-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DMqnZkhMyMHTfjZutAACKChgY09CmzbTGVrTqRcAPpZtuhEgOoG64e41wVFwmlIK TnQreaRdK0gPhZDa313l2g== 0000004904-96-000050.txt : 19960515 0000004904-96-000050.hdr.sgml : 19960515 ACCESSION NUMBER: 0000004904-96-000050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ELECTRIC POWER COMPANY INC CENTRAL INDEX KEY: 0000004904 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 134922640 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03525 FILM NUMBER: 96563804 BUSINESS ADDRESS: STREET 1: 1 RIVERSIDE PLZ CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142231000 FORMER COMPANY: FORMER CONFORMED NAME: KINGSPORT UTILITIES INC DATE OF NAME CHANGE: 19660906 10-Q 1 THE CONSOLIDATED 10-Q FOR AMERICAN ELECTRIC POWER CO., INC, AND SUBSIDIARIES IS REQUESTED TO BE INCLUDED AS PART OF THE FILING. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended March 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period from to
Commission Registrant; State of Incorporation; I. R. S. Employer File Number Address; and Telephone Number Identification No. 1-3525 AMERICAN ELECTRIC POWER COMPANY, INC. 13-4922640 (A New York Corporation) 1 Riverside Plaza, Columbus, Ohio 43215 Telephone (614) 223-1000 0-18135 AEP GENERATING COMPANY (An Ohio Corporation) 31-1033833 1 Riverside Plaza, Columbus, Ohio 43215 Telephone (614) 223-1000 1-3457 APPALACHIAN POWER COMPANY (A Virginia Corporation) 54-0124790 40 Franklin Road, Roanoke, Virginia 24011 Telephone (540) 985-2300 1-2680 COLUMBUS SOUTHERN POWER COMPANY (An Ohio Corporation) 31-4154203 215 North Front Street, Columbus, Ohio 43215 Telephone (614) 464-7700 1-3570 INDIANA MICHIGAN POWER COMPANY (An Indiana Corporation) 35-0410455 One Summit Square P.O. Box 60, Fort Wayne, Indiana 46801 Telephone (219) 425-2111 1-6858 KENTUCKY POWER COMPANY (A Kentucky Corporation) 61-0247775 1701 Central Avenue, Ashland, Kentucky 41101 Telephone (800) 572-1141 1-6543 OHIO POWER COMPANY (An Ohio Corporation) 31-4271000 301 Cleveland Avenue S.W., Canton, Ohio 44702 Telephone (330) 456-8173 AEP Generating Company, Columbus Southern Power Company and Kentucky Power Company meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) to Form 10-Q. Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of American Electric Power Company, Inc. Common Stock, par value $6.50, at April 30, 1996 was 186,998,152. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES FORM 10-Q For The Quarter Ended March 31, 1996 INDEX
Page Part I. FINANCIAL INFORMATION American Electric Power Company, Inc. and Subsidiary Companies: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . . . . A-1 Consolidated Balance Sheets. . . . . . . . . . . . . . . . . A-2 - A-3 Consolidated Statements of Cash Flows. . . . . . . . . . . . A-4 Notes to Consolidated Financial Statements . . . . . . . . . A-5 - A-6 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . A-7 - A-9 AEP Generating Company: Statements of Income and Statements of Retained Earnings . . B-1 Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . B-2 - B-3 Statements of Cash Flows . . . . . . . . . . . . . . . . . . B-4 Notes to Financial Statements. . . . . . . . . . . . . . . . B-5 Management's Narrative Analysis of Results of Operations . . B-5 - B-6 Appalachian Power Company and Subsidiaries: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . . . . C-1 Consolidated Balance Sheets. . . . . . . . . . . . . . . . . C-2 - C-3 Consolidated Statements of Cash Flows. . . . . . . . . . . . C-4 Notes to Consolidated Financial Statements . . . . . . . . . C-5 - C-6 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . C-7 - C-9 Columbus Southern Power Company and Subsidiaries: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . . . . D-1 Consolidated Balance Sheets. . . . . . . . . . . . . . . . . D-2 - D-3 Consolidated Statements of Cash Flows. . . . . . . . . . . . D-4 Notes to Consolidated Financial Statements . . . . . . . . . D-5 Management's Narrative Analysis of Results of Operations . . D-6 - D-7 Indiana Michigan Power Company and Subsidiaries: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . . . . E-1 Consolidated Balance Sheets. . . . . . . . . . . . . . . . . E-2 - E-3 Consolidated Statements of Cash Flows. . . . . . . . . . . . E-4 Notes to Consolidated Financial Statements . . . . . . . . . E-5 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . E-6 - E-8 Kentucky Power Company: Statements of Income and Statements of Retained Earnings . . F-1 Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . F-2 - F-3 Statements of Cash Flows . . . . . . . . . . . . . . . . . . F-4 Notes to Financial Statements. . . . . . . . . . . . . . . . F-5 Management's Narrative Analysis of Results of Operations . . F-6 - F-7 AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES FORM 10-Q For The Quarter Ended March 31, 1996 INDEX Page Ohio Power Company and Subsidiaries: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . . . G-1 Consolidated Balance Sheets. . . . . . . . . . . . . . . . G-2 - G-3 Consolidated Statements of Cash Flows. . . . . . . . . . . G-4 Notes to Consolidated Financial Statements . . . . . . . . G-5 - G-6 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . G-7 - G-9 Part II. OTHER INFORMATION Item 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1 Item 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1 - II-2 Item 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2 - II-3 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-4 This combined Form 10-Q is separately filed by American Electric Power Company, Inc., AEP Generating Company, Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Kentucky Power Company and Ohio Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per-share amounts) (UNAUDITED)
Three Months Ended March 31, 1996 1995 OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . $1,517,781 $1,416,169 OPERATING EXPENSES: Fuel and Purchased Power . . . . . . . . . . . . . . . . 440,977 411,987 Other Operation. . . . . . . . . . . . . . . . . . . . . 303,708 261,952 Maintenance. . . . . . . . . . . . . . . . . . . . . . . 105,423 130,608 Depreciation and Amortization. . . . . . . . . . . . . . 149,114 147,177 Taxes Other Than Federal Income Taxes. . . . . . . . . . 127,626 129,473 Federal Income Taxes . . . . . . . . . . . . . . . . . . 98,811 77,416 TOTAL OPERATING EXPENSES. . . . . . . . . . . . . 1,225,659 1,158,613 OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 292,122 257,556 NONOPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . (1,127) 4,798 INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS . . 290,995 262,354 INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . 100,025 100,474 PREFERRED STOCK DIVIDEND REQUIREMENTS OF SUBSIDIARIES. . . 10,958 14,030 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . $ 180,012 $ 147,850 AVERAGE NUMBER OF SHARES OUTSTANDING . . . . . . . . . . . 186,723 185,318 EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . $0.96 $0.80 CASH DIVIDENDS PAID PER SHARE. . . . . . . . . . . . . . . $0.60 $0.60
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . $1,409,645 $1,325,581 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 180,012 147,850 DEDUCTIONS: Cash Dividends Declared. . . . . . . . . . . . . . . . . 111,983 111,143 Other. . . . . . . . . . . . . . . . . . . . . . . . . . (178) 118 BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . $1,477,852 $1,362,170 See Notes to Consolidated Financial Statements. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $ 9,257,733 $ 9,238,843 Transmission . . . . . . . . . . . . . . . . . . . . 3,329,719 3,316,664 Distribution . . . . . . . . . . . . . . . . . . . . 4,217,602 4,184,251 General (including mining assets and nuclear fuel) . 1,489,894 1,442,086 Construction Work in Progress. . . . . . . . . . . . 293,901 314,118 Total Electric Utility Plant . . . . . . . . 18,588,849 18,495,962 Accumulated Depreciation and Amortization. . . . . . 7,232,739 7,111,123 NET ELECTRIC UTILITY PLANT . . . . . . . . . 11,356,110 11,384,839 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 838,245 825,781 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 189,421 79,955 Accounts Receivable (net). . . . . . . . . . . . . . 546,047 492,283 Fuel . . . . . . . . . . . . . . . . . . . . . . . . 246,217 271,933 Materials and Supplies . . . . . . . . . . . . . . . 247,949 251,051 Accrued Utility Revenues . . . . . . . . . . . . . . 163,533 207,919 Prepayments and Other. . . . . . . . . . . . . . . . 150,671 98,717 TOTAL CURRENT ASSETS . . . . . . . . . . . . 1,543,838 1,401,858 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 1,948,635 1,979,446 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 298,978 310,377 TOTAL. . . . . . . . . . . . . . . . . . . $15,985,806 $15,902,301 See Notes to Consolidated Financial Statements.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock-Par Value $6.50: 1996 1995 Shares Authorized . . . .300,000,000 300,000,000 Shares Issued . . . . . .195,976,110 195,634,992 (8,999,992 shares were held in treasury) . . . . . $ 1,273,845 $ 1,271,627 Paid-in Capital. . . . . . . . . . . . . . . . . . . 1,671,237 1,658,524 Retained Earnings. . . . . . . . . . . . . . . . . . 1,477,852 1,409,645 Total Common Shareholders' Equity. . . . . . 4,422,934 4,339,796 Cumulative Preferred Stocks of Subsidiaries: Not Subject to Mandatory Redemption. . . . . . . . 118,240 148,240 Subject to Mandatory Redemption. . . . . . . . . . 515,085 515,085 Long-term Debt . . . . . . . . . . . . . . . . . . . 4,811,799 4,920,329 TOTAL CAPITALIZATION . . . . . . . . . . . . 9,868,058 9,923,450 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 932,343 884,707 CURRENT LIABILITIES: Preferred Stock and Long-term Debt Due Within One Year. . . . . . . . . . . . . . . . 368,467 144,597 Short-term Debt. . . . . . . . . . . . . . . . . . . 165,176 365,125 Accounts Payable . . . . . . . . . . . . . . . . . . 185,525 220,142 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 471,034 420,192 Interest Accrued . . . . . . . . . . . . . . . . . . 124,840 80,848 Obligations Under Capital Leases . . . . . . . . . . 98,568 89,692 Other. . . . . . . . . . . . . . . . . . . . . . . . 309,557 304,466 TOTAL CURRENT LIABILITIES. . . . . . . . . . 1,723,167 1,625,062 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 2,640,925 2,656,651 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 424,117 430,041 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . . . 247,556 249,875 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 149,640 132,515 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $15,985,806 $15,902,301 See Notes to Consolidated Financial Statements.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 180,012 $ 147,850 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . 146,776 142,564 Deferred Federal Income Taxes. . . . . . . . . . . . . (8,519) (6,326) Deferred Investment Tax Credits. . . . . . . . . . . . (5,878) (5,945) Amortization of Operating Expenses and Carrying Charges (net) . . . . . . . . . . . . . . . 15,411 19,083 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . (53,764) (8,395) Fuel, Materials and Supplies . . . . . . . . . . . . . 28,818 (14,228) Accrued Utility Revenues . . . . . . . . . . . . . . . 44,386 27,550 Prepayments and Other Current Assets . . . . . . . . . (51,954) (52,632) Accounts Payable . . . . . . . . . . . . . . . . . . . (34,617) (55,071) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . 50,842 37,645 Interest Accrued . . . . . . . . . . . . . . . . . . . 43,992 38,126 Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . 36,928 37,076 Other (net). . . . . . . . . . . . . . . . . . . . . . . 20,742 27,540 Net Cash Flows From Operating Activities . . . . . 413,175 334,837 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . (90,517) (132,092) Proceeds from Sale of Property and Other . . . . . . . . 2,788 2,821 Net Cash Flows Used For Investing Activities . . . (87,729) (129,271) FINANCING ACTIVITIES: Issuance of Common Stock . . . . . . . . . . . . . . . . 14,573 11,301 Issuance of Long-term Debt . . . . . . . . . . . . . . . 256,845 49,653 Change in Short-term Debt (net). . . . . . . . . . . . . (199,949) (129,410) Retirement of Cumulative Preferred Stock . . . . . . . . (7,500) - Retirement of Long-term Debt . . . . . . . . . . . . . . (167,966) (1,335) Dividends Paid on Common Stock . . . . . . . . . . . . . (111,983) (111,143) Net Cash Flows Used For Financing Activities . . . (215,980) (180,934) Net Increase in Cash and Cash Equivalents. . . . . . . . . 