by customers, and these charges are usually sufficient to cover the financial exposure of CTS to inventories which are unique to a customer. CTS does not customarily grant special return privileges or payment privileges to customers, although CTS' distributor program permits certain returns. CTS' working capital requirements are generally cyclical but not seasonal.\nWorking capital requirements are generally dependent on the overall business level. During 1993, working capital decreased slightly to $47.4 million. Cash represents a significant part of the Company's working capital. Most of CTS' cash at December 31, 1993, was held in U.S.-denominated cash equivalents for the credit of the various non-U.S. operations. The cash, other than approximately $5 million, is generally available to the parent Company.\nPATENTS, TRADEMARKS AND LICENSES\nCTS maintains a program of obtaining and protecting U.S. and non U.S. patents and trademarks. CTS believes that the success of its business is not materially dependent on the existence or duration of any patent, group of patents or trademarks.\nCTS licenses the manufacture of several electronic products to companies in the United States and non U.S. countries. In 1993 license and royalty income was 0.03% of net sales. CTS believes that the success of its business is not materially dependent upon any licensing arrangement where CTS is either the licensor or licensee.\nMAJOR CUSTOMERS\nCTS' 15 largest customers represented about 62%, 58% and 59% of net sales in 1993, 1992 and 1991, respectively.\nOf the net sales to unaffiliated customers, approximately $40.1 million, $30.7 million and $29.9 million were derived from sales to General Motors Corporation in 1993, 1992 and 1991, respectively. About $24.0 million, $19.3 million and $23.5 million were derived from sales to International Business Machines Corporation in 1993, 1992 and 1991, respectively. CTS is dependent upon these and other customers for a significant percentage of its sales and profits, and the loss of one or more of these customers or reduction of orders by one or more of these customers would have a materially adverse effect upon the Company.\nBACKLOG OF ORDERS\nBacklog of orders does not necessarily provide an accurate indication of present or future business levels for CTS. For many electronic products, the period between receipt of orders and delivery is relatively short. For large orders from major customers that may constitute backlog over an extended period of\ntime, production scheduling and delivery are subject to change or cancellation by the customers on relatively short notice. At the end of 1993, the Company's backlog of orders was $70.5 million, compared with $64.0 million at the end of 1992. This increase was primarily attributable to increased demand from automotive customers.\nThe backlog of orders at the end of 1993 will generally be filled during the 1994 fiscal year.\nGOVERNMENT CONTRACTS\nCTS believes that about 12% of its net sales are associated with purchases by the U.S. Government or foreign governments, principally for defense and aerospace applications. Because most CTS products procured through government contractors and subcontractors are for military end uses, the level of defense and aerospace market sales by CTS is dependent upon government budgeting and funding of programs utilizing electronic systems.\nAlmost all CTS sales involving government purchases are to primary government contractors or subcontractors. CTS is usually subject to contract provisions permitting termination of the contract, usually with penalties payable by the government; maintenance of specified accounting procedures; limitations on and renegotiations of profits; priority production scheduling; and possible penalties or fines against CTS for late delivery or substandard quality. Such contract provisions have not previously resulted in material uncertainties or disruptions for CTS.\nCOMPETITION\nCTS competes with many domestic and non U.S. manufacturers prin- cipally on the basis of product features, price, engineering, quality, reliability, delivery and service. Most product lines of CTS encounter significant competition. The number of significant competitors varies from product line to product line. No single competitor competes with CTS in every product line, but many competitors are larger and more diversified than CTS. Some competitors are divisions or affiliates of customers. CTS is subject to competitive risks typical in the electronics industry such as shorter product life cycles and new products causing existing products to become obsolete.\nSome customers have reduced or plan to reduce the number of suppliers while increasing the volume of purchases from independent suppliers. Most customers are demanding higher quality, reliability and delivery standards from CTS as well as competitors. These trends may create opportunities for CTS while also increasing the risk of loss of business to competitors.\nThe Company believes that it competes most successfully in custom products manufactured to meet specific applications of major original equipment manufacturers.\nCTS believes that it has some advantages over certain competitors because of its ability to apply a broad range of technologies and materials capabilities to develop products for the special requirements of customers. CTS also believes that it has an advantage over some competitors in its capability to sell a broad range of products manufactured to relatively consistent standards of quality and delivery. CTS believes that the relative breadth of its product lines and relative consistency in quality and delivery across product lines is an advantage to CTS in selling products to customers.\nCTS believes that it is one of the largest manufacturers of automotive throttle position sensors.\nFINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES\nInformation about revenue from sales to unaffiliated customers, operating profit and identifiable assets, by geographic area, is contained in \"Note I - Business Segment and Non-U.S. Operations,\" pages 21-22 of the CTS Corporation 1993 Annual Report, and is incorporated herein by reference.\nIn 1993 approximately 28% of net sales to unaffiliated customers, after eliminations, were attributable to non-U.S. operations. This represents an increase from 24% of net sales attributable to non-U.S. operations in 1992. About 39% of total CTS assets, after eliminations, are non-U.S. Except for cash and equivalents, a substantial portion of these assets cannot readily be liquidated. CTS believes that the business risks attendant to its present non-U.S. operations, though substantial, are normal risks for non-U.S. businesses, including expropriation, currency controls and changes in currency exchange rates and government regulations.\nRESEARCH AND DEVELOPMENT ACTIVITIES\nIn 1993, 1992 and 1991, CTS spent $5.7, $6.1 and $5.7 million, respectively, for research and development. Most CTS research and development activities relate to new product and process developments or the improvement of product materials. Many such research and development activities are for the benefit of one or a limited number of customers or potential customers.\nDuring 1993, the Company did not enter into any new, significant product lines, but continued to introduce additional versions of existing products in response to present and future customer requirements.\nENVIRONMENTAL PROTECTION LAWS\nIn complying with federal, state and local environmental protection laws, CTS has modified certain manufacturing processes and expects to continue to make additional modifications. Such modifications that have been performed have not materially affected the capital expenditures, earnings or competitive position of CTS.\nCertain processes in the manufacture of the Company's current and past products create hazardous waste by-products as currently defined by federal and state laws and regulations. The Company has been notified by the U.S Environmental Protection Agency, state environmental agencies and, in some cases, generator groups, that it is or may be a Potentially Responsible Party (PRP) regarding hazardous waste remediation at several non-CTS sites. The factual circumstances of each site are different; the Company has determined that its role as a PRP with respect to these sites, even in the aggregate, will not have a material adverse effect on the Company's business or financial condition, based on the following: 1) the Company's status as a de minimis party; 2) the large number of other PRPs identified; 3) the identification and participation of many larger PRPs who are financially viable; 4) defenses concerning the nature and limited quantities of materials sent by the Company to certain of the sites; and 5) the Company's experience to-date in relation to the determination of its allocable share. In addition to these non- CTS sites, the Company has an ongoing practice of providing reserves for probable remediation activities at certain of its manufacturing locations and for claims and proceedings against the Company with respect to other environmental matters. In the opinion of management, based upon presently available information, either adequate provision for probable costs has been made, or the ultimate costs resulting will not materially affect the consolidated financial position or results of operations of the Company.\nThere are claims against the Company with respect to environmental matters which the Company contests. In the opinion of management, based upon presently available information, either adequate provision for potential costs has been made, or the costs which ultimately might result will not materially affect the consolidated financial position or results of operations of the Company.\nEMPLOYEES\nCTS employed an average of 3,975 persons during 1993. About 47% of these persons were employed outside the United States at the end of 1993. Approximately 309 employees in the United States were covered by collective bargaining agreements as of December 31, 1993. The two collective bargaining agreements covering these employees will expire in 1996.", "Item 2. Properties\nCTS operations or facilities are at the following locations. The owned properties are not subject to material liens or encumbrances.\nLease Approximate Owned or Expiration Location Square Feet Leased Date Elkhart, IN 521,813 Owned -\nBerne, IN 248,726 Owned -\nSingapore 158,926 Owned* - Kaohsiung, Taiwan 132,887 Owned* -\nStreetsville, Ontario, Canada 111,740 Owned -\nWest Lafayette, IN 105,983 Owned - Sandwich, IL 94,173 Owned -\nBrownsville, TX 84,679 Owned -\nBentonville, AR 72,000 Owned - Glasgow, Scotland 75,000 Owned -\nNew Hope, MN December, (Science Center Dr.) 55,000 Leased 1998\nBangkok, Thailand 53,000 Owned -\nMatamoros, Mexico 50,590 Owned* - Baldwin, WI 39,050 Owned -\nCokato, MN 36,000 Owned -\nTOTAL 1,839,567\n* Buildings are located on land leased under renewable leases.\nThe Company is currently seeking to sell some, or all, of the Streetsville, Ontario, Canada, facility and related property, and the Brownsville, Texas, manufacturing building.\nThe Company constructed the Bangkok, Thailand, facility during 1991. This facility was idled during 1992 and was idle for all of 1993.\nThe Company regularly assesses the adequacy of its manufacturing facilities for manufacturing capacity, available labor and location to the markets and major customers for the Company's products. CTS also reviews the operating costs of its facilities and may from time to time relocate facilities or certain manufac- turing activities in order to achieve operating cost reductions and improved asset utilization and cash flow.", "Item 3. Legal Proceedings\nContested claims involving various matters, including environmental claims brought by government agencies, are being litigated by CTS, both in legal and administrative forums. In the opinion of management, based upon currently available information, adequate provision for potential costs has been made, or the costs which might ultimately result from such litigation or administrative proceedings will not materially affect the consolidated financial position of the Company or the results of operations.", "Item 4. Submission of Matters to a Vote of Security Holders\nDuring the fourth quarter of 1993, no issue was submitted to a vote of CTS stockholders.\nPART II", "Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters\nThe principal market for CTS common stock is the New York Stock Exchange. Information relative to the high and low trading prices for CTS Common Stock for each quarter of the past two years and the frequency and amount of dividends declared during the previous two years can be located in \"Stockholder Information,\" page 10, of the CTS Corporation 1993 Annual Report, incorporated herein by reference. On March 11, 1994, there were approximately 1,182 holders of record of CTS common stock.\nThe Company intends to continue a policy of considering dividends on a quarterly basis. The declaration of a dividend and the amount of any such dividend are subject to earnings, anticipated working capital, capital expenditure and other investment\nrequirements, the financial condition of CTS and such other factors as the Board of Directors deems relevant.", "Item 6. Selected Financial Data\nA summary of selected financial data for CTS, for each of the previous five fiscal years, is contained in the \"Five-Year Summary,\" page 11, of the CTS Corporation 1993 Annual Report, incorporated herein by reference.\nCertain divestitures and closures of businesses and certain accounting changes affect the comparability of information con- tained in the \"Five-Year Summary.\"", "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations\nInformation about liquidity, capital resources and results of operations, for the three previous fiscal years, is contained in \"Management's Discussion and Analysis of Financial Condition and Results of Operations (1991-1993),\" pages 25-27, of the CTS Corporation 1993 Annual Report, incorporated herein by reference.", "Item 8. Financial Statements and Supplementary Data\nConsolidated financial statements, meeting the requirements of Regulation S-X, and the Report of Independent Accountants, are contained in pages 12-24 of the CTS Corporation 1993 Annual Report, incorporated herein by reference. Quarterly per share financial data is provided in \"Stockholder Information,\" under the subheading, \"Quarterly Results of Operations\", and \"Per Share Data,\" on page 10 of the CTS Corporation 1993 Annual Report, and is incorporated herein by reference.", "Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure\nThere were no disagreements.\nPART III", "Item 10. Directors and Executive Officers of the Registrant\nInformation responsive to Items 401(a) and 401(e) of Regulation S-K pertaining to directors of CTS is contained in the 1994 Proxy Statement under the caption \"Election of Directors,\" pages 4-5, filed with the Securities and Exchange Commission, and is incorporated herein by reference.\nInformation responsive to Item 405 of Regulation S-K pertaining to compliance with Section 16(a) of the Securities Exchange Act\nof 1934 is contained in the 1994 Proxy Statement under the caption \"Compliance with Section 16(a) of the Securities Exchange Act of 1934,\" page 5, filed with the Securities and Exchange Commission, and is incorporated herein by reference.\nThe individuals listed were elected as executive officers of CTS at the annual meeting of the Board of Directors on April 30, 1993, and are expected to serve as executive officers until the next annual meeting of the Board of Directors, scheduled on April 29, 1994, at which time the election of officers will be considered again by the Board of Directors.\nName Age Position and Offices Joseph P. Walker 55 Director, Chairman, President and Chief Executive Officer\nPhilip T. Christ 62 Group Vice President\nStanley J. Aris 53 Vice President Finance and Chief Financial Officer Jeannine M. Davis 45 Vice President, Secretary and General Counsel\nGary N. Hoipkemier 39 Treasurer\nGeorge T. Newhart 51 Corporate Controller\nJoseph P. Walker has served as Chairman of the Board, President and Chief Operating Officer of CTS since 1988. Mr. Walker is a Director of NBD Bank and NBD Bank,N.A. and the National Association of Manufacturers.\nPhilip T. Christ was elected Group Vice President, effective July 2, 1990. Mr. Christ served as a Senior Vice President at Simplex Time Recorder from 1976-1986.\nStanley J. Aris was elected Vice President, Finance and Chief Financial Officer, effective May 18, 1992. Prior to joining CTS, Mr. Aris worked for two years as a business consultant. From 1989 to 1990 Mr. Aris served as Vice President, Finance of Hypres Corporation.\nJeannine M. Davis, an employee since 1980, served as legal counsel from 1980-1983, Assistant Secretary from 1982-1983 and Assistant General Counsel from 1983-1984. She was elected Secretary in 1983, General Counsel in 1984 and Vice President in 1988.\nGary N. Hoipkemier became an employee in November 1989 and was elected Treasurer on December 15, 1989. He served as Chief Financial Officer of Riblet Products Corporation from 1988-1989.\nGeorge T. Newhart was elected Corporate Controller on June 19, 1989. Prior to joining the Company in June 1989, he was Chief Financial and Administrative Officer of the Chelsea Electronic Distribution Group from 1987-1989.", "Item 11. Executive Compensation\nInformation responsive to Item 402 of Regulation S-K pertaining to management remuneration is contained in the 1994 Proxy Statement in the captions \"Executive Compensation,\" pages 6-7 and \"Director Compensation,\" page 11, filed with the Securities and Exchange Commission, and is incorporated herein by reference.", "Item 12. Security Ownership of Certain Beneficial Owners and Management\nInformation responsive to Item 403 of Regulation S-K pertaining to security ownership of certain beneficial owners and management is contained in the 1994 Proxy Statement in the caption \"Securities Beneficially Owned by Principal Stockholders and Management,\" pages 2-4 filed with the Securities and Exchange Commission, and is incorporated herein by reference.", "Item 13. Certain Relationships and Related Transactions\nDCA owned 1,920,900 (37.3%) of the Company's outstanding common stock as of December 31, 1993. CTS purchased products from DCA totalling about $145,000 in 1993, $93,000 in 1992 and $192,000 in 1991, principally consisting of certain component parts used by CTS in the manufacture of frequency control devices. CTS had no sales to DCA in 1993 or 1992, and sales to DCA were under $70,000 in 1991.\nPART IV", "Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K\n(a) (1) and (2)\nThe list of financial statements and financial statement schedules required by Item 14 (a)(1) and (2) is contained on page S-1 herein.\n(a)(3) Exhibits\n(3)(a) Articles of Incorporation, as amended April 16, 1973, previously filed as exhibit (3)(a) to the Company's Form 10-K for 1987, and incorporated herein by reference.\n(3)(b) Bylaws, as amended and effective June 25, 1992, previously filed as exhibit (3)(b) to the Company's Form 10-K for 1992, and incorporated herein by reference.\n(10)(a) Employment agreement dated June 28, 1991, between CTS and Joseph P. Walker, previously filed as exhibit (10)(a) to the Company's Form 10-K for 1991, and incorporated herein by reference.\n(10)(b) Prototype indemnification agreement, with Lawrence J. Ciancia, Gerald H. Frieling, Jr., Andrew Lozyniak, Edward J. Mooney, Joseph P. Walker, Philip T. Christ, Stanley J. Aris, Jeannine M. Davis, Gary N. Hoipkemier and George T. Newhart, previously filed as exhibit (10)(b) to the Company's Form 10-K for 1991, and incorporated herein by reference.\n(10)(c) CTS Corporation 1982 Stock Option Plan, as amended February 24, 1989, was previously filed as exhibit (10)(d) to the Company's Form 10-K for 1989, and is incorporated herein by reference.\n(10)(d) CTS Corporation 1986 Stock Option Plan, approved by the stockholders at the reconvened annual meeting on May 30, 1986. The CTS Corporation 1986 Stock Option Plan is contained in Exhibit 4 to Registration Statement No. 33-27749, effective March 23, 1989, and is incorporated herein by reference.\n(10)(e) CTS Corporation 1988 Restricted Stock and Cash Bonus Plan, as adopted by the CTS Board of Directors on December 16, 1988, and approved by stockholders at the 1989 annual meeting of stock- holders on April 28, 1989. The CTS Corporation 1988 Restricted Stock and Cash Bonus Plan is contained in Appendix A, pages 11-15, of the 1989 Proxy Statement for the annual meeting of stockholders held April 28, 1989, under the caption \"CTS Corporation 1988 Restricted Stock and Cash Bonus Plan,\" previously filed with the Securities and Exchange Commission, and is incorporated herein by reference.\n(13) CTS Corporation 1993 Annual Report.\n(21) Subsidiaries of CTS Corporation.\n(23) Consent of Price Waterhouse to incorporation by reference of this Annual Report on Form 10-K for the fiscal year 1993 to Registration Statement 2- 84230 on Form S-8 and Registration Statement 33- 27749 on Form S-8.\nIndemnification Undertaking\nFor the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 2-84230 (filed June 13, 1983) and 33-27749 (filed March 23, 1989):\nInsofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provision, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.\nSIGNATURES\nPursuant to the requirements of Section 13 or 15(d) 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.\nDate By_______________________________ Stanley J. Aris Vice President Finance and Chief Financial Officer\nPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.\nDate B y _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Lawrence J. Ciancia, Director\nDate B y _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Patrick J. Dorme, Director\nDate By______________________________________________________________ Gerald H. Frieling, Jr., Director\nDate B y _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Andrew Lozyniak, Director\nDate B y _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Joseph P. Walker, Director\nDate B y _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ George T. Newhart, Corporate Controller and principal accounting officer\nDate B y _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Jeannine M. Davis, Vice President, Secretary and General Counsel\nANNUAL REPORT ON FORM 10-K\nITEM 14(a) (1) AND (2) AND ITEM 14(d)\nLIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES\nFINANCIAL STATEMENT SCHEDULES\nYEAR ENDED DECEMBER 31, 1993\nCTS CORPORATION AND SUBSIDIARIES\nELKHART, INDIANA\nFORM 10-K - ITEM 14(a) (1) AND (2)\nCTS CORPORATION AND SUBSIDIARIES\nLIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES\nThe following consolidated financial statements of CTS Corpora- tion and subsidiaries included in the annual report of the registrant to its shareholders for the year ended December 31, 1993, are incorporated by reference in Item 8:\nConsolidated balance sheets - December 31, 1993, and December 31, 1992\nConsolidated statements of earnings - Years ended December 31, 1993, December 31, 1992, and December 31,\nConsolidated statements of stockholders' equity - Years ended December 31, 1993, December 31, 1992, and Decem- ber 31, 1991\nConsolidated statements of cash flows - Years ended December 31, 1993, December 31, 1992, and December 31,\nNotes to consolidated financial statements\nThe following consolidated financial statement schedules of CTS Corporation and subsidiaries, are included in item 14(d):\nPage\nSchedule V - Property, plant and equipment S-3\nSchedule VI - Accumulated depreciation of property, plant and equipment S-4\nSchedule VIII - Valuation and qualifying accounts S-5\nAll other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because they are inapplicable, not required or the information is included in the consolidated financial state- ments or notes thereto.\nS-1\nEXHIBIT 22\nCTS CORPORATION AND SUBSIDIARIES\nCTS Corporation (Registrant), an Indiana corporation\nSubsidiaries\nCTS Corporation, a Delaware corporation\nCTS Singapore, Pte. Ltd., a Republic of Singapore corporation\nCTS of Panama, Inc., a Republic of Panama corporation\nCTS Components Taiwan, Ltd.,1 a Taiwan, Republic of China corporation\nCTS de Mexico S.A.,1 a Republic of Mexico corporation\nCTS Export Corporation, a Virgin Islands corporation\nCTS of Canada, Ltd., a Province of Ontario (Canada) corporation\nCTS Manufacturing (Thailand) Ltd.,1 a Thailand corporation\nCTS Electronics Hong Kong Ltd.,1 a Republic of Hong Kong corporation\nCTS Corporation U.K. Ltd., a United Kingdom corporation\nCTS Printex, Inc., a California corporation\nCTS Micro Peripherals, Inc., a California corporation\nMicro Peripherals Singapore (Private) Limited, a Republic of Singapore corporation\nCorporations whose names are indented are subsidiaries of the preceding non-indented corporations. Except as indicated, each of the above subsidiaries is 100% owned by its parent company. Operations of all subsidiaries and divisions are consolidated in the financial statements.\n1 Less than 1% of the outstanding shares of stock is owned of record by nominee shareholders pursuant to national laws regarding resident or nominee ownership.\n[FN]\n(a) Changes in classification and miscellaneous adjustments. (b) Items transferred to Property Not Used in Business. (c) Currency translation adjustment. S-3\nS-5" ]

