PROPOSED FINANCING USE OF PROCEEDS The net proceeds from the sale of the securities proposed to be issued will be applied as follows: To the redemption, at 105 percent of the principal amount, on To the redemption, at 105 percent of the principal amount, on To the redemption, at 104.50 percent of the principal amount, on To the redemption, at 101 percent of the principal amount, on To the payment of the company's $2,190,000 6% notes payable to Citles Service Power & Light Company, without premium, less $156,603.19 credit allowed by such parent company, representing difference between redemption prices and book costs of $962,400 principal amount of funded debt owned by such parent company included in above items to be redeemed (exclusive of accrued interest). $5, 563, 845. 00 6, 445, 005. 00 3,721, 725.00 3,665, 866. 50 12, 346, 713. 00 10,811, 047.50 3, 194, 327.00 4, 511, 250.00 374, 127.82 50, 633, 906, 82 2,033, 396. 81 52,667, 303.63 The proceeds based on a selling price to net par" to the The exact proceeds will be determined after the filing of a registration statement under the Securities Act of 1933 and will be considered in supplementary findings. The expenses will be considered in the supplementary findings. • The balance of proceeds is accounted for as follows: Balance, as above_. Add-Current maturities of equipment obligations included in Excess cash provided by financing---. Add-Expenses of issuance previously paid or accrued. Improvement in current position--- $1,056, 074.87 291, 028.82 1,347, 103. 69 200, 000, 00 1, 547, 103. 69 Because of the current liabilities which are being liquidated with part of the proceeds an improvement in current position will result to the extent of $1,547,103.69. SIMPLIFICATION OF SECURITY STRUCTURE As will be seen from the list of the securities to be redeemed or paid, one effect of the financing will be to substitute two issues, one of 32% first mortgage bonds and one of 4% debentures, in place of (a) seven bond and debenture issues of the declarant or predecessor companies bearing coupons of 5%, 51⁄2%, and 6%, (b) a bank loan of $4,500,000, bearing interest at 4% and (c) a small amount of equipment obligations. The 6% notes due the parent company aggregating $2,190,000 will be replaced by common stock. SAVINGS IN INTEREST-EARNINGS COVERAGE A comparison of the actual and pro forma fixed interest charges, preferred dividends, and number of times earned is presented in the 5 S. E. C. following tabulation, on a consolidated basis for the year ended February 28, 1939: • Gives effect to the proposed financing, but not to rate reductions hereinafter discussed. Does not give effect to approximately $18,000 of increased annual amortization of preferred stock and bond discount and expense resulting from the proposed credit to property of $469,748.45 which is hereinafter discussed. For convenience of comparison, $200,000 of preliminary financing expenses which were actually charged off have been added to the above gross income. Declarant proposes to restore such amount to unamortized bond discount and expense if the financing is consummated. As further discussed in these findings, earned surplus after the proposed financing will be restricted against the payment of cash dividends on common stock to the extent of $500,000 annually during the 10-year life of the debentures, or $5,000,000 in the aggregate. The savings in interest, as shown by the foregoing table, will amount to_____. $864, 153 These savings in interest will be reduced by increased federal and state income taxes in an amount estimated by declarant to be_____ 194,000 Thus leaving net cash savings of...- 670, 153 There will be increases in amortization of bond discount and other charges aggregating- 132, 901 Deducting these from the cash savings above shows an increase in the net income of______ 537, 252 During the life of the debentures an amount substantially equivalent to these savings will be rendered unavailable for dividends on common stock by virtue of provisions (later discussed) contained in the debenture indenture requiring the declarant to freeze $500,000 a year into surplus. Further, on a pro forma basis for the year ended February 28, 1939, $49,000 additional would be restricted against common stock dividends under the terms of the maintenance and replacement fund contained in the new indentures. FACTORS AFFECTING CONTINUANCE OF EARNINGS ELECTRIC RATES On April 8, 1939, the declarant placed into effect a new rate schedule for the city and county of Denver 40 which provides for a domestic rate of 5¢ per kwh. for the first 40 kwh.; 4¢ per kwh. for the next 70 kwh., and