109,466 24,632 Cash and Cash Equivalents at Beginning of Period . . . . . 79,955 62,866 Cash and Cash Equivalents at End of Period . . . . . . . . $ 189,421 $ 87,498 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $52,763,000 and $59,189,000 and for income taxes was $9,074,000 and $4,498,000 in 1996 and 1995, respectively. Noncash acquisitions under capital leases were $50,899,000 and $24,725,000 in 1996 and 1995, respectively. See Notes to Consolidated Financial Statements. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial state-ments should be read in conjunction with the 1995 Annual Report as incorporated in and filed with the Form 10-K. Certain prior-period amounts have been reclassified to conform to current-period presentation. Effective January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of" with no significant impact on the financial statements. 2. FINANCING AND RELATED ACTIVITIES During the first three months of 1996, subsidiaries issued $260 million principal amount of long-term debt: two series of first mortgage bonds totaling $200 million at 6-3/8% and 6.8% due in 2001 and 2006, respectively; $40 million of junior subordinated deferrable interest debentures at 8% due in 2026; and two 6.75% term loans totaling $20 million due in 2001. The proceeds were used during the first quarter to redeem 75,000 shares of 9.5% cumulative preferred stock at the $100 par value and to retire $167 million principal amount of long-term debt: five series of first mortgage bonds totaling $108 million with interest rates ranging from 5% to 9-7/8% and due dates ranging from 1996 to 2022; five series of sinking fund debentures totaling $31 million with interest rates ranging from 5-1/8% to 7-7/8% and due dates ranging from 1996 to 1999; and three series of term loans totaling $28 million with interest rates ranging from 5.79% to 10.78% all at maturity. In April 1996, subsidiaries issued two term loans totaling $50 million at 6.42% and 6.57% due in 1999 and 2000, respectively, retired six series of first mortgage bonds totaling $222 million with interest rates ranging from 7-1/2% to 9-7/8% and due dates ranging from 1998 to 2020 and redeemed 300,000 shares of $100 par value 7.08% Cumulative Preferred Stock. The redemption of two series of first mortgage bonds in April 1996, a 7-7/8% series and a 7-1/2% series both due in 2002, reduced the restriction on subsidiaries use of retained earnings for the payment of cash dividends on their common stock from $230 million to $162 million. 3. CONTINGENCIES On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued two Final Rules regarding open access transmission and stranded cost recovery in the wholesale market. In the open access final rule, all public utilities with transmission lines are required to file non-discriminatory open access tariffs that offer non-affiliated wholesale customers the same transmission service at the same terms and costs as they provide to themselves and their affiliates. The Company adopted an open access transmission tariff in 1995 under the provisions of a proposed FERC rule. The open access final rule also provides for the recovery of stranded costs from a utility's departing wholesale customers -- that is costs that were prudently incurred to serve departing wholesale customers and that would go unrecovered if these customers use open access to move to another supplier. The other final rule provides for the manner in which the open access rule will be administered. Management does not expect these final rules to adversely impact financial condition; however, management continues to review the voluminous document for its potential impact. The Company continues to be involved in certain other matters discussed in the 1995 Annual Report. AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1996 vs. FIRST QUARTER 1995 RESULTS OF OPERATIONS Net income increased 22% or $32.2 million due primarily to a 5% rise in retail energy sales, reflecting the effect of a colder winter in 1996 and growth in the number of customers, and higher wholesale sales due mainly to the colder weather. Income statement lines which changed significantly were: Increase (Decrease) (in millions) % Operating Revenues . . . . . . . . . . $101.6 7 Fuel and Purchased Power Expense . . . 29.0 7 Other Operation Expense. . . . . . . . 41.8 16 Maintenance Expense. . . . . . . . . . (25.2) (19) Federal Income Taxes . . . . . . . . . 21.4 28 Operating revenues increased predominantly due to a 5% increase in energy sales to retail customers and a 46% increase in wholesale sales. Retail revenues rose 6% during the first quarter of 1996 as a result of a 9% increase in energy sales to weather-sensitive residential customers, and a 6% and 2% increase in energy sales to commercial and industrial customers, largely due to increased usage. In 1996 the number of residential and commercial customers increased 1% and 2%, respectively, and industrial customers increased slightly. Wholesale revenues increased 18% reflecting the significant increase in wholesale energy sales to unaffiliated utilities in 1996 as a result of the colder weather and an increase in other service revenues from wholesale customers. Fuel expense increased mainly due to increased generation resulting from the higher demand for energy in 1996. The increase in other operation expense in 1996 was primarily due to rent and other operating costs of the recently installed Gavin Plant scrubbers and the amortization of previously deferred Gavin expenses. In 1995, the Public Utilities Commission of Ohio (PUCO) approved the deferral of the Ohio retail jurisdictional share of the Gavin Plant's scrubber rent for future recovery. In March 1995, the PUCO approved recovery of current and deferred rent expense and authorized the amortization of the previously deferred Gavin expenses over four years. Also contributing to the increase in other operation expense was the write-off of previously deferred research costs related to pressurized fluidized bed combustion technology and the expensing of previously capitalized software costs as a result of a Hearing Examiner's Report in a pending Virginia retail rate case. Maintenance expense declined due to the reversal of a loss contingency recorded in March 1995 for deferred Virginia retail incremental storm damage expenses as a result of the above noted Hearing Examiner's Report and decreased boiler plant maintenance during the first quarter of 1996 largely as a result of significant maintenance performed on certain generating units in 1995. The increase in federal income tax expense attributable to operations was primarily due to an increase in pre-tax operating income. FINANCIAL CONDITION Total plant and property additions including capital leases for the current period were $142 million. During the quarter subsidiaries issued $260 million principal amount of long-term debt at interest rates ranging from 6-3/8% to 8%, retired $167 million principal amount of long-term debt at interest rates ranging from 5% to 10.78%, redeemed 75,000 shares of 9.5% cumulative preferred stock at the $100 par value and decreased short-term debt by $200 million. In April 1996, subsidiaries issued $50 million of term loans at interest rates ranging from 6.42% to 6.57%, retired $222 million principal amount of first mortgage bonds with interest rates ranging from 7-1/2% to 9-7/8% and redeemed 300,000 shares of $100 par value 7.08% cumulative preferred stock. NEW FERC RULES On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued two Final Rules regarding open access transmission and stranded cost recovery in the wholesale market. In the open access final rule, all public utilities with transmission lines are required to file non- discriminatory open access tariffs that offer non-affiliated wholesale customers the same transmission service at the same terms and costs as they provide to themselves and their affiliates. The Company adopted an open access transmission tariff in 1995 under the provisions of a proposed FERC rule. The open access final rule also provides for the recovery of stranded costs from a utility's departing wholesale customers -- that is costs that were prudently incurred to serve departing wholesale customers and that would go unrecovered if these customers use open access to move to another supplier. The other final rule provides for the manner in which the open access rule will be administered. Management does not expect these final rules to adversely impact financial condition; however, management continues to review the voluminous document for its potential impact. AEP GENERATING COMPANY STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . $57,484 $60,175 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,532 26,562 Rent - Rockport Plant Unit 2 . . . . . . . . . . . . . . . 17,077 17,145 Other Operation. . . . . . . . . . . . . . . . . . . . . . 3,149 2,672 Maintenance. . . . . . . . . . . . . . . . . . . . . . . . 3,493 2,883 Depreciation . . . . . . . . . . . . . . . . . . . . . . . 5,413 5,417 Taxes Other Than Federal Income Taxes. . . . . . . . . . . 975 979 Federal Income Taxes . . . . . . . . . . . . . . . . . . . 1,051 817 TOTAL OPERATING EXPENSES . . . . . . . . . . . . . 54,690 56,475 OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . 2,794 3,700 NONOPERATING INCOME. . . . . . . . . . . . . . . . . . . . . 790 829 INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . . 3,584 4,529 INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . 1,086 2,410 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,498 $ 2,119
STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . $1,955 $4,268 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . 2,498 2,119 CASH DIVIDENDS DECLARED. . . . . . . . . . . . . . . . . . . 2,500 2,000 BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . . $1,953 $4,387 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Financial Statements. /TABLE AEP GENERATING COMPANY BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production. . . . . . . . . . . . . . . . . . . . . . $627,706 $627,298 General . . . . . . . . . . . . . . . . . . . . . . . 2,954 2,919 Construction Work in Progress . . . . . . . . . . . . 1,303 1,397 Total Electric Utility Plant. . . . . . . . . 631,963 631,614 Accumulated Depreciation. . . . . . . . . . . . . . . 223,546 218,055 NET ELECTRIC UTILITY PLANT. . . . . . . . . . 408,417 413,559 CURRENT ASSETS: Cash and Cash Equivalents . . . . . . . . . . . . . . 13 22 Accounts Receivable . . . . . . . . . . . . . . . . . 18,390 19,028 Fuel. . . . . . . . . . . . . . . . . . . . . . . . . 21,516 19,008 Materials and Supplies. . . . . . . . . . . . . . . . 4,812 4,820 Prepayments . . . . . . . . . . . . . . . . . . . . . 656 673 TOTAL CURRENT ASSETS. . . . . . . . . . . . . 45,387 43,551 REGULATORY ASSETS . . . . . . . . . . . . . . . . . . . 6,021 6,076 DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . 3,999 1,693 TOTAL . . . . . . . . . . . . . . . . . . . $463,824 $464,879 See Notes to Financial Statements.
AEP GENERATING COMPANY BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - Par Value $1,000: Authorized and Outstanding - 1,000 Shares . . . . . $ 1,000 $ 1,000 Paid-in Capital . . . . . . . . . . . . . . . . . . . 47,235 47,735 Retained Earnings . . . . . . . . . . . . . . . . . . 1,953 1,955 Total Common Shareholder's Equity . . . . . . 50,188 50,690 Long-term Debt. . . . . . . . . . . . . . . . . . . . 89,542 89,538 TOTAL CAPITALIZATION. . . . . . . . . . . . . 139,730 140,228 OTHER NONCURRENT LIABILITIES. . . . . . . . . . . . . . 1,745 1,830 CURRENT LIABILITIES: Short-term Debt - Notes Payable . . . . . . . . . . . 175 21,725 Accounts Payable. . . . . . . . . . . . . . . . . . . 9,309 9,094 Taxes Accrued . . . . . . . . . . . . . . . . . . . . 6,452 2,997 Rent Accrued - Rockport Plant Unit 2. . . . . . . . . 23,427 4,963 Other . . . . . . . . . . . . . . . . . . . . . . . . 4,449 4,508 TOTAL CURRENT LIABILITIES . . . . . . . . . . 43,812 43,287 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2 . . . . . . . . . . . . . . . . 148,650 150,043 REGULATORY LIABILITIES: Deferred Investment Tax Credits . . . . . . . . . . . 76,105 76,949 Amounts Due to Customers for Income Taxes . . . . . . 36,194 36,517 Other . . . . . . . . . . . . . . . . . . . . . . . . 207 201 TOTAL REGULATORY LIABILITIES. . . . . . . . . 112,506 113,667 DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . 17,381 15,824 TOTAL . . . . . . . . . . . . . . . . . . . $463,824 $464,879 See Notes to Financial Statements.