[ "ITEM 1. BUSINESS.\nGENERAL\nChemical Waste Management, Inc. (\"CWM\") and its subsidiaries (hereinafter collectively referred to as the \"Company\" unless the context indicates otherwise) are leading providers of hazardous waste management services and various other environmental and industrial services. The Company furnishes chemical waste management services, including transportation, treatment, resource recovery and disposal, to commercial and industrial customers, as well as to other waste management companies and to governmental entities. The Company also furnishes radioactive waste management services, primarily to electric utilities and governmental entities. Through Rust International Inc. (\"Rust\"), an approximately 56%-owned subsidiary, the Company also furnishes engineering, construction, environmental and infrastructure consulting, hazardous substance remediation and other on-site industrial and related services, primarily to clients in government and in the chemical, petrochemical, nuclear, energy, utility, pulp and paper, manufacturing, environmental services and other industries.\nOn December 31, 1992, CWM entered into an agreement with The Brand Companies, Inc. (\"Brand\") and Wheelabrator Technologies Inc. (\"WTI\"), an approximately 55% owned subsidiary of WMX Technologies, Inc. (\"WMX\"), pursuant to which CWM and WTI agreed to organize Rust and to acquire newly issued shares of Rust in exchange for contributing certain businesses and assets to Rust. Under that agreement, CWM contributed primarily its hazardous substance remediation services business, its approximately 56% ownership interest in Brand and its 12% ownership interest in Waste Management International plc (\"WM International\"). WTI contributed to Rust primarily its engineering and construction and environmental and infrastructure consulting services businesses and its international engineering unit based in London. On May 7, 1993, Brand was merged into a subsidiary of Rust, and shares of Brand (other than those owned by Rust) were converted, on a one-for-one basis, into shares of Rust, or, for those Brand stockholders so electing, the right to receive $18.75 per Brand share in cash. Rust is currently owned approximately 56% by CWM, 40% by WTI and 4% by public stockholders.\nThe Company participates internationally in the waste management services industry through its equity interest in WM International, a company owned 12% by Rust, 12% by WTI, 56% by WMX and 20% by public stockholders. WM International provides a wide range of solid and hazardous waste management services (or has interests in projects or companies providing such services) in various countries in Europe and in Argentina, Australia, Brunei, Hong Kong, Indonesia, Malaysia and New Zealand.\nThrough the end of 1992, the Company categorized its operations in two industry segments: hazardous waste management and related services and specialty contracting services. Beginning in 1993, to reflect the Company's acquisition of a majority interest in Rust, the Company has categorized the latter segment (which is composed of all of its non-core businesses) as engineering, construction, industrial and related services. For information relating to revenues, expenses and identifiable assets attributable to the Company's different industry segments, see Note 16 to the Company's Consolidated Financial Statements filed as an exhibit to this report and incorporated herein by reference.\nRegulatory or technological developments relating to the environment may require companies engaged in environmental services businesses, including the Company, to modify, supplement or replace equipment and facilities at costs which may be substantial. Because certain of the businesses in which the Company is engaged are intrinsically connected with the protection of the environment and the potential discharge of materials into the environment, a material portion of the Company's capital expenditures is, directly or indirectly, related to such items. See \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" set forth on pages 7 to 14 of the Company's 1993 Annual Report to Stockholders (which discussion is filed as an exhibit to this report and incorporated by reference herein) for a review of property and equipment expenditures\nby the Company for the last three years. The Company does not expect such expenditures, which are incurred in the ordinary course of business, to have a materially adverse impact on its and its subsidiaries' combined earnings or its or its subsidiaries' competitive position in the foreseeable future because the Company's environmental services businesses are based upon compliance with environmental laws and regulations and its services are priced accordingly.\nAlthough the Company strives to conduct its operations in compliance with applicable laws and regulations, the Company believes that in the existing climate of heightened legal, political and citizen awareness and concerns, companies in the environmental services industry, including the Company, will be faced, in the normal course of operating their businesses, with fines and penalties and the need to expend funds for remedial work and related activities with respect to waste treatment, storage and disposal facilities. Where the Company concludes that it is probable that a liability has been incurred, a provision is made in the Company's financial statements for the Company's best estimate of the liability based on management's judgment and experience, information available from regulatory agencies, and the number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of a specific site, as well as the typical allocation of costs among such parties. If a range of possible outcomes is estimated and no amount within the range appears to be a better estimate than any other, then the Company provides for the minimum amount within the range, in accordance with generally accepted accounting principles. Such estimates are subsequently revised, as deemed necessary, as additional information becomes available. While the Company does not anticipate that the amount of any such revision will have a material adverse effect on the Company's operations or financial condition, the measurement of environmental liabilities is inherently difficult and the possibility remains that technological, regulatory or enforcement developments, the results of environmental studies or other factors could materially alter this expectation at any time. Such matters could have a material adverse impact on earnings for one or more fiscal quarters or years.\nThe environmental services industry is subject to extensive and evolving regulation by federal, state, local and foreign authorities. Due to the complexity of regulation of the industry and to public awareness, implementation of existing and future laws, regulations or initiatives by different levels of government may be inconsistent and difficult to foresee. The Company makes a continuing effort to anticipate regulatory, political and legal developments that might affect its operations but is not always able to do so. The Company cannot predict the extent to which any legislation or regulation that may be enacted or enforced in the future may affect its operations.\nThe Company was incorporated in Delaware as a wholly-owned subsidiary of WMX in 1978, and since then has acquired certain businesses owned by WMX or others. The Company is approximately 79% owned by WMX. The Company's common stock is listed on the New York Stock Exchange under the trading symbol \"CHW\" and is also listed on the Chicago Stock Exchange.\nUnless the context indicates to the contrary, all statistical and financial information under Items 1 and 2 of this report is given as of December 31, 1993, and where such information relates to any period prior to 1993, it is presented as if Rust had been in existence throughout such period. Statistical and financial data appearing under the caption \"Hazardous Waste Management and Related Services\" relates only to the Company's core business of chemical waste and low-level and other radioactive waste services and does not include any data relating to Rust. See \"Engineering, Construction and Related Services.\"\nHAZARDOUS WASTE MANAGEMENT AND RELATED SERVICES\nCWM's principal business (excluding Rust and its subsidiaries) is to provide chemical waste management services, including transportation, treatment, resource recovery and disposal, to commercial and industrial customers, as well as to other waste management companies and to governmental entities. CWM also provides radioactive waste management services, primarily to electric utilities and governmental entities. The principal services provided by CWM and its subsidiaries (excluding Rust) accounted for the following percentages of CWM's hazardous waste management and related services revenue for each of the three years in the period ended December 31, 1993:\nThe revenues and net income from such services can fluctuate for interim periods and from year to year for a number of reasons, including adverse weather conditions and that demand for the services may be seasonal (less demand in the winter months) and may be driven by changes in regulations.\nCHEMICAL WASTE MANAGEMENT SERVICES\nIn the United States, most chemical wastes generated by industrial processes are handled \"on-site\" at the generators' facilities. Since the mid- 1970's, public awareness of the harmful effects of unregulated disposal of chemical wastes on the environment and health has led to extensive and evolving federal, state and local regulation of chemical waste management activities. The major federal statutes regulating the management of chemical wastes include the Resource Conservation and Recovery Act of 1976, as amended (\"RCRA\"), the Toxic Substances Control Act (\"TSCA\") and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (\"CERCLA\" or \"Superfund\"), all primarily administered by the United States Environmental Protection Agency (\"EPA\"). CWM's business is heavily dependent upon the extent to which regulations promulgated under these or similar state statutes and their enforcement over time effectively require wastes to be managed in facilities of the type owned and operated by the Company.\nThe chemical wastes handled by the Company include industrial by-products and residues that have been identified as \"hazardous\" pursuant to RCRA (see \"Regulation--Chemical Waste\" herein), as well as other materials contaminated with a wide variety of chemical substances. The Company operates chemical waste treatment, storage or disposal facilities in 18 states and is able to service customers in most parts of the country through this network of facilities. Additionally, certain chemical wastes, such as polychlorinated biphenyls (\"PCBs\"), are transported greater distances because they can be accepted only at a limited number of treatment or disposal facilities. The Company also owns a majority interest in a subsidiary which operates a resource recovery facility, a disposal facility and storage facilities in Mexico.\nThe ongoing chemical waste management services provided by the Company are typically performed pursuant to nonexclusive service agreements that obligate the Company to accept from the customer chemical wastes conforming to the provisions of the agreement. Fees are determined by such factors as the chemical composition and volume or weight of the wastes involved, the type of transportation or processing equipment utilized and distance to the processing or disposal facility. The Company periodically reviews and adjusts the fees charged for its services.\nPrior to performing services for a customer, the Company's specially trained personnel review the customer's waste profile sheet prepared by the customer which contains information about the chemical composition of the waste. A representative sample of the chemical waste may be analyzed in a Company laboratory or in an independent laboratory for the purpose of enabling the Company to recommend and approve the best method of transportation, treatment and disposal and to designate a facility permitted to accept the waste. Upon arrival at one of the Company's treatment, resource recovery or disposal facilities, and prior to unloading, a representative sample of the delivered waste is tested for several key characteristics and analyzed to confirm that it conforms to the customer's waste profile sheet.\nTreatment, Resource Recovery and Disposal\nThe Company's treatment and resource recovery operations involve processing chemical wastes through the use of thermal, physical, chemical or other treatment methods at one or more of the Company's facilities. The residual material produced by these interim processing operations is either disposed of by burial in a secure disposal cell or by deep well injection, or it may be managed through one of the Company's resource recovery programs. For example, when drummed sludges are accepted by the Company for treatment and disposal, any free liquids are decanted, recoverable liquids are separated for subsequent treatment or reclamation, and nonrecoverable liquids are incinerated or stabilized prior to disposal.\nThermal Treatment\nThermal treatment refers primarily to processes that use incineration as the principal mechanism for waste destruction. Since August 1983, the Company has operated a non-PCB fixed hearth incinerator at its facility in Sauget, Illinois. Between 1986 and 1989, the Company completed three additional incinerators at that facility. The Company also operates a 150 million BTU per hour rotary kiln incinerator at its Port Arthur, Texas facility which is permitted to destroy PCB wastes.\nThe Company's facilities also include a rotary kiln incinerator located in Chicago, Illinois which has not operated since February 1991 when there was an explosion in the kiln. Although the incinerator is fully functional, the Company has not resumed operations at the facility and is continuing to discuss with the Illinois Environmental Protection Agency the conditions under which operations may resume.\nThe Company is seeking joint venture partners and reviewing other strategic alternatives for certain of its incineration facilities.\nPhysical, Chemical and Other Treatment Methods\nPhysical treatment methods include distillation, evaporation and separation. While distillation and evaporation utilize heat to remove liquids from solids or sludges, separation utilizes such techniques as sedimentation, filtration and flocculation to remove solid materials from liquids. Sedimentation involves the settling of particles suspended in a liquid, filtration involves passing a liquid through a porous mass to separate suspended particles, and flocculation causes suspended material to form a loosely aggregated mass. Certain aqueous wastes are also physically treated through the use of a mobile carbon absorption filtration system. These methods may be used alone or in conjunction with chemical, thermal or biological processes, the goal being to reduce the volume of waste material or to make it suitable for further treatment or disposal.\nChemical treatment methods include chemical oxidation and reduction, chemical precipitation of heavy metals, hydrolysis and neutralization of acid and alkaline wastes. Also, the Company has developed the CHEM-MATRIX/R/ system for waste stabilization, which reduces the mobility and toxicity of hazardous constituents and chemically binds them into a stable, solid mass prior to disposal. These methods involve the transformation of wastes into inert materials through one or more chemical reaction processes.\nResource Recovery\nThe Company has developed a program of reclamation and reuse of certain chemical wastes, particularly solvent-based wastes, that are generated by various industrial cleaning operations and metal finishing and other industrial processes. Spent solvents that can be recycled are processed through thin film evaporators and other processing equipment and are distilled into clean, usable products. Nonrecoverable organic liquids with sufficient heat value are blended to meet strict specifications for use as supplemental fuels for cement kilns, blast furnaces and other high-efficiency boilers. The Company has developed specialized equipment and processes for these\npurposes and has established relationships with a number of supplemental fuel users around the country that will accept the blended material.\nDisposal\nThe Company's secure land disposal facilities either have interim status or have been issued permits under RCRA (see \"Regulation--Chemical Waste\" and \"Properties\" herein). In general, the Company's land disposal facilities have received the necessary permits and approvals to accept chemical wastes, although some of such sites may only accept certain chemical wastes. Only chemical wastes which are in a stable, solid form and which meet the applicable regulatory requirements may be buried in the Company's secure disposal cells. These land disposal facilities are sited, constructed and operated in a manner designed to provide long-term containment of such waste. In accordance with current applicable regulatory requirements, the Company's secure disposal cells are being designed and engineered with double synthetic liners and double collection systems for leachate (liquid which has percolated through or drained from the buried waste). The synthetic liner system is placed over a three foot layer of compacted clay at the bottom of the cell. Above each high density polyethylene liner is a layer of synthetic or natural drainage material in which any leachate that might form would be collected for removal. Completed secure disposal cells are capped with synthetic material, covered with a layer of topsoil and seeded to reduce the possibility that liquid might enter the cell. Closed cells must be maintained for at least 30 years.\nAt three of its locations, the Company isolates treated chemical wastes in liquid form by injection into deep wells (see \"Properties\" herein). Deep well technology involves drilling wells in suitable rock formations far below the base of fresh water and separated from it by other substantial geological confining layers.\nOther Chemical Waste Services\nThe Company furnishes other specialized chemical waste services. For example, the Company provides waste reduction consulting services for industrial clients with the goal of designing site-specific waste minimization programs, and to that end conducts facility inspections and evaluations of alternatives for managing customer waste streams. Customer support services also include assured destruction of sensitive materials (aged, counterfeit or damaged products), on-site management services with respect to chemical process wastes, assistance to small quantity generators in complying with RCRA, and consolidation, secure packaging and transportation of small quantities of aged chemicals, reagents and other laboratory wastes for disposal.\nTransportation\nChemical waste may be collected from customers and transported by the Company or delivered by customers to the Company's facilities. Chemical waste is transported by the Company primarily in specially constructed tankers and semi-trailers, including stainless steel and rubber or epoxy-lined tankers and vacuum trucks, or in containers or drums on trailers designed to comply with applicable regulations and specifications of the U.S. Department of Transportation (\"DOT\") relating to the transportation of hazardous materials. The Company's chemical waste transportation fleet includes approximately 395 tractors and 920 trailers. Liquid waste is frequently transported in bulk but also may be transported in drums. Heavier sludges or bulk solids are transported in sealed roll-off boxes or bulk trailers. The Company may utilize the services of subcontractors to transport waste in some circumstances. In some locations, the Company may also utilize rail transportation by means of tank cars, piggyback trailers or intermodal containers.\nThe Company operates 35 transportation centers from which its transportation fleet is dispatched or fleet maintenance operations are conducted. The Company also operates several facilities at which waste collected from or delivered by customers may be analyzed and consolidated prior to further shipment.\nLOW-LEVEL AND OTHER RADIOACTIVE WASTE SERVICES\nRadioactive wastes with varying degrees of radioactivity are generated by nuclear reactors and by medical, industrial, research and governmental users of radioactive material. Radioactive wastes are generally classified as either high-level or low-level. High-level radioactive waste, such as spent nuclear fuel and waste generated during the reprocessing of spent fuel from nuclear reactors, contains substantial quantities of long-lived radionuclides and is the ultimate responsibility of the federal government. Low-level radioactive waste, which decays more quickly than high-level waste, largely consists of dry compressible wastes (such as contaminated gloves, paper, tools and clothing), resins and filters which have removed radioactive contaminants from nuclear reactor cooling water, solidified wastes from power plants which have become contaminated with radioactive substances and irradiated hardware.\nThe Company provides comprehensive low-level radioactive waste management services in the United States consisting of disposal, processing and various other special services, and transportation. To a lesser extent, it also provides services with respect to radioactive waste which has become mixed with regulated chemical waste. The Company generally enters into long-term service agreements with its customers. A particular agreement may include all or part of the services performed by the Company.\nDisposal\nThe Company's radioactive waste disposal operations currently involve low- level radioactive waste only. Its Barnwell, South Carolina facility is one of two licensed commercial low-level radioactive waste disposal facilities in the United States, and has been in operation since 1971. Waste accepted for burial at the Barnwell facility is segregated by waste classification and placed in specially engineered disposal cells of various sizes excavated in clay-rich soils. Waste, which must be in approved containers, is placed in a trench, backfilled and covered with compacted clay-rich cap material followed by topsoil. Systematic environmental monitoring is conducted in accordance with state and federal licensing requirements.\nFees for burial are set by the Company based upon volume, level of radioactivity and handling considerations. A trust has been established and funded to pay the estimated cost of decommissioning the Barnwell facility. A second fund, for the extended care of the facility, is funded by a surcharge on each cubic foot of waste received. In the event the extra charges collected to restore and maintain the facility are insufficient to cover the costs of restoring or maintaining the site after its closure (which the Company has no reason to expect), the Company may be liable for the extra costs. Through an annual license fee, the State of South Carolina recovers direct and indirect costs it incurs to monitor facility operations.\nIn accordance with the aims of the Low-Level Radioactive Waste Policy Act of 1980, eight southeastern states comprise the Southeast Interstate Low-Level Radioactive Waste Management Compact (the \"Southeast Compact\"). The Southeast Compact initially designated the Barnwell site as the disposal facility to receive all low-level radioactive waste generated in the eight-state compact region through 1992. Late in 1985, Congress passed the Low-Level Radioactive Waste Policy Amendments Act (the \"1985 Act\"). In addition to consenting to the Southeast Compact and six other regional compacts, the 1985 Act, among other things, amended prior law to allow continued access to the Barnwell facility by generators located outside the compact region. In exchange for such continued access, generators outside the Southeast Compact region pay surcharges to the State of South Carolina for each cubic foot of waste disposed of by the Company. The 1985 Act also established milestones for states that are not part of a compact region with an operating disposal facility. If the development of new facilities does not progress in accordance with such milestones, penalties may be imposed in the form of higher surcharges and, ultimately, denial of access to the Barnwell facility.\nDuring September 1986, the Southeast Compact Commission designated North Carolina as the next state to host the Southeast Compact regional disposal facility, and since then the State of North Carolina has been\ntaking steps toward siting and licensing a regional disposal facility. In December 1993, the North Carolina Low-Level Radioactive Waste Management Authority voted to select a site in that state for development by the Company as a regional disposal facility. During 1992, South Carolina adopted legislation allowing the Barnwell site to continue operating until December 31, 1995, and to continue receiving waste generated outside the Southeast Compact until June 30, 1994. The Southeast Compact subsequently increased the surcharges payable by generators located outside the compact region. The Company expects the South Carolina legislature to consider extending to December 31, 1995 the date the Barnwell site must stop accepting waste generated outside the Southeast Compact, but there can be no assurance that such extension will be obtained.\nDuring the third quarter of 1989, the Company entered into contracts with the responsible agencies for the Southeast Compact and the Central Midwest Low- Level Radioactive Waste Compact, whose member states are Illinois and Kentucky (the \"Central Midwest Compact\"), to site, license, construct, operate and close new regional low-level radioactive waste disposal facilities for those Compacts, which facilities are intended to be located in North Carolina and Illinois, respectively. During the third quarter of 1990, the Company entered into a similar contract for the Appalachian States Low-Level Radioactive Waste Compact (whose member states are Pennsylvania, West Virginia, Maryland and Delaware). The terms of these contracts range from 20 to 30 years. Because of the difficulties associated with the process of siting and licensing such facilities, their development has not proceeded in the manner and on the schedule contemplated by the respective Compact authorities. For example, in October 1992, a special state commission which had been examining the siting of a proposed disposal facility in Illinois declined to approve it, as a consequence of which the timetable for establishing such a facility is uncertain. The Company was subsequently directed to stop certain of its work under its contract with the Central Midwest Compact.\nAt this time the Company is unable to predict the effect which these developments might have upon its business. However, the Company's earnings for one or more fiscal quarters or years could be adversely affected if the Company is unable to open a new facility in North Carolina after the closure of the Barnwell site.\nSpecial Services\nThe Company processes low-level radioactive waste at its customers' plants to enable such waste to be shipped in dry rather than liquid form to meet the requirements for receipt at disposal facilities and to reduce the volume of waste that must be transported. Processing operations include solidification, demineralization, dewatering and filtration. The Company's services in this regard include supplying all equipment, containers, associated hardware, operating personnel and quality control programs and procedures. In addition, the Company can design and fabricate specialized equipment and containers to meet the requirements of individual customers.