all additional at 2.5¢ per kwh. It is anticipated that this rate schedule will result in an annual theoretical savings based upon past consumption of approximately $1,050,000 to customers in the Denver district. The Cheyenne Light, Fuel, and Power Company also reduced its electric rates on April 1, 1939. The reduction will result in an annual theoretical savings estimated to aggregate $125,000. At the time of filing the declaration a further revision of the Denver rates for large light and power consumers was contemplated to go into effect July 1, 1939, which it was estimated would result in a theoretical saving to such consumers of approximately $100,000 per year. An officer of the declarant testified that the experience of the company had been that rate reductions, if followed by a campaign to secure new business and if business conditions generally were favorable, would result in increased consumption which tended to offset somewhat the loss in gross revenues, although in supplying the additional kwh. there was an increase in operating expenses and likewise in property, plant, and equipment. NATURAL GAS RATES A schedule of rates for domestic consumers fixed by the City Council of Denver on September 14, 1927, prescribed as a basic rate for the first 400 c. f. or less, a minimum charge of 90¢; for the next 600 c. f. the charge of 15¢ per 100 c. f." The rate is based upon the city gate contract price between declarant and Colorado Interstate Gas Company, the transmission company which supplies declarant with natural gas. 40 Approximately 69 percent of declarant's domestic electric revenues were derived from the city and county of Denver. 41 Next 1,000 c. f., 12¢ per 100 c. f. An investigation relating, among other things, to the rates charged by Colorado Interstate Gas Company and Colorado-Wyoming Gas Company was recently instituted by the Federal Power Commission.12 Mr. Loiseau testified that he could not anticipate whether the revenues of the declarant would be adversely affected by these proceedings, even assuming that a lower contract gate rate between declarant and Colorado Interstate Gas Company would result and that such gate rate reduction would lower the rates to consumers. He was not able to estimate whether the entire reduction of the gate contract price would be passed on to the consumer, but he was of the opinion that the consumer rate reduction would not be in excess of the reduction in the town border price. On the question whether the possibility of a gate rate reduction would affect the dividend income from the Colorado Interstate Gas Company, the same witness stated that it was reasonable to anticipate that the increased consumption of gas at a lower rate would offset any diminution in dividends from Colorado Interstate Gas Company. GOVERNMENT IRRIGATION AND HYDRO PROJECTS IN AREA Three United States Government projects for combined irrigation and hydro development purposes are either contemplated or partially or wholly completed within the general territory served by declarant. They are commonly known as the Casper-Alcova or Kendrick project located in south-central Wyoming; the Colorado-Big Thompson project near Estes Park on the Big Thompson River; and the Grand Valley project. The declarant and its subsidiary, the Cheyenne Light, Fuel and Power Company, have already entered into 10-year contracts with the United States Government for part of the power to be generated by the hydro plants of the Casper-Alcova project, which are scheduled to go into operation by the latter part of 1939. Delivery of this power to declarant is to be made at Greeley, Colo., and the contracts call for a minimum of 40,000,000 kwh. per year on a dump or secondary basis. The Colorado-Big Thompson project, designed to divert surplus water from the western slope to the eastern slope of the Continental Divide, contemplates the initial development of two hydro-electric plants estimated tentatively to produce 113,000,000 kwh. of firm power and 92,000,000 kwh. of secondary power per annum, with the possibility that secondary power may exceed firm power. Ultimately This investigation was instituted on March 15, 1939, by the Federal Power Commission on its own motion, pursuant to a complaint filed by the city and county of Denver, Colo., on December 23, 1938, and following a like complaint filed by the Wyoming Public Service Commission. The investigation relates to all matters pertaining to rates, charges, classifications, practices, or contracts of the Canadian River Gas Company, Colorado Interstate Gas Company, and Colorado-Wyoming Gas Company. [F. P. C. Release No. 749 (G-78).] |