AEP GENERATING COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,498 $ 2,119 Adjustments for Noncash Items: Depreciation . . . . . . . . . . . . . . . . . . . . . . 5,413 5,417 Deferred Federal Income Taxes. . . . . . . . . . . . . . 1,234 1,187 Deferred Investment Tax Credits. . . . . . . . . . . . . (844) (846) Amortization of Deferred Gain on Sale and Leaseback - Rockport Plant Unit 2. . . . . . . . . . . . . . . . . (1,393) (1,392) Changes in Certain Current Assets and Liabilities: Accounts Receivable. . . . . . . . . . . . . . . . . . . 638 263 Fuel, Materials and Supplies . . . . . . . . . . . . . . (2,500) 833 Accounts Payable . . . . . . . . . . . . . . . . . . . . 215 (3,475) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 3,455 2,590 Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 18,464 18,538 Other (net). . . . . . . . . . . . . . . . . . . . . . . . (2,280) (5,946) Net Cash Flows From Operating Activities . . . . . . 24,900 19,288 INVESTING ACTIVITIES - Construction Expenditures . . . . . . (359) (1,066) FINANCING ACTIVITIES: Capital Contributions Returned to Parent Company . . . . . (500) - Change in Short-term Debt (net). . . . . . . . . . . . . . (21,550) (7,200) Dividends Paid . . . . . . . . . . . . . . . . . . . . . . (2,500) (2,000) Net Cash Flows Used For Financing Activities . . . . (24,550) (9,200) Net Increase in Cash and Cash Equivalents. . . . . . . . . . (9) 9,022 Cash and Cash Equivalents at Beginning of Period . . . . . . 22 7 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 13 $ 9,029 Supplemental Disclosure: Cash paid (received) for interest net of capitalized amounts was $1,095,000 and $4,538,000 and for income taxes was ($491,000) and $175,000 in 1996 and 1995, respectively. See Notes to Financial Statements. /TABLE AEP GENERATING COMPANY NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) The accompanying unaudited financial statements should be read in conjunction with the 1995 Annual Report as incorporated in and filed with the Form 10-K. Certain prior-period amounts have been reclassified to conform to current-period presentation. Effective January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Dispoed Of" with no significant impact on the financial statements. AEP GENERATING COMPANY MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS FIRST QUARTER 1996 vs. FIRST QUARTER 1995 Operating revenues are derived from the sale of Rockport Plant energy and capacity to two affiliated companies and one unaffiliated utility pursuant to Federal Energy Regulatory Commission (FERC) approved long-term unit power agreements. The unit power agreements provide for recovery of costs including a FERC approved rate of return on common equity and a return on other capital net of temporary cash investments. Net income increased $0.4 million or 18% resulting from the full recovery of interest expense through the return on other capital component of the unit power bills compared with 1995 when the unit power agreement mechanism prevented the Company from recovering all interest costs in the unit power bills. Income statement items which changed significantly were as follows: Increase (Decrease) (in millions) % Operating Revenues. . . . . . . . . . . . $(2.7) (4) Fuel Expense. . . . . . . . . . . . . . . (3.0) (11) Other Operation Expense . . . . . . . . . 0.5 18 Maintenance Expense . . . . . . . . . . . 0.6 21 Federal Income Taxes. . . . . . . . . . . 0.2 29 Interest Charges. . . . . . . . . . . . . (1.3) (55) The decrease in operating revenues reflects the decrease in billable operating expenses primarily fuel and interest costs. The decline in fuel expense is mainly attributable to an 11% reduction in generation due to Rockport Plant Unit 2 being out-of-service for planned general boiler inspection and repair from mid-March of 1996 through the end of the first quarter. Other operation expense increased mainly due to increased AEP Service Corporation billings for engineering and other professional services and increased employee benefits expenses. The increase in maintenance expense resulted from the general boiler inspection and repairs being performed on Rockport Unit 2. Federal income tax expense attributable to operations increased primarily due to an increase in pre-tax operating income. Interest charges declined primarily due to refinancing of $90 million of long-term debt at lower variable rates and the retirement of $20 million of long-term debt in the third quarter of 1995. APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING REVENUES . . . . . . . . . . . . . . . . . . $440,972 $407,516 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . . . . . . . 89,596 99,893 Purchased Power. . . . . . . . . . . . . . . . . . . 91,127 63,958 Other Operation. . . . . . . . . . . . . . . . . . . 62,743 49,973 Maintenance. . . . . . . . . . . . . . . . . . . . . 23,151 36,464 Depreciation and Amortization. . . . . . . . . . . . 32,873 33,090 Taxes Other Than Federal Income Taxes. . . . . . . . 31,302 31,729 Federal Income Taxes . . . . . . . . . . . . . . . . 26,543 23,265 TOTAL OPERATING EXPENSES . . . . . . . . . . 357,335 338,372 OPERATING INCOME . . . . . . . . . . . . . . . . . . . 83,637 69,144 NONOPERATING INCOME (LOSS) . . . . . . . . . . . . . . 597 (835) INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . 84,234 68,309 INTEREST CHARGES . . . . . . . . . . . . . . . . . . . 28,610 26,372 NET INCOME . . . . . . . . . . . . . . . . . . . . . . 55,624 41,937 PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . . . 4,101 4,104 EARNINGS APPLICABLE TO COMMON STOCK. . . . . . . . . . $ 51,523 $ 37,833
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . $199,021 $206,361 NET INCOME . . . . . . . . . . . . . . . . . . . . . . 55,624 41,937 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . . . . . . . . 27,075 26,709 Cumulative Preferred Stock . . . . . . . . . . . . 3,917 3,919 Capital Stock Expense. . . . . . . . . . . . . . . . 184 185 BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . $223,469 $217,485 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . $1,859,516 $1,857,621 Transmission . . . . . . . . . . . . . . . . . . 1,046,880 1,041,415 Distribution . . . . . . . . . . . . . . . . . . 1,426,870 1,409,407 General. . . . . . . . . . . . . . . . . . . . . 180,327 169,602 Construction Work in Progress. . . . . . . . . . 63,686 80,391 Total Electric Utility Plant . . . . . . 4,577,279 4,558,436 Accumulated Depreciation and Amortization. . . . 1,716,577 1,694,746 NET ELECTRIC UTILITY PLANT . . . . . . . 2,860,702 2,863,690 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . 30,786 31,523 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . 103,138 8,664 Accounts Receivable (net). . . . . . . . . . . . 171,182 140,158 Fuel . . . . . . . . . . . . . . . . . . . . . . 58,920 69,037 Materials and Supplies . . . . . . . . . . . . . 54,097 55,756 Accrued Utility Revenues . . . . . . . . . . . . 55,059 65,078 Prepayments. . . . . . . . . . . . . . . . . . . 18,878 8,579 TOTAL CURRENT ASSETS . . . . . . . . . . 461,274 347,272 REGULATORY ASSETS. . . . . . . . . . . . . . . . . 443,149 435,352 DEFERRED CHARGES . . . . . . . . . . . . . . . . . 64,553 57,541 TOTAL. . . . . . . . . . . . . . . . . $3,860,464 $3,735,378 See Notes to Consolidated Financial Statements.
APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - No Par Value: Authorized - 30,000,000 Shares Outstanding - 13,499,500 Shares. . . . . . . $ 260,458 $ 260,458 Paid-in Capital. . . . . . . . . . . . . . . . 525,235 525,051 Retained Earnings. . . . . . . . . . . . . . . 223,469 199,021 Total Common Shareholder's Equity. . . 1,009,162 984,530 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . 55,000 55,000 Subject to Mandatory Redemption. . . . . . . 190,085 190,085 Long-term Debt . . . . . . . . . . . . . . . . 1,301,679 1,278,433 TOTAL CAPITALIZATION . . . . . . . . . 2,555,926 2,508,048 OTHER NONCURRENT LIABILITIES . . . . . . . . . . 116,598 102,178 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . 159,812 7,251 Short-term Debt. . . . . . . . . . . . . . . . - 125,525 Accounts Payable . . . . . . . . . . . . . . . 91,251 82,224 Taxes Accrued. . . . . . . . . . . . . . . . . 81,535 48,666 Customer Deposits. . . . . . . . . . . . . . . 14,242 14,411 Interest Accrued . . . . . . . . . . . . . . . 35,022 19,057 Other. . . . . . . . . . . . . . . . . . . . . 56,736 75,303 TOTAL CURRENT LIABILITIES. . . . . . . 438,598 372,437 DEFERRED INCOME TAXES. . . . . . . . . . . . . . 653,843 656,006 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . 88,287 89,682 DEFERRED CREDITS . . . . . . . . . . . . . . . . 7,212 7,027 CONTINGENCIES (Note 4) TOTAL. . . . . . . . . . . . . . . . $3,860,464 $3,735,378 See Notes to Consolidated Financial Statements.
APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . $ 55,624 $ 41,937 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . 33,199 33,506 Deferred Federal Income Taxes. . . . . . . . . . (2,689) (1,823) Deferred Investment Tax Credits. . . . . . . . . (1,205) (1,215) Provision for Rate Refunds . . . . . . . . . . . 15,869 4,722 Storm Damage Expense Amortization (Deferrals). . (7,303) 9,926 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . (31,024) (6,396) Fuel, Materials and Supplies . . . . . . . . . . 11,776 (2,586) Accrued Utility Revenues . . . . . . . . . . . . 10,019 11,035 Prepayments. . . . . . . . . . . . . . . . . . . (10,299) (13,572) Accounts Payable . . . . . . . . . . . . . . . . 9,027 (13,879) Taxes Accrued. . . . . . . . . . . . . . . . . . 32,869 27,172 Interest Accrued . . . . . . . . . . . . . . . . 15,965 17,792 Other (net). . . . . . . . . . . . . . . . . . . . (26,474) (11,566) Net Cash Flows From Operating Activities . . 105,354 95,053 INVESTING ACTIVITIES - Construction Expenditures . . (29,069) (44,452) FINANCING ACTIVITIES: Capital Contributions From Parent Company. . . . . - 15,000 Issuance of Long-term Debt . . . . . . . . . . . . 198,266 49,564 Change in Short-term Debt (net). . . . . . . . . . (125,525) (83,100) Retirement of Long-term Debt . . . . . . . . . . . (23,560) (1,102) Dividends Paid on Common Stock . . . . . . . . . . (27,075) (26,709) Dividends Paid on Cumulative Preferred Stock . . . (3,917) (3,919) Net Cash Flows From (Used For) Financing Activities . . . . . . . . . . . . . . . . 18,189 (50,266) Net Increase in Cash and Cash Equivalents. . . . . . 94,474 335 Cash and Cash Equivalents at Beginning of Period . . 8,664 5,297 Cash and Cash Equivalents at End of Period . . . . . $ 103,138 $ 5,632 Supplemental Disclosure: Cash paid (received) for interest net of capitalized amounts was $11,902,000 and $7,977,000 and for income taxes was $(506,000) and $562,000 in 1996 and 1995, respectively. Noncash acquisitions under capital leases were $2,699,000 and $4,572,000 in 1996 and 1995, respectively. See Notes to Consolidated Financial Statements.