\nOther services offered by the Company include decommissioning nuclear facilities, which involves dismantling buildings and equipment (projects that typically are nonrecurring), and providing electro-chemical, abrasive and chemical removal of radioactive contamination. In addition, the Company provides management services for spent nuclear fuel storage pools. The Company has developed techniques and equipment such as crusher/shear to process nonfuel components stored in such pools, in order to create more space for spent fuel storage. Through a joint venture and an exclusive domestic licensing agreement with a German company, the Company is developing and marketing in the United States nuclear waste management services and products currently in use in Europe, including casks and other products for handling spent fuel.\nTransportation\nMost low-level radioactive waste is transported by truck to burial sites. In order to meet the special needs of its customers, the Company develops transportation plans ranging from per trip service to dedication of equipment. The Company's transportation fleet consists of approximately 25 tractors and 85 heavy-duty\ntrailers, including specialty trailers such as shielded vans, drop decks and lowboys. Transportation terminals are located in South Carolina and Illinois.\nLow-level radioactive waste requiring additional shielding must be transported in shipping casks licensed by the U.S. Nuclear Regulatory Commission (\"NRC\"). The Company owns approximately 60 such casks, as well as a variety of other containers designed to meet the varying needs of the nuclear industry.\nENGINEERING, CONSTRUCTION, INDUSTRIAL AND RELATED SERVICES\nRust is a leading provider, through its subsidiaries, of engineering, construction and environmental and infrastructure consulting services, hazardous substance remediation services and other on-site industrial and related services, primarily to clients in government and in the chemical, petrochemical, nuclear, energy, utility, pulp and paper, manufacturing, environmental services and other industries. The types of engineering, construction and environmental and infrastructure consulting services provided by Rust include process and design engineering, plant, facility and related infrastructure construction, project and construction management and oversight services, site analyses, remedial investigations, feasibility studies, environmental assessments, and architectural services. The types of hazardous substance remediation and other on-site industrial and related services provided by Rust include on-site remediation of hazardous substances, scaffolding, industrial cleaning and maintenance and nuclear and utility services and maintenance. In addition, Rust provides engineering and environmental and infrastructure consulting services to clients in several countries outside of North America.\nENGINEERING, CONSTRUCTION AND ENVIRONMENTAL AND INFRASTRUCTURE CONSULTING SERVICES\nThe industrial engineering services provided by Rust are of two general types, process engineering and facility design engineering. Process engineers create the processes by which facilities operate, such as chemical, petrochemical, energy and pulp and paper plants. Design engineering services provided by Rust encompass the following disciplines: architectural; electrical; control systems; process piping; mechanical; structural; heating, ventilation and air conditioning (\"HVAC\"); and civil. The construction services provided by Rust include primarily the new construction and retrofitting of power generation facilities, including coal-fired power plants, nuclear power plants, gas turbine and cogeneration plants, and industrial facilities, including chemical, petrochemical, pulp and paper, food and beverage, iron and steel, automotive, utility and industrial power and other manufacturing facilities. Rust also requisitions and procures equipment and construction materials for clients, performs quality assurance and quality control oversight of vendor manufacturing practices and provides infrastructure and marine construction, dredging, underwater diving, and dismantling and demolition services. Rust's engineering and construction services are provided on a stand-alone basis but are also provided together under engineering, procurement and construction contracts which include engineering services, procurement of facility equipment and materials and construction services.\nRust's environmental and infrastructure consulting services provide alternative solutions for client problems relating to removing and disposing of hazardous and toxic substances, and managing solid waste, water and wastewater, groundwater and air resources. Such services are provided primarily to private industry and also to federal, state and local governments, including the Department of Defense (the \"DOD\") and the Department of Energy (the \"DOE\"). The services include performing remedial investigations for the purpose of characterizing hazardous waste sites, preparing risk assessment reports and feasibility studies setting forth recommended alternative remedial actions, and providing engineering design and construction oversight services for remediation projects. The services provided also include the siting, permitting, design and construction oversight of solid and hazardous waste landfills and related facilities. Study, design and construction oversight services are also provided, primarily to municipalities, in connection with wastewater collection and treatment, potable water supply treatment and distribution, and the building of streets, highways, airports, bridges, waterways and rail services. Additional services provided through Rust include environmental assessment services, the design of systems to properly and safely store, convey, treat and dispose of industrial, hazardous and\nradioactive materials, and consulting services regarding disposal, waste minimization methods and techniques, air quality regulation and industrial hygiene and safety.\nThrough a series of acquisitions completed during the period from late 1992 through February 1994, Rust has developed an international engineering and consulting business performing projects in 24 countries. In Europe, Rust has offices in the United Kingdom, Germany, Sweden and Italy. Rust has offices located throughout the Asia Pacific region, including Australia, Hong Kong, China, Singapore, Malaysia and Indonesia. Rust also has an office in Dubai, U.A.E. Rust's foreign subsidiaries provide process and design engineering services, environmental and infrastructure engineering services and construction management services to national, regional and local governments and to clients in the utility and industrial power and general manufacturing industries. In addition, Rust provides engineering and consulting services to WM International worldwide.\nRust received 45%, 43% and 52% of its total consolidated revenues in 1991, 1992 and 1993, respectively, from the performance of engineering, construction and environmental and infrastructure consulting services. The revenues and net income from such services can fluctuate for interim periods and from year to year for any number of reasons, including (i) the seasonal nature of significant portions of the business (less activity during the winter months), and (ii) performance hindrances such as technical problems, labor shortages or disputes, weather and delays caused by other external sources.\nREMEDIATION AND OTHER ON-SITE INDUSTRIAL AND RELATED SERVICES\nHazardous Substance Remediation Services\nRust performs on-site hazardous chemical and radioactive substance remediation services for clients in the chemical, petrochemical, automotive and other manufacturing industries and for federal, state and local government entities, including the DOD and the DOE in connection with such projects as the remediation of military bases and other government installations, the EPA in connection with CERCLA projects and various state environmental agencies. Rust treats hazardous substances on-site using a variety of methods and technologies, including, among others, mobile incineration technology, thermal desorption to separate organic contaminants from soils or solids for subsequent treatment of the organic vapor stream, sludge drying, soil washing, stabilization, physical separation and, to a lesser extent, bioremediation, which involves the breakdown of hazardous substances with microorganisms. Rust's hazardous substance remediation services also include the containment and closure of contaminated sites and the cleaning, relining and sealing of liquid containment and treatment ponds, lagoons and other surface impoundments.\nHazardous substance remediation services provided to Rust's private industry clients often involve the implementation of \"records of decision\" promulgated by the EPA in response to results of EPA environmental analysis and investigation. In connection with the remediation of military bases and other government installations, the DOD and DOE are experimenting with awarding multi- disciplined remediation contracts known as Total Environmental Restoration Contracts (\"TERCs\") and Environmental Restoration and Management Contracts (\"ERMCs\") to a single company capable of providing the management services necessary to oversee the entire project. The company selected is, in effect, the project's general contractor. In August 1993, the U.S. Army Corps of Engineers awarded to Rust two TERCs under which Rust could be paid up to $350 million over a ten year period. As the TERCs are structured, Rust will perform work pursuant to individual delivery orders negotiated on a project-by-project basis. There can be no assurance that the number of delivery orders ultimately issued or successfully negotiated and performed by Rust will aggregate $350 million in fees. Rust intends to utilize its integrated approach to providing a full range of engineering, construction, environmental consulting, on-site hazardous substance remediation and other industrial services to pursue additional comprehensive federal government contracts.\nOn-Site Industrial and Related Services\nRust provides various on-site industrial and related services. Such services consist primarily of scaffolding, industrial cleaning, catalyst handling, plant services and nuclear and utility services. Rust provides scaffolding services primarily to the chemical, petrochemical and utilities industries, as well as other clients. In most cases, the scaffolding services are provided in conjunction with periodic, routine cleaning and maintenance of refineries, chemical plants and utilities, although such services are also performed in connection with new construction projects. Rust performs four types of industrial cleaning services -- water blasting, chemical\ncleaning, vacuuming and water filtration--primarily for clients in the petrochemical, chemical, and pulp and paper industries, utilities and, to a lesser extent, the government sector. Rust's catalyst handling services include the unloading, screening, classifying for reuse, disposing and reloading of catalyst, primarily to customers in the refining, petrochemical, chemical and gas processing industries using solid catalyst in reactors to convert, through chemical reactions, various hydrocarbon substances into higher grades or specific products and to remove unwanted byproducts. Rust's on-site plant services include providing personnel to perform mechanical and electrical services, equipment installation, welding, HVAC, warehousing and inventory management services and technical support in the area of industrial hygiene and safety training. Rust assists clients in the nuclear and utility industries in solving electrical, mechanical, engineering and related technical services problems. Rust also provides spent fuel storage (rerack) services to the nuclear power industry.\nRust received 55%, 57% and 48% of its total consolidated revenues in 1991, 1992 and 1993, respectively, from the performance of hazardous substance remediation and other on-site industrial and related services (including asbestos abatement services until the May 1992 sale of that business as described in \"Acquisitions and Dispositions\"). The revenues and net income from such services can fluctuate for interim periods and from year to year for a number of reasons, including that (i) the demand for many of these services is seasonal (less activity during the winter months), (ii) the performance of such services on a given project may be affected by technical problems, labor shortages and disputes, weather and delays caused by external sources and fluctuations in the price of materials, (iii) in the case of the hazardous substance remediation business, changes in federal, state and local funding or enforcement priorities, and (iv) in the case of on-site industrial and related services, demand is also affected by the periodic scheduling of outages at utilities and other industrial facilities.\nBACKLOG\nRust's backlog consists of uncompleted portions of engineering, construction, environmental and infrastructure consulting, remediation and on- site industrial and other related services contracts.\nAs of December 31, 1993, Rust had estimated consolidated backlog of work under contracts believed to be firm of $1.022 billion, as compared with an estimated backlog of $902 million as of December 31, 1992. Approximately 73% of Rust's consolidated backlog is expected to be completed in 1994. Although backlog reflects only business considered to be firm and is an indication of future revenues, there can be no assurance that contract cancellations or scope adjustments will not occur, or as to when revenue from such backlog will be realized. Backlog shown above does not include approximately $350 million in respect of TERCs awarded to Rust by the U. S. Army Corps of Engineers in 1993. See \"Remediation and Other On-Site Industrial and Related Services--Hazardous Substance Remediation Services.\" There can be no assurance that specific projects identified and performed by the Company pursuant to such TERCs will result in aggregate revenues of $350 million over the terms of such contracts.\nEQUITY INVESTMENTS\nRust owns approximately 12% of the outstanding ordinary shares of WM International, a leading international provider of comprehensive waste management and related services which conducts substantially all of the waste management operations located outside of North America of WMX and its affiliates. WM International records and reports its earnings in Pounds Sterling. Currency fluctuations affecting the Pounds Sterling exchange rates will cause Rust's earnings from WM International to fluctuate. Rust may from time to time engage in hedging transactions in order to mitigate the effect of such exchange fluctuations.\nRust and OHM Corporation each hold approximately 40% of the outstanding shares of NSC Corporation (\"NSC\"). The remaining outstanding shares are publicly held. NSC is an environmental services company providing asbestos abatement and other related services to a broad range of commercial and industrial clients and governmental agencies throughout the United States. During 1993, NSC consummated a transaction with Brand and WMX, pursuant to which NSC acquired the assets of the asbestos abatement division of Brand in exchange for the issuance to Brand of NSC common stock and all of its interest in several industrial cleaning and maintenance services businesses. See \"Acquisitions and Dispositions.\"\nCOMPLIANCE\nBecause generators remain responsible by law for their hazardous wastes even after the wastes have been transferred to a third party for disposal, the Company believes that an essential part of the services it provides to its customers is a high level of confidence regarding its ability to comply with applicable\nenvironmental regulatory requirements. The Company's compliance program has been developed for each of its operational facilities under the direction of its experienced professional compliance staff, many of whose members have prior environmental regulatory experience. The Company's requirements are in certain cases more stringent than those imposed by regulation. See \"Regulation\" herein.\nThe Company views compliance as the responsibility of all its employees and periodically conducts training programs on various aspects of hazardous materials management. Each treatment and disposal facility has a compliance coordinator assigned to it. Facility laboratories are monitored by the Company's quality assurance and quality control personnel. The Company's in- house environmental attorneys and other professionals closely follow regulatory developments and have extensive experience in dealing with compliance matters.\nThe Company believes that community relations are an integral part of its responsibility and, for each community in which it operates, has set up programs to respond to community concerns.\nTECHNOLOGY\nThe Company's hazardous waste analytical and development activities include an extensive quality assurance and quality control program involving periodic audits of Company laboratories, verification of laboratory performance and the establishment of standards for analytical work performed at the Company's own facilities as well as at outside laboratories utilized by the Company. Other activities include development of analytical methods, performance of waste sample analyses for certain customers and participation in the federal and state regulatory processes.\nThe Clemson Technical Center (the \"Center\") located in Anderson, South Carolina and currently being operated by Rust, provides the Company with technical support, including hazardous substance treatability studies and pilot plant design and demonstration services. Such services often are funded by third parties. For instance, the Center is currently performing process development services on behalf of Rust under four programs being funded by the DOE to test specific technology applications at DOE facilities.\nThe Company owns or licenses a number of patents and patent applications or other proprietary technology that are important to various aspects of its business, but the patents and licenses are not considered material to the conduct of any of its businesses. The Company believes that its businesses depend primarily on such factors as quality and cost of services, project development capability, engineering and technical skill, and financial strength rather than on patent protection.\nCUSTOMERS AND MARKETING\nCWM's services are primarily marketed by its local sales force located throughout the United States. Sales personnel develop and maintain relationships with clients in an effort to keep abreast of planned future projects and, where applicable, to attempt to ensure that CWM is included on proposal or bid lists. With respect to its chemical waste management services business, sales efforts have been directed at establishing relationships with virtually all of the several hundred largest industrial companies in the United States, with large governmental departments and agencies and, more recently, with small quantity generators of chemical wastes. A portion of such services performed by CWM is arranged through brokers. CWM's radioactive waste management operations provide services primarily to electric utilities operating nuclear power plants, as well as to industrial companies, universities, hospitals and the federal government.\nRust's services are primarily marketed by Rust's local sales force located throughout the United States. Rust markets its services by stressing its skills, project performance record, the price at which its services are provided and the efficiency with which its services are performed. Rust also stresses its safety record, particularly with respect to its on-site industrial and related services, the nature of which involve, in some cases, a substantial\ndegree of safety risk. Rust also promotes its engineering and construction services by entering into relationships with third parties for the purpose of developing projects. In connection therewith, Rust may from time to time have some portion of its capital resources at risk in connection with financing, designing, building, owning and operating such projects.\nRust received 11.6%, 8.7% and 15.8% of its total consolidated revenues in 1991, 1992 and 1993, respectively, from WMX and its affiliates. Transactions with WMX and its affiliates are conducted on a competitive basis and there is no assurance that Rust will continue to receive substantially similar amounts of revenue from WMX or its affiliates. However, WMX and its affiliates have agreed that Rust will be the preferred provider to WMX and its affiliates (other than WM International) of the types of services provided by Rust, subject to certain limitations. Rust also received 11.6% of its total consolidated revenues in 1993 from direct contracts with the United States Government and its departments and agencies. Business with the United States Government is also highly competitive, and there is no assurance that Rust will continue to receive such business.\nNo other customer or related group of customers accounted for a material portion of the Company's business in 1993.\nCOMPETITION\nCompetition in the chemical waste management services market is encountered from a number of sources, including several national or regional waste management firms, firms specializing primarily in chemical waste management, local waste management firms and, to a much greater extent, generators of chemical wastes which seek to reduce the volume of or otherwise process and dispose of such wastes themselves. The basis of competition is primarily technical expertise and the price, quality and reliability of service.\nThe Company does not believe that any other firm offers as many treatment technologies and as broad a network of chemical waste transportation, treatment, storage and disposal facilities as does the Company. Due to the significant extent to which certain chemical waste generators process and dispose of such wastes themselves, the Company does not believe that any company accounts for a material portion of the total domestic chemical waste management market. As a result of the considerable capital expenditures needed to develop a permitted treatment, storage or disposal facility for chemical wastes, and the difficulty of obtaining permits, companies which have such permitted facilities may have a competitive advantage.\nIn addition to the Company's Barnwell, South Carolina facility, there is only one other licensed commercial low-level radioactive waste disposal facility in operation in the United States, located near Richland, Washington. Since January 1, 1993, that facility accepts waste for disposal only from certain states west of the Mississippi River. Of the electric utilities in the United States that operate nuclear power plants, most are located in the eastern portion of the country. The Company believes that it currently disposes of the majority of low-level radioactive waste generated commercially in states east of the Mississippi River at its Barnwell facility. Because licensed disposal facilities require considerable capital expenditures, and because licenses are difficult to obtain, companies which have licensed facilities may have a competitive advantage. However, many of the Company's utility customers are believed to be considering on-site storage of low-level radioactive waste. Competition in the other nuclear services provided by the Company is encountered from a number of companies.\nAlthough Rust is a leading provider of engineering, construction, environmental and infrastructure consulting, hazardous substance remediation and other on-site industrial and related services, the Company does not believe that any entity accounts for a material portion of this decentralized, highly fragmented market. The service industries in which Rust operates are highly competitive and certain aspects require substantial human and capital resources. Rust encounters intense competition, primarily in pricing, quality and reliability of services from various sources in all aspects of its engineering, construction, environmental and infrastructure consulting services and its construction, hazardous substance remediation, and industrial and other on-site and related\nservices operations. Other competitive factors include the ability to deliver an expanded range of environmentally related services, type of equipment used, response time and employee safety record. Some competitors of Rust may have substantially greater financial resources than Rust. Particularly with respect to large contracts, such as for the government sector, or contracts or bids with respect to construction or development of industrial or power facilities, Rust may be required to commit substantial resources over a long period of time without any assurance of being selected to perform, or of successfully completing such projects.