APPALACHIAN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial statements should be read in conjunction with the 1995 Annual Report as incorporated in and filed with the Form 10-K. Effective January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of" with no significant impact on the financial statements. 2. RATE MATTERS Virginia On March 28, 1996 a report from a Virginia State Corporation Commission (Virginia SCC) Hearing Examiner was issued in the Company's pending Virginia retail rate case. The Company filed an application in September 1994 seeking an increase in annual base rates of $15.7 million which was implemented, subject to refund, on November 15, 1994. The Hearing Examiner's recommendations included no rate increase, recovery and amortization of deferred 1994 incremental storm damages over 5 years and the reversal of capitalized software costs incurred prior to May 1993. The Company has provided for a revenue refund liability of $24.2 million, including interest of $1.2 million which is expected to provide for the ultimate refund to customers. West Virginia Under the terms of a 1993 settlement agreement in the West Virginia jurisdiction, the Company agreed to a 3-year base rate freeze and suspension of the Public Service Commission of West Virgina (WVPSC) Expanded Net Energy Cost (ENEC) recovery mechanism until October 31, 1996. The Company has been engaged in negotiations with the interested parties and in April 1996 filed a Joint Petition with the WVPSC to initiate a proceeding to determine rates for the period subsequent to October 31, 1996. 3. FINANCING ACTIVITIES In February 1996 the Company redeemed $16 million of first mortgage bonds with interest rates ranging from 8.75% to 9-7/8% due 2020 through 2022. In March 1996 the Company issued $100 million of 6-3/8% Series First Mortgage Bonds due in 2001 and $100 million of 6.80% Series First Mortgage Bonds due in 2006. The proceeds were used to reduce outstanding short-term debt and in April 1996 to redeem $160 million of first mortgage bonds with interest rates ranging from 7-1/2% to 9-7/8% due 1998 through 2020. The April redemption of these first mortgage bonds removed the restriction on the use of retained earnings for common stock dividends. 4. CONTINGENCIES On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued two Final Rules regarding open access transmission and stranded cost recovery in the wholesale market. In the open access final rule, all public utilities with transmission lines are required to file non-discriminatory open access tariffs that offer non-affiliated wholesale customers the same transmission service at the same terms and costs as they provide to themselves and their affiliates. The Company adopted an open access transmission tariff in 1995 under the provisions of a proposed FERC rule. The open access final rule also provides for the recovery of stranded costs from a utility's departing wholesale customers -- that is costs that were prudently incurred to serve departing wholesale customers and that would go unrecovered if these customers use open access to move to another supplier. The other final rule provides for the manner in which the open access rule will be administered. Management does not expect these final rules to adversely impact financial condition; however, management continues to review the voluminous document for its potential impact. The Company continues to be involved in certain other matters discussed in its 1995 Annual Report. APPALACHIAN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1996 vs. FIRST QUARTER 1995 RESULTS OF OPERATIONS An increase in energy sales to wholesale, residential and commercial customers due mainly to colder winter weather resulted in a 33% increase in net income of $13.7 million. Income statement line items which changed significantly were: Increase (Decrease) (in millions) % Operating Revenues. . . . . . . . . . $ 33.5 8 Fuel Expense. . . . . . . . . . . . . (10.3) (10) Purchased Power Expense . . . . . . . 27.2 42 Other Operation Expense . . . . . . . 12.8 26 Maintenance Expense . . . . . . . . . (13.3) (37) Federal Income Taxes. . . . . . . . . 3.3 14 Operating revenues increased due to a 72% increase in energy sales to wholesale customers and an 8% increase in retail sales partly offset by an $8.7 million provision for revenue refund recorded as a result of a Hearing Examiner's report on the Company's pending Virginia retail base rate case. Wholesale energy sales rose mainly due to an increase in energy sales by the AEP System Power Pool (Power Pool) reflecting increased weather-related energy demand of unaffiliated utilities. Energy sales to retail customers rose as consumption by all customer classes increased reflecting the effects of colder winter weather and growth in the number of customers. Sales to residential, commercial and industrial customers increased 13%, 7% and 2%, respectively, reflecting increased usage and growth in the number of customers in all retail categories. A decrease in coal-fired net generation was responsible for the decrease in fuel expense. The Company increased its purchases of energy from the Power Pool to meet the increased demand for energy accounting for the rise in purchased power expense. Other operation expense increased primarily due to the write-off of $3.9 million of previously deferred research costs related to pressurized fluidized bed combustion technology and the expensing of $2.8 million of capitalized software costs as a result of the Hearing Examiner's report. The reversal in March 1996 of a $7.8 million loss provision for deferred Virginia retail incremental storm damage expenses recorded in March 1995 accounted for the decrease in maintenance expense. The provision was reversed as a result of the Hearing Examiner's report. The increase in federal income tax expense was primarily due to an increase in pre-tax operating income offset in part by changes in certain book/tax differences accounted for on a flow-through basis. FINANCIAL CONDITION Total plant and property additions including capital leases for the first three months of 1996 were $32 million. In March 1996, the Company issued $100 million of 6-3/8% Series First Mortgage Bonds due in 2001 and $100 million of 6.80% Series First Mortgage Bonds due in 2006. The proceeds were used to reduce outstanding short-term debt and in April 1996 redeem $160 million of first mortgage bonds with interest rates ranging from 7-1/2% to 9-7/8% due 1998 through 2020. The redemption of these first mortgage bonds removed the restriction on the use of retained earnings for common stock dividends. NEW FERC RULES On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued two Final Rules regarding open access transmission and stranded cost recovery in the wholesale market. In the open access final rule, all public utilities with transmission lines are required to file non-discriminatory open access tariffs that offer non-affiliated wholesale customers the same transmission service at the same terms and costs as they provide to themselves and their affiliates. The Company adopted an open access transmission tariff in 1995 under the provisions of a proposed FERC rule. The open access final rule also provides for the recovery of stranded costs from a utility's departing wholesale customers -- that is costs that were prudently incurred to serve departing wholesale customers and that would go unrecovered if these customers use open access to move to another supplier. The other final rule provides for the manner in which the open access rule will be administered. Management does not expect these final rules to adversely impact financial condition; however, management continues to review the voluminous document for its potential impact. COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING REVENUES . . . . . . . . . . . . . . . . . $271,040 $257,005 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . . . . . . 47,506 51,306 Purchased Power. . . . . . . . . . . . . . . . . . 43,469 31,919 Other Operation. . . . . . . . . . . . . . . . . . 44,164 45,062 Maintenance. . . . . . . . . . . . . . . . . . . . 13,923 15,403 Depreciation . . . . . . . . . . . . . . . . . . . 21,791 21,147 Amortization of Zimmer Plant Phase-in Costs. . . . 8,448 8,051 Taxes Other Than Federal Income Taxes. . . . . . . 28,107 27,031 Federal Income Taxes . . . . . . . . . . . . . . . 15,206 12,649 TOTAL OPERATING EXPENSES. . . . . . . . . . 222,614 212,568 OPERATING INCOME . . . . . . . . . . . . . . . . . . 48,426 44,437 NONOPERATING INCOME (LOSS) . . . . . . . . . . . . . (2,905) 1,366 INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . 45,521 45,803 INTEREST CHARGES . . . . . . . . . . . . . . . . . . 20,395 20,278 NET INCOME . . . . . . . . . . . . . . . . . . . . . 25,126 25,525 PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . . 1,670 3,203 EARNINGS APPLICABLE TO COMMON STOCK. . . . . . . . . $ 23,456 $ 22,322
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . $74,320 $46,976 NET INCOME . . . . . . . . . . . . . . . . . . . . . . 25,126 25,525 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . . . . . . . . 18,969 17,975 Cumulative Preferred Stock . . . . . . . . . . . . 1,422 3,203 Capital Stock Expense. . . . . . . . . . . . . . . . 71 35 BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . $78,984 $51,288 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . $1,489,949 $1,481,309 Transmission . . . . . . . . . . . . . . . . . . 315,659 314,413 Distribution . . . . . . . . . . . . . . . . . . 853,236 843,228 General. . . . . . . . . . . . . . . . . . . . . 118,797 117,185 Construction Work in Progress. . . . . . . . . . 55,345 64,073 Total Electric Utility Plant . . . . . . 2,832,986 2,820,208 Accumulated Depreciation . . . . . . . . . . . . 971,689 953,170 NET ELECTRIC UTILITY PLANT . . . . . . . 1,861,297 1,867,038 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . 25,337 25,950 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . 11,366 10,577 Accounts Receivable (net). . . . . . . . . . . . 66,618 65,853 Fuel . . . . . . . . . . . . . . . . . . . . . . 20,293 24,316 Materials and Supplies . . . . . . . . . . . . . 24,018 23,519 Accrued Utility Revenues . . . . . . . . . . . . 31,701 40,389 Prepayments and Other. . . . . . . . . . . . . . 41,241 32,116 TOTAL CURRENT ASSETS . . . . . . . . . . 195,237 196,770 REGULATORY ASSETS. . . . . . . . . . . . . . . . . 428,452 438,005 DEFERRED CHARGES . . . . . . . . . . . . . . . . . 50,691 66,363 TOTAL. . . . . . . . . . . . . . . . . $2,561,014 $2,594,126 See Notes to Consolidated Financial Statements. /TABLE COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - No Par Value: Authorized - 24,000,000 Shares Outstanding - 16,410,426 Shares. . . . . . . $ 41,026 $ 41,026 Paid-in Capital. . . . . . . . . . . . . . . . 574,497 574,427 Retained Earnings. . . . . . . . . . . . . . . 78,984 74,320 Total Common Shareholder's Equity. . . 694,507 689,773 Cumulative Preferred Stock - Subject to Mandatory Redemption . . . . . . . . . . . . 75,000 75,000 Long-term Debt . . . . . . . . . . . . . . . . 940,922 990,796 TOTAL CAPITALIZATION . . . . . . . . . 1,710,429 1,755,569 OTHER NONCURRENT LIABILITIES . . . . . . . . . . 31,280 34,571 CURRENT LIABILITIES: Preferred Stock Due Within One Year. . . . . . - 7,500 Long-term Debt Due Within One Year . . . . . . 50,000 - Short-term Debt. . . . . . . . . . . . . . . . 18,275 34,325 Accounts Payable . . . . . . . . . . . . . . . 39,721 52,029 Taxes Accrued. . . . . . . . . . . . . . . . . 109,849 120,093 Interest Accrued . . . . . . . . . . . . . . . 29,724 17,016 Other. . . . . . . . . . . . . . . . . . . . . 28,907 30,955 TOTAL CURRENT LIABILITIES. . . . . . . 276,476 261,918 DEFERRED INCOME TAXES. . . . . . . . . . . . . . 460,916 464,413 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . 60,098 61,010 DEFERRED CREDITS . . . . . . . . . . . . . . . . 21,815 16,645 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . $2,561,014 $2,594,126 See Notes to Consolidated Financial Statements.