\nUntil such time as WMX ceases to own shares having a majority of the voting power in the election of CWM's directors, WMX has agreed not to engage directly or indirectly in the storage, processing, treatment or disposal of (i) low-level radioactive waste in the United States or Canada, (ii) hazardous wastes regulated under RCRA, or wastes the storage, treatment or disposal of which was regulated under TSCA at the time of WMX's agreement with the Company in September 1986 or (iii) such wastes in Canada which would be so regulated in the United States. The Company has also entered into an Amended and Restated International Business Opportunities Agreement with WMX, Rust, WTI, WM International and an affiliate of WM International pursuant to which, in part, the Company agreed that, in order to minimize the potential for conflicts of interest among various subsidiaries under the common control of WMX, WMX has the right to direct all business opportunities to the WMX controlled subsidiary which, in WMX's reasonable and good faith judgment, has the most experience and expertise in that line of business. Opportunities in North America (other than those relating to hazardous substance remediation services which have been allocated to Rust) relating to storage, processing, treatment or disposal of (i) radioactive wastes, or (ii) hazardous wastes regulated under the Resource Conservation and Recovery Act or wastes the storage, treatment or disposal of which as of January 1993 was regulated under the Toxic Substances Control Act in the United States, (iii) such wastes in Canada which would be so regulated in the United States, or (iv) wastes in Mexico which are currently or in the future regulated as hazardous or toxic under Mexican law, have been allocated to the Company. Opportunities worldwide relating to (a) architectural services, (b) engineering and design services, other than those relating to (1) chimneys and air pollution control equipment and facilities, (2) facilities and systems for water, wastewater and sewage treatment outside North America, but only (x) where the customer is seeking third-party operation and maintenance services in addition to those customarily involved in start-up and commissioning tests, or (y) which are designed for treating hazardous waste streams, whether or not the customer is seeking third-party operation and maintenance services, and (3) waste-to-energy facilities outside of North America, (c) procurement, construction and construction management services, including marine construction and dredging, but excluding such services as they relate to (1) hazardous substance remediation services outside North America, (2) chimneys and air pollution control equipment and facilities, (3) facilities and systems for water, wastewater and sewage treatment outside North America, but only (in the case of facilities and systems falling within this item (3)) (x) where the customer is seeking third-party operation and maintenance services in addition to those customarily involved in start-up and commissioning tests, or (y) which are designed for treating hazardous waste streams, whether or not the customer is seeking third-party operation and maintenance services, and (4) waste-to- energy facilities outside North America, (d) scaffolding services, (e) demolition and dismantling services, (f) environmental consulting services, including, without limitation, environmental facility siting and permitting services, remedial investigations and feasibility studies, contaminant assessments, risk assessments and air quality analyses, and (g) industrial facility and power plant maintenance services have been allocated to Rust, as well as opportunities in North America relating to hazardous substance remediation services.\nPursuant to that Agreement, the Company and Rust also agreed not to conduct waste management services operations, including, without limitation, collection, transfer, recycling and land disposal of solid wastes; collection, storage, processing, treatment or disposal of hazardous wastes (including hazardous substance remediation services); the design, development, construction, operation and maintenance of waste-to-energy facilities; and the design, engineering and construction (where the customer is seeking third-party operation and maintenance services in addition to those customarily involved in start-up and commissioning tests), operation and maintenance of facilities and systems for water, wastewater and sewage treatment (including facilities for treating hazardous waste streams, whether or not the customer is seeking third- party operation and maintenance services), outside of North America until the later of July 1, 2000 and the date WMX ceases to beneficially own\na majority of the outstanding voting equity interests of the Company or Rust, as the case may be, or a majority of all outstanding voting equity interests of WM International. In addition, the terms of the NSC Purchase Agreement (as hereinafter defined) provide, among other things, that none of CWM, Rust, WTI, WMX or their respective affiliates will compete with NSC Corporation in the asbestos abatement business for a period of five years. See \"Acquisitions and Dispositions\" and Items 12 and 13.\nINSURANCE\nWhile the Company believes it operates professionally and prudently, its business exposes it to risks such as the potential for harmful substances escaping into the environment and causing damage or injuries, the cost of which could be substantial. The Company currently has liability insurance coverage for non-nuclear related occurrences under environmental impairment, primary casualty and excess liability insurance policies maintained by WMX, the costs of which are shared. See Item 13. Pursuant to RCRA, the Company is required to maintain environmental impairment liability insurance coverage with specified minimum policy limits for sudden and nonsudden accidental occurrences. The required minimum coverages are $1,000,000 per occurrence/$2,000,000 aggregate per year for sudden accidental occurrences, and $3,000,000 per occurrence/$6,000,000 aggregate per year for nonsudden accidental occurrences, in each case exclusive of defense costs. The Company believes that its policies comply with applicable environmental regulatory financial responsibility requirements.\nThe market for non-sudden environmental impairment liability insurance is constricted, with only a few insurance companies currently offering coverage and with coverage entailing limited amounts with restrictive terms and high premium costs. Consequently, the Company is utilizing coverage under the one non-sudden environmental impairment liability insurance policy maintained by WMX. Under that policy, losses paid by the carrier must be reimbursed over a period of years, subject to a requirement that WMX make advance deposits with the carrier for such purpose. A claim covered under such an insurance policy which does not transfer risk, if successful and of sufficient magnitude, could have a material adverse effect on the Company's business, earnings or financial condition.\nThe Company has nuclear insurance in an amount substantially exceeding that which is required by the State of South Carolina to cover liabilities arising out of its low-level radioactive waste disposal operations and certain of its transportation services. The Company's other operations at nuclear power plants are insured under the nuclear liability and compensation system established by the Price-Anderson Act amendment to the Atomic Energy Act of 1954.\nEMPLOYEES\nThe Company (excluding Rust) employed approximately 4,400 persons at December 31, 1993. Of this number, the Company employed approximately 200 as managers or executives, approximately 3,200 in transportation, treatment, resource recovery and disposal activities (including approximately 900 performing technical, analytical or engineering services), and approximately 1,000 in sales, clerical, data processing and other activities. At that date, approximately 250 of such employees were represented by various labor unions under collective bargaining agreements expiring on various dates through 1997. Excluding Rust, five collective bargaining agreements will expire in 1994.\nRust employed approximately 16,000 persons at December 31, 1993, of whom approximately 1,400 were employed as managers or executives, approximately 5,100 provided technical or engineering services (excluding craft personnel hired on a temporary basis), approximately 1,500 were employed in sales, clerical and data processing activities and approximately 8,000 were employed in other activities, principally providing hourly rated labor. At that date, approximately 2,100 of Rust's employees were represented by various labor unions under numerous collective bargaining agreements, most of which have one-to three year terms but provide for automatic renewal if not terminated by a party thereto.\nThe Company and its subsidiaries have not experienced a significant work stoppage and consider their employee relations to be good.\nACQUISITIONS AND DISPOSITIONS\nSince commencing operations, the Company's businesses have expanded in part through acquisitions of other companies, and certain assets of other companies, engaged in various phases of the environmental, engineering, construction and industrial services industries. See Note 4 to the Company's Consolidated Financial Statements filed as an exhibit to this report and incorporated herein by reference.\nIn September 1988, CWM acquired newly issued common and convertible preferred shares from Brand equivalent to a 49% ownership interest in Brand. Most of the consideration was paid in cash, with the balance consisting of CWM's asbestos abatement businesses which were transferred to Brand and CWM's agreement, among other matters, to furnish certain services to Brand. In October 1990, CWM exercised options increasing its ownership of Brand capital stock to a majority interest. In January 1993, CWM contributed its Brand shares to Rust.\nIn May 1993, pursuant to an agreement (the \"NSC Purchase Agreement\") by and among NSC, NSC's wholly owned subsidiary, NSC Industrial Services Corp., Brand, WMX and OHM Corporation, previously an approximately 70% stockholder of NSC, Brand transferred its asbestos abatement business to NSC in exchange for an approximately 41% interest in NSC Corporation and two industrial services companies of NSC. Rust assumed the rights and obligations of Brand under the NSC Purchase Agreement upon consummation of the merger of Brand into a subsidiary of Rust.\nIn August 1993, Rust acquired EnClean, Inc., an industrial and environmental services business providing hydroblasting, industrial vacuuming, chemical cleaning, separation technology, site remediation and catalyst handling services. The acquisition expanded Rust's presence primarily in the Gulf Coast area and added chemical cleaning and catalyst handling to the services already provided by Rust.\nIn September 1993, CWM announced plans to, among other things, eliminate approximately 1,200 positions by year-end 1994, consolidate operations in its treatment and land disposal group, restructure its sales and service regions, sell selected service centers in marginal service lines and geographies, seek joint venture partners and review other strategic alternatives for its Port Arthur, Texas incinerator and centralize additional functions. CWM is restructuring its hazardous waste management and related services operations on the assumption that future base business revenue growth, if any, will not keep pace with the recovery in the general economy, and plans not to make investments which are primarily supported by non-recurring (event business) volumes.\nREGULATION\nThe environmental services industry is subject to extensive and evolving regulation by federal, state, local and foreign authorities. In particular, the regulatory process requires firms in the Company's industry to obtain and retain numerous governmental permits to conduct various aspects of their operations, any of which may be subject to revocation, modification or denial. As a result of governmental policies and attitudes relating to the environmental services industry which are subject to reassessment and change, the Company believes that its ability to obtain applicable permits from governmental authorities on a timely basis, and to retain such permits, could be impaired. The Company is not in a position at the present time to assess the extent of the impact of such potential changes in governmental policies and attitudes on the permitting processes, but it could be significant. In particular, adverse decisions by governmental authorities on permit applications submitted by the Company may result in abandonment of projects, premature closure of facilities or restriction of operations, which could have a material adverse effect on the Company's earnings for one or more fiscal quarter or years.\nDue to the complexity of regulation of the industry and to public pressure, implementation of existing or future laws, regulations or initiatives by different levels of government may be inconsistent and difficult to foresee. The Company makes a continuing effort to anticipate regulatory, political and legal developments that might affect its operations, but is not always able to do so. In this regard, federal, state, local and foreign governments have from time to time proposed or adopted other types of laws, regulations or initiatives with respect to the environmental services industry. Included among them have been laws, regulations and initiatives in the United States to ban or restrict the interstate shipment of hazardous wastes, impose higher taxes on out-of-state hazardous waste shipments than in-state shipments and reclassify certain categories of hazardous wastes as non-hazardous. In particular, the federal government currently is considering several fundamental changes to laws and regulations that define which wastes are hazardous, that establish treatment standards for certain wastes that could lead to their reclassification as non- hazardous, and that revise the nature and extent of responsible parties' obligations to remediate contaminated property. While the outcome of these deliberations cannot be predicted, it is possible that some of the changes under consideration could facilitate exemptions from hazardous waste requirements for significant volumes of waste and alter the types of treatment and disposal that will be required. If such changes are implemented, the overall impact on the Company's business is likely to be unfavorable. While the Company cannot predict the extent to which any legislation or regulation that may be enacted or enforced in the future may affect its operations, such matters could have a material adverse impact on earnings for one or more fiscal quarters or years.\nIn addition to environmental laws and regulations, federal government contractors, including the Company, are subject to extensive regulations under the Federal Acquisition Regulation and numerous statutes which deal with the accuracy of cost and pricing information furnished to the government, the allowability of costs charged to the government, the conditions under which contracts may be modified or terminated, and other similar matters. Various aspects of the Company's operations are subject to audit by agencies of the federal government in connection with its performance of work under such contracts as well as its submission of bids or proposals to the government. Under certain circumstances, the government may have the right to modify contract price terms unilaterally. Failure to comply with contract provisions or other applicable requirements may result in termination of the contract, the imposition of civil and criminal penalties against the Company, or the suspension or debarment of all or a part of the Company from federal government work, which could have a material adverse impact upon the Company's operations, financial condition or earnings. Among the reasons for debarment are violations of various statutes, including those related to employment practices, the protection of the environment, the accuracy of records and the recording of costs. Some state and local governments have similar suspension and debarment laws or regulations.\nBecause of heightened public awareness of environmental issues, companies in the environmental service business, including the Company, may in the normal course of their business be expected periodically to become subject to judicial and administrative proceedings. Governmental agencies may seek to impose fines on the Company or revoke, deny renewal of, or modify the Company's operating permits or licenses. The Company is also subject to actions brought by private parties or special interest groups in connection with the permitting or licensing of its operations, alleging violations of such permits and licenses, or other matters. In addition, increasing governmental scrutiny of the environmental compliance records of the Company or one or more of its affiliates could cause a private or public entity seeking environmental services to disqualify the Company from competing for one or more projects, on the grounds that these records display inadequate attention to environmental compliance.\nCHEMICAL WASTE\nThe Company is required to obtain federal, state, local and foreign governmental permits for its chemical waste treatment (including resource recovery), storage and disposal facilities. Such permits are difficult to obtain, and in most instances extensive geological studies, tests and public hearings are required before permits may be issued. The Company's treatment, storage and disposal facilities are also subject to siting, zoning and land use restrictions, as well as to regulations (including certain requirements pursuant to federal statutes) which may govern operating procedures and water and air pollution, among other matters. In particular, the Company's operations in the United States are subject to the Safe Drinking Water Act (which regulates deep well injection), TSCA (pursuant to which the EPA has promulgated regulations concerning the disposal of PCBs), the Clean\nWater Act (which regulates the discharge of pollutants into surface waters and sewers by municipal, industrial and other sources) and the Clean Air Act (which regulates emissions into the air of certain potentially harmful substances). In its transportation operations, the Company is subject to the jurisdiction of the Interstate Commerce Commission and is regulated by the DOT and by regulatory agencies in each state. Employee safety and health standards under the Occupational Safety and Health Act (\"OSHA\") are also applicable.\nRCRA\nPursuant to RCRA, the EPA has established and administers a comprehensive, \"cradle-to-grave\" system for the management of a wide range of industrial by- products and residues identified as \"hazardous\" wastes. States that have adopted hazardous waste management programs with standards at least as stringent as those promulgated by the EPA may be authorized by the EPA to administer their programs in lieu of RCRA.\nUnder RCRA and federal transportation laws, all generators of hazardous wastes are required to label shipments in accordance with detailed regulations and prepare a detailed manifest identifying the material and stating its destination before shipment offsite. A transporter must deliver the hazardous wastes in accordance with the manifest and only to a treatment, storage or disposal facility having a RCRA permit or interim status under RCRA. Every facility that treats or disposes of hazardous wastes must obtain a RCRA permit from the EPA or an authorized state and must comply with certain operating standards. The RCRA permitting process involves applying for interim status and also for a final permit. Under RCRA and the implementing regulations, facilities which have obtained interim status are allowed to continue operating by complying with certain minimum standards pending issuance of a permit.\nAmendments to RCRA enacted in 1984 expanded its scope by, among other things, adding wastes to the hazardous category and providing for the regulation of hazardous wastes generated in quantities greater than 100 kilograms per month (reduced from the prior cutoff of regulatory authority at the 1,000 kilograms per month level). Additionally, the amendments impose restrictions on land disposal of certain hazardous wastes and prescribe more stringent standards for hazardous waste land disposal facilities. The amendments also contain a statement of policy that reliance on land disposal of hazardous wastes should be minimized or prohibited. Land disposal of certain types of untreated hazardous wastes was banned except where the EPA determined that land disposal of such wastes and treatment residuals should be permitted. In accordance with the amendments, the disposal of liquids in hazardous waste land disposal facilities was prohibited in 1985. Since 1983, it has been the Company's practice to prohibit the disposal of liquids in secure land disposal cells.\nAlso under the RCRA amendments, by November 1985, RCRA-regulated hazardous waste facilities with land disposal operations were required to certify compliance with groundwater monitoring and financial responsibility requirements, or be faced with the loss of federal authority to operate. All of the Company's affected facilities for which continued operations are planned certified compliance with these requirements. The requirement to certify applied to approximately 1,500 RCRA-regulated facilities nationwide, although not all of them were then operating or have continued to operate. Of those facilities, approximately one-third were able to certify and remain eligible to operate.\nEPA currently is considering a number of fundamental changes to its regulations under RCRA that could facilitate exemptions from hazardous waste management requirements, including policies and regulations that could implement the following changes: redefine the criteria for determining whether wastes are hazardous; prescribe treatment levels which, if achieved, could render wastes non-hazardous; encourage further recycling and waste minimization; reduce treatment requirements for certain wastes to encourage alternatives to incineration; establish new operating standards for combustion technologies; and indirectly encourage on-site remediation. Because many of these initiatives are at an early stage of development, the Company cannot predict the final decisions EPA might make or the extent of their impact on the Company's business.\nOf the Company's chemical waste treatment, resource recovery or disposal facilities in the United States, all but three have been issued permits under RCRA. Such facilities without RCRA permits continue to have interim status. Final permits are to be issued jointly by authorized states subject to EPA oversight and by the EPA. The regulations governing issuance of permits contain detailed standards for hazardous waste facilities on matters such as waste analysis, security, inspections, training, preparedness and prevention, emergency procedures, reporting and recordkeeping. Once issued, a final permit has a maximum fixed term of 10 years, and such permits for land disposal facilities are required to be reviewed five years from the date of issuance. The issuing agency (either the EPA or an authorized state) may review or modify a permit at any time during its term.\nThe Company believes that each of its operating treatment, storage or disposal facilities is in substantial compliance with the applicable requirements promulgated pursuant to RCRA, and the Company expects that each facility with interim status ultimately can qualify to be issued a RCRA permit. It is possible, however, that in some instances the issuance of a permit could be made conditional upon the initiation or completion by the Company of certain modifications or corrective actions at the facility in question. If so, substantial additional capital expenditures on the part of the Company could be necessary. In addition, permits may be issued with restrictions that would limit the Company's future operations at a facility. The Company anticipates that once a permit is issued with respect to a facility, the permit will be reauthorized at the end of its term if the facility's operations are in compliance with applicable requirements. However, there can be no assurance that such will be the case.\nIn addition to the foregoing provisions, RCRA regulations require the Company to demonstrate financial responsibility for bodily injury and property damage to third parties caused by both sudden and nonsudden accidental occurrences (see \"Insurance\" herein). Also, RCRA regulations require the Company to provide financial assurance that funds will be available when needed for closure and post-closure care, the costs of which could be substantial, at its chemical waste treatment, storage and disposal facilities. Such regulations allow the financial assurance requirements to be satisfied by various means, including letters of credit, surety bonds, trust funds, a financial (net worth) test and a guarantee by a parent corporation. The Company is currently satisfying such requirements through a combination of the various allowable methods, including letters of credit and guarantees in the requisite form provided by WMX, which WMX has agreed to continue to furnish under certain conditions for a limited period of time (see Item 13). The Company accrues for closure costs for individual secure land disposal cells as airspace is utilized. The Company does not accrue for closure costs of other facilities which are not consumed as used. The Company believes that it will continue to be able to satisfy the RCRA financial assurance requirements through WMX or other means, although possibly at an increased cost.\nSuperfund\nSuperfund provides for immediate response and removal actions coordinated by the EPA to releases of hazardous substances into the environment, and authorizes the federal government either to clean up facilities at which hazardous substances have created actual or potential environmental hazards or to order persons responsible for the situation to do so. Superfund assigns liability for these response and other related costs to parties involved in the generation, transfer and disposal of such hazardous substances. Superfund has been interpreted as creating strict, joint and several liability for costs of removal and remediation, other necessary response costs and damages for injury to natural resources. Liability extends to owners and operators of waste disposal facilities (and waste transportation vehicles) from which a release occurs, persons who owned or operated such facilities at the time the hazardous substances were disposed, persons who arranged for disposal or treatment of a hazardous substance at or transportation of a hazardous substance to such a facility, and waste transporters who selected such facilities for treatment or disposal of hazardous substances, as well as to generators of such substances. Liability may be trebled if the responsible party fails to perform a removal or remedial action ordered under the law. See Item 3.\nSuperfund created a revolving fund to be used by the federal government to pay for the cleanup efforts. In late 1990, federal Superfund spending through the end of the government's 1994 fiscal year was authorized up to a maximum of $5.1 billion.\nThe U. S. Congress is expected to reauthorize and revise the Superfund statute in 1994 or 1995. In addition to possible changes in the statute's funding mechanisms and provisions for allocating cleanup responsibility, it is possible that Congress also will fundamentally alter the statute's provisions governing the selection of appropriate site cleanup remedies. For example, Congress is expected to consider whether to continue Superfund's current reliance on stringent technology standards issued under other statutes (such as RCRA) to govern removal and treatment of remediation wastes or to adopt new approaches such as national or site-specific risk based standards. This and other potential policy changes could significantly affect the stringency and extent of site remediation, the types of remediation techniques that will be employed, and the degree to which permitted hazardous waste management facilities will be used for remediation wastes.\nRADIOACTIVE WASTE\nThe radioactive waste services of the Company are also subject to extensive governmental regulation. Due to the extensive geological and hydrological testing and environmental data required, and the complex political environment, it is difficult to obtain permits for radioactive waste disposal facilities. Various phases of the Company's radioactive waste management services are regulated by various state agencies, the NRC and the DOT. Regulations applicable to the Company's operations include those dealing with packaging, handling, labelling and routing of radioactive materials, and prescribe detailed safety and equipment standards and requirements for training, quality control and insurance, among other matters. Employee safety and health standards under OSHA are also applicable.\nENGINEERING, CONSTRUCTION AND RELATED SERVICES\nRCRA, state law analogues, TSCA, which regulates PCB treatment, storage and disposal, and other environmental statutes and regulations impose strict operational requirements on the performance of certain aspects of remedial work. See Regulation -- Chemical Waste. These requirements specify complex methods for identification, storage, treatment and disposal of wastes generated during a project. Failure to meet these requirements could result in termination of contracts, substantial fines and other penalties. The cost and complexity of permit or license applications for remedial work can be considerable. Furthermore, Rust may not receive necessary permits at the end of the application process, for any of a variety of reasons such as perceived compliance problems, the permitting authority's judgment that the application, even if complete, fails to meet technical or regulatory requirements and community opposition to the project. Any of these reasons can also cause significant delays in the issuance of necessary permits.\nThe practice of engineering and architecture is regulated by state statutes. All states require architects and engineers to be registered by their respective state registration boards as a condition to offering or rendering professional services. Many states also require companies offering or rendering professional services, such as Rust, to obtain certificates of authority.\nEmployee safety and health standards under OSHA are also applicable to Rust's businesses. Rust's utility services business is also subject to NRC regulations concerning rerack services and service related products, such as fire prevention seals, provided to nuclear power plants.", "ITEM 2. PROPERTIES.\nThe principal fixed assets of the Company consist of its network of transportation, treatment, storage and disposal facilities and its fleet of transportation vehicles. At December 31, 1993, vehicles and equipment represented approximately 24% of the Company's hazardous waste management and related assets. Rust's\nprincipal fixed assets consist of its headquarters buildings, vehicles, equipment and scaffolding inventory, which as of December 31, 1993 represented approximately 20% of Rust's total assets as reflected in its consolidated balance sheet.\nAt December 31, 1993, the Company's chemical waste facilities with secure land disposal sites (as set forth in the table below) aggregated approximately 10,500 acres, including approximately 3,050 permitted acres. The Company believes that, at current rates of utilization, the permitted and other potentially usable acres included in such total have sufficient capacity to enable the Company to continue to conduct secure land disposal operations for more than 30 years, although not all of the Company's facilities have such capacity.\nThe Company's corporate headquarters are located at 3001 Butterfield Road, Oak Brook, Illinois in premises leased from WMX on a month to month basis. Rust's corporate headquarters are located in Birmingham, Alabama and consist of three office buildings owned by Rust.\nAs of December 31, 1993, the Company's real estate holdings represented approximately 31% of the Company's hazardous waste management and related assets, and the aggregate annual rental payments on real estate (excluding Rust) approximated $4,951,000. Rust's real estate holdings do not represent a material portion of its assets, as its operations are conducted principally from leased office and warehouse space. Rust's aggregate 1993 rental payments on real estate approximated $19,000,000.\nThe following table sets forth certain information regarding the principal treatment, resource recovery or disposal facilities owned or leased by the Company:", "ITEM 3. LEGAL PROCEEDINGS.\nThe business in which the Company is engaged is intrinsically connected with the protection of the environment and the potential for the unintended or unpermitted discharge of materials into the environment. In the ordinary course of conducting its business activities, the Company becomes involved in judicial and administrative proceedings involving governmental authorities at the federal, state and local levels (including, in certain instances, proceedings instituted by citizens or local governmental authorities seeking to overturn governmental action where governmental officials or agencies are named as defendants together with the Company or one or more of its subsidiaries, or both). In the majority of the situations where regulatory enforcement proceedings are commenced by governmental authorities, the matters involved relate to alleged technical violations of licenses or permits pursuant to which the Company operates or is seeking to operate, or of laws or regulations to which its operations are subject, or are the result of different interpretations of the applicable requirements. From time to time, the Company pays fines or penalties in environmental proceedings relating primarily to waste treatment, storage or disposal facilities. At December 31, 1993, the Company was involved in four governmental proceedings (other than those described below) relating to operations of the Company or one of its subsidiaries where the Company believes sanctions may exceed $100,000.\nOn November 12, 1993, the Supreme Court of the State of Louisiana denied the Company's application for a writ of review of an opinion of the Louisiana First Circuit Court of Appeal affirming an administrative order that imposed a fine of approximately $262,000 for certain incidents occurring in 1987 and 1988 at the Company's Lake Charles, Louisiana facility, including alleged unpermitted storage of waste and alleged failures to mark the accumulation date on two containers, to remove or overpack waste from a container in poor condition, to keep hazardous waste containers closed, to properly design and operate the containment system in a fuels loading and unloading area, to provide an adequate number of warning signs, and to take certain actions to prevent fires.\nOn December 30, 1993, a subsidiary of the Company entered into a stipulation of settlement with the New Jersey Department of Environmental Protection and Energy in connection with certain matters occurring in 1992 and 1993 at the Company's Newark, New Jersey facility, including alleged failures to follow required procedures for rejecting hazardous wastes, to comply with certain requirements for managing incompatible wastes and to prepare a manifest before transporting certain waste, and the alleged shipment of waste to an unauthorized facility. The Company's subsidiary agreed to pay civil penalties aggregating approximately $218,000. In settling these matters, the Company's subsidiary did not admit violations of law.\nThe Company has been identified as a potentially responsible party in a number of governmental investigations and actions relating to waste disposal facilities which may be subject to remedial action under Superfund. Generally these proceedings are based on allegations that the Company or certain of its subsidiaries (or their predecessors) transported hazardous substances to the facilities in question, often prior to acquisition of such subsidiaries by the Company. Such proceedings arising under Superfund typically involve numerous waste generators and other waste transportation and disposal companies, and seek to allocate or recover costs associated with site investigation and cleanup, which costs could be substantial.\nAs of December 31, 1993, the Company or its subsidiaries had been notified that they are potentially responsible parties in connection with 22 locations listed on the Superfund National Priority List (the \"NPL\"). The 22 NPL sites at which claims have been made against the Company are at different procedural stages under Superfund. At some, the Company's liability is well defined as a consequence of a governmental decision as to the appropriate remedy and an agreement among liable parties as to the share each will pay for implementing that remedy. At others, where no remedy has been selected and the liable parties have been unable to agree on an appropriate allocation, the Company's future costs are substantially uncertain.\nThe Company periodically reviews its role, if any, with respect to each such location, giving consideration to the nature of the Company's alleged connection to the location (e.g., owner, operator, transporter or generator), the extent of the Company's alleged connection to the location (e.g., amount and nature of waste hauled to the location, number of years of site\noperation by the Company or other relevant factors), the accuracy and strength of evidence connecting the Company to the location, the number, connection and financial ability of other named and unnamed potentially responsible parties at the location, and the nature and estimated cost of the likely remedy. Where the Company concludes that it is probable that a liability has been incurred, a provision is made in the Company's financial statements for the Company's best estimate of the liability based on management's judgment and experience, information available from regulatory agencies and the number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of a specific site, as well as the typical allocation of costs among such parties. If a range of possible outcomes is estimated and no amount within the range appears to be a better estimate than any other, then the Company provides for the minimum amount within the range, in accordance with generally accepted accounting principles. Sites subject to state action under state laws similar to the federal superfund statute are treated by the Company in the same way as NPL sites.\nThe Company's estimates are subsequently revised, as deemed necessary, as additional information becomes available. While the Company does not anticipate that the amount of any such revisions will have a material adverse effect on the Company's operations or financial condition, the measurement of environmental liabilities is inherently difficult and the possibility remains that technological, regulatory or enforcement developments, the results of environmental studies or other factors could materially alter this expectation at any time. Such matters could have a material adverse impact on financial condition or earnings for one or more fiscal quarters or years.\nThe Company and certain of its subsidiaries are currently involved in civil litigation and governmental proceedings relating to the conduct of their business. While the outcome of any particular lawsuit or governmental investigation cannot be predicted with certainty, the Company believes that these matters will not have a material adverse effect on its results of operations or financial condition.\nOn September 17, 1993, H. Peter Kriendler, a stockholder of the Company, filed suit in the U. S. District Court for the Northern District of Illinois, Eastern Division, alleging that the Company had violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Two similar suits were filed in that Court on September 30, 1993 and October 13, 1993, and on October 29, 1993 the Court and the parties agreed to consolidate them with the first action. These lawsuits allege that the Company violated federal securities laws by engaging in misrepresentations of, or failures to disclose, material information concerning primarily (i) alleged overvaluation of certain of the Company's assets, principally its incineration facilities, (ii) alleged overstatement of the Company's earnings for 1992 and the first quarter of 1993 due to failure to write down the value of such assets and other matters and (iii) the alleged existence of certain adverse hazardous waste treatment and disposal industry conditions and trends. The lawsuits also allege, among other things, liability on the part of WMX for the above-described alleged violations. The lawsuits seek to represent a class of persons consisting of all purchasers of the Company's common stock during the period of February 4, 1993 through September 3, 1993 and to recover compensation for damages allegedly suffered by such class due to the above-described alleged violations. The Company and WMX believe that they have meritorious defenses to these lawsuits and intend to contest the lawsuits vigorously.\nThe Company and WMX have brought suit against a substantial number of insurance carriers in an action entitled Waste Management, Inc. et al. v. The Admiral Insurance Company, et al. pending in the Superior court in Hudson County, New Jersey. In this action the Company is seeking a declaratory judgment that environmental liabilities asserted against the Company or its subsidiaries, or that may be asserted in the future, are covered by insurance policies purchased by the Company or its affiliates. The Company is also seeking to recover defense costs and other damages incurred as a result of the assertion of environmental liabilities against the Company or its subsidiaries and the defendant insurance carriers' denial of coverage of such liabilities over several years at approximately 34 sites. The defendants have denied liability to the Company and have asserted various defenses, including that environmental liabilities of the type for which the Company is seeking relief are not risks covered by the insurance policies in question. The defendants have indicated that they intend to contest these claims vigorously. Discovery is currently underway in this proceeding and is expected to continue for several years. No trial date has been set. The Company is unable at this time to predict the outcome of this proceeding. No amounts have been recognized in the Company's financial statements for any potential recoveries.", "ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.\nNo matters were submitted to the Company's security holders during the fourth quarter of 1993.\nEXECUTIVE OFFICERS OF THE REGISTRANT.\nSet forth below are the names and ages of the Company's executive officers (as defined by regulations of the Securities and Exchange Commission), the positions they hold with the Company, their terms as officers and summaries of their business experience. Executive officers are elected by the Board of Directors and serve at the discretion of the Board.\nD. P. Payne, age 51, has served as President and Chief Executive Officer and a director of the Company since September 1991. From August 1990 to May 1993, he also served as a Senior Vice President of WMX. Prior thereto, Mr. Payne had been Vice President and Area General Manager of the Midwestern Area of International Business Machines Corporation since prior to 1987. Mr. Payne is also a director of Rust.\nBrian J. Clarke, age 34, has served as Vice President and General Counsel of the Company since January 1994. From July 1992 to January 1994 he served as Regional Vice President and General Counsel of the Company's Thermal Operations Group. Prior thereto he served as Counsel to the Company for more than the past five years.\nJerome D. Girsch, age 48, has been Executive Vice President, Treasurer and Controller and Chief Financial Officer and a director of the Company since March 1993. Mr. Girsch served as Vice President of WMX from 1981 to May 1993, as Controller of WMX from 1986 to 1990 and as principal accounting officer of WMX from April 1988 to 1990. From August 1992 until March 1993, Mr. Girsch served as President of the Midwest Group of Waste Management, Inc., a wholly owned subsidiary of WMX (\"WMI\"). From January 1990 until August 1992, Mr. Girsch served as Executive Vice President of WMI.\nDr. Rodger D. Henson, age 50, has served as Vice President of the Company and as President of its Treatment and Land Disposal Operations Group, since December 1992. From July 1992 until December 1992, he served as Vice President- - -Central Region of the Company. From November 1990 until July 1992, he served as Vice President--Southern Region and from January 1990 until November 1990, he served as Vice President--Regional Operations of the Company. Prior thereto he served as General Manager of the Company's Emelle, Alabama facility for more than the past five years.\nRichard C. Scherr, age 47, has served as Vice President--Environment, Health and Safety of the Company since August 1992. From September 1990 through August 1992, he served as Vice President of the Southern Region of ENSR Consulting and Engineering/American NuKem Corporation, an environmental and engineering consulting firm (\"ENSR\"). From April 1990 to September 1990, he served as Vice President and General Manager of ENSR. From March 1989 until April 1990, he served as General Manager of the Houston office of ENSR. Prior thereto, he served as Associate Director, Packaged Soap and Detergents Product Supply for The Procter & Gamble Company for more than the past five years.\nPART II", "ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.\nThe Company's common stock is traded on the New York Stock Exchange and the Chicago Stock Exchange under the symbol \"CHW.\" The following table sets forth by quarter for the last two years the high and low sale prices of the Company's common stock on the New York Stock Exchange Composite Tape, as reported by The Wall Street Journal (Midwest Edition), and the dividends declared by the Company's Board of Directors on its common stock.\n1992 Quarterly Summary ----------------------\n1993 Quarterly Summary ----------------------\nAt March 23, 1994, the Company had approximately 5,107 stockholders of record. In August 1993, the Board of Directors suspended indefinitely the payment of quarterly cash dividends on the Company's common stock. Future cash dividends, if any, will be considered by the Board of Directors based upon the Company's earnings and financial position and such other factors as the Board of Directors considers relevant.\nDue in part to the high level of public awareness of the business in which the Company is engaged, regulatory enforcement proceedings or other unfavorable developments involving the Company's operations or facilities, including those in the ordinary course of business, may be expected to engender substantial publicity which could from time to time have an adverse impact upon the market price for the Company's common stock.\nIn November 1992, the Company announced a 24-month extension of its authorization to purchase up to an aggregate of 10,000,000 shares of its common stock from time to time in the open market or in privately negotiated transactions. During 1991, 1992 and 1993, the Company purchased 2,610,700 shares, 1,451,100 shares and 3,300,300 shares, respectively.", "ITEM 6. SELECTED FINANCIAL DATA.\nThe following selected consolidated financial information for each of the five years in the period ended December 31, 1993 is derived from the Company's Consolidated Financial Statements, which have been audited by Arthur Andersen & Co., independent public accountants, whose report thereon is incorporated by reference in this report. The information below should be read in conjunction with \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" and the Company's Consolidated Financial Statements, and the related Notes, and the other financial information which are filed as exhibits to this report and incorporated herein by reference.\nChemical Waste Management, Inc. and Subsidiaries Selected Consolidated Financial Data for the Years Ended December 31 (000's omitted except per share amounts)\n/1/ Results for 1993 reflect the consolidation of Rust. See Note 1 to the Company's Consolidated Financial Statements filed as an exhibit to this report and incorporated herein by reference.\n/2/ Includes special charges of $36 million in 1991, $111.2 million in 1992, and $550 million in 1993. See Note 17 to the Company's Consolidated Financial Statements filed as an exhibit to this report and incorporated herein by reference.\n/3/ Includes non-taxable gains of $10.7 million in 1991, $47 million in 1992, and $10.5 million in 1993 resulting from issuance of stock by subsidiary and equity investee. See Note 2 to the Company's Consolidated Financial Statements filed as an exhibit to this report and incorporated herein by reference.\n/4/ In August 1993, the Board of Directors suspended indefinitely the payment of quarterly cash dividends on the Company's common stock.", "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.\nReference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations set forth on pages 7 to 14 of the Company's 1993 Annual Report to Stockholders (the \"Annual Report\"), which discussion is filed as an exhibit to this report and incorporated herein by reference.", "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.\n(a) The Consolidated Balance Sheets as of December 31, 1992 and 1993, Consolidated Statements of Income, Stockholders' Equity and Cash Flows for each of the years in the three-year period ended December 31, 1993, and Notes to Consolidated Financial Statements set forth on pages 15 to 35 of the Annual Report, and the Report of Arthur Andersen & Co. on page 36 of the Annual Report are filed as an exhibit to this report and incorporated herein by reference.\n(b) Selected Quarterly Financial Data (unaudited) are set forth in Note 19 to the Consolidated Financial Statements filed as an exhibit to this report and incorporated herein by reference.", "ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.\nNone. PART III", "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.\nReference is made to the information set forth in the first 12 paragraphs under the caption \"Election of Directors\" beginning on page 2 of the Company's proxy statement for the annual meeting scheduled for May 5, 1994 (\"Proxy Statement\"), incorporated herein by reference, for a description of the directors of the Company, and in the fourth footnote to the table captioned \"Ownership of Company Common Stock\" on page 5 of the Proxy Statement, incorporated herein by reference, for information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934. Information concerning the executive officers of the Company is set forth above under \"Executive Officers of the Registrant.\"", "ITEM 11. EXECUTIVE COMPENSATION.\nReference is made to the information set forth under the caption \"Compensation\" on pages 8 through 13 of the Proxy Statement, which information, except for the Report of the Compensation and Stock Option Committee and the graph and table of Company Stock Performance included therein, is incorporated herein by reference.", "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.\nReference is made to information set forth in the paragraph under the caption \"Information With Respect to Certain Stockholder\" on pages 1 and 2 of the Proxy Statement and in the tables, including the respective footnotes thereto, set forth under the caption \"Securities Ownership of Management,\" on pages 4, 5 and 6 of the Proxy Statement, for certain information respecting ownership of common stock of the Company, WMX and Rust, which paragraph, tables and footnotes are incorporated herein by reference.", "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.\nReference is made to the information set forth under the caption \"Certain Transactions\" on pages 19 through 23 of the Proxy Statement for information with respect to certain relationships and related transactions, which information is incorporated herein by reference.\nPART IV", "ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.\n(a) Financial Statements, Schedules and Exhibits.\nI. Financial Statements--filed as an exhibit hereto and incorporated herein by reference.\n(i) Report of Independent Public Accountants; (ii) Consolidated Balance Sheets--December 31, 1992 and 1993; (iii) Consolidated Statements of Income for the Three Years Ended December 31, 1993; (iv) Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 1993; (v) Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1993; and (vi) Notes to Consolidated Financial Statements.\nII. Schedules.\n(i) Report of Independent Public Accountants on Schedules; (ii) Schedule II--Amounts Receivable from Officers, Employees and Related Parties; (iii) Schedule V--Property and Equipment; (iv) Schedule VI--Accumulated Depreciation and Amortization of Property and Equipment; (v) Schedule VIII--Reserves; (vi) Schedule IX--Short-Term Borrowings; and (vii) Schedule X--Supplementary Income Statement Information.\nAll other schedules have been omitted since the required information is not significant or is included in the financial statements or the notes thereto, or is not applicable.\nIII. Exhibits.\nThe exhibits to this report are listed in the Exhibit Index elsewhere herein. Included in the exhibits listed therein are the following exhibits which constitute management contracts or compensatory plans or arrangements:\n(i) 1986 Stock Option Plan, as amended, of registrant (Exhibit 10.1 to registrant's report on form 10-K for the year ended December 31, 1989)*\n(ii) 1986 Stock Option Plan for Non-Employee Directors of registrant (Exhibit 10.2 to the registration statement (no. 33-8509) on form S-1 filed by the registrant under the Securities Act of 1933)*\n(iii) Corporate Incentive Bonus Plan of registrant**\n(iv) Chemical Waste Management, Inc. Amended and Restated Long Term Incentive Bonus Plan**\n(v) Deferred Director's Fee Plan of registrant (Exhibit 10.5 to the registration statement (no. 33-8509) on form S-1 filed by the registrant under the Securities Act of 1933)*\n(vi) WMX Technologies, Inc. Amended and Restated Supplemental Executive Retirement Plan (Exhibit 10.9 to the report on form 10-K filed by WMX Technologies, Inc. for the year ended December 31, 1993)*\n(vii) Chemical Waste Management, Inc. Supplemental Executive Retirement Plan**\n(viii) Director's Charitable Endowment Plan (Exhibit 10.16 to registrant's report on form 10-K for the year ended December 31, 1990)*\n(ix) Rust International Inc. 1993 Stock Option Plan (Exhibit 10.41 to the report on form 10-K filed by WMX Technologies, Inc. for the year ended December 31, 1992)*\n(x) Rust International Inc. Stock Option Plan for Non-Employee Directors (Exhibit 10.42 to the report on form 10-K filed by WMX Technologies, Inc. for the year ended December 31, 1992)*\n(xi) 1992 Stock Option Plan of registrant (Exhibit 10.19 to registrant's report on form 10-K for the year ended December 31, 1991)*\n(xii) 1992 Stock Option Plan for Non-Employee Directors of registrant (Exhibit 10.20 to registrant's report on form 10-K for the year ended December 31, 1991)*\n(xiii) Consulting agreement dated May 1, 1993 between registrant and Kay Hahn Harrell**\n(b) Reports on Form 8-K.