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . .$ 25,126 $ 25,525 Adjustments for Noncash Items: Depreciation . . . . . . . . . . . . . . . . . . . 21,697 21,052 Deferred Federal Income Taxes. . . . . . . . . . . (1,988) (3,064) Deferred Investment Tax Credits. . . . . . . . . . (912) (917) Deferred Fuel Costs (net). . . . . . . . . . . . . (838) 3,539 Amortization of Zimmer Plant Operating Expenses and Carrying Charges. . . . . . . . . . 7,776 6,819 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . (765) 4,290 Fuel, Materials and Supplies . . . . . . . . . . . 3,524 5,520 Accrued Utility Revenues . . . . . . . . . . . . . 8,688 2,090 Prepayments and Other Current Assets . . . . . . . (9,125) (1,908) Accounts Payable . . . . . . . . . . . . . . . . . (12,308) (6,451) Taxes Accrued. . . . . . . . . . . . . . . . . . . (10,244) (10,097) Interest Accrued . . . . . . . . . . . . . . . . . 12,708 11,528 Other (net). . . . . . . . . . . . . . . . . . . . . 15,741 7,415 Net Cash Flows From Operating Activities . . . 59,080 65,341 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . (15,127) (21,251) Other. . . . . . . . . . . . . . . . . . . . . . . . 955 966 Net Cash Flows Used For Investing Activities . (14,172) (20,285) FINANCING ACTIVITIES: Change in Short-term Debt (net). . . . . . . . . . . (16,050) - Retirement of Cumulative Preferred Stock . . . . . . (7,500) - Dividends Paid on Common Stock . . . . . . . . . . . (18,969) (17,975) Dividends Paid on Cumulative Preferred Stock . . . . (1,600) (3,203) Net Cash Flows Used For Financing Activities . (44,119) (21,178) Net Increase in Cash and Cash Equivalents. . . . . . . 789 23,878 Cash and Cash Equivalents at Beginning of Period . . . 10,577 14,065 Cash and Cash Equivalents at End of Period . . . . . .$ 11,366 $ 37,943 Supplemental Disclosure: Cash paid (received) for interest net of capitalized amounts was $6,717,000 and $7,688,000 and for income taxes was $(2,110,000) and $61,000 in 1996 and 1995, respectively. Noncash acquisitions under capital leases were $1,723,000 and $2,013,000 in 1996 and 1995, respectively. See Notes to Consolidated Financial Statements.
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial statements should be read in conjunction with the 1995 Annual Report as incorporated in and filed with the Form 10-K. Effective January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of" with no significant impact on the financial statements. 2. FINANCING ACTIVITIES The Company announced that on June 12, 1996 it will redeem the entire $50 million outstanding principal amount of its 9.625% Series First Mortgage Bonds Due 2021 at the regular redemption price of 107.22%. Therefore at March 31, 1996 this debt is classified as a current liability. 3. CONTINGENCIES On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued two Final Rules regarding open access transmission and stranded cost recovery in the wholesale market. In the open access final rule, all public utilities with transmission lines are required to file non-discriminatory open access tariffs that offer non-affiliated wholesale customers the same transmission service at the same terms and costs as they provide to themselves and their affiliates. The Company adopted an open access transmission tariff in 1995 under the provisions of a proposed FERC rule. The open access final rule also provides for the recovery of stranded costs from a utility's departing wholesale customers -- that is costs that were prudently incurred to serve departing wholesale customers and that would go unrecovered if these customers use open access to move to another supplier. The other final rule provides for the manner in which the open access rule will be administered. Management does not expect these final rules to adversely impact financial condition; however, management continues to review the voluminous document for its potential impact. The Company continues to be involved in certain other matters discussed in its 1995 Annual Report. COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS FIRST QUARTER 1996 vs. FIRST QUARTER 1995 Net income decreased 2% in the first quarter of 1996 mainly due to nonoperating loss provisions for certain demand side management programs and for environmental remediation costs. Income statement lines which changed significantly were as follows: Increase (Decrease) (in millions) % Operating Revenues . . . . . . . . . . . $14.0 5 Fuel Expense . . . . . . . . . . . . . . (3.8) (7) Purchased Power Expense. . . . . . . . . 11.6 36 Maintenance Expense. . . . . . . . . . . (1.5) (10) Federal Income Taxes . . . . . . . . . . 2.6 20 Nonoperating Income. . . . . . . . . . . (4.3) N.M. N.M. = Not Meaningful Operating revenues increased due to increased energy sales to retail and wholesale customers. Energy sales to all classes of retail customers increased over the previous year due to colder winter weather and growth in the number of retail customers. The number of residential and commercial customers increased by 1.8% and 2.5%, respectively. Sales volume to wholesale customers increased 103% primarily due to an increase in wholesale energy sales made by the AEP System Power Pool (Power Pool) to unaffiliated utilities mainly as a result of the colder weather. The decline in fuel expense was due to the operation of the fuel clause adjustment mechanism primarily reflecting the amortization of previously overrecovered fuel costs. Under the fuel clause adjustment mechanism the Company defers fuel expense to the extent it varies from the allowed electric fuel component rate until such deferrals are amortized to expense commensurate with their inclusion in fuel rates in later months. Purchased power expense rose due to increased energy purchases from the Power Pool to supply increased energy demands of retail and wholesale customers. Maintenance expense decreased due to a staffing reduction at the Company's power plants in the fourth quarter of 1995 as part of an AEP restructuring program to functionally realign operations. The increase in federal income tax expense attributable to operations was primarily due to an increase in pre-tax operating income. Nonoperating income declined due to an after tax provision of $2.2 million for certain demand side management program costs, a $0.9 million after tax provision for clean-up of underground storage tanks at one of the Company's facilities and a decline in the return on unrecovered Zimmer deferrals due to the declining balance of unamortized phase-in plan deferrals. INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING REVENUES . . . . . . . . . . . . . . . . $329,883 $327,177 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . . . . . 60,023 62,754 Purchased Power. . . . . . . . . . . . . . . . . 34,663 27,629 Other Operation. . . . . . . . . . . . . . . . . 78,810 73,633 Maintenance. . . . . . . . . . . . . . . . . . . 26,442 32,472 Depreciation and Amortization. . . . . . . . . . 34,892 34,431 Amortization of Rockport Plant Unit 1 Phase-in Plan Deferrals. . . . . . . . . . . . 3,911 3,911 Taxes Other Than Federal Income Taxes. . . . . . 19,921 19,600 Federal Income Taxes . . . . . . . . . . . . . . 18,203 16,436 TOTAL OPERATING EXPENSES . . . . . . . . 276,865 270,866 OPERATING INCOME . . . . . . . . . . . . . . . . . 53,018 56,311 NONOPERATING INCOME (LOSS) . . . . . . . . . . . . (637) 101 INCOME BEFORE INTEREST CHARGES . . . . . . . . . . 52,381 56,412 INTEREST CHARGES . . . . . . . . . . . . . . . . . 16,614 18,024 NET INCOME . . . . . . . . . . . . . . . . . . . . 35,767 38,388 PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . 2,948 2,898 EARNINGS APPLICABLE TO COMMON STOCK. . . . . . . . $ 32,819 $ 35,490
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . $235,107 $216,658 NET INCOME . . . . . . . . . . . . . . . . . . . . 35,767 38,388 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . . . . . . 28,127 27,713 Cumulative Preferred Stock . . . . . . . . . . 2,890 2,890 Capital Stock Expense. . . . . . . . . . . . . . 58 58 BALANCE AT END OF PERIOD . . . . . . . . . . . . . $239,799 $224,385 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . $2,514,067 $2,507,667 Transmission . . . . . . . . . . . . . . . . 870,509 867,541 Distribution . . . . . . . . . . . . . . . . 672,275 666,810 General (including nuclear fuel) . . . . . . 212,011 186,959 Construction Work in Progress. . . . . . . . 81,161 90,587 Total Electric Utility Plant . . . . 4,350,023 4,319,564 Accumulated Depreciation and Amortization. . 1,781,456 1,751,965 NET ELECTRIC UTILITY PLANT . . . . . 2,568,567 2,567,599 NUCLEAR DECOMMISSIONING AND SPENT NUCLEAR FUEL DISPOSAL TRUST FUNDS . . . . . . . . . . . . 449,319 433,619 OTHER PROPERTY AND INVESTMENTS . . . . . . . . 148,038 150,994 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . 16,104 13,723 Accounts Receivable. . . . . . . . . . . . . 120,782 115,765 Allowance for Uncollectible Accounts . . . . (463) (334) Fuel . . . . . . . . . . . . . . . . . . . . 29,334 29,093 Materials and Supplies . . . . . . . . . . . 73,267 72,861 Accrued Utility Revenues . . . . . . . . . . 30,112 43,937 Prepayments. . . . . . . . . . . . . . . . . 17,504 10,191 TOTAL CURRENT ASSETS . . . . . . . . 286,640 285,236 REGULATORY ASSETS. . . . . . . . . . . . . . . 436,218 458,525 DEFERRED CHARGES . . . . . . . . . . . . . . . 45,414 32,364 TOTAL. . . . . . . . . . . . . . . $3,934,196 $3,928,337 See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - No Par Value: Authorized - 2,500,000 Shares Outstanding - 1,400,000 Shares . . . . . . . $ 56,584 $ 56,584 Paid-in Capital. . . . . . . . . . . . . . . . 731,160 731,102 Retained Earnings. . . . . . . . . . . . . . . 239,799 235,107 Total Common Shareholder's Equity. . . 1,027,543 1,022,793 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . 22,000 52,000 Subject to Mandatory Redemption. . . . . . . 135,000 135,000 Long-term Debt . . . . . . . . . . . . . . . . 1,035,002 1,034,048 TOTAL CAPITALIZATION . . . . . . . . . 2,219,545 2,243,841 OTHER NONCURRENT LIABILITIES: Nuclear Decommissioning. . . . . . . . . . . . 281,657 269,392 Other. . . . . . . . . . . . . . . . . . . . . 196,405 184,103 TOTAL OTHER NONCURRENT LIABILITIES . . 478,062 453,495 CURRENT LIABILITIES: Cumulative Preferred Stock Due Within One Year 30,000 - Long-term Debt Due Within One Year . . . . . . 40,000 6,053 Short-term Debt. . . . . . . . . . . . . . . . - 89,975 Accounts Payable . . . . . . . . . . . . . . . 44,715 60,706 Taxes Accrued. . . . . . . . . . . . . . . . . 101,348 71,696 Interest Accrued . . . . . . . . . . . . . . . 20,238 16,158 Rent Accrued - Rockport Plant Unit 2 . . . . . 23,427 4,963 Obligations Under Capital Leases . . . . . . . 38,018 31,776 Other. . . . . . . . . . . . . . . . . . . . . 68,737 69,500 TOTAL CURRENT LIABILITIES. . . . . . . 366,483 350,827 DEFERRED INCOME TAXES. . . . . . . . . . . . . . 602,976 612,147 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . 153,220 155,202 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . 98,906 99,832 DEFERRED CREDITS . . . . . . . . . . . . . . . . 15,004 12,993 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . $3,934,196 $3,928,337 See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . $ 35,767 $ 38,388 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . 36,813 36,878 Amortization of Incremental Nuclear Refueling Outage Expenses (net). . . . . . . . 3,724 8,353 Deferred Federal Income Taxes. . . . . . . . . . (6,607) (6,834) Deferred Investment Tax Credits. . . . . . . . . (1,982) (1,997) Deferred Property Taxes. . . . . . . . . . . . . (12,323) (12,440) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . (4,888) 5,056 Fuel, Materials and Supplies . . . . . . . . . . (647) 3,099 Accrued Utility Revenues . . . . . . . . . . . . 13,825 3,583 Prepayments. . . . . . . . . . . . . . . . . . . (7,313) (9,111) Accounts Payable . . . . . . . . . . . . . . . . (15,991) (26,272) Taxes Accrued. . . . . . . . . . . . . . . . . . 29,652 34,384 Rent Accrued - Rockport Plant Unit 2 . . . . . . 18,464 18,538 Other (net). . . . . . . . . . . . . . . . . . . . 20,352 6,026 Net Cash Flows From Operating Activities . . 108,846 97,651 INVESTING ACTIVITIES - Construction Expenditures . . (17,961) (25,897) FINANCING ACTIVITIES: Issuance of Long-term Debt . . . . . . . . . . . . 38,579 - Retirement of Long-term Debt . . . . . . . . . . . (6,091) - Change in Short-term Debt (net). . . . . . . . . . (89,975) (45,475) Dividends Paid on Common Stock . . . . . . . . . . (28,127) (27,713) Dividends Paid on Cumulative Preferred Stock . . . (2,890) (2,890) Net Cash Flows Used For Financing Activities (88,504) (76,078) Net Increase (Decrease) in Cash and Cash Equivalents 2,381 (4,324) Cash and Cash Equivalents at Beginning of Period . . 13,723 9,907 Cash and Cash Equivalents at End of Period . . . . . $ 16,104 $ 5,583 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $11,859,000 and $15,006,000 and for income taxes was $6,817,000 and $1,362,000 in 1996 and 1995, respectively. Noncash acquisitions under capital leases were $31,719,000 and $5,256,000 in 1996 and 1995, respectively. See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial statements should be read in conjunction with the 1995 Annual Report as incorporated in and filed with the Form 10-K. Certain prior-period amounts have been reclassified to conform to current-period presentation. Effective January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of" with no significant impact on the financial statements. 2. FINANCING ACTIVITIES In March 1996 the Company redeemed $6,053,000 of 7-1/4% Sinking Fund Debentures due 1998. Also in March 1996 $40 million of 8% Junior Subordinated Deferrable Interest Debentures due 2026 were issued. In April 1996 the Company redeemed 300,000 shares of 7.08% Cumulative Preferred Stock, par value $100, at $101.85. The Company called for redemption, in May and June 1996, $40 million of its 9.50% First Mortgage Bonds due 2021. Therefore the bonds were classified as a current liability on the balance sheet. 3. CONTINGENCIES On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued two Final Rules regarding open access transmission and stranded cost recovery in the wholesale market. In the open access final rule, all public utilities with transmission lines are required to file non-discriminatory open access tariffs that offer non-affiliated wholesale customers the same transmission service at the same terms and costs as they provide to themselves and their affiliates. The Company adopted an open access transmission tariff in 1995 under the provisions of a proposed FERC rule. The open access final rule also provides for the recovery of stranded costs from a utility's departing wholesale customers -- that is costs that were prudently incurred to serve departing wholesale customers and that would go unrecovered if these customers use open access to move to another supplier. The other final rule provides for the manner in which the open access rule will be administered. Management does not expect these final rules to adversely impact financial condition; however, management continues to review the voluminous document for its potential impact. The Company continues to be involved in certain other matters discussed in its 1995 Annual Report. INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1996 vs. FIRST QUARTER 1995 RESULTS OF OPERATIONS Net income decreased 7% or $2.6 million as a modest revenue increase was more than offset by increased operating expenses. Income statement line items which changed significantly were: Increase (Decrease) (in millions) % Operating Revenues. . . . . . . . . . . . $ 2.7 1 Fuel Expense. . . . . . . . . . . . . . . (2.7) (4) Purchased Power Expense . . . . . . . . . 7.0 25 Other Operation Expense . . . . . . . . . 5.2 7 Maintenance Expense . . . . . . . . . . . (6.0) (19) Federal Income Taxes. . . . . . . . . . . 1.8 11 Interest Charges. . . . . . . . . . . . . (1.4) (8) Operating revenues increased 1% as a 4% increase in retail sales was offset, in part, by a reduction in wholesale sales. The increase in retail sales and revenues was due primarily to increased demand by weather-sensitive residential customers reflecting colder winter weather and the addition of a major new industrial customer. The decrease in wholesale sales and revenues reflects reduced energy deliveries to the AEP System Power Pool (Power Pool) partially offset by increased sales to unaffiliated entities. Sales to the Company's municipal and cooperative customers and to unaffiliated utilities by the Power Pool which are shared by the Company increased largely due to the colder winter weather. The decline in fuel expense was attributable to an 8% reduction in fossil generation due to Rockport Plant Unit 2 being out-of-service for general boiler inspection and repairs from mid-March through the end of the quarter and slightly lower nuclear generation as Cook Plant Unit 2 began a scheduled refueling outage in late March. Purchased power expense increased primarily due to increased purchases from the Power Pool and the Ohio Valley Electric Corporation, an affiliated company which is not a member of the Power Pool. The increased purchases from the Power Pool were needed to replace the above noted unavailability of certain generating capacity. The increase in other operation expense reflects an increase in the comsumption of emission allowances, increased engineering and other professional services billed from AEP Service Corporation, and increased employee benefits. Maintenance expense decreased as a result of reductions in the number of employees and lower payments for contract labor at the Company's nuclear power plant. The increase in federal income taxes attributable to operations was due to changes in certain book/tax timing differences accounted for on a flow-through basis for ratemaking and financial reporting purposes. Interest charges decreased due to the refinancing of certain fixed rate long-term debt at lower variable interest rates. FINANCIAL CONDITION Total plant and property additions including capital leases for the first quarter were $50.6 million. During the first quarter the Company redeemed $6 million of Sinking Fund Debentures due 1998 and issued $40 million of 8% Junior Subordinated Debentures due 2026. The proceeds were used to reduce outstanding short-term debt, which declined $90 million from year-end levels. On April 1, 1996 the Company redeemed 300,000 shares of 7.08% Cumulative Preferred Stock, par value $100, at $101.85. On April 30, 1996, $40 million was deposited with a trustee under mortgage maintenance provisions for redemption in late May and early June of the 9.50% Series First Mortgage Bonds due 2021 which were called on April 23. NEW FERC RULES On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued two Final Rules regarding open access transmission and stranded cost recovery in the wholesale market. In the open access final rule, all public utilities with transmission lines are required to file non-discriminatory open access tariffs that offer non-affiliated wholesale customers the same transmission service at the same terms and costs as they provide to themselves and their affiliates. The Company adopted an open access transmission tariff in 1995 under the provisions of a proposed FERC rule. The open access final rule also provides for the recovery of stranded costs from a utility's wholesale departing customers -- that is costs that were prudently incurred to serve departing wholesale customers and that would go unrecovered if these customers use open access to move to another supplier. The other final rule provides for the manner in which the open access rule will be administered. Management does not expect these final rules to adversely impact financial condition; however, management continues to review the voluminous document for its potential impact. KENTUCKY POWER COMPANY STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING REVENUES . . . . . . . . . . . . . . . . . $88,589 $85,302 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . . . . . . 21,680 21,361 Purchased Power. . . . . . . . . . . . . . . . . . 22,519 22,290 Other Operation. . . . . . . . . . . . . . . . . . 12,356 10,293 Maintenance. . . . . . . . . . . . . . . . . . . . 7,720 7,151 Depreciation and Amortization. . . . . . . . . . . 6,254 6,032 Taxes Other Than Federal Income Taxes. . . . . . . 2,374 2,494 Federal Income Taxes . . . . . . . . . . . . . . . 2,528 2,038 TOTAL OPERATING EXPENSES . . . . . . . . . 75,431 71,659 OPERATING INCOME . . . . . . . . . . . . . . . . . . 13,158 13,643 NONOPERATING LOSS. . . . . . . . . . . . . . . . . . (334) (68) INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . 12,824 13,575 INTEREST CHARGES . . . . . . . . . . . . . . . . . . 6,068 5,760 NET INCOME . . . . . . . . . . . . . . . . . . . . . $ 6,756 $ 7,815
STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . $91,381 $89,173 NET INCOME . . . . . . . . . . . . . . . . . . . . . 6,756 7,815 CASH DIVIDENDS DECLARED. . . . . . . . . . . . . . . 6,066 5,730 BALANCE AT END OF PERIOD . . . . . . . . . . . . . . $92,071 $91,258 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Financial Statements. /TABLE KENTUCKY POWER COMPANY BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . $230,020 $230,054 Transmission . . . . . . . . . . . . . . . . 263,334 261,619 Distribution . . . . . . . . . . . . . . . . 313,817 313,783 General. . . . . . . . . . . . . . . . . . . 60,196 59,611 Construction Work in Progress. . . . . . . . 18,557 14,590 Total Electric Utility Plant . . . . 885,924 879,657 Accumulated Depreciation and Amortization. . 273,221 270,590 NET ELECTRIC UTILITY PLANT . . . . . 612,703 609,067 OTHER PROPERTY AND INVESTMENTS . . . . . . . . 6,415 6,438 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . 961 1,031 Accounts Receivable (net). . . . . . . . . . 32,125 29,913 Fuel . . . . . . . . . . . . . . . . . . . . 6,323 3,526 Materials and Supplies . . . . . . . . . . . 12,348 12,481 Accrued Utility Revenues . . . . . . . . . . 8,316 13,500 Prepayments. . . . . . . . . . . . . . . . . 1,205 1,701 TOTAL CURRENT ASSETS . . . . . . . . 61,278 62,152 REGULATORY ASSETS. . . . . . . . . . . . . . . 82,651 82,388 DEFERRED CHARGES . . . . . . . . . . . . . . . 10,009 12,153 TOTAL. . . . . . . . . . . . . . . $773,056 $772,198 See Notes to Financial Statements.
KENTUCKY POWER COMPANY BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - Par Value $50: Authorized - 2,000,000 Shares Outstanding - 1,009,000 Shares . . . . . . $ 50,450 $ 50,450 Paid-in Capital. . . . . . . . . . . . . . . 88,750 78,750 Retained Earnings. . . . . . . . . . . . . . 92,071 91,381 Total Common Shareholder's Equity. . 231,271 220,581 First Mortgage Bonds. . . . . . . . . . . . . 224,260 224,235 Subordinated Debentures . . . . . . . . . . . 38,864 38,854 TOTAL CAPITALIZATION . . . . . . . . 494,395 483,670 OTHER NONCURRENT LIABILITIES . . . . . . . . . 15,263 15,031 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . - 29,436 Short-term Debt. . . . . . . . . . . . . . . 48,250 27,050 Accounts Payable . . . . . . . . . . . . . . 19,664 21,766 Customer Deposits. . . . . . . . . . . . . . 3,592 3,704 Taxes Accrued. . . . . . . . . . . . . . . . 9,286 7,972 Interest Accrued . . . . . . . . . . . . . . 5,824 5,853 Other. . . . . . . . . . . . . . . . . . . . 10,326 13,283 TOTAL CURRENT LIABILITIES. . . . . . 96,942 109,064 DEFERRED INCOME TAXES. . . . . . . . . . . . . 145,589 145,005 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . 18,086 18,397 DEFERRED CREDITS . . . . . . . . . . . . . . . 2,781 1,031 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . $773,056 $772,198 See Notes to Financial Statements.