\nThe registrant did not file any reports on Form 8-K during the fiscal quarter ended December 31, 1993.\n- ----------------- * Incorporated by reference to the indicated exhibit and document; in the case of references to documents filed under the Securities Exchange Act of 1934, the registrant's file number under that Act is 1-9253, and WMX Technologies, Inc.'s is 1-7327. ** Filed with this report.\nREPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES\nTo the Stockholders and the Board of Directors of Chemical Waste Management, Inc.:\nWe have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Chemical Waste Management, Inc.'s Annual Report to Stockholders for 1993 incorporated by reference in this Form 10-K, and have issued our report thereon dated February 7, 1994. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in the index above are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.\n/s/ Arthur Andersen & Co.\nARTHUR ANDERSEN & CO.\nChicago, Illinois, February 7, 1994\nCHEMICAL WASTE MANAGEMENT, INC. AND SUBSIDIARIES\nSCHEDULE II--AMOUNTS RECEIVABLE FROM OFFICERS, EMPLOYEES AND RELATED PARTIES ($000'S OMITTED)\nThe Company's general policy is not to advance monies to officers or employees except for relocation or temporary situations. It has, however, adopted a policy of making interest-free loans available to employees whose exercise of non-qualified stock options results in ordinary income to them in excess of $10,000 at the time of such exercise. These receivables are due on or before April 15 of the year following such exercise (extended to November 30, 1992 for loans made during 1991 and to May 31, 1993 for loans made during 1992). Sufficient shares are withheld from the shares issued to the debtor to fully secure the loan at the time it is made.\n/1/ Interest-free loan related to an acquisition\n================================================================================\nCHEMICAL WASTE MANAGEMENT, INC. AND SUBSIDIARIES\nSCHEDULE V--PROPERTY AND EQUIPMENT ($000'S OMITTED)\n- -------------- (1) Includes writedown of assets relating to special charges in 1992 and 1993. See Note 17 to the Company's Consolidated Financial Statements filed as an exhibit to this report and incorporated herein by reference. (2) Transfers between the Company and WMX Technologies, Inc. and its affiliates, reclassifications and assets contributed by Wheelabrator Technologies Inc. in the 1/1/93 formation of Rust International Inc. ================================================================================\nCHEMICAL WASTE MANAGEMENT, INC. AND SUBSIDIARIES\nSCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT ($000'S OMITTED)\n- --------------------- (1) Includes writedown of assets relating to special charges in 1992 and 1993. See Note 17 to the Company's Consolidated Financial Statements filed as an exhibit to this report and incorporated herein by reference. (2) Transfers between the Company and WMX Technologies, Inc. and its affiliates, reclassifications and accumulated depreciation of the businesses contributed by Wheelabrator Technologies Inc. in the 1/1/93 formation of Rust International Inc. ================================================================================\nCHEMICAL WASTE MANAGEMENT, INC. AND SUBSIDIARIES\nSCHEDULE VIII--RESERVES ($000'S OMITTED)\n- --------------- (1) Reserves of purchased companies, transfers between the Company and WMX Technologies, Inc. and its affiliates, and reserves of the businesses contributed by Wheelabrator Technologies Inc. in the 1/1/93 formation of Rust International Inc. ================================================================================\nCHEMICAL WASTE MANAGEMENT, INC. AND SUBSIDIARIES\nSCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION ($000'S OMITTED)\n================================================================================\n================================================================================\nSIGNATURES\nPURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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, IN OAK BROOK, ILLINOIS ON THE 25TH DAY OF MARCH, 1994.\nCHEMICAL WASTE MANAGEMENT, INC.\nBy: /s/ D. P. Payne -------------------------------------- D. P. Payne, President and Chief Executive Officer\nPURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.\nCHEMICAL WASTE MANAGEMENT, INC.\nEXHIBIT INDEX\nNumber and Description of Exhibit ---------------------------------\n1. Inapplicable\n2. Inapplicable\n3.1 Restated certificate of incorporation of registrant* and amendments thereto (Exhibit 4.1 to registrant's report on form 10-Q for the quarter ended June 30, 1990)**\n3.2 Bylaws of registrant (Exhibit 3.2 to registrant's report on form 10-K for the year ended December 31, 1991)**\n4.1 Trust Indenture for Liquid Yield Option Notes due 2010 (Exhibit 4.1 to the registration statement (no. 33-36212) on form S-3 filed by the registrant under the Securities Act of 1933)**\n5. Inapplicable\n6. Inapplicable\n7. Inapplicable\n8. Inapplicable\n9. None\n10.1 1986 Stock Option Plan, as amended, of registrant (Exhibit 10.1 to registrant's report on form 10-K for the year ended December 31, 1989)**\n10.2 1986 Stock Option Plan for Non-Employee Directors of registrant*\n10.3 Corporate Incentive Bonus Plan of registrant\n10.4 Chemical Waste Management, Inc. Amended and Restated Long Term Incentive Plan\n10.5 Deferred Director's Fee Plan of registrant*\n10.6 Intercorporate Agreement dated as of September 3, 1986 between registrant and WMX Technologies, Inc.*\n10.7 Second Amended and Restated Corporate and Administrative Services Agreement dated as of May 17, 1993 between registrant and WMX Technologies, Inc.\n10.8 Tax Sharing Agreement dated as of September 30, 1986 between registrant and WMX Technologies, Inc.*\n- -------- * Incorporated by reference to the correspondingly numbered exhibit to the registration statement (no. 33-8509) on form S-1 filed by the registrant under the Securities Act of 1933.\n** Incorporated by reference to the indicated exhibit and document; in the case of references to documents filed under the Securities Exchange Act of 1934, the registrant's file number under the Act is 1-9253, and WMX Technologies, Inc.'s is 1-7327.\nEX-1\nNumber and Description of Exhibit ---------------------------------\n10.9 Registration Rights Agreement dated as of September 30, 1986 between registrant and WMX Technologies, Inc.*\n10.10 Lease agreement dated April 6, 1976 between the State of South Carolina and Chem-Nuclear Systems, Inc., and four amendments thereto*\n10.11 Lease agreement dated as of November 16, 1990 between the Chicago Regional Port District and a subsidiary of registrant (Exhibit 10.12 to registrant's report on form 10-K for the year ended December 31, 1990)**\n10.12 Amendment No. 1 dated as of January 1, 1992 to Intercorporate Agreement dated as of September 3, 1986 between WMX Technologies, Inc. and registrant (Exhibit 10.7(b) to the report on form 10-K filed by WMX Technologies, Inc. for the year ended December 31, 1991)**\n10.13 WMX Technologies, Inc. Amended and Restated Supplemental Executive Retirement Plan (Exhibit 10.9 to the report on form 10-K filed by WMX Technologies, Inc. for the year ended December 31, 1993)**\n10.14 Chemical Waste Management, Inc. Supplemental Executive Retirement Plan\n10.15 Directors' Charitable Endowment Plan (Exhibit 10.16 to registrant's report on form 10-K for the year ended December 31, 1990)**\n10.16 Rust International Inc. 1993 Stock Option Plan (Exhibit 10.41 to the report on form 10-K filed by WMX Technologies, Inc. for the year ended December 31, 1992)**\n10.17 Rust International Inc. 1993 Stock Option Plan for Non-Employee Directors (Exhibit 10.42 to the report on form 10-K filed by WMX Technologies, Inc. for the year ended December 31, 1992)**\n10.18 First Amended and Restated International Business Opportunities Agreement dated as of January 1, 1993 among registrant, WMX Technologies, Inc., Wheelabrator Technologies Inc., Waste Management International, Inc., Waste Management International plc and Rust International Inc. (Exhibit 28 to the registration statement (no. 33- 59606) on form S-3 filed by Wheelabrator Technologies Inc.)**\n10.19 Amendment dated as of January 28, 1994 to First Amended and Restated International Business Opportunities Agreement dated as of January 1, 1993 among registrant, WMX Technologies, Inc., Wheelabrator Technologies Inc., Waste Management International, Inc., Waste Management International plc and Rust International Inc.\n10.20 Rust Intercorporate Services Agreement dated as of January 1, 1993 among registrant, WMX Technologies, Inc., Wheelabrator Technologies Inc. and Rust International Inc. (Exhibit 10.18 to registrant's report on form 10-K for the year ended December 31, 1992)**\n10.21 Amendment No. 1 dated as of August 10, 1993 to Rust Intercorporate Services Agreement dated as of January 1, 1993 among registrant, WMX Technologies, Inc., Wheelabrator Technologies Inc. and Rust International Inc.\n- -------- * Incorporated by reference to the correspondingly numbered exhibit to the registration statement (no. 33-8509) on form S-1 filed by the registrant under the Securities Act of 1933.\n** Incorporated by reference to the indicated exhibit and document; in the case of references to documents filed under the Securities Exchange Act of 1934, the registrant's file number under the Act is 1-9253, and WMX Technologies, Inc.'s is 1-7327.\nEX-2\nNumber and Description of Exhibit ---------------------------------\n10.22 1992 Stock Option Plan of registrant (Exhibit 10.19 to registrant's report on form 10-K for the year ended December 31, 1991)**\n10.23 1992 Stock Option Plan for Non-Employee Directors of registrant (Exhibit 10.20 to registrant's report on form 10-K for the year ended December 31, 1991)**\n10.24 Organizational Agreement dated as of December 31, 1992 among registrant, The Brand Companies, Inc. and Wheelabrator Technologies Inc. (Exhibit 7 to Amendment No. 6 to Statement on Schedule 13D filed on January 5, 1993 by WMX Technologies, Inc., the registrant and Wheelabrator Technologies Inc. relating to securities of The Brand Companies, Inc.)**\n10.25 Consulting agreement dated May 1, 1993 between registrant and Kay Hahn Harrell\n11. None\n12. None\n13.1 Management's Discussion and Analysis of Financial Condition and Results of Operations\n13.2 Financial Statements and Supplementary Data\n14. Inapplicable\n15. Inapplicable\n16. None\n17. Inapplicable\n18. None\n19. Inapplicable\n20. Inapplicable\n21. List of subsidiaries of registrant\n22. Inapplicable\n23. Consent of independent public accountants\n24. None\n25. Inapplicable\n26. Inapplicable\n- -------- * Incorporated by reference to the correspondingly numbered exhibit to the registration statement (no. 33-8509) on form S-1 filed by the registrant under the Securities Act of 1933.\n** Incorporated by reference to the indicated exhibit and document; in the case of references to documents filed under the Securities Exchange Act of 1934, the registrant's file number under the Act is 1-9253, and WMX Technologies, Inc.'s is 1-7327.\nEX-3\nNumber and Description of Exhibit ---------------------------------\n27. Inapplicable\n28. None\n- -------- * Incorporated by reference to the correspondingly numbered exhibit to the registration statement (no. 33-8509) on form S-1 filed by the registrant under the Securities Act of 1933.\n** Incorporated by reference to the indicated exhibit and document; in the case of references to documents filed under the Securities Exchange Act of 1934, the registrant's file number under the Act is 1-9253, and WMX Technologies, Inc.'s is 1-7327.\nEX-4" ]

[ "Item 1.BUSINESS - --------------------------------------------------------------------------------\nGENERAL\nAEP was incorporated under the laws of the State of New York in 1906 and reorganized in 1925. It is a public utility holding company which owns, directly or indirectly, all of the outstanding common stock of its operating electric utility subsidiaries. Substantially all of the operating revenues of AEP and its subsidiaries are derived from the furnishing of electric service.\nThe service area of AEP's electric utility subsidiaries covers portions of the states of Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia. The generating and transmission facilities of AEP's subsidiaries are physically interconnected, and their operations are coordinated, as a single integrated electric utility system. Transmission networks are interconnected with extensive distribution facilities in the territories served. At December 31, 1993, the subsidiaries of AEP had a total of 20,007 employees. AEP, as such, has no employees. The principal operating subsidiaries of AEP are:\nAPCo (organized in Virginia in 1926), which is engaged in the generation, purchase, transmission and distribution of electric power to approximately 838,000 customers in the southwestern portion of Virginia and southern West Virginia, and in supplying electric power at wholesale to other electric utility companies and municipalities in those states and in Tennessee. At December 31, 1993, APCo and its wholly owned subsidiaries had 4,587 employees. A generating subsidiary of APCo, Kanawha Valley Power Company, which owns and operates under Federal license three hydroelectric generating stations located on Government lands adjacent to Government- owned navigation dams on the Kanawha River in West Virginia, sells its net output to APCo. Among the principal industries served by APCo are coal mining, primary metals, chemicals, textiles, paper, stone, clay, glass and concrete products and furniture. In addition to its AEP System interconnection, APCo also is interconnected with the following unaffiliated utility companies: Carolina Power & Light Company, Duke Power Company and VEPCo. A comparatively small part of the properties and business of APCo is located in the northeastern end of the Tennessee Valley. APCo has several points of interconnection with TVA and has entered into agreements with TVA under which APCo and TVA interchange and transfer electric power over portions of their respective systems.\nCSPCo (organized in Ohio in 1937, the earliest direct predecessor company having been organized in 1883), which is engaged in the generation, purchase, transmission and distribution of electric power to approximately 578,000 customers in Ohio, and in supplying electric power at wholesale to other electric utilities and to municipally owned distribution systems within its service area. At December 31, 1993, CSPCo had 2,143 employees. CSPCo's service area is comprised of two areas in Ohio, which include portions of twenty-five counties. One area includes the City of Columbus and the other is a predominantly rural area in south central Ohio. Approximately 80% of CSPCo's retail revenues are derived from the Columbus area. Among the principal industries served are food processing, chemicals, primary metals, electronic machinery and paper products. In addition to its AEP System interconnection, CSPCo also is interconnected with the following unaffiliated utility companies: CG&E, DP&L and Ohio Edison Company.\nI&M (organized in Indiana in 1925), which is engaged in the generation, purchase, transmission and distribution of electric power to approximately 525,000 customers in northern and eastern Indiana and southwestern Michigan, and in supplying electric power at wholesale to other electric utility companies, rural electric cooperatives and municipalities. At December 31, 1993, I&M had 3,944\nemployees. Among the principal industries served are transportation equipment, primary metals, fabricated metal products, electrical and electronic machinery, rubber and miscellaneous plastic products and chemicals and allied products. Since 1975, I&M has leased and operated the assets of the municipal system of the City of Fort Wayne, Indiana. In addition to its AEP System interconnection, I&M also is interconnected with the following unaffiliated utility companies: Central Illinois Public Service Company, CG&E, Commonwealth Edison Company, Consumers Power Company, Illinois Power Company, Indianapolis Power & Light Company, Louisville Gas and Electric Company, Northern Indiana Public Service Company, PSI Energy Inc. and Richmond Power & Light Company.\nKEPCo (organized in Kentucky in 1919), which is engaged in the generation, purchase, transmission and distribution of electric power to approximately 161,000 customers in an area in eastern Kentucky, and in supplying electric power at wholesale to other utilities and municipalities in Kentucky. At December 31, 1993, KEPCo had 842 employees. In addition to its AEP System interconnection, KEPCo also is interconnected with the following unaffiliated utility companies: Kentucky Utilities Company and East Kentucky Power Cooperative Inc. KEPCo is also interconnected with TVA.\nKingsport Power Company (organized in Virginia in 1917), which provides electric service to approximately 41,000 customers in Kingsport and eight neighboring communities in northeastern Tennessee. Kingsport Power Company has no generating facilities of its own. It purchases electric power distributed to its customers from APCo. At December 31, 1993, Kingsport Power Company had 102 employees.\nOPCo (organized in Ohio in 1907 and reincorporated in 1924), which is engaged in the generation, purchase, transmission and distribution of electric power to approximately 657,000 customers in the northwestern, east central, eastern and southern sections of Ohio, and in supplying electric power at wholesale to other electric utility companies and municipalities. At December 31, 1993, OPCo and its wholly owned subsidiaries had 5,749 employees. Among the principal industries served by OPCo are primary metals, stone, clay, glass and concrete products, rubber and plastic products, petroleum refining, chemicals and metal and wire products. In addition to its AEP System interconnection, OPCo also is interconnected with the following unaffiliated utility companies: CG&E, The Cleveland Electric Illuminating Company, DP&L, Duquesne Light Company, Kentucky Utilities Company, Monongahela Power Company, Ohio Edison Company, The Toledo Edison Company and West Penn Power Company.\nWheeling Power Company (organized in West Virginia in 1883 and reincorporated in 1911), which provides electric service to approximately 41,000 customers in northern West Virginia. Wheeling Power Company has no generating facilities of its own. It purchases electric power distributed to its customers from OPCo. At December 31, 1993, Wheeling Power Company had 143 employees.\nAnother principal electric utility subsidiary of AEP is AEGCo, which was organized in Ohio in 1982 as an electric generating company. AEGCo sells power at wholesale to I&M, KEPCo and VEPCo. AEGCo has no employees.\nSee", "Item 2.PROPERTIES - --------------------------------------------------------------------------------\nAt December 31, 1993, subsidiaries of AEP owned (or leased where indicated) generating plants with the net power capabilities (winter rating) shown in the following table:\n- -------- (a) Unit 1 of the Rockport Plant is owned one-half by AEGCo and one-half by I&M. Unit 2 of the Rockport Plant is leased one-half by AEGCo and one-half by I&M. The leases terminate in 2022 unless extended. (b) Unit 3 of the John E. Amos Plant is owned one-third by APCo and two-thirds by OPCo. (c) Represents CSPCo's ownership interest in generating units owned in common with CG&E and DP&L. (d) I&M plans to close the Breed Plant on March 31, 1994. (e) Leased from the City of Fort Wayne. Indiana. Since 1975, I&M has leased and operated the assets of the municipal system of the City of Fort Wayne, Indiana under a 35-year lease with a provision for an additional 15-year extension at the election of I&M.\nSee Item 1 under Fuel Supply, for information concerning coal reserves owned or controlled by subsidiaries of AEP.\nThe following table sets forth the total circuit miles of transmission and distribution lines of the AEP System, APCo, CSPCo, I&M, KEPCo and OPCo and that portion of the total representing 765,000-volt lines:\n- -------- (a)Includes jointly owned lines. (b)Includes lines of other AEP System companies not shown.\nTITLES\nThe AEP System's electric generating stations are generally located on lands owned in fee simple. The greater portion of the transmission and distribution lines of the System has been constructed over lands of private owners pursuant to easements or along public highways and streets pursuant to appropriate statutory authority. The rights of the System in the realty on which its facilities are located are considered by it to be adequate for its use in the conduct of its business. Minor defects and irregularities customarily found in title to properties of like size and character may exist, but such defects and irregularities do not materially impair the use of the properties affected thereby. System companies generally have the right of eminent domain whereby they may, if necessary, acquire, perfect or secure titles to or easements on privately-held lands used or to be used in their utility operations.\nSubstantially all the physical properties of APCo, CSPCo, I&M, KEPCo and OPCo are subject to the lien of the mortgage and deed of trust securing the first mortgage bonds of each such company.\nSYSTEM TRANSMISSION LINES AND FACILITY SITING\nLegislation in the states of Indiana, Kentucky, Michigan, Ohio, Virginia, and West Virginia requires prior approval of sites of generating facilities and/or routes of high-voltage transmission lines. Delays and additional costs in constructing facilities have been experienced as a result of proceedings conducted pursuant to such statutes, as well as in proceedings in which operating companies have sought to acquire rights-of-way through condemnation, and such proceedings may result in additional delays and costs in future years.\nPEAK DEMAND\nThe AEP System is interconnected through 119 high-voltage transmission interconnections with 29 neighboring electric utility systems. The all-time and 1993 one-hour peak demands were 25,174,000 and 22,142,000 kilowatts, respectively, (including 6,459,000 and 4,043,000 kilowatts, respectively, of scheduled deliveries to unaffiliated systems which the System might, on appropriate notice, have elected not to schedule for delivery) and occurred on January 18, 1994 and July 26, 1993, respectively. The net dependable capacity to serve the System load on such dates, including power available under contractual obligations, was 24,202,000 and 23,896,000 kilowatts, respectively. The all-time and 1993 one-hour internal peak demands were 19,236,000 and 18,085,000 kilowatts, respectively, and occurred on January 19, 1994 and July 28, 1993, respectively. The net dependable capacity to serve the System load on such dates, including power available under contractual arrangements, was 24,202,000 and 23,896,000 kilowatts, respectively. The all-time one-hour integrated and internal net system peak demands and 1993 peak demands for AEP's generating subsidiaries are shown in the following tabulation:\nHYDROELECTRIC PLANTS\nLicenses for hydroelectric plants, issued under the Federal Power Act, reserve to the United States the right to take over the project at the expiration of the license term, to issue a new license to another entity, or to relicense the project to the existing licensee. In the event that a project is taken over by the United States or licensed to a new licensee, the Federal Power Act provides for payment to the existing licensee of its \"net investment\" plus severance damages. Licenses for six System hydroelectric plants expired in 1993 and applications for new licenses for these plants were filed in 1991. The existing licenses for these plants were extended on an annual basis and will be renewed automatically until new licenses are issued. No competing license applications were filed. One new license was issued in March 1994.\nCOOK NUCLEAR PLANT\nUnit 1 of the Cook Plant, which was placed in commercial operation in 1975, has a nominal net electric rating of 1,020,000 kilowatts. Unit 1's availability factor was 100% during 1993 and 64.8% during 1992. Unit 2, of slightly different design, has a nominal net electrical rating of 1,090,000 kilowatts and was placed in commercial operation in 1978. Unit 2's availability factor was 96.6% during 1993 and 19.5% during 1992. The availability of Units 1 and 2 was affected in 1992 by outages to refuel and Unit 2 main turbine/generator vibrational problems.\nUnits 1 and 2 are licensed by the NRC to operate at 100% of rated thermal power to October 25, 2014 and December 23, 2017, respectively.\nNUCLEAR INSURANCE\nThe Price-Anderson Act limits public liability for a nuclear incident at any nuclear plant in the United States to $9.4 billion. I&M has insurance coverage for liability from a nuclear incident at its Cook Plant. Such coverage is provided through a combination of private liability insurance, with the maximum amount available of $200,000,000, and mandatory participation for the remainder of the $9.4 billion liability, in an industry retrospective deferred premium plan which would, in case of a nuclear incident, assess all licensees of nuclear plants in the U.S. Under the deferred premium plan, I&M could be assessed up to $158,600,000 payable in annual installments of $20,000,000 in the event of a nuclear incident at Cook or any other nuclear plant in the U.S. There is no limit on the number of incidents for which I&M could be assessed these sums.