KENTUCKY POWER COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . $ 6,756 $ 7,815 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . 6,273 6,051 Deferred Federal Income Taxes. . . . . . . . . . (148) (997) Deferred Investment Tax Credits. . . . . . . . . (311) (314) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . (2,212) (5,123) Fuel, Materials and Supplies . . . . . . . . . . (2,664) (1,819) Accrued Utility Revenues . . . . . . . . . . . . 5,184 4,322 Accounts Payable . . . . . . . . . . . . . . . . (2,102) (3,048) Taxes Accrued. . . . . . . . . . . . . . . . . . 1,314 2,802 Other (net). . . . . . . . . . . . . . . . . . . . 506 155 Net Cash Flows From Operating Activities . . 12,596 9,844 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . (8,614) (7,637) Proceeds from Sales of Property. . . . . . . . . . 250 - Net Cash Flows Used For Investing Activities (8,364) (7,637) FINANCING ACTIVITIES: Capital Contributions from Parent Company. . . . . 10,000 - Change in Short-term Debt (net). . . . . . . . . . 21,200 3,700 Retirement of Long-term Debt . . . . . . . . . . . (29,436) - Dividends Paid . . . . . . . . . . . . . . . . . . (6,066) (5,730) Net Cash Flows Used For Financing Activities (4,302) (2,030) Net Increase (Decrease) in Cash and Cash Equivalents (70) 177 Cash and Cash Equivalents at Beginning of Period . . 1,031 879 Cash and Cash Equivalents at End of Period . . . . . $ 961 $ 1,056 Supplemental Disclosure: Cash paid (received) for interest net of capitalized amounts was $6,028,000 and $6,119,000 and for income taxes was $1,152,000 and $(108,000) in 1996 and 1995, respectively. Noncash acquisitions under capital leases were $1,054,000 and $1,034,000 in 1996 and 1995, respectively. See Notes to Financial Statements.
KENTUCKY POWER COMPANY NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) 1. GENERAL The accompanying unaudited financial statements should be read in conjunction with the 1995 Annual Report as incorporated in and filed with the Form 10-K. Effective January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of" with no significant impact on the financial statements. 2. FINANCING ACTIVITIES The Company received from its parent a cash capital contribution of $10 million in March 1996 which was credited to paid-in capital. In April 1996 the Company refinanced $45 million of 7-7/8% first mortgage bonds due in 2002 with the proceeds of two $25 million term loan agreements due in 1999 and 2000 at 6.42% and 6.57% annual interest rates, respectively. Therefore the first mortgage bonds are classified as long-term debt on the balance sheet. The redemption of this series of first mortgage bonds removed the restriction on the use of retained earnings for common stock dividends. 3. CONTINGENCIES On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued two Final Rules regarding open access transmission and stranded cost recovery in the wholesale market. In the open access final rule, all public utilities with transmission lines are required to file non-discriminatory open access tariffs that offer non-affiliated wholesale customers the same transmission service at the same terms and costs as they provide to themselves and their affiliates. The Company adopted an open access transmission tariff in 1995 under the provisions of a proposed FERC rule. The open access final rule also provides for the recovery of stranded costs from a utility's departing wholesale customers -- that is costs that were prudently incurred to serve departing wholesale customers and that would go unrecovered if these customers use open access to move to another supplier. The other final rule provides for the manner in which the open access rule will be administered. Management does not expect these final rules to adversely impact financial condition; however, management continues to review the voluminous document for its potential impact. The Company continues to be involved in certain other matters discussed in its 1995 Annual Report. KENTUCKY POWER COMPANY MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS FIRST QUARTER 1996 vs. FIRST QUARTER 1995 Although operating revenues increased $3.3 million or 3.9%, net income decreased $1.1 million or 14% from the prior period. The decrease in net income was attributable to an increase in operation and maintenance expenses, a write-down of certain demand side management program equipment to estimated market value and higher interest charges from additional long-term borrowings. Income statement lines which changed significantly were: Increase (in millions) % Operating Revenues. . . . . . . . . . . $3.3 3.9 Other Operation Expense . . . . . . . . 2.1 20.0 Maintenance Expense . . . . . . . . . . 0.6 8.0 Federal Income Taxes. . . . . . . . . . 0.5 24.0 Interest Charges. . . . . . . . . . . . 0.3 5.3 The increase in operating revenues was due to increased energy sales to retail and wholesale customers, transmission service revenues and the recovery of demand side management costs from retail customers. Retail sales rose as a result of colder winter weather in the first quarter of 1996 and growth in the number of residential and commercial customers which led to a 12% and 8% increase in residential and commercial energy sales, respectively. Wholesale energy sales rose mainly due to an increase in energy sales by the AEP System Power Pool reflecting increased weather-related energy demand of unaffiliated utilities in the first quarter. Transmission services provided to an unaffiliated utility under a one year contract that began in January 1996 and open access transmission services to other unaffiliated utilities accounted for an increase in transmission service revenues. Other operation expense increased mainly due to increased accruals for incentive pay, demand side management program expenses and increased AEP Service Corporation billings for engineering and other professional services. The increase in maintenance expense reflects an increased level of scheduled steam plant maintenance at the Company's Big Sandy Plant. The increase in federal income tax expense was primarily due to changes in certain book/tax differences accounted for on a flow-through basis for ratemaking and financial reporting purposes. The issuance of $40 million of Junior Subordinated Debentures in April 1995 was the main reason for the increase in interest charges. OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . $504,741 $416,827 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,326 131,678 Purchased Power. . . . . . . . . . . . . . . . . . . . . . . 15,065 20,242 Other Operation. . . . . . . . . . . . . . . . . . . . . . . 82,891 59,700 Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . 29,067 34,898 Depreciation and Amortization. . . . . . . . . . . . . . . . 34,274 33,890 Taxes Other Than Federal Income Taxes. . . . . . . . . . . . 42,203 45,337 Federal Income Taxes . . . . . . . . . . . . . . . . . . . . 35,071 23,753 TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . 416,897 349,498 OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . 87,844 67,329 NONOPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 2,134 3,707 INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . . . 89,978 71,036 INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . 23,442 23,294 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 66,536 47,742 PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . . . . . . . 2,240 3,825 EARNINGS APPLICABLE TO COMMON STOCK. . . . . . . . . . . . . . $ 64,296 $ 43,917
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . $518,029 $483,222 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 66,536 47,742 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . . . . . . . . . . . . 35,714 34,857 Cumulative Preferred Stock . . . . . . . . . . . . . . . . 2,194 3,825 Capital Stock Expense. . . . . . . . . . . . . . . . . . . . 46 34 BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $546,611 $492,248 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $2,536,475 $2,534,893 Transmission . . . . . . . . . . . . . . . . . . . . 800,642 798,854 Distribution . . . . . . . . . . . . . . . . . . . . 833,848 833,944 General (including mining assets). . . . . . . . . . 693,778 688,253 Construction Work in Progress. . . . . . . . . . . . 69,123 59,278 Total Electric Utility Plant . . . . . . . . 4,933,866 4,915,222 Accumulated Depreciation and Amortization. . . . . . 2,130,168 2,091,148 NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,803,698 2,824,074 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 108,345 107,510 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 56,379 44,000 Accounts Receivable (net). . . . . . . . . . . . . . 216,522 199,293 Fuel . . . . . . . . . . . . . . . . . . . . . . . . 109,833 126,952 Materials and Supplies . . . . . . . . . . . . . . . 78,265 80,468 Accrued Utility Revenues . . . . . . . . . . . . . . 34,489 40,100 Prepayments. . . . . . . . . . . . . . . . . . . . . 63,111 42,286 TOTAL CURRENT ASSETS . . . . . . . . . . . . 558,599 533,099 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 556,620 562,329 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 106,878 129,552 TOTAL. . . . . . . . . . . . . . . . . . . $4,134,140 $4,156,564 See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - No Par Value: Authorized - 40,000,000 Shares Outstanding - 27,952,473 Shares. . . . . . . . . . $ 321,201 $ 321,201 Paid-in Capital. . . . . . . . . . . . . . . . . . . 459,520 459,474 Retained Earnings. . . . . . . . . . . . . . . . . . 546,611 518,029 Total Common Shareholder's Equity. . . . . . 1,327,332 1,298,704 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . . . 41,240 41,240 Subject to Mandatory Redemption. . . . . . . . . . 115,000 115,000 Long-term Debt . . . . . . . . . . . . . . . . . . . 1,055,530 1,138,425 TOTAL CAPITALIZATION . . . . . . . . . . . . 2,539,102 2,593,369 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 223,012 214,726 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . . . 83,505 89,207 Short-term Debt. . . . . . . . . . . . . . . . . . . 48,401 9,400 Accounts Payable . . . . . . . . . . . . . . . . . . 84,491 102,580 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 158,865 161,430 Interest Accrued . . . . . . . . . . . . . . . . . . 30,216 20,807 Obligations Under Capital Leases . . . . . . . . . . 25,030 25,172 Other. . . . . . . . . . . . . . . . . . . . . . . . 78,245 80,507 TOTAL CURRENT LIABILITIES. . . . . . . . . . 508,753 489,103 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 727,902 731,959 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 49,013 49,860 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 86,358 77,547 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $4,134,140 $4,156,564 See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 66,536 $ 47,742 Adjustments for Noncash Items: Depreciation, Depletion and Amortization . . . . . . . . 41,119 37,448 Deferred Federal Income Taxes. . . . . . . . . . . . . . 245 5,620 Deferred Fuel Costs (net). . . . . . . . . . . . . . . . (2,754) (2,871) Amortization of Deferred Property Taxes. . . . . . . . . 19,656 18,969 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (17,229) 4,680 Fuel, Materials and Supplies . . . . . . . . . . . . . . 19,322 (19,118) Accrued Utility Revenues . . . . . . . . . . . . . . . . 5,611 5,262 Prepayments. . . . . . . . . . . . . . . . . . . . . . . (20,825) (21,770) Accounts Payable . . . . . . . . . . . . . . . . . . . . (18,089) (25,956) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (2,565) (17,416) Interest Accrued . . . . . . . . . . . . . . . . . . . . 9,409 8,040 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 15,455 18,105 Net Cash Flows From Operating Activities . . . . . . 115,891 58,735 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (19,903) (28,825) Proceeds from Sale of Property and Other . . . . . . . . . 4,177 1,305 Net Cash Flows Used For Investing Activities . . . . (15,726) (27,520) FINANCING ACTIVITIES: Change in Short-term Debt (net). . . . . . . . . . . . . . 39,001 1,140 Retirement of Long-term Debt . . . . . . . . . . . . . . . (88,879) - Dividends Paid on Common Stock . . . . . . . . . . . . . . (35,714) (34,857) Dividends Paid on Cumulative Preferred Stock . . . . . . . (2,194) (3,825) Net Cash Flows Used For Financing Activities . . . . (87,786) (37,542) Net Increase (Decrease) in Cash and Cash Equivalents . . . . 12,379 (6,327) Cash and Cash Equivalents at Beginning of Period . . . . . . 44,000 30,700 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 56,379 $ 24,373 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $13,325,000 and $14,585,000 and for income taxes was $2,599,000 and $985,000 in 1996 and 1995, respectively. Noncash acquisitions under capital leases were $8,933,000 and $8,990,000 in 1996 and 1995, respectively. See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial statements should be read in conjunction with the 1995 Annual Report as incorporated in and filed with the Form 10-K. Effective January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of" with no significant impact on the financial statements. 2. FINANCING ACTIVITY In January 1996, the Company and a subsidiary retired three series of long-term debt at maturity: $8 million of 5-1/8% Series Sinking Fund Debentures, $39 million of 5% Series First Mortgage Bonds and $8 million of 5.79% Notes Payable. In March 1996, the Company retired the entire outstanding balances of three series of long-term debt before maturity: $24 million of 7-3/4% Series First Mortgage Bonds due in 2002, $5 million of 7-7/8% Series Sinking Fund Debentures due in 1999 and $4 million of 6-5/8% Series Sinking Fund Debentures due in 1997. In April 1996, the Company retired the entire $17 million outstanding balance of 7-5/8% Series First Mortgage Bonds due in 2002. 3. CONTINGENCIES On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued two Final Rules regarding open access transmission and stranded cost recovery in the wholesale market. In the open access final rule, all public utilities with transmission lines are required to file non-discriminatory open access tariffs that offer non-affiliated wholesale customers the same transmission service at the same terms and costs as they provide to themselves and their affiliates. The Company adopted an open access transmission tariff in 1995 under the provisions of a proposed FERC rule. The open access final rule also provides for the recovery of stranded costs from a utility's departing wholesale customers -- that is costs that were prudently incurred to serve departing wholesale customers and that would go unrecovered if these customers use open access to move to another supplier. The other final rule provides for the manner in which the open access rule will be administered. Management does not expect these final rules to adversely impact financial condition; however, management continues to review the voluminous document for its potential impact. The Company continues to be involved in certain other matters discussed in the 1995 Annual Report. OHIO POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1996 vs. FIRST QUARTER 1995 RESULTS OF OPERATIONS Net income increased 39% or $18.8 million primarily due to a 37% increase in energy sales mainly as a result of colder weather in 1996. Income statement lines which changed significantly were: Increase (Decrease) (in millions) % Operating Revenues. . . . . . . . . . . $87.9 21 Fuel Expense. . . . . . . . . . . . . . 46.6 35 Purchased Power Expense . . . . . . . . (5.2) (26) Other Operation Expense . . . . . . . . 23.2 39 Maintenance Expense . . . . . . . . . . (5.8) (17) Taxes Other Than Federal Income Taxes . (3.1) (7) Federal Income Taxes. . . . . . . . . . 11.3 48 The significant increase in operating revenues was largely attributable to increased energy sales and a retail rate increase. Sales volume to wholesale customers is up 156% primarily due to an increase in energy supplied to the AEP System Power Pool (Power Pool) as a result of increased weather-related demand of affiliated members of the Power Pool and the increased availability in 1996 of the Company's two Gavin Plant generating units. The Gavin units had been out-of-service for extended periods during the first three months of 1995 for installation of flue gas desulfurization systems (scrubbers) and maintenance. Wholesale energy sales by the Power Pool to unaffiliated utilities increased in 1996 as a result of the colder weather. Retail revenues rose 12% during the first quarter of 1996 as a result of a March 1995 retail base rate increase, an 8% increase in energy sales to weather sensitive residential customers, and a 6% and 1% increase in energy sales to commercial and industrial customers, respectively, largely due to increased usage. In 1996 there was a slight increase in number of residential customers and a 2% increase in commercial customers. The substantial increase in fuel expense was due to increased generation resulting from the higher demand for energy and availability of the Gavin Plant units in 1996. The decline in purchased power expense reflects the increased availability of the Company's generating plants in 1996. Other operation expense rose in 1996 primarily due to rent and other operating costs of the recently installed Gavin Plant scrubbers and the amortization of previously deferred Gavin expenses. In 1995, the Public Utilities Commission of Ohio (PUCO) approved the deferral of the Ohio retail jurisdictional share of the Gavin Plant's scrubber rent for future recovery. In March 1995, the PUCO approved recovery of current and deferred rent expense and authorized the amortization of the previously deferred Gavin expenses over four years. The decline in maintenance expense was due to decreased boiler plant maintenance during the first quarter of 1996 largely as a result of maintenance on the two Gavin units in 1995. Taxes other than federal income taxes also decreased in 1996 mainly due to a new Ohio excise tax credit based on the consumption of Ohio-mined coal at the Company's Ohio generating plants and a decrease in the West Virginia business and occupation tax. The West Virginia tax which was based on West Virginia generation during the first quarter of 1995 was changed in June 1995 to a West Virginia generating capacity basis so that the tax would be more constant in each comparable period. As a result of extensive use of West Virginia generation in 1995, primarily due to outages at the Gavin Plant, the generation based tax produced a higher tax obligation in 1995 than the capacity based tax in 1996. The increase in federal income tax expense attributable to operations was primarily due to an increase in pre-tax operating income. FINANCIAL CONDITION Total plant and property additions including capital leases for the current period were $29 million. During the first quarter of 1996, the Company and a subsidiary retired $88 million principal amount of long-term debt with interest rates ranging from 5% to 7-7/8% and increased short-term debt by $39 million. In April 1996, the Company retired the entire $17 million outstanding balance of 7-5/8% Series First Mortgage Bonds due in 2002. NEW FERC RULES On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued two Final Rules regarding open access transmission and stranded cost recovery in the wholesale market. In the open access final rule, all public utilities with transmission lines are required to file non- discriminatory open access tariffs that offer non-affiliated wholesale customers the same transmission service at the same terms and costs as they provide to themselves and their affiliates. The Company adopted an open access transmission tariff in 1995 under the provisions of a proposed FERC rule. The open access final rule also provides for the recovery of stranded costs from a utility's departing wholesale customers -- that is costs that were prudently incurred to serve departing wholesale customers and that would go unrecovered if these customers use open access to move to another supplier. The other final rule provides for the manner in which the open access rule will be administered. Management does not expect these final rules to adversely impact financial condition; however, management continues to review the voluminous document for its potential impact. PART II. OTHER INFORMATION Item 1. Legal Proceedings. American Electric Power Company, Inc. ("AEP") and Ohio Power Company ("OPCo") Reference is made to pages 33 and 34 of the Annual Report on Form 10-K for the year ended December 31, 1995 ("1995 10-K") for a discussion of litigation regarding the Meigs 31 mine and the settlement thereof. On March 22, 1996, the U.S. District Court for the Southern District of Ohio issued an order approving the consent decree. Reference is made to pages 25, 26 and 34 of the 1995 10-K for a discussion of proceedings instituted by the U.S. Environmental Protection Agency ("Federal EPA") alleging that OPCo's Kammer Plant has been operating in violation of applicable federally enforceable air pollution control requirements for sulfur dioxide since January 1, 1989. OPCo has entered into a consent decree with Federal EPA which was lodged with the U.S. District Court for the Northern District of West Virginia on April 8, 1996 and noticed in the Federal Register on April 12, 1996. The consent decree resolves all disputes between OPCo and Federal EPA with respect to the pending enforcement action without any admission of liability on the part of OPCo. Under the terms of the consent decree, OPCo has agreed to pay a civil penalty of $200,000 and to install low NOx burner technology at two of the generating units at Philip Sporn Plant in New Haven, West Virginia two years earlier than required by the Clean Air Act. The decree extends the deadline for compliance with the federally approved SO2 limit until at least early 1999. The deadline is subject to further extension should OPCo be successful in demonstrating that the burning of high sulfur coal at Kammer Plant is appropriate under the Clean Air Act. The deadline is also subject to acceleration if it is determined that OPCo is responsible for delays in submission of the revised SO2 State Implementation Plan for Marshall County, West Virginia. Item 5. Other Information. AEP, AEP Generating Company ("AEGCo"), Appalachian Power Company ("APCo"), Columbus Southern Power Company ("CSPCo"), Indiana Michigan Power Company ("I&M"), Kentucky Power Company ("KEPCo") and OPCo Reference is made to page 6 of the 1995 10-K for a discussion of the Federal Energy Regulatory Commission's ("FERC") Notice of Proposed Rulemaking ("Mega-NOPR"). The Mega-NOPR proposed to require each public utility that owns or controls interstate transmission facilities to file open access network and point-to- point transmission tariffs that offer services comparable to the utility's own uses of its transmission system. The Mega-NOPR also proposed to require utilities to functionally unbundle their services, by requiring them to use their own tariffs in making off-system and third-party sales. As part of the proposed rule, the FERC issued recommended pro-forma tariffs which reflected the Commission's preliminary views on the minimum non-price terms and conditions for non-discriminatory transmission service. The Mega-NOPR also proposed to allow a utility to seek recovery of certain prudently-incurred stranded costs that result from unbundled transmission service. On April 24, 1996, the FERC issued Final Rules (Orders 888 and 889) adopting, with some minor changes, the proposals for open access transmission and stranded cost recovery that it made in the Mega-NOPR. In addition to requiring all utilities subject to its regulation to file open-access tariffs (which are now unified in a single point-to-point and network tariff), the new rules require establishment of an Open Access Same-time Information System ("OASIS")- an electronic bulletin board-type system in which the transmission provider must post information regarding available transmission capacity, prices and other pertinent transmission information. The rules also establish Standards of Conduct, which require a separation of a transmitting utility's employees involved in transmission functions from its merchant employees (those involved in selling power). The transmission employees may not extend any undue preference to the utility's merchant employees, and the merchant employees are restricted from obtaining any information regarding transmission that is not publicly available. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: OPCo Exhibit 10 - Amendment No. 7, dated January 1, 1995, to Station Agreement dated January 1, 1968, among OPCo, Buckeye Power, Inc. and Cardinal Operating Company. APCo, CSPCo, I&M, KEPCo and OPCo Exhibit 12 - Statement re: Computation of Ratios. AEP, AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo Exhibit 27 - Financial Data Schedule. II-2 (b) Reports on Form 8-K: Company Reporting Date of Report Items Reported APCo March 19, 1996 Item 5. Other Events Item 7. Financial Statements and Ex- hibits AEP, AEGCo, CSPCo, I&M, KEPCo and OPCo No reports on Form 8-K were filed during the quarter ended March 31, 1996. II-3 In the opinion of the companies, the financial statements contained herein reflect all adjustments (consisting of only normal recurring accruals) which are necessary to a fair presentation of the results of operations for the interim periods. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signatures for each undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. AMERICAN ELECTRIC POWER COMPANY, INC. G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Controller and Secretary AEP GENERATING COMPANY G.P. Maloney P.J. DeMaria G.P.Maloney, Vice President P.J. DeMaria, Vice President and Controller APPALACHIAN POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller COLUMBUS SOUTHERN POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller INDIANA MICHIGAN POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller KENTUCKY POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller OHIO POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller Date: May 13, 1996 II-4 EX-27 2 ARTICLE UT FIN. DATA SCH. FOR 10-Q
UT 0000004904 AMERICAN ELECTRIC POWER COMPANY, INC. 1,000 3-MOS DEC-31-1995 MAR-31-1996 PER-BOOK 11,356,110 838,245 1,543,838 298,978 1,948,635 15,985,806 1,273,845 1,671,237 1,477,852 4,422,934 515,085 118,240 4,811,799 91,100 0 74,076 338,317 30,150 327,214 98,568 5,158,323 15,985,806 1,517,781 103,965 1,121,694 1,225,659 292,122 (1,127) 290,995 100,025 180,012 10,958 180,012 111,983 66,952 413,175 $0.96 $0.96 Represents preferred stock dividend requirements of subsidiaries; deducted before computation of net income.
-----END PRIVACY-ENHANCED MESSAGE-----