\nI&M also has property damage, decontamination and decommissioning insurance for loss resulting from damage to the Cook Plant facilities in the amount of $2.75 billion. Nuclear insurance pools provide $1.265 billion of coverage and Nuclear Electric Insurance Limited (NEIL) and Energy Insurance Bermuda (EIB) provide the remainder. If NEIL's and EIB's losses exceed their available resources, I&M would be subject to a total retrospective premium assessment of up to $15,327,023. NRC regulations require that, in the event of an accident, whenever the estimated costs of reactor stabilization and site decontamination exceed $100,000,000, the insurance proceeds must be used, first, to return the reactor to, and maintain it in, a safe and stable condition and, second, to decontaminate the reactor and reactor station site in accordance with a plan approved by the NRC. The insurers then would indemnify I&M for property damage up to $2.5 billion less any amounts used for stabilization and decontamination. The remaining $250,000,000, as provided by NEIL (reduced by any stabilization and decontamination expenditures over $2.5 billion), would cover decommissioning costs in excess of funds already collected for decommissioning. See Fuel Supply--Nuclear Waste.\nNEIL's extra-expense program provides insurance to cover extra costs resulting from a prolonged accidental outage of a nuclear unit. I&M's policy insures against such increased costs up to approximately $3,500,000 per week (starting 21 weeks after the outage) for one year, $2,350,000 per week for the second and third years, or 80% of those amounts per unit if both units are down for the same reason. If NEIL's losses exceed its available resources, I&M would be subject to a total retrospective premium assessment of up to $8,929,456.\nPOTENTIAL UNINSURED LOSSES\nSome potential losses or liabilities may not be insurable or the amount of insurance carried may not be sufficient to meet potential losses and liabilities, including liabilities relating to damage to the Cook Plant and costs of replacement power in the event of a nuclear incident at the Cook Plant. Future losses or liabilities which are not completely insured, unless allowed to be recovered through rates, could have a material adverse effect on results of operation and the financial condition of AEP, I&M and other AEP System companies.", "Item 3.LEGAL PROCEEDINGS - --------------------------------------------------------------------------------\nIn February 1990 the Supreme Court of Indiana overturned an order of the IURC, affirmed by the Indiana Court of Appeals, which had awarded I&M the right to serve a General Motors Corporation light truck manufacturing facility located in Fort Wayne. In August 1990 the IURC issued an order transferring the right to serve the GM facility to an unaffiliated local distribution utility. In October 1990 the local distribution utility sued I&M in Indiana under a provision of Indiana law that allows the local distribution utility to seek damages equal to the gross revenues received by a utility that renders retail service in the designated service territory of another utility. On November 30, 1992, the DeKalb Circuit Court granted I&M's motion for summary judgment to dismiss the local distribution utility's complaint. The local distribution utility has begun an appeal to the Indiana Court of Appeals. I&M received revenues of approximately $29,000,000 from serving the GM facility. It is not clear whether the plaintiffs claim will be upheld on appeal because the service was rendered in accordance with an IURC order I&M believed in good faith to be valid.\nOn April 4, 1991, then Secretary of Labor Lynn Martin announced that the U.S. Department of Labor (\"DOL\") had issued a total of 4,710 citations to operators of 847 coal mines who allegedly submitted respirable dust sampling cassettes that had been altered so as to remove a portion of the dust. The cassettes were submitted in compliance with DOL regulations which require systematic sampling of airborne dust in coal mines and submission of the entire cassettes (which include filters for collecting dust particulates) to the Mine Safety and Health Administration (\"MSHA\") for analysis. The amount of dust contained on the cassette's filter determines an operator's compliance with respirable dust standards under the law. OPCo's Meigs No. 2, Meigs No. 31, Martinka, and Windsor Coal mines received 16, 3, 15 and 2 citations, respectively. MSHA has assessed civil penalties totalling $56,900 for all these citations. OPCo's samples in question involve about 1 percent of the 2,500 air samples that OPCo submitted over a 20-month period from 1989 through 1991 to the DOL. OPCo is contesting the citations before the Federal Mine Safety and Health Review Commission. An administrative hearing was held before an administrative law judge with respect to all affected coal operators. On July 20, 1993, the administrative law judge rendered a decision in this case holding that the Secretary of Labor failed to establish that the presence of a \"white center\" on the dust sampling filter indicated intentional alteration. The administrative law judge has set for trial the case of an unaffiliated mine to determine if there was an intentional alteration of the dust sampling filter. All remaining cases, including the citations involving OPCo's mines, have been stayed.\nOn September 21, 1993, CSPCo was served with a complaint issued by Region V, Federal EPA which alleged violations by Conesville Plant of the Toxic Substances Control Act and proposed a penalty of $41,000. On October 4, 1993, I&M was served with a complaint issued by Region V, Federal EPA which alleged violations by Breed Plant of the Clean Water Act and proposed a penalty of $70,000. On October 4, 1993, OPCo was served with a complaint issued by Region V, Federal EPA which alleged violations by OPCo's General Service Center (Canton, Ohio) of the Toxic Substances Control Act and proposed a penalty of $24,000. Settlement discussions have been held in each of these cases and it is expected that these matters will be resolved shortly.\nOn June 18, 1993, OPCo was served with a complaint issued by Region V, Federal EPA which alleged violations by Muskingum River Plant of the Toxic Substances Control Act and proposed a penalty of $87,000. In February 1994, OPCo paid a penalty of $12,185 and agreed to undertake supplemental environmental projects in 1994 valued at $61,547.\nOn February 28, 1994, Ormet Corporation filed a complaint in the U.S. District Court, Northern District of West Virginia, against AEP, OPCo, the Service Corporation and two of its employees, Federal EPA and the Administrator of Federal EPA. Ormet is the operator of a major aluminum reduction plant in Ohio and is a customer of OPCo. See Certain Industrial Contracts. Pursuant to the Clean Air Act Amendments of 1990, OPCo received sulfur dioxide emission allowances for its Kammer Plant. See Environmental and Other\nMatters. Ormet's complaint seeks a declaration that it is the owner of approximately 89% of the Phase I and Phase II allowances issued for use by the Kammer Plant. OPCo believes that since it is the owner and operator of Kammer Plant and Ormet is a contract power customer, Ormet is not entitled to any of the allowances attributable to the Kammer Plant.\nSee Item 1 for a discussion of certain environmental and rate matters.\nMeigs Mine--On July 11, 1993, water from an adjoining sealed and abandoned mine owned by Southern Ohio Coal Company (\"SOCCo\"), a mining subsidiary of OPCo, entered Meigs 31 mine, one of two mines currently being operated by SOCCo. Ohio EPA approved a plan to pump water from the mine to certain Ohio River tributaries under stringent conditions for biological and water quality monitoring and restoring the streams after pumping.\nOn July 30, pumping commenced in accordance with the Ohio EPA approved plan. Since September 16, 1993, SOCCo has processed all water removed from the mine through its expanded treatment system and is in compliance with the effluent limitations in its water discharge permit. Pumping has removed most of the water that entered the mine on July 11 and the mine was returned to service in February 1994.\nOn July 26, 1993, the Ohio Department of Natural Resources Division of Reclamation issued an administrative order directing SOCCo to cease pumping due to that agency's concern over possible environmental harm. On July 26, 1993, following SOCCo's appeal of the cessation order, the chairman of the Reclamation Board of Review issued a temporary stay pending a hearing by the full Reclamation Board. On January 14, 1994, the administrative proceeding was settled on the basis of agreements by the Division of Reclamation to dismiss the administrative order and by SOCCo to treat all water removed from the mine in accordance with its discharge permit and to pay certain expenses of the Division of Reclamation.\nOn August 19, 1993, the U.S. District Court for the Southern District of Ohio granted SOCCo's motion for a preliminary injunction against the Federal Office of Surface Mining Reclamation and Enforcement (\"OSM\") and Federal EPA preventing them from exercising jurisdiction to issue orders to cease pumping. On August 30, 1993, the U.S. Court of Appeals for the Sixth Circuit denied OSM's motion for a stay of the District Court's preliminary injunction but granted Federal EPA's motion for a stay in part which allowed Federal EPA to investigate and make findings with respect to alleged violations of the Clean Water Act and thereafter to exercise its enforcement authority under the Clean Water Act if a violation was identified. On September 2, 1993, Federal EPA issued an administrative order requiring a partial cessation of pumping, the effect of which was delayed by Federal EPA until September 8, 1993. On September 8, 1993, the District Court granted SOCCo's motion requesting that enforcement of the Federal EPA order be stayed. On September 23, 1993, the Court of Appeals ruled that the District Court could not review the Federal EPA order in the absence of a civil enforcement action and lifted the stay. A further decision of the Court of Appeals with respect to the appeal of the preliminary injunction is pending.\nOn January 3, 1994, the District Court held that the complaint filed by SOCCo should not be dismissed and concluded that sufficient legal and factual grounds existed for the court to consider SOCCo's claim that Federal EPA could not override Ohio EPA's authorization for SOCCo to bypass its water treatment system on an emergency basis during pumping activities. In a separate opinion, the District Court denied Federal EPA's request that the District Court defer consideration of SOCCo's motion involving a request for a Declaration of Rights with respect to the mine water releases into area streams.\nThe West Virginia Division of Environmental Protection (\"West Virginia DEP\") has proposed fining SOCCo $1,800,000 for violations of West Virginia Water Quality Standards and permitting requirements alleged to have resulted from the release of mine water into the Ohio River. SOCCo is meeting with the West Virginia DEP in an attempt to resolve this matter.\nAlthough management is unable to predict what enforcement action Federal EPA or OSM may take, the resolution of the aforementioned litigation, environmental mitigation costs and mine restoration costs are not expected to have a material adverse impact on results of operations or financial condition.", "Item 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - --------------------------------------------------------------------------------\nAEP, APCO, I&M AND OPCO. None.\nAEGCO, CSPCO AND KEPCO. Omitted pursuant to Instruction J(2)(c). ----------------\nEXECUTIVE OFFICERS OF THE REGISTRANTS\nAEP\nThe following persons are, or may be deemed, executive officers of AEP. Their ages are given as of March 15, 1994.\n- -------- (a) All of the executive officers listed above have been employed by the Service Corporation or System companies in various capacities (AEP, as such, has no employees) during the past five years, except E. Linn Draper, Jr. who was Chairman of the Board, President and Chief Executive Officer of Gulf States Utilities Company from 1987 until 1992 when he joined AEP and the Service Corporation. All of the above officers are appointed annually for a one-year term by the board of directors of AEP, the board of directors of the Service Corporation, or both, as the case may be.\nAPCO\nThe names of the executive officers of APCo, the positions they hold with APCo, their ages as of March 15, 1994, and a brief account of their business experience during the past five years appears below. The directors and executive officers of APCo are elected annually to serve a one-year term.\n- -------- (a)Positions are with APCo unless otherwise indicated.\nOPCO\nThe names of the executive officers of OPCo, the positions they hold with OPCo, their ages as of March 15, 1994, and a brief account of their business experience during the past five years appear below. The directors and executive officers of OPCo are elected annually to serve a one-year term.\n- -------- (a)Positions are with OPCo unless otherwise indicated.\nPART II ---------------------------------------------------------------------", "Item 5.MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - -------------------------------------------------------------------------------- AEP. AEP Common Stock is traded principally on the New York Stock Exchange. The following table sets forth for the calendar periods indicated the high and low sales prices for the Common Stock as reported on the New York Stock Exchange Composite Tape and the amount of cash dividends paid per share of Common Stock.\n- -------- (1) See Note 5 of the Notes to the Consolidated Financial Statements of AEP for information regarding restrictions on payment of dividends.\nAt December 31, 1993, AEP had approximately 194,000 shareholders of record.\nAEGCO, APCO, CSPCO, I&M, KEPCO AND OPCO. The information required by this item is not applicable as the common stock of all these companies is held solely by AEP.", "Item 6.SELECTED FINANCIAL DATA - --------------------------------------------------------------------------------\nAEGCO. Omitted pursuant to Instruction J(2)(a).\nAEP. The information required by this item is incorporated herein by reference to the material under Selected Consolidated Financial Data in the AEP 1993 Annual Report (for the fiscal year ended December 31, 1993).\nAPCO. The information required by this item is incorporated herein by reference to the material under Selected Consolidated Financial Data in the APCo 1993 Annual Report (for the fiscal year ended December 31, 1993).\nCSPCO. Omitted pursuant to Instruction J(2)(a).\nI&M. The information required by this item is incorporated herein by reference to the material under Selected Consolidated Financial Data in the I&M 1993 Annual Report (for the fiscal year ended December 31, 1993).\nKEPCO. Omitted pursuant to Instruction J(2)(a).\nOPCO. The information required by this item is incorporated herein by reference to the material under Selected Consolidated Financial Data in the OPCo 1993 Annual Report (for the fiscal year ended December 31, 1993).", "Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - --------------------------------------------------------------------------------\nAEGCO. Omitted pursuant to Instruction J(2)(a). Management's narrative analysis of the results of operations and other information required by Instruction J(2)(a) is incorporated herein by reference to the material under Management's Narrative Analysis of Results of Operations in the AEGCo 1993 Annual Report (for the fiscal year ended December 31, 1993).\nAEP. The information required by this item is incorporated herein by reference to the material under Management's Discussion and Analysis of Results of Operations and Financial Condition in the AEP 1993 Annual Report (for the fiscal year ended December 31, 1993).\nAPCO. The information required by this item is incorporated herein by reference to the material under Management's Discussion and Analysis of Results of Operations and Financial Condition in the APCo 1993 Annual Report (for the fiscal year ended December 31, 1993).\nCSPCO. Omitted pursuant to Instruction J(2)(a). Management's narrative analysis of the results of operations and other information required by Instruction J(2)(a) is incorporated herein by reference to the material under Management's Narrative Analysis of Results of Operations in the CSPCo 1993 Annual Report (for the fiscal year ended December 31, 1993).\nI&M. The information required by this item is incorporated herein by reference to the material under Management's Discussion and Analysis of Results of Operations and Financial Condition in the I&M 1993 Annual Report (for the fiscal year ended December 31, 1993).\nKEPCO. Omitted pursuant to Instruction J(2)(a). Management's narrative analysis of the results of operations and other information required by Instruction J(2)(a) is incorporated herein by reference to the material under Management's Narrative Analysis of Results of Operations in the KEPCo 1993 Annual Report (for the fiscal year ended December 31, 1993).\nOPCO. The information required by this item is incorporated herein by reference to the material under Management's Discussion and Analysis of Results of Operations and Financial Condition in the OPCo 1993 Annual Report (for the fiscal year ended December 31, 1993).", "Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - --------------------------------------------------------------------------------\nAEGCO. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein.\nAEP. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein.\nAPCO. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein.\nCSPCO. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein.\nI&M. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein.\nKEPCO. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein.\nOPCO. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein.", "Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - --------------------------------------------------------------------------------\nAEGCO, AEP, APCO, CSPCO, I&M, KEPCO AND OPCO. None.\nPART III --------------------------------------------------------------------", "Item 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS - --------------------------------------------------------------------------------\nAEGCO. Omitted pursuant to Instruction J(2)(c).\nAEP. The information required by this item is incorporated herein by reference to the material under Nominees for Director and Share Ownership of Directors and Executive Officers of the definitive proxy statement of AEP, dated March 10, 1994, for the 1994 annual meeting of shareholders. Reference also is made to the information under the caption Executive Officers of the Registrants in Part I of this report.\nAPCO. The information required by this item is incorporated herein by reference to the material under Election of Directors of the definitive information statement of APCo for the 1994 annual meeting of stockholders, to be filed within 120 days after December 31, 1993. Reference also is made to the information under the caption Executive Officers of the Registrants in Part I of this report.\nCSPCO. Omitted pursuant to Instruction J(2)(c).\nI&M. The names of the directors and executive officers of I&M, the positions they hold with I&M, their ages as of March 15, 1994, and a brief account of their business experience during the past five years appear below. The directors and executive officers of I&M are elected annually to serve a one- year term.\n- -------- (a)Positions are with I&M unless otherwise indicated. (b)Dr. Draper is a director of Pacific Nuclear Systems, Inc. and Mr. Lhota is a director of Huntington Bancshares Incorporated. (c)Messrs. DeMaria, Dowd, Draper, Lhota and Maloney are directors of AEGCo, APCo, CSPCo, KEPCo and OPCo. Messrs. DeMaria, Dowd, Draper and Maloney are also directors of AEP.\nKEPCO. Omitted pursuant to Instruction J(2)(c).\nOPCO. The information required by this item is incorporated herein by reference to the material under the heading Election of Directors of the definitive information statement of OPCo for the 1994 annual meeting of shareholders, to be filed within 120 days after December 31, 1993. Reference also is made to the information under the caption Executive Officers of the Registrants in Part I of this report.", "Item 11.EXECUTIVE COMPENSATION - -------------------------------------------------------------------------------\nAEGCO. Omitted pursuant to Instruction J(2)(c).\nAEP. The information required by this item is incorporated herein by reference to the material under Compensation of Directors, Executive Compensation and the performance graph of the definitive proxy statement of AEP, dated March 10, 1994, for the 1994 annual meeting of shareholders.\nAPCO. The information required by this item is incorporated herein by reference to the material under Executive Compensation of the definitive information statement of APCo for the 1994 annual meeting of stockholders, to be filed within 120 days after December 31, 1993.\nCSPCO. Omitted pursuant to Instruction J(2)(c).\nKEPCO. Omitted pursuant to Instruction J(2)(c).\nOPCO. The information required by this item is incorporated herein by reference to the material under Executive Compensation of the definitive information statement of OPCo for the 1994 annual meeting of shareholders, to be filed within 120 days after December 31, 1993.\nI&M Certain executive officers of I&M are employees of the Service Corporation. The salaries of these executive officers are paid by the Service Corporation and a portion of their salaries has been allocated and charged to I&M. The following table shows for 1993, 1992 and 1991 the compensation earned from all AEP System companies by (i) the chief executive officer and four other most highly compensated executive officers (as defined by regulations of the SEC) of I&M at December 31, 1993 and (ii) a chief executive officer and executive officer, both of whom retired in 1993.\nSummary Compensation Table\n- -------- (1) Reflects payments under the AEP Management Incentive Compensation Plan (\"MICP\") in which individuals in key management positions with AEP System companies participate. Amounts for 1993 are estimates but should not change significantly. For 1991 and 1993, these amounts included both cash paid and a portion deferred in the form of restricted stock units. These units are paid out in cash after three years based on the price of AEP Common Stock at that time. Dividend equivalents are paid during the three- year period. At December 31, 1993, Dr. Draper and Messrs. DeMaria, Maloney, Dowd and Lhota held 813, 746, 715, 593 and 639 units having a value of $30,177, $27,701, $26,526, $22,020 and $23,730, respectively, based upon a $37 1/8 per share closing price of AEP's Common Stock as reported on the New York Stock Exchange. For 1992, MICP payments were made entirely in cash.\n(2) Includes amounts contributed by AEP System companies under the American Electric Power System Employees Savings Plan on behalf of their employee participants. For 1993 this amount was $7,075 for Dr. Draper and Messrs. Katlic, Maloney, Dowd and Lhota and $6,000 for Mr. Disbrow and $7,006 for Mr. DeMaria. The AEP System Savings Plan is available to all employees of AEP System companies (except for employees covered by certain collective bargaining agreements) who have met minimum service requirements.\nIncludes director's fees for AEP System companies. For 1993 these fees were: Dr. Draper, $11,105; Mr. Disbrow, $3,580; Mr. DeMaria, $10,805; Mr. Katlic, $2,300; Mr. Maloney, $10,925; Mr. Dowd, $8,685; and Mr. Lhota, $10,085.\nIncludes payments of $93,173 and $36,077 for unused accrued vacation which Messrs. Disbrow and Katlic, respectively, received upon their retirement.\n(3) Dr. Draper was elected chairman of the board and chief executive officer of I&M and other AEP System companies and chairman of the board, president and chief executive officer of AEP and the Service Corporation, succeeding Mr. Disbrow, who retired, effective April 28, 1993.\nRetirement Benefits\nThe American Electric Power System Retirement Plan provides pensions for all employees of AEP System companies (except for employees covered by certain collective bargaining agreements), including the executive officers of I&M. The Retirement Plan is a noncontributory defined benefit plan.\nThe following table shows the approximate annual annuities under the Retirement Plan that would be payable to employees in certain higher salary classifications, assuming retirement at age 65 after various periods of service. The amounts shown in the table are the straight life annuities payable under the Plan without reduction for the joint and survivor annuity. Retirement benefits listed in the table are not subject to any deduction for Social Security or other offset amounts. The retirement annuity is reduced 3% per year in the case of retirement between ages 60 and 62 and further reduced 6% per year in the case of retirement between ages 55 and 60. If an employee retires after age 62, there is no reduction in the retirement annuity.\nPENSION PLAN TABLE\nCompensation upon which retirement benefits are based consists of the average of the 36 consecutive months of the employee's highest salary, as listed in the Summary Compensation Table, out of the employee's most recent 10 years of service. With respect to Messrs. Disbrow and Katlic, since they retired in 1993, the amounts of $600,000 and $316,944, respectively, are the actual salaries upon which their retirement benefits are based. Mr. Disbrow's retirement benefit was enhanced by computing his benefit based on his 1992 base salary. As of December 31, 1993, the number of full years of service credited under the Retirement Plan to each of the executive officers of I&M named in the Summary Compensation Table were as follows: Dr. Draper, 1 year; Mr. Disbrow, 39 years; Mr. DeMaria, 34 years; Mr. Katlic, 10 years; Mr. Maloney, 38 years; Mr. Dowd, 31 years; and Mr. Lhota, 29 years.\nDr. Draper's employment agreement described below provides him with a supplemental retirement annuity that credits him with 24 years of service in addition to his years of service credited under the Retirement Plan less his actual pension entitlement under the Retirement Plan and any pension entitlements from prior employers.\nMr. Katlic has a contract with the Service Corporation under which the Service Corporation agrees to provide him with a supplemental retirement annuity equal to the annual pension that Mr. Katlic would have received with service of 30 years under the AEP System Retirement Plan as then in effect, less his actual annual pension entitlement under the Retirement Plan. Mr. Katlic commenced receiving his supplemental annuity upon his retirement effective October 31, 1993.\nAEP has determined to pay supplemental retirement benefits to 23 AEP System employees (including Messrs. Disbrow, DeMaria, Maloney and Lhota) whose pensions may be adversely affected by amendments to the Retirement Plan made as a result of the Tax Reform Act of 1986. Such payments, if any, will be equal to any reduction occurring because of such amendments. Upon his retirement on April 28, 1993, Mr. Disbrow began receiving an annual supplemental benefit of $2,642. Assuming retirement of the remaining eligible employees in 1994, none would be eligible to receive supplemental benefits.\nAEP made available a voluntary deferred-compensation program in 1982 and 1986, which permitted certain executive employees of AEP System companies to defer receipt of a portion of their salaries. Under this program, an executive was able to defer up to 10% or 15% annually (depending on the terms of the program offered), over a four-year period, of his or her salary, and receive supplemental retirement or survivor benefit payments over a 15-year period. The amount of supplemental retirement payments received is dependent upon the amount deferred, age at the time the deferral election was made, and number of years until the executive retires. The following table sets forth, for the executive officers named in the Summary Compensation Table, the amounts of annual deferrals and, assuming retirement at age 65, annual supplemental retirement payments under the 1982 and 1986 programs.\nEmployment Agreement\nDr. Draper has a contract with AEP and the Service Corporation which provides for his employment for an initial term from no later than March 15, 1992 until March 15, 1997. Dr. Draper commenced his employment with AEP and the Service Corporation on March 1, 1992. AEP or the Service Corporation may terminate the contract at any time and, if this is done for reasons other than cause and other than as a result of Dr. Draper's death or permanent disability, the Service Corporation must pay Dr. Draper's then base salary through March 15, 1997, less any amounts received by Dr. Draper from other employment. --------------\nDirectors of I&M receive a fee of $100 for each meeting of the Board of Directors attended in addition to their salaries. --------------\nThe AEP System is an integrated electric utility system and, as a result, the member companies of the AEP System have contractual, financial and other business relationships with the other member companies, such as participation in the AEP System savings and retirement plans and tax returns, sales of electricity, transportation and handling of fuel, sales or rentals of property and interest or dividend payments on the securities held by the companies' respective parents.", "Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT\n- -------------------------------------------------------------------------------\nAEGCO. Omitted pursuant to Instruction J(2)(c).\nAEP. The information required by this item is incorporated herein by reference to the material under Share Ownership of Directors and Executive Officers of the definitive proxy statement of AEP, dated March 10, 1994, for the 1994 annual meeting of shareholders.\nAPCO. The information required by this item is incorporated herein by reference to the material under Share Ownership of Directors and Executive Officers in the definitive information statement of APCo for the 1994 annual meeting of stockholders, to be filed within 120 days after December 31, 1993.\nCSPCO. Omitted pursuant to Instruction J(2)(c).\nI&M. All 1,400,000 outstanding shares of Common Stock, no par value, of I&M are directly and beneficially held by AEP. Holders of the Cumulative Preferred Stock of I&M generally have no voting rights, except with respect to certain corporate actions and in the event of certain defaults in the payment of dividends on such shares.\nThe table below shows the number of shares of AEP Common Stock that were beneficially owned, directly or indirectly, as of December 31, 1993, by each director and nominee of I&M and each of the executive officers of I&M named in the summary compensation table, and by all directors and executive officers of I&M as a group. It is based on information provided to I&M by such persons. No such person owns any shares of any series of the Cumulative Preferred Stock of I&M. Unless otherwise noted, each person has sole voting power and investment power over the number of shares of AEP Common Stock set forth opposite his name. Fractions of shares have been rounded to the nearest whole share.\n- -------- (a) The amounts include shares held by the trustee of the AEP Employees Savings Plan, over which directors, nominees and executive officers have voting power, but the investment/disposition power is subject to the terms of such Plan, as follows: Mr. Bailey, 550 shares; Mr. DeMaria, 2,081 shares; Mr. Disbrow, 4,027 shares; Mr. D'Onofrio, 2,889 shares; Mr. Katlic, 2,230 shares; Mr. Lhota, 5,245 shares; Mr. Maloney, 2,142 shares; Mr. Menge, 2,566 shares; Mr. Prater, 1,561 shares; Mr. Synowiec, 1,754 shares; Mr. Walters, 3,685 shares; and all directors and executive officers as a group, 33,806 shares. Messrs. Disbrow's, Dowd's and Maloney's holdings include 85 shares each; Messrs. Bailey's, DeMaria's, D'Onofrio's, Katlic's, Lhota's, Menge's, Prater's, Synowiec's, and Walter's holdings include 44, 83, 59, 60, 60, 62, 48, 53 and 45 shares, respectively; and the holdings of all directors and executive officers as a group include 738 shares, each held by the trustee of the AEP Employee Stock Ownership Plan, over which shares such persons have sole voting power, but the investment/disposition power is subject to the terms of such Plan.\n(b) Includes shares with respect to which such directors, nominees and executive officers share voting and investment power as follows: Mr. DeMaria, 3,624 shares; Mr. Disbrow, 283 shares; Mr. Draper, 115 shares; Mr. Lhota, 1,368 shares; Mr. Maloney, 2,000 shares; Mr. Menge, 24 shares; and all directors and executive officers as a group, 7,883 shares. Mr. DeMaria disclaims beneficial ownership of 807 shares. (c) 85,231 shares in the American Electric Power System Educational Trust Fund, over which Messrs. DeMaria, Lhota and Maloney share voting and investment power as trustees (they disclaim beneficial ownership of such shares), are not included in their individual totals, but are included in the group total. (d) Represents less than 1 percent of the total number of shares outstanding on December 31, 1993.\nKEPCO. Omitted pursuant to Instruction J(2)(c).\nOPCO. The information required by this item is incorporated herein by reference to the material under Share Ownership of Directors and Executive Officers in the definitive information statement of OPCo for the 1994 annual meeting of shareholders, to be filed within 120 days after December 31, 1993.", "Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------------------------------\nAEP. The information required by this item is incorporated herein by reference to the material under Transactions With Management of the definitive proxy statement of AEP, dated March 10, 1994, for the 1994 annual meeting of shareholders.\nAPCO, I&M AND OPCO. None.\nAEGCO, CSPCO, AND KEPCO. Omitted pursuant to Instruction J(2)(c).\nPART IV -------------------------------------------------------------------", "Item 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - --------------------------------------------------------------------------------\n(a) The following documents are filed as a part of this report:\n(b) No Reports on Form 8-K were filed during the quarter ended December 31, 1993.\nSIGNATURES\nPURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.\nAEP Generating Company\nBy: /s/ G. P. Maloney --------------------------------- (G. P. MALONEY, VICE PRESIDENT)\nDate: March 23, 1994\nPURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF.\nSIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER:\n*E. Linn Draper, Jr. President, Chief Executive Officer and Director\n(II) PRINCIPAL FINANCIAL OFFICER:\n/s/ G. P. Maloney Vice President and March 23, 1994 - ------------------------------------- Director (G. P. MALONEY)\n(III) PRINCIPAL ACCOUNTING OFFICER:\n/s/ P. J. DeMaria Vice President, March 23, 1994 - ------------------------------------- Treasurer and (P. J. DEMARIA) Director\n(IV) A MAJORITY OF THE DIRECTORS:\n*A. Joseph Dowd\n*Henry Fayne\n*John R. Jones, III\n*Wm. J. Lhota\n*James J. Markowsky\n/s/ G. P. Maloney *By: ---------------------------------- March 23, 1994 (G. P. MALONEY, ATTORNEY-IN-FACT)\nSIGNATURES\nPURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.\nAmerican Electric Power Company, Inc.\nBy: /s/ G. P. Maloney --------------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1994\nPURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.\nSIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER:\n*E. Linn Draper, Jr. Chairman of the Board, President, Chief Executive Officer and Director\n(II) PRINCIPAL FINANCIAL OFFICER:\n/s/ G. P. Maloney Vice President and March 23, 1994 - ------------------------------------- Director (G. P. MALONEY)\n(III) PRINCIPAL ACCOUNTING OFFICER:\n/s/ P. J. DeMaria Treasurer and March 23, 1994 - ------------------------------------- Director (P. J. DEMARIA)\n(IV) A MAJORITY OF THE DIRECTORS:\n*A. Joseph Dowd\n*Robert M. Duncan\n*Arthur G. Hansen\n*Lester A. Hudson, Jr.\n*Angus E. Peyton\n*Toy F. Reid\n*W. Ann Reynolds\n*Linda Gillespie Stuntz\n*Morris Tanenbaum\n*Ann Haymond Zwinger\n*By: /s/ G. P. Maloney ---------------------------------- March 23, 1994 (G. P. MALONEY, ATTORNEY-IN-FACT)\nSIGNATURES\nPURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.\nAppalachian Power Company\nBy: /s/ G. P. Maloney --------------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1994\nPURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF.\nSIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER:\n*E. Linn Draper, Jr. Chairman of the Board, Chief Executive Officer and Director\n(II) PRINCIPAL FINANCIAL OFFICER:\n/s/ G. P. Maloney Vice President and March 23, 1994 - ------------------------------------- Director (G. P. MALONEY)\n(III) PRINCIPAL ACCOUNTING OFFICER:\n/s/ P. J. DeMaria Vice President, March 23, 1994 - ------------------------------------- Treasurer and (P. J. DEMARIA) Director\n(IV) A MAJORITY OF THE DIRECTORS:\n*A. Joseph Dowd\n*Luke M. Feck\n*Wm. J. Lhota\n*James J. Markowsky\n*J. H. Vipperman\n*By: /s/ G. P. Maloney ---------------------------------- March 23, 1994 (G. P. MALONEY, ATTORNEY-IN-FACT)\nSIGNATURES\nPURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.\nColumbus Southern Power Company\nBy: /s/ G. P. Maloney --------------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1994\nPURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF.\nSIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER:\n*E. Linn Draper, Jr. Chairman of the Board, Chief Executive Officer and Director\n(II) PRINCIPAL FINANCIAL OFFICER:\n/s/ G. P. Maloney Vice President and March 23, 1994 - ------------------------------------- Director (G. P. MALONEY)\n(III) PRINCIPAL ACCOUNTING OFFICER:\nVice President, March 23, 1994 /s/ P. J. DeMaria Treasurer and - ------------------------------------- Director (P. J. DEMARIA)\n(IV) A MAJORITY OF THE DIRECTORS:\n*A. Joseph Dowd\n*C. A. Erikson\n*Henry Fayne\n*Wm. J. Lhota\n*James J. Markowsky\n*By: /s/ G. P. Maloney ---------------------------------- March 23, 1994 (G. P. MALONEY, ATTORNEY-IN-FACT)\nSIGNATURES\nPURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.\nIndiana Michigan Power Company\nBy: /s/ G. P. Maloney --------------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1994\nPURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF.\nSIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER:\n*E. Linn Draper, Jr. Chairman of the Board, Chief Executive Officer and Director\n(II) PRINCIPAL FINANCIAL OFFICER:\n/s/ G. P. Maloney Vice President and March 23, 1994 - ------------------------------------- Director (G. P. MALONEY)\n(III) PRINCIPAL ACCOUNTING OFFICER:\n/s/ P. J. DeMaria Vice President, March 23, 1994 - ------------------------------------- Treasurer and (P. J. DEMARIA) Director\n(IV) A MAJORITY OF THE DIRECTORS:\n*Mark A. Bailey\n*W. N. D'Onofrio\n*A. Joseph Dowd\n*Wm. J. Lhota\n*Richard C. Menge\n*R. E. Prater\n*D. B. Synowiec\n*W. E. Walters\n*By: /s/ G. P. Maloney March 23, 1994 ---------------------------------- (G. P. MALONEY, ATTORNEY-IN-FACT)\nSIGNATURES\nPURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.\nKentucky Power Company\nBy: /s/ G. P. Maloney --------------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1994\nPURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF.\nSIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER:\n*E. Linn Draper, Jr. Chairman of the Board, Chief Executive Officer and Director\n(II) PRINCIPAL FINANCIAL OFFICER:\n/s/ G. P. Maloney Vice President and March 23, 1994 - ------------------------------------- Director (G. P. MALONEY)\n(III) PRINCIPAL ACCOUNTING OFFICER:\n/s/ P. J. DeMaria Vice President, March 23, 1994 - ------------------------------------- Treasurer and (P. J. DEMARIA) Director\n(IV) A MAJORITY OF THE DIRECTORS:\n*C. R. Boyle, III\n*A. Joseph Dowd\n*Wm. J. Lhota\n*Ronald A. Petti\n*By: /s/ G. P. Maloney --------------------------------- March 23, 1994 (G. P. MALONEY, ATTORNEY-IN-FACT)\nSIGNATURES\nPURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.\nOhio Power Company\nBy: /s/ G. P. Maloney --------------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1994\nPURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF.\nSIGNATURES TITLE DATE ---------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER:\n*E. Linn Draper, Jr. Chairman of the Board, Chief Executive Officer and Director\n(II) PRINCIPAL FINANCIAL OFFICER:\n/s/ G. P. Maloney Vice President and March 23, 1994 - ------------------------------------- Director (G. P. MALONEY)\n(III) PRINCIPAL ACCOUNTING OFFICER:\n/s/ P. J. DeMaria Vice President, March 23, 1994 - ------------------------------------- Treasurer and (P. J. DEMARIA) Director\n(IV) A MAJORITY OF THE DIRECTORS:\n*A. Joseph Dowd\n*C. A. Erikson\n*Henry Fayne\n*Wm. J. Lhota\n*James J. Markowsky\n*By: /s/ G. P. Maloney March 23, 1994 ---------------------------------- (G. P. MALONEY, ATTORNEY-IN-FACT)\nINDEX TO FINANCIAL STATEMENT SCHEDULES\nS-1\nINDEPENDENT AUDITORS' REPORT\nAmerican Electric Power Company, Inc. and Subsidiaries:\nWe have audited the consolidated financial statements of American Electric Power Company, Inc. and its subsidiaries and the financial statements of certain of its subsidiaries, listed in Item 14 herein, as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, and have issued our reports thereon dated February 22, 1994; such financial statements and reports are included in your respective 1993 Annual Report to Shareowners and are incorporated herein by reference. Our audits also included the financial statement schedules of American Electric Power Company, Inc. and its subsidiaries and of certain of its subsidiaries, listed in Item 14. These financial statement schedules are the responsibility of the respective Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the corresponding basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.\nDeloitte & Touche Columbus, Ohio February 22, 1994\nS-2\nAMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nTotal additions of $676,404,000 in 1993, $718,154,000 in 1992 and $733,909,000 in 1991 were less than 10% of the total as of the respective year- ends. Retirements or sales of $278,435,000 in 1993, $297,460,000 in 1992 and $198,352,000 in 1991 were less than 10% of the total as of the respective year- ends. There were no additions to individual accounts in excess of two percent of total assets other than transfers from Construction Work in Progress. Amortization of nuclear fuel of $41,325,000 in 1993, $19,343,000 in 1992 and $50,124,000 in 1991 was credited directly to the property account and charged to fuel expense. In 1993 other charges include a reduction of $157,535,000 to reflect the PUCO disallowance of a portion of the Zimmer Plant investment as discussed in Note 3 of the Notes to Consolidated Financial Statements.\nThe methods used to compute the annual provisions for depreciation are described in Note 1 of the Notes to Consolidated Financial Statements. The current provisions were determined using the following composite rates for functional classes of property:\nS-3\nAMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nS-4\nAMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a)Recoveries on accounts previously written off. (b)Uncollectible accounts written off. (c)Billings to others. (d)Payments and accrual adjustments. (e)Includes interest on trust funds. (f)Adjust royalty provision.\nS-5\nAMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES SCHEDULE IX -- SHORT-TERM BORROWINGS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a)Sum of month-end short-term borrowings divided by number of months outstanding. (b)Interest for the period divided by average amount outstanding.\nS-6\nAEP GENERATING COMPANY SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nTotal additions of $4,089,000 in 1993, $4,512,000 in 1992 and $3,796,000 in 1991 were less than 10% of the total as of the respective year-ends. Retirements or sales of $1,038,000 in 1993, $1,830,000 in 1992 and $1,450,000 in 1991 were less than 10% of the total as of the respective year-ends. There were no additions to individual accounts in excess of two percent of total assets.\nThe methods used to compute the annual provisions for depreciation are described in Note 1 of the Notes to Financial Statements. The current provisions were determined using the following composite rates for functional classes of property:\nS-7\nAEP GENERATING COMPANY SCHEDULE VI -- ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nS-8\nAEP GENERATING COMPANY SCHEDULE IX -- SHORT-TERM BORROWINGS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a)Sum of month-end short-term borrowings divided by number of months outstanding. (b)Interest for the period divided by average amount outstanding.\nS-9\nAPPALACHIAN POWER COMPANY AND SUBSIDIARIES SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nTotal additions of $201,169,000 in 1993, $198,116,000 in 1992 and $196,937,000 in 1991 were less than 10% of the total as of the respective year- ends. Retirements or sales of $47,254,000 in 1993, $42,926,000 in 1992 and $32,428,000 in 1991 were less than 10% of the total as of the respective year- ends. There were no additions to individual accounts in excess of two percent of total assets other than transfers from Construction Work in Progress.\nThe methods used to compute the annual provisions for depreciation are described in Note 1 of the Notes to Consolidated Financial Statements. The current provisions were determined using the following composite rates for functional classes of property:\nS-10\nAPPALACHIAN POWER COMPANY AND SUBSIDIARIES SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nS-11\nAPPALACHIAN POWER COMPANY AND SUBSIDIARIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a) Recoveries on accounts previously written off. (b) Uncollectible accounts written off. (c) Payments and transfers.\nS-12\nAPPALACHIAN POWER COMPANY AND SUBSIDIARIES SCHEDULE IX -- SHORT-TERM BORROWINGS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a) Sum of month-end short-term borrowings divided by number of months outstanding. (b) Interest for the period divided by average amount outstanding.\nS-13\nCOLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nTotal additions of $97,455,000 in 1993, $80,279,000 in 1992 and $111,856,000 in 1991 were less than 10% of the total as of the respective year-ends. Retirements or sales of $18,161,000 in 1993, $21,999,000 in 1992 and $19,773,000 in 1991 were less than 10% of the total as of the respective year- ends. There were no additions to individual accounts in excess of two percent of total assets other than transfers from Construction Work in Progress. In 1993 other charges include a reduction of $157,535,000 to reflect the PUCO disallowance of a portion of the Zimmer Plant investment as discussed in Note 2 of the Notes to Consolidated Financial Statements.\nThe methods used to compute the annual provisions for depreciation are described in Note 1 of the Notes to Consolidated Financial Statements. The current provisions were determined using the following composite rates for functional classes of property:\nS-14\nCOLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES SCHEDULE VI -- ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a) Reflects the write-off of accumulated depreciation related to a portion of the Zimmer Plant investment that was disallowed by the PUCO as discussed in Note 2 of the Notes to Consolidated Financial Statements.\nS-15\nCOLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a) Recoveries on accounts previously written off. (b) Uncollectible accounts written off. (c) Payments.\nS-16\nCOLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES SCHEDULE IX -- SHORT-TERM BORROWINGS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a) Sum of month-end short-term borrowings divided by number of months outstanding. (b) Interest for the period divided by average amount outstanding.\nS-17\nINDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nTotal additions of $125,247,000 in 1993, $175,728,000 in 1992 and $149,187,000 in 1991 were less than 10% of the total as of the respective year- ends. Retirements or sales of $61,586,000 in 1993, $25,301,000 in 1992 and $40,396,000 in 1991 were less than 10% of the total as of the respective year- ends. There were no additions to individual accounts in excess of two percent of total assets other than transfers from Construction Work in Progress. Amortization of nuclear fuel of $41,325,000 in 1993, $19,343,000 in 1992 and $50,124,000 in 1991 was credited directly to the property account and charged to fuel expense.\nThe methods used to compute the annual provisions for depreciation are described in Note 1 of the Notes to Consolidated Financial Statements. The current provisions were determined using the following composite rates for functional classes of property:\nS-18\nINDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nS-19\nINDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a) Recoveries on accounts previously written off. (b) Uncollectible accounts written off. (c) Billings to others. (d) Payments and accrual adjustments. (e) Includes interest on trust funds. (f) Adjust Royalty Provision.\nS-20\nINDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES SCHEDULE IX -- SHORT-TERM BORROWINGS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a) Sum of month-end short-term borrowings divided by number of months outstanding. (b) Interest for the period divided by average amount outstanding.\nS-21\nKENTUCKY POWER COMPANY SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nTotal additions of $37,808,000 in 1993, $35,203,000 in 1992 and $31,369,000 in 1991 were less than 10% of the total as of the respective year-ends. Retirements or sales of $12,000,000 in 1993, $11,352,000 in 1992 and $8,092,000 in 1991 were less than 10% of the total as of the respective year-ends. There were no additions to individual accounts in excess of two percent of total assets other than transfers from Construction Work in Progress.\nThe methods used to compute the annual provisions for depreciation are described in Note 1 of the Notes to Financial Statements. The current provisions were determined using the following composite rates for functional classes of property:\nS-22\nKENTUCKY POWER COMPANY SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nS-23\nKENTUCKY POWER COMPANY SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a) Recoveries on accounts previously written off. (b) Uncollectible accounts written off. (c) Payments.\nS-24\nKENTUCKY POWER COMPANY SCHEDULE IX -- SHORT-TERM BORROWINGS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a) Sum of month-end short-term borrowings divided by number of months outstanding. (b) Interest for the period divided by average amount outstanding.\nS-25\nOHIO POWER COMPANY AND SUBSIDIARIES SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nTotal additions of $197,089,000 in 1993, $201,737,000 in 1992 and $228,500,000 in 1991 were less than 10% of the total as of the respective year- ends. Retirements or sales of $128,775,000 in 1993, $191,662,000 in 1992 and $90,472,000 in 1991 were less than 10% of the total as of the respective year- ends. There were no additions to individual accounts in excess of two percent of total assets other than transfers from Construction Work in Progress.\nThe methods used to compute the annual provisions for depreciation are described in Note 1 of the Notes to Consolidated Financial Statements. The current provisions for other than mining assets were determined using the following composite rates for functional classes of property:\nThe current provisions for mining assets were calculated by use of the following methods:\nS-26\nOHIO POWER COMPANY AND SUBSIDIARIES SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\nS-27\nOHIO POWER COMPANY AND SUBSIDIARIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a) Recoveries on accounts previously written off. (b) Uncollectible accounts written off. (c) Billings to others. (d) Payments.\nS-28\nOHIO POWER COMPANY AND SUBSIDIARIES SCHEDULE IX -- SHORT-TERM BORROWINGS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------\n- -------- (a) Sum of month-end short-term borrowings divided by number of months outstanding. (b) Interest for the period divided by average amount outstanding.\nS-29\nEXHIBIT INDEX\nCertain of the following exhibits, designated with an asterisk(*), are filed herewith. The exhibits not so designated have heretofore been filed with the Commission and, pursuant to 17 C.F.R. (S)201.24 and (S)240.12b-32, are incorporated herein by reference to the documents indicated in brackets following the descriptions of such exhibits. Exhibits, designated with a dagger (+), are management contracts or compensatory plans or arrangements required to be filed as an exhibit to this form pursuant to Item 14(c) of this report.\nAEGCO\nE-1\nAEGCO (continued)\nE-2\nAEP++ (continued)\nE-3\nAEP++ (continued)\nE-4\nAPCO++ (continued)\nE-5\nAPCO++ (continued)\nE-6\nCSPCO++ (continued)\nE-7\nI&M++ (continued)\nE-8\nI&M++ (continued)\nE-9\nKEPCO (continued)\nE-10\nOPCO++ (continued)\nE-11\nOPCO++ (continued)\n--------------\n++Certain instruments defining the rights of holders of long-term debt of the registrants included in the financial statements of registrants filed herewith have been omitted because the total amount of securities authorized thereunder does not exceed 10% of the total assets of registrants. The registrants hereby agree to furnish a copy of any such omitted instrument to the SEC upon request.\nE-12" ]